APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 73-790.
Seitz, Chief Judge, Adams and Garth, Circuit Judges.
The plaintiff in an action for the recovery of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78 p(b) (1970), appeals a final judgment of the district court, entered pursuant to defendants' motion for summary judgment, dismissing the complaint.
The plaintiff, Harry Lewis, is a stockholder of PPG Industries, Inc. ("PPG"). Defendants are the executors of the estate of David G. Hill. Mr. Hill was an officer and director of PPG in the period between February 17, 1954, and September 28, 1971, at which time he resigned. On September 29 and 30, 1971, Mr. Hill exercised options, granted to him in the course of his employment with PPG and more than six months prior to his resignation, acquiring 7,282 shares of PPG common stock.
During the same two day period in September, Mr. Hill sold 6,800 shares of PPG common stock.*fn1 In October, 1971, Mr. Hill duly filed a report of the September transactions with the SEC on form 4, 17 C.F.R. § 249.103 (1974), in accordance with the instructions on that form.
The issues on this appeal are whether Mr. Hill, although retired, was still as a matter of law an "insider" of PPG subject to the proscriptions of section 16(b), and whether his September transactions therefore produced "short-swing" profit which inured to and is recoverable by PPG or a shareholder acting in its behalf.
Section 16(b) provides, in pertinent part:
(b) For the purpose of preventing the unfair use of information which may have been obtained by [the 10% shareholder], director or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of the issuer . . . within any period of less than six months, . . . shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such [insider]. . . . 15 U.S.C. § 78 p(b) (1970).
The section presumes that corporate insiders always have an advantage over "outsiders" when trading in the company's stock since they have access to information not available to the general public. The section seeks to deter use of this inside information or, indeed, to limit the insider's competitive advantage by proscribing paired purchases and sales or sales and purchases by insiders within six months of each other. Suits for recovery of the profits from paired transactions within the six month "no-man's land" may be brought by shareholders of the issuer.
1. Plaintiff's first contention on appeal: the section 16(a) reporting requirement.
Plaintiff's first argument on appeal is that section 16(b) should be read as applying to transactions effected by a corporate director from the date of his retirement from the corporation to the end of the calendar month in which his retirement occurred. This construction would cause liability under section 16(b) to coincide with the period for which section 16(a) requires the filing of a report with the SEC.
Section 16(a) requires directors of companies subject to the registration requirements of the Exchange Act to file reports pertaining to their ownership of the companies' securities with the SEC ten days after the end of every calendar month in which a change in their ownership has occurred. In these reports such directors must disclose their holdings at the end of the month of any class of equity securities of the companies of which they are directors as well as the changes in their holdings within the month. On its face the section would appear to require reports of directors for the month of ...