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March 9, 1983

HEUBLEIN, INC., Plaintiff,

The opinion of the court was delivered by: CONNER



 This is an action under § 16(b) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78p(b), *fn1" to recover short-swing profits made by defendant General Cinema Corporation ("General Cinema"). Plaintiff Heublein, Inc. ("Heublein") alleges that defendant earned approximately $74 million in profits from its trading in the stock of Heublein, Inc. ("Old Heublein"), of which $30 million is attributable to transactions in violation of § 16(b). The case presents the question whether a § 16(b) "sale" occurs when a corporation responds to the perceived threat posed by substantial acquisitions of its stock by a single shareholder by arranging a merger with a third party, and the shareholder then exchanges its stock for stock in the surviving company. This issue is currently of great moment because the facts underlying the instant action exemplify one of the most widely publicized, successful and presently popular strategies for achieving quick and substantial returns from a corporate stock investment. *fn2"

 The case is currently before the Court on defendant's motion to dismiss pursuant to Rule 12(b)(6), F.R.Civ.P., or, alternatively, for summary judgment pursuant to Rule 56, F.R.Civ.P. For the reasons stated below, General Cinema's motion for summary judgment dismissing the complaint is granted.


 On November 18, 1981, General Cinema began purchasing the common stock of plaintiff's predecessor, Old Heublein. By January 22, 1982, defendant had acquired 1,070,000 shares, or just under 5% of the common shares then outstanding. General Cinema continued its purchases, and in a Schedule 13D statement filed with the Securities and Exchange Commission ("SEC") on February 3, 1982, defendant revealed that it was the beneficial owner of 2,101,000 shares, or approximately 9.7% of Old Heublein's outstanding common stock.

 In response to the public disclosure of this rapid accumulation, Old Heublein, on February 19, 1982, filed suit in this Court against General Cinema alleging, inter alia, that the Schedule 13D statement was false, misleading and failed to disclose that General Cinema's true intent in purchasing Old Heublein stock was to acquire control of Old Heublein. See Complaint in Heublein, Inc. v. General Cinema Corp., 82 Civ. 1062 (MJL) (S.D.N.Y. 1982). General Cinema nevertheless continued to acquire Old Heublein common stock, and by March 15, 1982 it owned 2,266,500 shares, comprising approximately 10.4% of the total stock then outstanding.

 Further purchases through the beginning of May 1982 boosted General Cinema's holdings to 3,530,200 shares, or roughly 16.2% of the shares outstanding.

 On April 29, 1982, Hicks Waldron, President and Chief Executive Officer of both Old Heublein and Heublein, approached executives at General Cinema and asked whether they would consider the possibility of an asset swap as a means of resolving their "dispute" without further litigation. Waldron proposed an exchange of the Old Heublein stock owned by General Cinema for part of Old Heublein's wine business. During the course of discussions on this and other proposals, Old Heublein provided General Cinema with information not available to the general public concerning Old Heublein's wine business. The negotiations broke off on May 10, and on May 11 General Cinema again commenced purchasing Old Heublein stock. Old Heublein, however, continued to make further overtures to defendant in an effort to repurchase its stock, all of which approaches were rejected by General Cinema.

 Additional purchases between May 11 and May 26 brought General Cinema's holdings in Old Heublein common stock to 4,092,900 shares, or approximately 18.9% of the total then outstanding. This total represented an investment by General Cinema of more than $157 million. On May 28, General Cinema filed an amendment to its Schedule 13D statement reflecting its 18.9% ownership and stating that it had no present intention to purchase any additional shares. Further efforts at this point by Old Heublein to negotiate either a standstill or a buyback agreement with General Cinema proved unsuccessful.

 On July 9, 1982, Old Heublein commenced discussions with R.J. Reynolds Industries, Inc. ("Reynolds") concerning a possible merger of their two businesses. Following those talks, on July 29, the boards of directors of Reynolds, R.J. Reynolds Tobacco Company ("Reynolds Tobacco"), a wholly-owned subsidiary of Reynolds, and Old Heublein approved such a merger. The transaction authorized by the respective boards included a tender offer by Reynolds for 11,350,000 shares, or approximately 52%, of Old Heublein's outstanding common stock, at a price of $63 per share in cash, and a subsequent merger of Old Heublein and Reynolds Tobacco by the exchange of the remaining Old Heublein shares for Reynolds common and preferred stock.

