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Business Associations Keyed to Coffee, 9th Ed.
Reliance Electric Co. v. Emerson Electric Co.
Citation:
404 U.S. 418, 92 S. Ct. 596, 30 L.Ed.2d 575 (1972)Facts
In June 1967, Emerson Electric Co. acquired 13.2% of Dodge Manufacturing Co.’s outstanding common stock at $63 per share through a tender offer in an unsuccessful takeover attempt. Shortly thereafter, Dodge shareholders approved a merger with Reliance Electric Co. Facing the failure of its takeover bid, Emerson, following advice from its general counsel, implemented a two-step sales strategy to minimize Section 16(b) liability. On August 28, 1967, Emerson sold enough shares to reduce its holdings to 9.96%, just below the 10% threshold. Two weeks later, on September 11, Emerson sold its remaining shares. Both sales occurred within six months of the original purchase and generated substantial profits. Reliance demanded disgorgement of all profits from both sales under Section 16(b). The District Court found that Emerson had deliberately structured the sales to avoid Section 16(b) liability and held it liable for all profits. The Court of Appeals reversed as to the second sale, holding that the statutory language exempted the second transaction since Emerson was no longer a 10% owner at that time.
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