United States District Court, Northern District of Illinois, E.D
September 30, 1982
DAVID COLAN, PLAINTIFF,
BRUNSWICK CORPORATION, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
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
DATE OF THE "SALE" FOR SECTION 16(b) PURPOSES
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
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.