 The Reynolds tender offer became effective on July 30 and was successfully completed on August 20, 1982. At a special meeting of Old Heublein shareholders held on October 12, 1982, the merger of Old Heublein and Reynolds Tobacco was approved despite the fact that General Cinema voted its 4,092,900 shares against the merger. That same day, pursuant to the terms of the merger, the 4,092,900 shares of Old Heublein stock owned by General Cinema were exchanged for Reynolds stock at an average price of $56.83 per share of Old Heublein stock.


 The legal contentions of the parties can be clearly and succinctly stated. Plaintiff alleges that the exchange by General Cinema of its Old Heublein shares for Reynolds shares on October 12 was a "sale" of an equity security within the meaning of § 16(b) of the Act. Because General Cinema was the beneficial owner of greater than 10% of Old Heublein's outstanding common stock at all times between March 15, 1982 and October 12, 1982, plaintiff asserts that all profits earned by General Cinema and attributable to shares purchased after April 12, 1982 constitute short-swing profits by an insider and thus are recoverable under § 16(b) by Heublein as successor in interest to Old Heublein.

 Defendant does not dispute the foregoing facts *fn3" but merely argues that the exchange of stock on October 12, 1982 pursuant to the merger was not a "sale." Thus, General Cinema contends that its transactions do not come within the six-month limitation of § 16(b). The bounty riding on the resolution of this issue is substantial. If plaintiff is correct in its assessment of defendant's exchange of stock, it will be entitled to recover approximately $30 million of the nearly $74 million in profits realized by General Cinema on its $157 million investment in Old Heublein common stock. If not, then General Cinema will be permitted to carry away all the spoils of the expedition.


 The starting point for the Court's analysis is the decision of the Supreme Court in Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 36 L. Ed. 2d 503, 93 S. Ct. 1736 (1973). In Kern County, the Court adopted a "pragmatic approach" to questions of § 16(b) liability in cases involving unorthodox transactions. See id. at 594-95; Lane Bryant, Inc. v. Hatleigh Corp., 517 F. Supp. 1196, 1200 (S.D.N.Y. 1981). Under this approach, a court determines whether a borderline transaction, i.e., a transaction not ordinarily thought of as a sale or purchase but arguably within the broad statutory definition, comes within the reach of § 16(b) by inquiring "whether the transaction may serve as a vehicle for the evil which Congress sought to prevent -- the realization of short-swing profits based upon access to inside information." 411 U.S. at 594 (footnote omitted). A court may undertake this flexible analysis, however, only in the limited instances where an ambiguous transaction is involved. See Lewis v. Varnes, 505 F.2d 785, 789 (2d Cir. 1975). In all other situations, § 16(b) imposes an objective standard of strict liability for all transactions occurring within the statutory time limits. See Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 422, 30 L. Ed. 2d 575, 92 S. Ct. 596 (1972).

 Using a pragmatic analysis, the Court ruled in Kern County that when the target of a tender offer defends itself by merging into a third company and the tender offeror then exchanges his stock for stock of the surviving company, the exchange is not a § 16(b) "sale." Id. at 600; see also id. at 584. In that case, the defendant, Occidental, after unsuccessfully seeking to merge with Old Kern, the predecessor of the plaintiff, first made a tender offer for 500,000 shares, or more than 10% of the outstanding shares, of Old Kern, and then extended its offer to seek an additional 500,000 shares. Old Kern's management responded to the original offer by sending a letter to its shareholders urging them not to tender their shares. When Occidental extended its offer, the president of Old Kern sent a telegram to all shareholders, again advising against tender, and also undertook merger discussions with Tenneco, Inc. Thereafter, the boards of Old Kern and Tenneco approved a merger whereby the shareholders of Old Kern would receive one share of Tenneco convertible preferred stock for each share of Old Kern common that they owned.

