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SCHOENBAUM v. FIRSTBROOK

March 30, 1967

Schoenbaum, Plaintiff,
v.
Firstbrook, et al.


Cooper, District Judge.


The opinion of the court was delivered by: COOPER

COOPER, District Judge.

Plaintiff, a shareholder of defendant Banff Oil Ltd. (Banff), brings this action under the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. Defendants are Banff and its individual directors, Aquitaine Company of Canada, Ltd. (Aquitaine), Banff's controlling stockholder, and the Paribas Corporation of New York (Paribas). Plaintiff asserts that the use of "inside information" by the defendants in three transactions involving the sale of Banff stock violated the aforementioned Acts. Defendants, other than Banff, move for summary judgment.

 The first transaction complained of is a tender offer made by Aquitaine with the approval of the Banff Board of Directors on January 15, 1964 *fn1" to Banff shareholders for the purchase of some 1,400,000 shares of Banff common stock.

 The second transaction concerns a purchase by Aquitaine of 500,000 Banff treasury shares. Plaintiff alleges that this purchase was consummated on or about March 15, 1965. Defendants assert that there was a binding contract as of January 5, 1965 when Aquitaine accepted Banff's offer to sell of December 14, 1964, and that only delivery was effected in March. We regard any discrepancy that apparently exists in this respect as of no importance for purposes of this motion.

 The third transaction, taking place in late 1965 and early 1966, involved the sale of 270,000 treasury shares by Banff. Defendants allege that the purchaser was Banque de Paris et des Pays-Bas pour le Grand Duche de Luxembourg (Pays-Bas Luxembourg), a French banking firm which is not a party to this action. Defendant Paribas, a Delaware corporation with offices in New York City and a wholly owned subsidiary of Pays-Bas Luxembourg, asserts it acted solely as an agent and consultant for its parent. The complaint is unclear as to whether Paribas acted as agent or principal in the sale. (See Complaint, para. 13(b)) Plaintiff's Memorandum of Law (p. 7) clarifies this by stating that the sale was "to customers of Paribas."

 The complaint charges that in all three transactions the respective purchasers defrauded their sellers in that they bought with "inside information." It alleges that for some time prior to February 6, 1965 defendants knew that Banff was developing extremely valuable oil fields in western Canada, information undisclosed to the public or to Banff shareholders, and which affected to an impressive extent the price of Banff shares. The market price of those shares has since risen considerably above the highest price paid in any of the three sales complained of.

 The heart of the complaint is that the use of inside information violated section 10(b) *fn2" of the 1934 Act and Rule 10b-5 *fn3" promulgated thereunder. Defendants counter that as to all three purchases there is no cause of action stated under section 10(b); that there is no subject matter jurisdiction with respect to the Aquitaine and Paribas treasury stock purchases.

 The Aquitaine Tender Offer

 We do not find any cause of action to exist as to the Aquitaine tender offer to Banff's shareholders. The complaint alleges that plaintiff has owned his shares continuously since 1959. It does not allege that plaintiff sold any shares to Aquitaine as part of the 1964 tender offer. Accordingly, plaintiff presents no representative claim arising from that transaction.

 In contemplation of law, the corporation does not have a claim under section 10(b). Even if control was acquired as part of a fraudulent scheme, there is no injury to the corporation within the meaning of section 10(b) upon which a derivative action can be based. Further, any damage resulting from alleged acts of corporate waste committed by those who so gained control does not constitute a cause of action under section 10(b). Hoover v. Allen, 241 F. Supp. 213, 228-229 (S.D.N.Y. 1965).

 The Aquitaine and Paribas Treasury Stock Purchases

 Although plaintiff has termed his action representative as well as derivative, no representative claim has in fact been asserted. If the corporation has a claim under section 10(b), a shareholder has standing to sue only on a derivative basis. Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952), cert. denied, 343 U.S. 956, 96 L. Ed. 1356, 72 S. Ct. 1051 (1952); Slavin v. Germantown Fire Ins. Co., 174 F.2d 799, 805-806 (3d Cir. 1949); Surowitz v. Hilton Hotels Corp., 342 F.2d 596, 604 (7th Cir. 1965), 382 U.S. 809, 15 L. Ed. 2d 59, 86 S. Ct. 42 (1966).

