SMOLOWE V DELENDO CORP.
136 F.2d 231 (2nd Cir. 1941)
NATURE OF THE CASE: Delendo (D) appealed a judgment in favor of Smolowe (P),
stockholders, in P's action under 16(b).
FACTS: Seskis and Kaplan (Ds) each owned about 12 percent of the 800,000 shares of $1 par
value stock issued by D. D had negotiated a sale in 1936 but it was terminated because of
D's contingent liability on a tax claim. That claim was eventually settled around April
1940. Negotiations with Schenley's were reopened and were consummated by sale on April 30,
1940, for $4,000,000, plus the assumption of certain of the Corporation's liabilities. From
December 1, 1939, to May 30, 1940, Seskis (D) purchased 15,504 shares for $25,150.20 and
sold 15,800 shares for $35,550, while Kaplan (D) purchased 22,900 shares for $48,172 and
sold 21,700 shares for $53,405.16. Ps brought separate actions under this statute on behalf
of themselves and other stockholders for recovery by the Corporation under 16(b). The court
held Ds liable for the maximum profit even conceding that they made the trades in good faith
and without any 'unfair' use of inside information. Seskis (D) was liable for $9,733.80, and
Kaplan (D) was liable for $9,161.05. Ds appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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