 Occidental attempted to block the proposed merger through various legal maneuvers, but ultimately dropped those efforts after negotiating certain option arrangements with Tenneco. *fn4" At a meeting of Old Kern shareholders to vote on the merger, Occidental did not vote its shares, but indicated that had it been voting it would have voted in favor of the merger. Once the merger was closed, all Old Kern shareholders, including Occidental, became irrevocably entitled and committed to exchange their Old Kern holdings for Tenneco preferred stock. *fn5"

 In ruling that this exchange did not constitute a § 16(b) "sale," the Court was apparently motivated by two factors: (1) the involuntary nature of the exchange, and (2) the absence of the possibility of speculative abuse of inside information. *fn6" As to the first factor, the Court observed that the merger was not engineered by Occidental, but was sought by Old Kern to frustrate Occidental's attempts to gain control of Old Kern. Moreover, once the merger was approved, Occidental had no real alternative with respect to the future of its Old Kern shares. Although Occidental could theoretically have sold its shares prior to the ultimate approval of the merger, the Court indicated that such an act would certainly have subjected Occidental to prima facie § 16(b) liability. See 411 U.S. at 599-600. As to the second factor, the Court noted that although Occidental was a statutory insider at the time it extended its tender offer, *fn7" its adversarial posture with respect to Old Kern's management afforded little possibility of its access to inside information by virtue of its stock ownership. See id. at 598-99.

 In American Standard, Inc. v. Crane Co., 510 F.2d 1043 (2d Cir. 1974), cert. denied, 421 U.S. 1000, 44 L. Ed. 2d 667, 95 S. Ct. 2397 (1975), the Court of Appeals for the Second Circuit followed the approach set forth in Kern County and reached the same result on slightly different facts. The defendant in that action, Crane, began purchasing large quantities of the common stock of Westinghouse Air Brake Company on the open market. Air Brake declined Crane's proposals for merger and responded by arranging a defensive merger with Standard. In the face of this previously announced, proposed merger, Crane, which at this time owned more than 10% of Air Brake's outstanding stock, made a tender offer for Air Brake shares. Crane's tender offer ultimately failed, as did its legal efforts to block the merger. Once the merger was approved and became effective, Crane exchanged its Air Brake common shares for preferred shares of Standard pursuant to the terms of the merger. Crane thereafter sold virtually all of these shares on the New York Stock Exchange, reaping a profit in excess of $10 million on its investment.

 The Second Circuit found that both factors relied upon by the Supreme Court in Kern County were also present in American Standard. There existed an atmosphere of hostility, making it unlikely that Crane would have access to inside information by virtue of its greater than 10% ownership, as well as a situation where Crane was powerless to control the course of events in the face of opposition by Standard's management. See id. at 1054. Although the court concluded that there were some differences from the situation in Kern County, including, primarily, the fact that Crane continued to fight to defeat the Standard merger while Occidental gave up in the face of Old Kern's proposed merger with Tenneco, it reasoned that these differences did not alter the fundamental similarity between the two transactions. See id. at 1053. Thus the court held that Crane's exchange of shares was not a "sale" and would not subject it to § 16(b) liability for short-swing profits. Id. at 1055.


 Plaintiff offers several arguments in support of its contention that the exception set forth by the Supreme Court in Kern County, and illuminated by the Second Circuit in American Standard, to the normal, strict liability standard literally provided by § 16(b), is inapplicable to the instant facts. First, Heublein asserts that this is not a borderline or an unorthodox case, and that there is therefore no basis for pursuing a pragmatic analysis of the transactions involved. Further, even assuming the Court undertakes such a flexible analysis, Heublein argues that the transactions involved here do not place this case within the Kern County exception because (1) General Cinema's exchange of Old Heublein stock for Reynolds stock pursuant to the merger was not "involuntary," and (2) General Cinema's status was such that it had access to inside information. These arguments will be considered separately.

 1. The Unorthodox Nature of the Transaction

 The Court need not dwell long on Heublein's first contention that the transactions involved in this case should not be scrutinized in accordance with the subjective analysis followed in Kern County. In its submissions to the Court, Heublein characterizes Kern County as a "tender offer exception" applicable only to "a defeated, legitimate tender offeror." See Heublein's Brief in Opposition to Defendant's Motion at 41. From this erroneous premise, it naturally proceeds to the conclusion that because there was no tender offer in this case, there is no justification for even reaching the pragmatic approach. *fn8" This argument ignores the Supreme Court's rationale for adopting such an approach to § 16(b) liability in limited special circumstances.

