Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

VOLK v. ZLOTOFF

May 13, 1968

Volk,Plaintiff,
v.
Zlotoff, et al., Defendants


Herlands, District Judge.


The opinion of the court was delivered by: HERLANDS

HERLANDS, District Judge:

Defendants' motion for summary judgment presents a novel and important question under the "short-swing" profits provision of the Securities Exchange Act of 1934: whether a mutual rescission of the exercise of a stock purchase option may immunize a transaction against liability under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). *fn1" We hold that it does not.

 Plaintiff, a shareholder of Yoo-Hoo Chocolate Beverage Corporation (hereafter Yoo-Hoo), commenced this action on October 19, 1967 to recover "short-swing" profits from three individual defendants, pursuant to Section 16(b) of the Securities Exchange Act of 1934.

 The individual defendants, all of whom are officers of Yoo-Hoo, are Robert Zlotoff, executive vice-president and secretary; Abraham M. Raboy, director, vice-president and treasurer; and Alfred H. Juechter, director and vice-president (hereafter defendants). Defendant Yoo-Hoo is a public corporation, whose stock is duly registered and traded on the National Stock Exchange, a national exchange as defined by the Securities Exchange Act of 1934.

 The following facts are undisputed. On or about January 1, 1967, defendants were duly granted stock options enabling them to purchase specified amounts of stock at $1.75 per share. At that time, defendants already owned other shares of Yoo-Hoo stock.

 In the case of defendant Zlotoff, he made sales of the stock both before and after he exercised his option on July 3, 1967 to purchase 10,000 shares and on July 11, 1967 to purchase 200 shares. Thus, as shown on the chart below, he sold a total of 3,200 shares on June 30, 1967 and a total of 7,000 shares on three dates subsequent to July 11, 1967 (July 14th: 3,000 shares, July 31: 2,500 shares and August 12th: 1,500 shares).

 The exercise of the option to purchase 10,000 shares took place on July 3, 1967 although defendants' Rule 9(G) Statement (page 2) alleges that the date is "June 3, 1967". This evidently is a typographical error inasmuch as the prefatory words in paragraph 3 of the said Statement, in which the foregoing date appears, alleges "As set forth in the complaint, * * *." The complaint, paragraph 7., recites the date of July 3, 1967 as the date when the option to purchase 10,000 shares was exercised. In any event the stenographic discrepancy between June 3 and July 3, 1967, is immaterial for present purposes because either date falls within the six-months proscribed period.

 In the case of defendant Raboy, he made both sales of the stock, amounting to a total of 8,000 shares, prior to said defendant's exercise of his option on July 31, 1967 to purchase 10,000 shares, as shown on the chart below.

 In the case of defendant Juechter, he made both sales of the stock, amounting to a total of 2,600 shares, subsequent to July 3, 1967 when said defendant exercised his option to purchase 5,000 shares.

 Defendants' position with respect to the sales of stock occurring prior to the exercise of their respective options is that said sales were made (as more particularly explained hereinafter) for the purpose of raising money in order to be able to exercise the purchase options. Plaintiff's position is that the purpose of said sales is utterly immaterial.

 To summarize: between June 30 and August 12, 1967, defendants exercised their stock options and thereby purchased a total of 25,200 shares of Yoo-Hoo stock; and on various dates between June 30 and August 12, 1967, defendants sold a total of 20,800 shares of said stock. These shares that were sold had been owned by defendants prior to the exercise of their options.

 The details of these transactions will now be tabulated. Defendant Zlotoff acquired by exercise of stock option and effected sales of common stock of Yoo-Hoo as follows: Shares Acquired Approximate Approximate by Exercise Purchase Shares Sales Price of Stock Price Date Sold Per Share Option Per Share June 30, 1967 200 $ 7.75 June 30, 1967 3000 7.75 July 3, 1967 10,000 $1.75 July 11, 1967 200 3.50 July 14, 1967 3000 9.50 July 31, 1967 2500 10.00 Aug. 12, 1967 1500 8.00 Defendant Raboy acquired by exercise of stock option and effected sales of the common stock of Yoo-Hoo as follows: Shares Acquired by Approximate Approximate Exercise of Purchase Shares Sales Price Stock Price Date Sold Per Share Option Per Share July 11, 1967 6000 $ 8.00 July 28, 1967 2000 10.00 July 31, 1967 10,000 $1.75 Defendant Juechter acquired by exercise of stock option and effected sales of the common stock of Yoo-Hoo as follows: Shares Acquired by Approximate Approximate Exercise of Purchase Shares Sales Price Stock Price Date Sold Per Share Option Per Share July 3, 1967 5,000 $1.75 July 7, 1967 1100 $ 8.00 July 14, 1967 1500 9.50

 Defendants, however, have presented factual circumstances, which, they claim, exculpate them from Section 16(b) liability as a matter of law. (See Defendants' Rule 9(G) Statement and Affidavits of Max A. Geller, Stuart A. Jackson, Robert Zlotoff, Abraham M. Raboy and Alfred A. Juechter).

 According to defendants, on or about June 1, 1967, they were asked by Yoo-Hoo to exercise the stock options which had been granted to them on or about January 1, 1967. The purpose of this request was to provide Yoo-Hoo with short-term working capital. The defendants indicated that it would be necessary to sell some of the Yoo-Hoo stock which they already owned in order to raise the money needed to exercise the options. Yoo-Hoo's general counsel, who was consulted as to propriety of the contemplated transaction, advised defendants that the exercise of the stock purchase options in connection with the sale of other Yoo-Hoo stock was not a transaction proscribed by Section 16(b). (See letter of Philip A. Friedman of June 28, 1967, attached as Exhibit B to Defendants' Memorandum of Law). ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.