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HENNESEY v. FEIN

November 13, 1958

Dorothy HENNESEY, suing as a stockholder in the name and on behalf of Lanston Industries, Incorporated, Plaintiff,
v.
Bernard FEIN, Rosa B. Hirsh and Bernard Fein and Rosa B. Hirsh, as Trustees of the Fein Foundation and Lanston Industries, Incorporated, Defendants


Before liability is present under Section 16(b) there must be an actual purchase, and an actual sale within the statutory period resulting in a profit. Here there was no purchase within the statutory period.


The opinion of the court was delivered by: RYAN

Plaintiff in this stockholder's suit brought under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78p(b), has moved for summary judgment.

Defendant, Bernard Fein, against whom recovery is sought for short-swing profits, has also moved for summary judgment dismissing the complaint.

 Fein was Chairman of the Board and President of Lanston Industries. His sister, Rosa B. Hirsh, and he constituted the Trustees of defendant Fein Foundation.

 The complaint herein alleges that on January 16, 1958, Fein purchased of Lanston Industries, 21,844 shares of its treasury common stock, thereby increasing his holdings to 41,922 shares of common. It also alleges that on the same day Fein Foundation purchased of Lanston Industries 1,002 shares of its treasury common stock.

 Fein reported and disclosed these acquisitions in a 'Form 4' report signed under date of February 10, 1958 and filed on February 11, 1958 with the Securities and Exchange Commission. The report stated that the transactions reported were with the issuer by private sale.

 It is these transactions which plaintiff pleads as the purchases upon which statutory -- Sec. 16(b) -- liability is predicated.

 Fein on May 22, 1958 filed with the Securities and Exchange Commission a further report on Form '4' disclosing that on April 2, 1958 he had sold 41,920 shares of Lanston common stock and that on the same day the Fein Foundation had sold 1,002 shares of Lanston common stock. It is these transactions which plaintiff pleads in here complaint as the sales upon which the statutory liability asserted is predicated.

 The maximum statutory liability which in any event could arise from these transactions must be measured with the total share acquisitions of January 16, 1958 as the basis; or the profits, if any, derived from the dealings in a total of 22,846 shares.

 It is urged by defendant Fein that no liability was incurred under Section 16(b) because the transactions of January 16, 1958 did not constitute purchases within the statutes. This contention is premised upon the following facts.

 Security-Columbian Banknote Company, on February 6, 1958, filed as plaintiff in this Court a derivative suit as a stockholder of Lanston Industries Incorporated (Civ. 129-311). Named as defendants, besides Lanston Industries, were Bernard Fein, Harry B. Leslie, Rensselair Clark and Ben Feit.

 The files of this suit show it to be interrelated to the instant suit. While we are not bound to search records of other courts, we may take judicial notice of the records and files in this court in Security-Columbian Banknote Company v. Lanston Industries et al. (Civ. 129-311). We do so on these motions (cf. Freshman v. Atkins, 1925, 269 U.S. 121, 124, 46 S. Ct. 41, 70 L. Ed. 193; National Fire Ins. Co. v. Thompson, 1929, 281 U.S. 331, 336, 50 S. Ct. 288, 74 L. Ed. 881).

 Security-Columbian Banknote moved for an order granting leave to move an amended complaint and permitting it to add Rosa B. Hirsh, and Bernard Fein and Rosa B. Hirsh, as Trustees of the Fein Foundation, as additional parties defendant. The motion was granted on consent. Leave to serve a further amended complaint was later given on March 13, 1958; it is this pleading which we examine.

 Requisite averments of diversity jurisdiction are pleaded (cf. Smith v. Sperling, 1957, 354 U.S. 91, 77 S. Ct. 1112, 1 L. Ed. 2d 1205).

 The amended complaint seeks equitable and injunctive relief, particularly with reference to action taken (or effecting consummation of such action) at meetings of the Board of Directors of Lanston Industries held on January 3 and 27, 1958. All of the defendants named, save only Rosa B. Hirsh, are alleged to be and in fact were functioning as Directors. The complaint prayed that all action taken at these meetings be set aside as illegal and invalid and that the defendants account to Lanston Industries. The complaint alleged that at the meeting of January 27, 1958 the defendants purported to authorize the acquisition by Lanston from defendant Fein, for a consideration consisting of 21,844 shares of the treasury stock of Lanston, of 16,600 shares of stock of Symington-Gould Corporation, 1,890 shares of stock of Wayne Pump Company, 125 shares of Capital Stock of ...


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