 In Kern County the Court was concerned that because the statutory definitions of "purchase" and "sale" are so broad, certain "unorthodox transactions," not normally deemed purchases or sales might illogically be caught within the reach of § 16(b), extending the statute beyond its intended limits. See Kern County, supra, 411 U.S. at 593-95. As several courts have observed, early cases applying § 16(b) under the strict, objective standard produced a result which might be likened to throwing out the baby along with the bathwater. See, e.g., Makofsky v. Ultra Dynamics Corp., 383 F. Supp. 631, 637 (S.D.N.Y. 1974). Thus, the Supreme Court concluded that in these borderline cases involving an "unorthodox transaction," *fn9" a pragmatic approach by the courts in determining § 16(b) liability would best serve the statutory goal of preventing short-swing speculation based upon inside information, without reaching other conduct not giving rise to the potential for such abuse. See Kern County, supra, 411 U.S. at 594. Of course, in cases involving "garden variety" purchases and sales, however, the objective test for § 16(b) liability is still the rule. E.g., Makofsky, supra, 383 F. Supp. at 637.

 It is clear that a pragmatic inquiry is justified in this instance because the transaction sought to be classified as a "sale," a forced exchange of securities pursuant to a merger, is simply not a "garden variety" sale. This type of exchange was expressly mentioned by the Supreme Court as being within the class of "unorthodox transactions." Kern County, supra, 411 U.S. at 593 n.24. Whether this Court ultimately determines that General Cinema's transactions should be subject to § 16(b) liability is entirely irrelevant to whether it should make that determination by using this flexible type of analysis or, instead, by applying an objective standard. Simply because the Court undertakes a pragmatic analysis does not guarantee that the transaction under scrutiny will be exempt from § 16(b) liability. Rather, that approach only ensures that liability will not attach to transactions which do not threaten the evils § 16(b) is designed to prevent. Heublein's threshold argument is, therefore, rejected.

 2. The Involuntary Nature of the Transaction

 An exchange pursuant to a merger is "involuntary" under the Kern County analysis where the party making the exchange has an "utter inability . . . to control the course of events." American Standard, supra, 510 F.2d at 1054. Despite Heublein's overblown references to the frivolity of General Cinema's position, *fn10" I am persuaded that the exchange in question was "involuntary" under this standard.

 Once a merger was agreed upon by the boards of Old Heublein, Reynolds Tobacco, and Reynolds, General Cinema was utterly powerless to influence subsequent events. Although approval by a majority of Old Heublein's shareholders was necessary prior to consummation of the merger, Old Heublein's management had the necessary votes regardless of the stance adopted by General Cinema. As it turned out, Old Heublein's shareholders approved the transaction despite the negative vote by General Cinema of its 4,092,900 shares. *fn11" In this sense, the transaction is virtually identical to that in issue in Kern County. In that case, despite Occidental's failure to vote its shares either for or against the merger, the transaction was approved by a majority of Old Kern's shareholders. *fn12" The fact that Occidental was not in a position to affect the outcome of the vote was central to the Court's finding of "involuntariness," see Kern County, supra, 411 U.S. at 599, and it is a factor that is even more clearly present in the instant case, where General Cinema voted against the merger.

 Moreover, once the merger was approved, General Cinema, like Occidental in Kern County, was left with no viable alternatives concerning the future of its Old Heublein shares. A voluntary open-market sale at that point would have resulted in certain § 16(b) liability. See id. at 600. Nor do I believe that the existence of appraisal rights provided General Cinema with a more promising option. A decision to exercise those rights would likewise have constituted a voluntary election by General Cinema to exchange its shares of Old Heublein for cash. Although the Court in Kern County noted in passing that the merger in that case left the dissenters with no appraisal rights for their stock, see id., that observation should not be construed as a proclamation that the existence of an appraisal option will result in § 16(b) liability. Such a situation was simply not before that Court. *fn13"

 On close analysis, it is apparent that the existence of appraisal rights should not affect the involuntary nature of the transaction. Once the Old Heublein/Reynolds merger was approved, the nature of General Cinema's investment was bound to change. That change was forced by operation of the merger terms and not by any unilateral decision by General Cinema to alter its investment. Thus, the existence of a choice between alternative types of forced exchanges -- either into cash through appraisal or into stock in the merged company -- does not render the exchange voluntary. *fn14"

 Heublein also attempts to avoid the conclusion that General Cinema's exchange was forced by arguing that General Cinema's manner of purchasing Old Heublein stock gave it the ability to "control the course of events," and was specifically designed to cause Old Heublein to arrange a merger. Sophisticated speculation as to the probable reactions of another is not, however, a substitute for the ability to exert control over those reactions. Acquisitions based upon such speculation are not among the evils § 16(b) is designed to prevent when engaged in by those without inside information about the issuer. As the Second Circuit stated in American Standard :


It is not enough that a sophisticated tender offeror may assume that if his bid fails because of a defensive merger he will probably profit if the defensive merger actually occurs. Such speculation is common but is not the product of inside information. It is rather a sophisticated prophecy which is open to all public stockholders who possess no inside information whatever.

