The opinion of the court was delivered by: CANNELLA
CANNELLA, District Judge: The cross-motions for summary judgment are denied.
Plaintiff, a stockholder of Pfizer Incorporated, commenced this action pursuant to Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), to recover for Pfizer "short-swing" profits realized upon purchases and sales of Pfizer stock made by Howmet Corporation in October and November of 1972. Plaintiff alleges that Felix Rohatyn, a director of Howmet, was deputized by Howmet to serve as a member of the Pfizer Board of Directors and thus Howmet was a director of Pfizer within the meaning of Section 16(b). Plaintiff has made the requisite demand upon Pfizer and it has not been complied with.
Presently before the Court are cross-motions for summary judgment interposed by plaintiff Rebecca Lowey and defendant Howmet Corporation.
The underlying facts in this dispute are largely uncontested. In early 1970 Howmet underwent a corporate reorganization pursuant to which its Howmedica Division became a wholly-owned subsidiary, named Howmedica, Incorporated. As part of the reorganization, eighty percent of the Howmedica common stock was spun-off to Howmet's stockholders, with Howmet retaining the balance. In order to obtain favorable tax rulings from the Internal Revenue Service, however, Howmet agreed to dispose of its remaining twenty percent interest in Howmedica by May 26, 1973, three years after the effective date of this reorganization.
In early 1971 Howmedica's management concluded that it would be Howmedica's best interests to merge with a large concern in the pharmaceutical or health care field. (Howmedica was engaged in the manufacture of certain health care products.) Both Howmedica and Howmet realized that such a merger would prevent a depression in the market price of Howmedica's common stock, one that might result from the sale of Howmet's interest in Howmedica on the open market.
With this in mind, Howmedica retained Lazard Freres & Company, an investment banking firm, to find an appropriate merger partner. Rohatyn, a member of both the Howmet and Howmedica boards of directors at that time, was a partner in Lazard Freres.
Negotiations culminating in a nearly consummated but aborted merger between Howmedica and G. D. Searle & Company ensued, after which Jarvis Slade, a Howmedica director and member of the New York Securities Company, another investment banking concern, recommended to Pfizer that it consider the acquisition of Howmedica. This occurred in April of 1971. After considering Howmedica, as well as several other candidates, Pfizer advised Slade that it was not interested in acquiring Howmedica.
Shortly thereafter, in August 1971, Rohatyn was elected to the Pfizer board of directors. He also attempted to interest Pfizer in a merger with Howmedica, and was successful where Slade had not been. A Pfizer memo dated January 11, 1972 indicated that, although the earlier investigation had generated "insufficient enthusiasm" to warrant further consideration, Rohatyn's renewed sales pitch was attractive.
Pfizer's change of mind proved complete, as on February 24, 1972 it reached an agreement in principle with Howmedica concerning the merger. Pursuant to the final terms of the merger agreement, each share of Howmedica's common stock was to be exchanged for.925 shares of Pfizer common. The final agreement was approved by Howmedica's board of directors, Rohatyn not participating, on July 21, 1972 and was consummated on October 30, 1972. Howmet received 584,817 shares of Pfizer common stock in exchange for its Howmedica holdings.
Prior to the consummation of the merger, Howmet sought an IRS ruling on the effect a merger would have on its previous agreement to dispose of the Howmedica stock before May 26, 1973. On March 27, 1971 the IRS informed Howmedica that the Pfizer stock received pursuant to the merger likewise had to be disposed of before May 26, 1973, in accordance with the conditions imposed pursuant to the 1970 reorganization. Howmet disposed of its Pfizer stock in a public offering underwritten by Lazard Freres when, on November 14, 1972, its registration was complete.
Generally stated, plaintiff's theory is that, although Rohatyn's appointment to the Pfizer board of directors in August 1971 was not as a deputy or representative of Howmet,
he thereafter began to act as Howmet's representative in promoting a Pfizer-Howmedica merger, thereby ensuring that Howmet would obtain the benefit of a Howmedica merger with a large company before Howmet disposed of the Howmedica stock.
In essence, plaintiff contends that Howmet "deputized" Rohatyn as its representative on the Pfizer board of directors based upon the following facts:
1) Rohatyn was a director of both Pfizer and Howmet, and as such was partially responsible for the success of the merger;
2) Rohatyn, or his firm, Lazard Freres & Company, was paid a fee by Howmet for negotiating the merger ...