Foremost-McKesson, Inc. v. Provident Securities Company
United States Supreme Court
423 U.S. 232 (1976)
In October 1969, Provident Securities Company (Provident) (plaintiff) purchased debentures from Foremost-McKesson, Inc. (Foremost) (defendant) that were immediately convertible to more than 10 percent of Foremost’s outstanding stock. At the time of the purchase, Provident owned less than 10 percent of Foremost’s stock. Shortly thereafter, Provident sold the debentures to an underwriter and distributed the proceeds from the sale to its stockholders. Knowing that it may be liable under Section 16(b) of the Securities Exchange Act of 1934 (Section 16(b)), Provident brought an action for a judgment declaring that it was not liable to Foremost for its profits from the debenture sale on the grounds that it did not hold a 10 percent interest in Foremost before the debenture purchase. The district court granted Provident’s motion for summary judgment and the United States Court of Appeals for the Ninth Circuit affirmed. The United States Supreme Court granted certiorari.
Rule of Law
Holding and Reasoning (Powell, J.)