 510 F.2d at 1054-55. *fn15"

 General Cinema's prophetic assumption that Old Heublein's officers and directors would react to its presence as a substantial shareholder by arranging a merger with a third party simply does not constitute an ability to control the course of events, as alleged by plaintiff. The decision to react adversely to General Cinema's acquisitions was the free choice of the officers and directors of Old Heublein, none of whom was a representative of General Cinema. These officers and directors were in complete control of both the nature and timing of any response. Their decision to effect a merger with a third party within six months of many of General Cinema's purchases, and thereby subject General Cinema to possible § 16(b) liability, was an exercise of their exclusive power to run the affairs of Old Heublein. As the shareholder vote demonstrates, General Cinema was powerless to alter their chosen course. If they had not arranged such a merger, the mandatory disgorgement remedy of § 16(b) would effectively have prevented General Cinema from selling its shares within a six-month period after their acquisition. See generally Note, Exchange of Stock Pursuant to Merger is "Sale" by an Insider Under Section 16(b) of Securities Exchange Act of 1934, 84 Harv.L.Rev. 1012, 1022 (1971).

 Nor can it be said that a merger was a necessary consequence of General Cinema's purchases. Neither the manner of General Cinema's purchases nor any actions it took in connection therewith forced Old Heublein into the transaction its officers and directors ultimately arranged. If these officers and directors had not sensed a threat to their jobs and continued control over Old Heublein, they might not have reacted in the manner they did. No external factors were present to prevent the continued existence of Old Heublein with General Cinema as a substantial or even a majority shareholder. Nor were General Cinema's actions in acquiring a potentially influential stake in another company improper. Economic competition is, after all, the vitalizing force of the securities markets. It exists as much for the protection of investors as for the provision of profit opportunities. See also Note, Exceptions to Liability Under Section 16(b): A Systematic Approach, 87 Yale L.J. 1430, 1443 n.78 (1978). To find defendant's exchange "voluntary," and thereby obligate it to disgorge any profits to plaintiff, could seriously disrupt the free competition of the market place. *fn16" See id. Accordingly, for all the reasons discussed above, I conclude that defendant's exchange of shares pursuant to the Old Heublein/Reynolds Tobacco merger was an "involuntary" transaction. *fn17"

 3. Access to Inside Information/Potential for Speculative Abuse

 The principal distinction between the instant case and both Kern County and American Standard is that defendant here never made a formal tender offer. The important question for § 16(b) purposes, however, is whether General Cinema's position as an "unwelcome investor," *fn18" owning more than 10% of Heublein's outstanding common stock, afforded it access to inside information in a manner that raised the potential for speculative abuse, which was lacking in Kern County and American Standard. Although the question is not free of doubt, I conclude that an unwelcome investor who is forced to exchange his stock pursuant to a merger arranged by the issuer to rid itself of the investor's threat to obtain control should be treated for purposes of § 16(b) liability in the same manner as a defeated tender offeror who must make a similar exchange after losing the battle to a white knight. Such transactions simply do not give rise to a potential for speculative abuse.

 Plaintiff contends that the inside information to which General Cinema had access *fn19" was of three types: (1) confidential information concerning Old Heublein obtained by General Cinema from First Boston; (2) General Cinema's inside information concerning its own objectives and plans; and (3) nonpublic information obtained by General Cinema through direct contacts with Old Heublein's management. The first two of these three assertions can be briefly dismissed. The third, however, deserves fuller discussion.

 Through an affidavit of Jack Chisolm, Director of Corporate Development for Heublein, plaintiff states that during the period between 1979 and 1981, Old Heublein discussed with First Boston the possibility of Old Heublein's retaining First Boston as its investment advisor. Although that relationship was never established, Heublein alleges that First Boston came away from these meetings possessing an intimate familiarity with Old Heublein that was otherwise unavailable. This information, plaintiff contends, was later revealed to General Cinema while First Boston was acting as General Cinema's investment advisor.

