Brief Fact Summary. Blue Chip Stamps (Defendant) was obligated to offer shares of itself to vendors who has utilized the stamp service under an antitrust consent decree. A member of said class of vendors, Manor Drug Stores (Plaintiff) claimed that Blue Chip’s prospectus was deceptive, and as a result did not purchase the stock.
Synopsis of Rule of Law. A person who is not a â€œpurchaserâ€ or a â€œsellerâ€ may not sue under Rule 10b-5, and an offeree who chooses not to buy stock is not a â€œpurchaserâ€ or a â€œsellerâ€ under the Rule either. Even when the offeree is a member of the limited class and claims that he would have bought stock had he not been deceived by a fraudulent prospectus this hold true.
Issue. Can an offeree who is a member of the limited class, choose not to buy stock but claims that he would have bought stock had he been provided an honest prospectus, bring a 10b-5 action?
Held. (Rehnquist, J.) No. We embrace the holding of the Second Circuit in the 1952 Birnbaum case, 193 F2.d 461 (2d Cir. 1952). That rule demands that a plaintiff must be either a seller or a buyer to seek a remedy under 10b-5 and we reinforce this rule both through contemplation of legislative history and by policy deliberations. The SEC had attempted to get Congress to amend 10b-5 to contain â€œany attempt to purchase or sell a securityâ€, but Congress had declined to do this. Congress desired to restrict 10b-5 to cases of â€œactual damageâ€, and without Birnbaum, evidence of damage would be too theoretical. Regarding policy considerations,the Birnbaum rulemay incite the offerees, knowing that they would not be subject to summary judgment would sue to push the corporate defendant to settle out of court,would lead to â€œstrike suitsâ€.Â The evidence presented by an offeree at trial would be too subjective, seeing as no objective criteria could assistin measuring plaintiff’s dependence on the prospectus. In conclusion, Manor Drugs has no contractual right to a Birnbaum rule. Manor Drugs was a member of a limited class, but permitting them to utilize the rule would lead to a breakdown of the Birnbaum rule. Reversed.
Discussion. Manor Drugs seems to be a very significant case understanding 10b-5. The majority could have restricted itself to the constricted issue of if an antitrust decree was an exemption to Birnbaum.Â Instead, an extravagantexplanation for the Birnbaum doctrine was launched into by Judge Rehnquist. This could be received as a signal by lower courts that the Supreme Court does not support any additional extension of 10b-5. This would be significant in the area of corporate mishandling where a â€œpurchaserâ€ or â€œsaleâ€ is frequentlyhard to find. On the other hand, lower courts may read Manor Drugsclosely, and useit only where the concern involves the presence of a â€œcontractual rightâ€ to buy or sell. Regardless of the outcome, the Birnbaum doctrine, once declared nonexistent by most critics, seems today to be thriving.