Corporations Keyed to Klein
Reliance Elec. Co. v. Emerson Elec. Co
Respondent bought 13.2% of Dodge’s shares for the purpose of taking over Dodge. Dodge shareholders decided to merge with Petitioner instead. Respondent had little use for maintaining 13.2% of the ownership of a competitor, and therefore decided to sell the shares. Under Section:16(b), a party that owns more than 10% of the shares of a company will have to forfeit any profits of a sale of the stock to the parent company if the sale is within 6 months of the purchase. The shares at issue were worth more due to the merger, so the profits were a considerable amount. Respondent’s attorney recommended that the company sell just enough shares to get under a 10% ownership, and then make a second sale of the remaining shares to avoid liability. The district court held that Respondent was liable for the profits on both sales because the split of the sale was done solely for the purpose of avoiding the Section:16(b) liability. The Appellate court reversed the decision regarding the second sale because the intent of the selling party should not matter as long as they are following the statute.
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