UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
February 27, 1961
Bertha SILVERMAN, suing as a stockholder in the Name and in behalf of Exquisite Form Industries, Inc. and Exquisite Form Industries, Inc., Plaintiffs,
Gerard A. RE, Gerard F. Re, individually and as partners and/0r joint venturers in Re, Re & Sangarese, Defendants
The opinion of the court was delivered by: EDELSTEIN
This is an action under § 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78p(b), 15 U.S.C.A. § 78p(b), to recover short swing profits.
Plaintiff is the beneficial owner of ten shares of the Class 'A' common stock of the corporate defendant Rokeach. The corporation, to which the recovery runs, was named as a nominal party defendant. Whether this procedural step is required because the corporation may be considered an indispensable party is unclear. See Loss, Securities Regulation 568 (Supp.1955).
The corporation now moves to be named as a party plaintiff.
Defendants object on the ground that if the corporation were now to commence a separate action, it would be barred by the two year statute of limitations incorporated in § 16(b) from pressing a portion of the claim urged by plaintiff herein. Defendants further urge that if the motion be granted, the statutory two years be counted back from the time the corporation becomes a plaintiff. This argument has no merit. The cause of action is the very same one commenced by plaintiff, to which the corporation has been a party from inception of the suit. In fact, the action is brought, according to § 16(b), 'in the name' of the corporation. To penalize the corporation for plaintiff's misnomer in the caption is to glorify form over substance. Moreover, if the corporation remains in its present procedural posture, recovery will be had based upon the date suit was commenced by plaintiff. It would be anomalous to hold that by permitting the corporation, which is already a party, to be realigned, a penalty is incurred vis a vis the statute of limitations.
Section 16(b) provides two procedural methods for recovering short swing profits. If the disjunctive clause of § 16(b) is read as granting either the corporation or the security holder the right to sue to the exclusion of the other, then it may be argued that the corporation may not join in this complaint as a plaintiff. But such a narrow interpretation disregards the remedial purposes of the Act. It is clear from § 2 of the Act, 15 U.S.C. § 78b, 15 U.S.C.A. § 78b, and the decided cases that the Act was 'primarily intended as an instrument of a statutory policy of which the general public is the ultimate beneficiary. Congress did not intend procedural restrictions to hamper such policy.' Benisch v. Cameron, D.C.S.D.N.Y.1948, 81 F.Supp. 882, 884; see Smolowe v. Delendo Corp., 2 Cir., 136 F.2d 231, 235, certiorari denied, 1943, 320 U.S. 751, 64 S. Ct. 56, 88 L. Ed. 446. In furtherance of the policy of full disclosure and to guard against possible conflicting loyalties, courts have liberally permitted intervention by security holders. See Ferraiolo v. Newman, 6 Cir., 1958, 259 F.2d 342; Pellegrino v. Nesbit, 9 Cir., 1943, 203 F.2d 463, 37 A.L.R.2d 1296; Park & Tilford, Inc. v. Schulte, 2 Cir., 160 F.2d 984, certiorari denied, 1947, 332 U.S. 761, 68 S. Ct. 64, 92 L.Ed 347; Twentieth Century-Fox Film Corp. v. Jenkins, D.C.S.D.N.Y.1947, 7 F.R.D. 197.
To deny the corporation the right to take over vigorous prosecution of the action where it fears that the security holder who instituted suit is not diligent, would nullify the intent of the statute. Conflicting loyalties are not always limited to the corporation and its insiders. The public policies upon which the Act is based compel the broadest participation in the litigation by the corporation to whom the recovery will inure. Thus, in Gratz v. Claughton, 2 Cir., 187 F.2d 46, 48, certiorari denied, 1951, 341 U.S. 920, 71 S. Ct. 741, 95 L. Ed. 1353, the District Court granted the corporation's motion that it be dropped as a nominal defendant and made a party plaintiff.
Accordingly, the motion is granted.