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plaintiffliabilityappealcorporation

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Feder v. Martin Marietta Corp., 406 F.2d 260

Facts

The plaintiff, a stockholder of Sperry Rand Corporation, initiated this action after making a demand on Sperry that was not complied with. The action was based on § 16(b) of the Securities Exchange Act of 1934, seeking to recover profits from Martin Marietta's trading of Sperry stock. George M. Bunker, the President of Martin Marietta, served as a director of Sperry from April to August 1963, during which time Martin purchased 101,300 shares of Sperry stock. The district court found no evidence of deputization, leading to the dismissal of the case.

Issue

Whether Martin Marietta Corporation can be considered a 'director' of Sperry Rand Corporation under § 16(b) of the Securities Exchange Act due to the actions of its executive, George M. Bunker.

Rule

Section 16(b) of the Securities Exchange Act of 1934 imposes liability on insiders for profits realized from short-swing transactions, regardless of intent or possession of confidential information. The court recognized the 'deputization theory' which allows for an entity to be treated as a director if it has effectively deputized an individual to act on its behalf.

Section 16(b) of the Securities Exchange Act of 1934 imposes liability on insiders for profits realized from short-swing transactions, regardless of intent or possession of confidential information.

Analysis

The court applied the rule by examining the relationship between Bunker and Martin Marietta, concluding that Bunker acted as a deputy for Martin while serving on Sperry's board. The evidence indicated that Bunker had significant control over Martin's investments and was privy to inside information about Sperry, which he could have used to benefit Martin. The court found that the district court had erred in its findings and that the evidence supported the conclusion that Martin was a director of Sperry under the deputization theory.

The court applied the rule by examining the relationship between Bunker and Martin Marietta, concluding that Bunker acted as a deputy for Martin while serving on Sperry's board.

Conclusion

The Court of Appeals reversed the district court's decision and remanded the case for further proceedings, holding that Martin Marietta must disgorge the profits made from Sperry stock transactions conducted while Bunker was a director.

Who won?

The plaintiff, a stockholder of Sperry Rand Corporation, prevailed in the appeal as the court found that Martin Marietta was liable for short-swing profits under § 16(b). The court's reasoning was based on the application of the deputization theory and the evidence of Bunker's control over Martin's investments.

The plaintiff, a stockholder of Sperry Rand Corporation, prevailed in the appeal as the court found that Martin Marietta was liable for short-swing profits under § 16(b).

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