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Blau v. Lehman

United States Supreme Court
368 U.S. 403 (1962)


Joseph A. Thomas (defendant) was a partner of Lehman Brothers (Lehman) (defendant) and a director of Tide Water Associated Oil Company (Tide). In a six-month period between 1954 and 1955, Lehman bought and sold 50,000 shares of Tide stock for a profit of $98,686.77. Tide shareholder Blau (plaintiff) brought a derivative suit in district court on behalf of Tide to recover the profits Lehman made on the transactions under the Securities and Exchange Act of 1934 (SEA), 15 U.S.C. § 16(b). Blau claimed Thomas was a deputy of Lehman and used inside knowledge to counsel Lehman in the transactions. At the bench trial, there was evidence that Lehman member Hertz had taken a position on Tide’s board to benefit Lehman and recommended Thomas to replace him for that reason. Evidence was also presented that Thomas did not use his Tide knowledge to help Lehman, did not provide counsel or even know about the transactions in question beforehand, and disclaimed any profits from the transactions. The court found that under Rattner v. Lehman, 193 F.2d 564 (2d Cir. 1952), Lehman was not liable for the profits due to Thomas’ board membership. Nevertheless, the court held Thomas liable for $3,893.41, his share of the profits realized. The United States Court of Appeals for the Second Circuit affirmed. The Securities and Exchange Commission (SEC) moved for permission to file an amicus petition for rehearing en banc, but was refused. Blau petitioned the United States Supreme Court for certiorari, which was granted.

Rule of Law


Holding and Reasoning (Black, J.)

Dissent (Douglas, J.)

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