 While this theory may well raise serious ethical questions concerning the conduct of First Boston, it has absolutely no bearing on General Cinema's possible § 16(b) liability. As the Second Circuit clearly stated in American Standard, for § 16(b) liability to be imposed on a statutory insider pursuant to an unorthodox transaction, it must have access to inside information by reason of its greater than 10% stock ownership. American Standard, supra, 510 F.2d at 1055. Assuming, arguendo, that First Boston improperly revealed confidential information about Old Heublein to General Cinema, those disclosures did not result from General Cinema's stock ownership. While the acquisition and use of such information might violate some other provision of the federal securities laws, it is not one of the evils which § 16(b) of the Act was designed to prevent. *fn20"

 Heublein's second contention that General Cinema's knowledge about its own objectives and plans somehow constitutes inside information is equally unavailing. *fn21" An investor always has knowledge about his own actions and intentions which does not derive from his relationship to the issuer. Nor does such knowledge suddenly become inside information because the investor thereafter becomes a greater than 10% shareholder. If General Cinema did not adequately comply with its statutory duties to disclose the purposes for its purchases of Old Heublein stock, then its conduct may well have constituted a violation of § 13(d) or some other provision of the Act, but not § 16(b). *fn22" This is not the type of abuse which gave rise to the proscriptions of that section. Accord Kern County, supra, 411 U.S. at 597-98 (insider's anticipation that its actions will result in defensive merger not dependent upon inside information; § 16(b) not designed to deter making of tender offers).

 The only troublesome issue concerns the possibility that General Cinema had access to inside information by virtue of its direct relationship to the issuer, Old Heublein. Plaintiff argues that because General Cinema never made a formal tender offer for Old Heublein and because Old Heublein's officers met with General Cinema in an attempt to repurchase the Old Heublein stock owned by General Cinema, defendant clearly had access to inside information. In American Standard, the court stated:


The very concept that stock ownership beyond a certain percentage makes the owner a statutory "insider" was based on the assumption that such percentage was enough to make him an "influential stockholder." The 10% holder in the garden variety case is presumed to be "influential" as a friend of management or in control of some directors.

 510 F.2d at 1055 (footnote omitted).

 Because the underlying facts are completely devoid of any suggestion that this type of influence existed, I conclude that § 16(b) access was not present in the instant case. Both Kern County and American Standard involved a hostile tender offer which is the antithesis of a control relationship. See id. But there is no merit in plaintiff's suggestion that these cases stand for the proposition that the only instance in which the presumption of "insider" status for a 10% shareholder can be rebutted is where there is a formal tender offer. The rationale for a pragmatic analysis is, after all, the need for examination of the opportunities for speculative abuse inherent in particular unorthodox situations, instead of applying an objective, and therefore mechanical and arbitrary, standard for § 16(b) liability.

 In the instant case, despite the absence of a formal declaration of war, such as is present in a tender offer situation, there are other clear indicia of Old Heublein's uncompromising hostility toward General Cinema's acquisitions. At all times from February 9, 1982, just before General Cinema became a 10% shareholder, through the consummation of the Old Heublein/Reynolds Tobacco merger, General Cinema was the defendant in a lawsuit brought by Old Heublein under § 13(d) of the Act. Plaintiff itself has characterized General Cinema as an "unwelcome investor." See note 17, supra. Moreover, it is undisputed that General Cinema had no control over any of Old Heublein's directors or any input into the company's management. On these facts, it is clear that the type of adversarial relationship that typifies a tender offer situation was present here, thus negating any implication of access to inside information by virtue of stock ownership exceeding 10%.

 The questionable aspect of the instant case, however, is the occurrence of repurchase discussions between Old Heublein and General Cinema. As noted above, Old Heublein first approached General Cinema in April 1982 with a proposal for an asset swap for reacquisition of its shares owned by General Cinema. Although an agreement was never reached, the parties did engage in negotiations before the proposal was ultimately rejected by General Cinema. During the course of these negotiations, Old Heublein provided defendant with certain nonpublic information concerning its wine business, *fn23" but expressly warranted that the material so provided was not "material information" under the federal securities laws. *fn24"

 Plaintiff now contends that by disclosing this nonpublic, but concededly nonmaterial, information to defendant, its predecessor was furnishing defendant with "inside" information. What constitutes inside information for § 16(b) purposes has never been clearly defined by either the Supreme Court or the Court of Appeals for this Circuit. The Ninth Circuit, however, in a case cited with approval by both parties, stated that:


Insider information, to which Section 16(b) is addressed, does not mean all information about the company that is not public knowledge. Insider information within the meaning of Section 16(b) encompasses that kind of confidential information about the company's affairs that would help the particular [investor] to make decisions, affecting his market transactions in [the issuers] securities.

 Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Livingston, 566 F.2d 1119, 1121 (9th Cir. 1978).

 Heublein asserts that this definition is unrelated to the concept of materiality applicable to other provisions of the federal securities laws, but I cannot agree.

 In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976), the Court held that information is material under § 14(a) of the Act if "there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote." Id. at 449. This same standard has been applied to other provisions of the Act, such as § 10(b) and § 14(e). See Seaboard World Airlines, Inc. v. Tiger International, Inc., 600 F.2d 355, 360-61 (2d Cir. 1979); Goldberg v. Meridor, 567 F.2d 209 (2d Cir. 1977), cert. denied, 434 U.S. 1069, 55 L. Ed. 2d 771, 98 S. Ct. 1249 (1978). In both letter and spirit, the Supreme Court's standard for "material" information is substantially the same as the definition of "inside" information set forth in Livingston. Both definitions encompass only information that would likely influence a reasonable investor's investment decision.

 Although Heublein urges that § 16(b) is specifically designed to avoid the necessity for an inquiry into whether material information was involved, that situation exists only where conventional transactions are involved and § 16(b) liability is imposed on an objective basis. When a court engages in a pragmatic analysis because an unorthodox transaction is involved, there are compelling reasons for applying a materiality standard in judging § 16(b) liability. Section 16(b) is concerned with preventing the speculative abuse of inside information. See Kern County, supra, 411 U.S. at 600. But it is only if the investor has access to material information that he might be able to exploit his advantage to the detriment of the general investing public. If information is not material, it is by definition not significant to an investment decision, and therefore it could not afford an opportunity for speculative abuse.

 Since Old Heublein expressly warranted that the information it provided to General Cinema was not material, there are compelling equitable reasons why plaintiff should not be permitted to seek General Cinema's profit by now claiming just the opposite. Moreover, the relationship between Old Heublein and General Cinema makes it appear highly unlikely that defendant would by its status have access to material inside information. The transaction then contemplated involved a transfer of assets to General Cinema in exchange for its Old Heublein shares. In these circumstances, Old Heublein's representatives could hardly be expected to disclose non-public information which would have made its shares appear more valuable to General Cinema. Even if they already envisioned the possibility of a merger with Reynolds or some other white knight, they would surely guard against any hint of such a contingency, which would tend to cause General Cinema to hold its shares in anticipation of the almost certain resulting rise in the market price. *fn25" Thus, under the instant facts, there exists nothing to suggest that General Cinema had access to material inside information.


 Because General Cinema had absolutely no control over the course of events chosen by Old Heublein's management, and because it was unlikely that General Cinema could have received any advance, inside information concerning these events, this is not the sort of transaction that could give rise to the type of speculative abuse against which § 16(b) is directed. Accordingly, the Court concludes that General Cinema's exchange of Old Heublein stock for Reynolds stock was not a "sale" under § 16(b) of the Act.

 Although a contrary result would have had the effect of precluding an outsider from buying up a large amount of a company's stock and thereby exerting pressure on the company's management, as described in footnotes 3 and 16 supra, it does not appear that § 16(b) was designed for that purpose. Cf. Kern County, supra, 411 U.S. at 597-98 ("If there are evils to be redressed by way of deterring those who would make tender offers, § 16(b) does not appear to us to have been designed for this task."). Allowing recovery on the instant facts would do nothing more than provide a windfall for the incumbent management of Heublein and its merger partners, Reynolds and Reynolds Tobacco. The shareholders of Old Heublein who participated in the merger received a premium over the market price for their shares precisely because of the merger. The only people who were injured if General Cinema has, in fact, done something improper are the former shareholders of Old Heublein who sold their stock to General Cinema during the period when General Cinema made its open-market purchases. But § 16(b) does not provide this class with any avenue of relief. If there are injuries to be redressed, the remedies lie elsewhere in the federal securities laws, possibly in § 10(b) of the Act or § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q, but not in § 16(b).

 For the reasons stated above, I find that there exists no material issue of fact and that defendant is entitled to judgment as a matter of law. See Rule 56, F.R.Civ.P. Defendant's motion for summary judgment dismissing the complaint is, therefore, granted.


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