The opinion of the court was delivered by: GORBEY
Before the court is plaintiff's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. This action arises under § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b).
The plaintiff is the corporation seeking to recover short term profit from a corporate officer who allegedly traded the corporate stock, contrary to the Securities Exchange Act and the Rules of the Securities and Exchange Commission.
Defendant, for the periods relevant to the transactions in question, was the Executive Vice-President for International Operations, of plaintiff corporation.
Defendant Voogd admits the transactions in question, but denies that § 16(b) applies to them;
relying mainly on the allegations that he was not an officer of Selas Corporation of America within the meaning of § 16(b).
The background for the transactions in question begins June 14, 1967. At that time, Voogd was employed by Selas of America (Nederland) N.V. (hereinafter referred to as SAN), as Managing Director. SAN was both an operational unit and a holding company for Selas' other foreign subsidiaries, branches and divisions. At that time, and at all times relevant to this action, SAN was a wholly owned subsidiary of plaintiff, Selas Corporation of America (hereinafter referred to as Selas).
On June 14, 1967, Voogd was granted a stock option to purchase 2,500 shares of Selas stock at $13.25 per share.
could not be exercised for three years, but must be exercised within four years. Therefore, Voogd could exercise the option at anytime between June 14, 1970 and June 14, 1971. On September 15, 1967, Voogd was elected Vice-President for European Operations of Selas,
continuing to function as Managing Director of SAN. On October 1, 1970, Voogd was made Executive Vice-President International of Selas.
He remained in that capacity until September of 1971, when a controlling interest of SAN was purchased by a group of key European employees.
On June 14, 1970, when the stock option first became exercisable, the market price of plaintiff's stock was $10.625 per share.
On April 27, 1971, Voogd exercised his full option to purchase 2,500 shares of Selas stock at $13.25 per share.
On that date, the market price of the stock was $38.00 per share.
On May 27, 1971, Voogd sold 2,500 shares of Selas stock at a price of $36.50 per share.
On these facts, which are admitted to by the parties, plaintiff contends that he is entitled to summary judgment. Defendant counters that argument with an allegation that there is an issue of fact to be resolved, namely, was Voogd in fact an officer of Selas -- or was he merely a figurehead, having no say in the affairs of Selas and having no access to inside information of Selas; and that, as such, he is not an officer for purposes of § 16(b).
In deciding plaintiff's motion for summary judgment, this court must determine if the pleadings and affidavits filed in this case show that there is no genuine issue as to any material fact (Rule 56(c), Fed. R. Civ. Proc.). For this purpose, we will view all the facts and inferences to be drawn therefrom in the light most favorable to defendant. Voogd admits that at the times relevant to the purchase and sale in question, he was the Executive Vice-President of International Operations of Selas. Rule 3b-2 (17 CFR § 240.3b-2) of the Securities and Exchange Commission defines the term "officer" as ". . . a president, vice-president, treasurer, secretary, comptroller, and any other person who performs for an issuer, whether incorporated or unincorporated, functions corresponding to those performed by the foregoing officers." Taken literally, Voogd, as a Vice-President of Selas, is clearly within the enumerated class, and as such, would be an officer within the meaning of § 16(b). However, defendant contends that Rule 3b-2 does not create a conclusive presumption that one holding such an office is automatically an insider, and thus liable for the profits from insider trading under the terms of § 16(b).
The validity and effect of Rule 3b-2 has not been clearly established. The leading case in this area appears to be Colby v. Klune et al., 178 F.2d 872 (2d Cir. 1949). In this case, the court reversed the district court's granting of a summary judgment for the plaintiff, holding at page 875:
"It may be that the S.E.C. had such statutory authority to issue the Rule
that it binds the courts. Even so, there remains much room for inquiring into the facts at a trial. For the functions of a 'vice-president ' or 'comptroller' are not so well settled as to be self-evident, and there is need for evidence concerning those functions. Under that Rule as we interpret it, it does not matter whether or how the by-laws of this particular company define the duties of such officers. The question is what this particular employee was called upon to do in this particular company, i.e., the relation between his authorized activities and those of this corporation."
The court further suggests the type of evidence which should be elicited by the trial court, stating:
The court in Colby questioned the validity of Rule X-3b-2, but reserved judgment on that point because the affidavits submitted in support of a summary judgment raised an issue of credibility, which could only be decided at trial. The Colby case was followed in the recent case of Schimmel v. Goldman, 57 F.R.D. 481, (S.D.N.Y. 1973) holding, in approval of a settlement, that there was a genuine issue to be resolved and that a settlement for less than the amount claimed was justified. In accord with this is a recent case from the Eastern District of Virginia, Gold v. Scurlock, 324 F. Supp. 1211 at ...