 Defendants assert defenses of lack of jurisdiction and legal insufficiency. It is advisable at this point to review the evidence submitted to this Court.

 Defendants have complied with the mandate of Rule 56(e) and have adduced numerous documents in the form of affidavits and exhibits attesting to their version of the facts.

 Plaintiff's papers consist of: (1) The verified complaint made upon information and belief. Because the complaint is verified, it will be regarded as an affidavit. However, it is clear that an affidavit made on information and belief can not support on summary judgment the averments it attempts to uphold. Automatic Radio Manufacturing Co., Inc. v. Hazeltine Research, Inc., 339 U.S. 827, 831, 94 L. Ed. 1312, 70 S. Ct. 894 (1950); 6 Moore, Federal Practice, Para 56.22 [1], p. 2806 (1965). (2) A brief affidavit in opposition by the attorney for plaintiff. (3) The Memorandum of Law submitted by the same attorney to the contents of which he refers in his affidavit as setting forth the facts. Again, these documents do not meet the standards prescribed by Rule 56(e). Certainly, statements in briefs are not considered as evidence on a summary judgment motion and do not controvert evidence submitted by the movants. Lane v. Greyhound Corp., 13 F.R.D. 178 (E.D. Ky. 1952); United States v. Jones, 155 F. Supp. 52, 56 (M.D. Ga. 1957); Allen v. Radio Corp. of America, 47 F. Supp. 244, 246 (D. Del. 1942). Moreover, even if we were to regard the memorandum as being incorporated by reference into the attorney's affidavit, the result is an affidavit clearly made without personal knowledge and clearly insufficient. Berkley v. Clark Equipment Co., 22 F.R.D. 487 (E.D.N.Y. 1958); Abel v. Morey Machinery Co., 10 F.R.D. 187 (S.D.N.Y. 1950); Frost v. Bankers Commercial Corp., 11 F.R.D. 195 (S.D.N.Y. 1951), aff'd sub nom. The Constellation Frost v. Bankers Commercial Corp., 194 F.2d 505 (2d Cir. 1952).

 The papers thus present a situation where as to certain vital factual matters defendants have submitted impressively sound, credible evidence as against plaintiff's barrenness. On summary judgment, as at trial, resolution of the factual contention must be made in favor of the party supporting his position with evidence.

 To do otherwise would emasculate summary judgment, making it but another motion for judgment on the pleadings or to dismiss for legal insufficiency. And it is well established that on summary judgment the court is not limited to the questions raised by the pleadings, for summary judgment may be granted when the affidavits in support of the motion pierce the alleged issues of fact raised by the pleadings. 6 Moore, supra Para. 56.11 [3], pp. 2161, 2167-68; 3 Barron & Holtzoff § 1235.1 (1958); Topp-Cola Co. v. Coca-Cola Co., 185 F. Supp. 700, 707 (S.D.N.Y. 1960); Dale Hilton, Inc. v. Triangle Publications, Inc., 27 F.R.D. 468, 470 (S.D.N.Y. 1961); Dressler v. MV Sandpiper, 331 F.2d 130, 132-133 (2d Cir. 1964).

 Jurisdiction

 In determining jurisdiction the Aquitaine and Paribas transactions are regarded as distinct and separate. Defendants have submitted sworn affidavits persuasively attesting to the lack of connection between the Aquitaine and Paribas stock purchases. (Rutman Affidavit, para. 9, Michel Affidavit, para. 3). The complaint makes accusations of some "conspiracy." In attempting to support this, plaintiff's attorney notes that Aquitaine and its controlling interests are French; Paribas is owned by a French bank, the stock received in the Paribas transaction was ultimately placed with ten French investors. We do not regard this as being of the ...


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