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United States District Court, Northern District of Illinois, E.D

September 30, 1982


The opinion of the court was delivered by: Shadur, District Judge.


Brunswick Corporation ("Brunswick") stockholder David Colan ("Colan") sues Brunswick and Gulf & Western Industries, Inc. ("Gulf & Western") in a stockholder derivative action under Securities Exchange Act of 1934 § 16(b), 15 U.S.C. § 78p(b). Because it claims it derived no short-swing profits from its sale of the Brunswick common stock referred to in the Complaint, Gulf & Western has moved for summary judgment. For the reasons sketched out briefly below — but at greater length in the persuasive memorandum submitted by Gulf & Western — the motion is granted.


Gulf & Western was, during the relevant six-month period, the holder of over 10% of Brunswick's common stock. Part of those holdings were 110,000 shares acquired through open market purchases September 3, 4 and 8, 1981. On February 25, 1982 Gulf & Western tendered its more than 3 million Brunswick shares (including the 110,000 shares in issue) to American Home Products Corporation ("American Home") in response to American Home's "friendly" tender offer for Brunswick stock.

Gulf & Western's tender was of course made in accordance with the terms of American Home's offer and applicable federal law. Both the offer and the federal securities law (17 C.F.R. § 240.14d-7) gave Gulf & Western the right to withdraw its shares after tender — in this case, until midnight (New York City time) March 8.*fn2 Thus American Home could not purchase any tendered shares until March 9.

Moreover, the tender offer itself permitted American Home to terminate its offer if:

  consummation of the Offer shall be restrained or
  enjoined or the Purchaser [American Home] shall
  be restrained or enjoined from acquiring, or the
  Company [Brunswick] shall be restrained or
  enjoined from transferring to the Purchaser, the
  Medical Group [of Brunswick]. . . .

That provision was not mere boilerplate. There was a very real possibility American Home would be enjoined or otherwise prevented from buying Brunswick's shares. Rival suitor Whittaker Corporation ("Whittaker") had begun the bidding with its own January 26 tender offer for over 10 million Brunswick shares. American Home entered the picture as a "white knight" located by Brunswick's investment bankers to counter Whittaker's hostile tender. Then a power struggle ensued.

As a rejected suitor, Whittaker filed suit in this District Court. From February 8 to February 22 Judge Flaum (to whom the case was assigned) conducted an evidentiary hearing to resolve the Whittaker-Brunswick disputes. On February 25 Judge Flaum refused to issue a preliminary injunction against American Home's tender offer. Next day Whittaker filed an emergency appeal. On March 5 the Court of Appeals affirmed Judge Flaum, and on March 8 Whittaker announced it would not continue litigation to thwart the American Home tender offer. That brief but intense court battle was marked by major expenditures of time and energy by some of the country's largest law firms on each side, with the outcome not certain to the very end.

Throughout the February 25 — March 9 period Gulf & Western retained its contractual right to withdraw its shares.*fn3 On March 9 its commitment to the tender became firm, and a pro rata portion of its shares (something under 2 million) was purchased by American Home.*fn4


Whether or not Gulf & Western's profit realized on its sale of the 110,000 shares to American Home was short-swing — and thus repayable to Brunswick under Section 16(b) — depends on the date of that sale. If the critical date were that of the February 25 tender, the sale took place within the statute's six-month period (within six months of September 3, 4 and 8). But if the determinative date were March 9, when American Home was first able to and did purchase the shares, the transaction would be outside Section 16(b)'s six-month period. Gulf & Western would not be liable to Brunswick.*fn5

Logic and law compel the latter result. Portnoy v. Revlon, Inc., 650 F.2d 895, 898 (7th Cir. 1981) teaches that under Section 16(b) the date of sale is the date on which the selling shareholder:

  became so irrevocably bound to dispose of his
  securities so that his rights and obligations
  became fixed and the opportunity for speculative
  abuse was removed.

Application of Portnoy to this case is easy. On the undisputed facts Gulf & Western could have withdrawn its tender until midnight March 8.*fn6 Only thereafter — on March 9 — could American Home exercise its right to purchase. That alone means no Section 16(b) "sale" occurred until March 9, for only then did the parties' "rights and obligations bec[o]me fixed." And American Home's potential right to pull back its offer under conditions that did not become definitively eliminated until March 8, when Whittaker chose to throw in the towel because of an adverse litigation result, simply buttresses this conclusion.


There is no genuine issue of material fact. No "sale" within Section 16(b) took place until March 9. Gulf & Western is not liable to Brunswick for the profit realized on the 110,000 shares*fn7 and is therefore entitled to a judgment as a matter of law. Its motion for summary judgment is granted. Because (as is typical in stockholder derivative suits) no relief is sought against co-defendant Brunswick, this action is dismissed in its entirety.

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