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June 27, 1951

LEHMAN et al.

The opinion of the court was delivered by: KAUFMAN

Defendant John D. Hertz moves, and plaintiff cross moves, for summary judgment. Defendant Robert Lehman and other members of the partnership, Lehman Brothers, move for an order dismissing the complaint for failure to state a claim upon which relief can be granted.

This action is based upon Section 16(b) of the Securities Exchange Act of 1934, *fn1" 15 U.S.C.A. § 78p(b). The following facts are established by the pleadings and affidavits submitted therewith. At all material times the equity securities of defendant, Consolidated Vultee Aircraft Corporation, were registered on the New York Stock Exchange, and transactions in such securities were subject to the provisions of Section 16(b). Defendant John D. Hertz is now, and was at the time of the transactions here involved, a director of Consolidated Vultee and a member of a partnership doing business as Lehman Brothers, entitled to 5.3208% of the profits of said partnership. Within the period from about November 10, 1948 to April 7, 1949 (less than six months), the partnership, Lehman Brothers, in the regular course of its business and without the knowledge of Hertz. purchased and sold 5,000 share of common stock of Consolidated Vultee and realized a profit of $ 15,159.75. When Hertz learned of these transactions, he paid to Consolidated Vultee the sum of $ 806.62, his share of the profits of the partnership. Plaintiff, a stockholder of Consolidated Vultee, pursuant to Section 16(b) requested Consolidated Vultee, in a letter dated July 13, 1950, to institute an action against the other defendants to recover the entire profits realized by such defendants from the foregoing transactions. Consolidated Vultee advised plaintiff that Hertz had accounted for his share of such profits and refused to bring suit to recover the balance. Thereupon plaintiff, on March 30, 1951, brought this action, in behalf of Consolidated Vultee, to require defendant Hertz and the other partners of Helman Brothers, jointly and severally, to pay over to Consolidated Vultee the balance of said profits.

 The only question in this case is whether Section 16(b) requires a corporate fiduciary of a class designated in that section, or the partners of such a fiduciary, to account to the corporate issuer for profits realized by such partners in short-swing speculations in the equity securities of such issuer.

 The statute plainly requires the fiduciary to account only for 'any profit realized by him from any purchase and sale'. There is no provision requiring the partners of the fiduciary to account for profits realized by them. Moreover, the legislative history of the statute shows that the omission of any provision for such liability was intentional. Provisions in early drafts of the statute 'declaring unlawful the improper disclosure of confidential information regarding securities by directors, officers, or principal stockholders, and holding that any profit made by any person to whom such unlawful disclosure was made should inure to the corporate issuer, were deleted, presumable because the burden of proof made enforcement unfeasible.' Smolowe v. Delendo Corporation, 2 Cir., 1943, 136 F.2d 231, 236, 148 A.L.R. 300, certiorari denied, 1943, 320 U.S. 751, 64 S. Ct. 56, 88 L. Ed. 446.

 Section 16(a) of the Securities Exchange Act, *fn2" 15 U.S.C.A. § 78p(a), requires the corporate fiduciaries referred to in Section 16(b) to file periodic reports of changes in their ownership of securities, registered on a national securities exchange, with the Commission and with the exchange where such securities are registered. Under this provision the Commission has adopted Rule X-16A-3 *fn3" , which permits a partner, at his option, to report only the amount of such securities which represents his proportionate interest in the partnership. In a brief filed by the Commission as amicus curiae, it is urged that Rule X-16A-3 should be accepted as an administrative interpretation of Section 16(b), since it is predicated on the assumption that the Commission has no interest, under Section 16(a) and the related Section 16(b), in anything more than the Artner's proportionate interest in the transactions regulated by Section 16(b). The Commission has indicated that it may in the future construe Section 16(b) to apply to all profits realized by the partnership, and has urged the court to rule in favor of the defendant in the present case in reliance upon Rule X-16A-3, and not to adopt a construction of Section 16(b) which may prevent the Commission from extending the application of Section 16(b) by subsequent rules and regulations. In view of the clear language and legislative history of the statute, there is no need to rely upon the administrative interpretation of Section 16(b), particularly since Rule X-16A-3 does not constitute a direct and unambiguous interpretation of that section.

 Motion for summary judgment in favor of defendant John D. Hertz is granted.

 Motion for summary judgment in favor of plaintiff is denied.

 Motion to dismiss the complaint as against the members of the partnership, Lehman Brothers (except John D. Hertz), is granted.

 The complaint is dismissed as against Consolidated Vultee Aircraft Corporation.

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