The opinion of the court was delivered by: WYATT
This is a motion by defendant Gamble-Skogmo, Inc. ('Gamble') for summary judgment (Fed.R.Civ.P. 56) in an action for alleged 'short swing' profits under Section 16(b) of the Securities and Exchange Act of 1934 (15 U.S.C. § 78p(b); the 'Act').
The 'issuer' is Alleghany Corporation; the action is brought in its behalf by a stockholder and Alleghany is named as a defendant. Jurisdiction is given to this Court by Section 27 of the Act (15 U.S.C. § 78aa).
Alleghany is a Maryland corporation which has outstanding about 9,800,000 shares of common stock; this stock is registered on the New York Stock Exchange, which is a 'national securities exchange' (15 U.S.C. § 78p).
Alleghany owns about 47.8% of the voting common stock of Investors Diversified Services, Inc., a Minnesota corporation, which has investment advisory and distribution contracts with five mutual fund companies.
The movant Gamble is a Delaware corporation.
Defendant General Outdoor Advertising Co., Inc. ('Advertising') is a New Jersey corporation, about 51% of the stock of which is owned by Gamble. General Outdoor Realty Corporation ('Realty') is a Nevada corporation, all of the stock of which is owned by Advertising.
Murchison Brothers ('Murchison') is a partnership of C. W. Murchison, Jr. and John D. Murchison.
Under date of October 4, 1962, Gamble agreed to buy from Murchison 750,000 shares of Alleghany for $ 10 per share and at the same time represented that Realty would also buy from Murchison 750,000 shares of Alleghany at the $ 10 price per share.
Under date also of October 4, 1962, a written 'agreement of put and call' was made between Murchison and Gamble. Under this agreement
'(a) Gamble had an option, exercisable on or before May 31, 1963, to buy from Murchison 2,000,000 shares of Alleghany at $ 10 per share (thus, a 'call' on the stock);
(b) Murchison had an option, exercisable between June 1 and June 30, 1963, to require Gamble to buy from Murchison 2,000,000 shares of Alleghany (thus, a 'put' on the stock); and
(c) Murchison had the further option, on exercise by Gamble of the 'call' or on exercise by Murchison of the 'put', to deliver less than 2,000,000 shares of Alleghany but not less than 1,500,000 shares.
The contract of purchase was carried out on October 5, 1962. Gamble and Realty each took delivery on that day of 750,000 shares of Alleghany and paid therefor $ 10 per share in cash. As a result of these purchases Gamble became 'directly or indirectly the beneficial owner of more than 10 per centum' of Alleghany stock (in fact, the owner of slightly more than 15.3%); under Section 16(a) of the Act Gamble thus became liable for 'any profit realized' from any of the transactions specified in Section 16(b) of the Act.
On October 9, 1962, Bertin C. Gamble, Chairman of the Board of Directors of Gamble, and James W. Deer, Esq., an attorney for Mr. Gamble, were elected directors of Alleghany. It appears that there were ten directors. The names of the other eight directors of Alleghany are not given but they must have been C. W. Murchison, Jr. and John D. Murchison with their associates and supporters. This can be assumed because we are told that the eight directors had been elected in May 1961 after a successful proxy contest conducted by the Murchisons. There is also an oblique reference in the affidavit of Herbert J. Seakwood (page 3) indicating that the two Murchisons were directors of Alleghany.
Under date of May 29, 1963, the 'call' of Gamble was extended to June 30, 1963 and the 'put' of Murchison was extended to July 31, 1963.
Under date of June 28, 1963, the 'call' of Gamble was extended to July 31, 1963. There was no similar extension of the 'put' of Murchison.
Under date of July 1, 1963, Gamble made three written agreements with Allan P. Kirby, Coral Ridge Properties, Inc. ('Coral Ridge'), and Allied Properties ('Allied'), respectively, to sell them shares of Alleghany at $ 10.50 per share as follows:
Allan P. Kirby 1,000,000 shares
Coral Ridge 100,000 shares
Allied 500,000 shares
The obligation of Gamble to sell was conditioned on approval by stockholders in the five mutual fund companies of the investment advisory and distribution contracts with Investors Diversified Services, Inc. after notification to such stockholders of the agreement by Gamble to sell 1,600,000 Alleghany shares to Kirby, Coral Ridge and Allied.
This condition was undoubtedly made because of Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-5) which in substance requires the 'consent of the other party to the contract' when there is any 'assignment' of the contract by the 'investment adviser'.
Movant Gamble asserts without Contradiction that this condition was substantial and beyond its control in that the five mutual fund companies have numerous stockholders and large assets; presumably there is no single or group control of these five mutual fund companies and it is not suggested ...