Brief Fact Summary. Respondent, Emerson Electric Co., sold its 13.2% stake in Dodge Manufacturing Co. in two parts within six months of purchasing the shares. Petitioner, Reliance Electric Co., brought suit to claim the profits under Section:16(b) of the Securities and Exchange Act of 1934.
Synopsis of Rule of Law. A company can split its sale of shares into more than one part to reduce their holdings under the statutory minimum percentage of shares (10%) to reduce their liability under Section:16(b).
We are not free to adopt a construction that not only strains, but flatly contradicts, the words of the statute.View Full Point of Law
Issue. The issue is whether, under Section:16(b), Respondent is liable for surrendering the profits from both sales.
Held. The United States Supreme Court held that Respondents were not liable for the profits from the second sale of stock. When Respondent made the second sale, they only owned a 9.96% share of Dodge which was under the statutory threshold for Section:16(b). The fact that Respondent split the transaction to intentionally avoid liability does not matter.
Dissent. The dissent believes that Respondent should not be able to avoid liability by splitting the sale into two parts. The majority’s holding is contrary to the intention of the statute to avoid short-swing profits my parties with substantial stakes in a company.
Discussion. The Court’s majority left it to the legislature to modify Section:16(b) to avoid the result in this case. But the holding immunizes the first ten percent of transactions under the Act through clever accounting.