Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Portnoy v. Revlon Inc.

decided: June 3, 1981.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 78 C 4980 -- Prentice J. Marshall, Judge .

Before Fairchild, Chief Circuit Judge, PECK, Senior Circuit Judge,*fn* and Sprecher, Circuit Judge.

Author: Sprecher

This case presents the question of whether there was a "sale" of stock within the meaning of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b),*fn1 upon the execution of a formal merger agreement that contained several material conditions precedent to closing. Plaintiff, Leo P. Portnoy, brought this action under § 16(b) on behalf of Revlon, Inc. ("Revlon"),*fn2 the surviving corporation in the merger of Revlon and Barnes-Hind Pharmaceuticals, Inc. ("Barnes-Hind"), against Cooper Laboratories, Inc. ("Cooper") to recover alleged shortswing profits realized by Cooper upon the purchase and exchange of Barnes-Hind stock during 1976. The district court granted summary judgment for Cooper and dismissed Portnoy's complaint. Portnoy appealed. We affirm.


Cooper is a manufacturer of pharmaceuticals and related products. Barnes-Hind was a competitor of Cooper's in the pharmaceutical industry and produced products complementary to Cooper's.*fn3 Beginning in 1972, Cooper invested in the common stock of Barnes-Hind. Beginning in 1973, the managements of Cooper and Barnes-Hind met to explore the possibility of a business combination. As early as 1974, Barnes-Hind concluded that a combination with Cooper would not be in the best interests of Barnes-Hind or its shareholders. Cooper, however, continued to purchase Barnes-Hind common stock and by February 27, 1976, had acquired more than 10% of Barnes-Hind's shares.

On March 15, 1976, the Board of Directors of Barnes-Hind directed its Chairman and President "to undertake those actions which will enable the company to resist acquisition attempts, proxy contests or tender offers which may be made by Cooper " Board Minutes, March 15, 1976. Barnes-Hind engaged Skinner & Co. to manage "proxy contests and/or defensive measures to counter incipient adverse takeover attempts," and also retained Merrill Lynch, Pierce, Fenner & Smith to locate an alternative merger candidate. Board Minutes, March 15, 1976. Shortly thereafter, Barnes-Hind arranged a defensive combination with Syntex Corporation ("Syntex") and, in April, 1976, entered into an agreement that Syntex would acquire the outstanding shares of Barnes-Hind in exchange for Syntex stock. Cooper publicly opposed the Syntex merger and continued to purchase Barnes-Hind stock. During May, 1976, Cooper purchased 88,000 shares of Barnes-Hind common stock for $4,253,282.

On May 26, 1976, Barnes-Hind sued Cooper in federal court to enjoin Cooper from making any further purchases of Barnes-Hind stock, alleging, inter alia, that Cooper was engaged in a creeping tender offer. After Barnes-Hind's application for a temporary restraining order was denied, Barnes-Hind abandoned its effort to merge with Syntex. Shortly thereafter, Barnes-Hind commenced merger discussions with Revlon.

On June 11, 1976, Barnes-Hind and Revlon executed a letter of intent to merge ("Letter of Intent"). The Letter of Intent set forth the outlines of the proposed merger and the prerequisites to the execution of a formal merger agreement. The Letter of Intent stated that it "is only a statement of intent and does not constitute the contractual commitment of the parties " Cooper agreed to support the Revlon merger.

On July 29, 1976, Barnes-Hind and Revlon executed a Plan of Reorganization and Agreement of Merger ("Merger Agreement") under which each party's obligation to consummate the merger was subject to several conditions precedent. After the conditions were satisfied, the merger was closed and shares exchanged on December 31, 1976. At the closing, Cooper and Barnes-Hind executed a Mutual General Release of all potential claims against each other arising up to the date of the release, December 31, 1976. Cooper's exchange of its Barnes-Hind stock for Revlon stock resulted in a profit of $1,555,000 with respect to the 88,000 shares purchased during May.

On August 28, 1978, Portnoy purchased a single share of Revlon stock. After requesting Revlon to sue Cooper for recovery of the alleged short-swing profits and receiving Revlon's refusal to do so, Portnoy filed this suit on December 15, 1978 on behalf of Revlon and Revlon shareholders as successors-in-interest to Barnes-Hind. Summary judgment was entered dismissing Portnoy's complaint on August 27, 1980.


The district court's Memorandum Order asserts two grounds for dismissing the suit. The court held first that neither the June 11 Letter of Intent nor the July 29 Merger Agreement constituted a "sale" of stock for purposes of § 16(b). Rather, Cooper's "sale" of stock occurred at the closing on December 31, 1976. Since Cooper's last purchase of Barnes-Hind stock occurred in May, there was no purchase and sale within the required six month period under § 16(b). As an alternative ground for dismissal, the court held that Cooper's exchange of stock pursuant to the defensive Revlon merger was an "unorthodox transaction" with no possibility of speculative insider abuse and, thus, was exempted from § 16(b) coverage by the Supreme Court's holding in Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 93 S. Ct. 1736, 36 L. Ed. 2d 503 (1973). We affirm the district court's grant of summary judgment on the first ground. Consequently, we need not, and do not, reach the court's second ground or the alternative grounds urged by Cooper.*fn4

Section 16(b) of the Securities Exchange Act of 1934 prohibits a purchase and sale or sale and purchase of an issuer's stock by officers, directors, or beneficial owners of more than 10% of any class of securities of the issuer within any period of less than six months. The issuer, or one suing on behalf of the issuer, may recover from the insider any profit derived from the short-swing transaction. It is uncontested that prior to Cooper's May purchases of Barnes-Hind stock, Cooper already held more than 10% of Barnes-Hind's stock. The critical question in this case is whether there was a sale of securities within six months of the May purchases. The closing at which Cooper physically exchanged its Barnes-Hind stock for Revlon stock occurred on December 31, 1976, well beyond six months after the most recent purchase, and, consequently, beyond the scope of § 16(b)"s reach. Thus, for Portnoy to establish a short-swing profit by Cooper in violation of § 16(b), he must prove that either the June 11 Letter of Intent or the July 29 Merger Agreement constituted a "sale" of Cooper's Barnes-Hind stock.

Portnoy argues that either agreement can be interpreted as irrevocably binding Cooper to exchange its Barnes-Hind stock for Revlon stock. According to Portnoy, since Cooper pledged its stock in support of the Revlon merger, and since the conditions precedent to closing the transaction were beyond the control of Cooper and required no more actions by Cooper, this Court should hold that, for purposes of § 16(b), Cooper "sold" its Barnes-Hind stock no later than July 29, 1976, thus well within six months of the May ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.