Wellman v. Dickinson - 682 F.2d 355 (2d Cir. 1982)

Rule:

A group, under §13(d) (3), 15 U.S.C.S. § 78m(d)(3), is defined as an aggregation of persons or entities who act for the purpose of acquiring, holding, or disposing of securities. The statute contains no requirement, however, that the members be committed to acquisition, holding, or disposition on any specific set of terms. Instead, the touchstone of a group within the meaning of § 13(d) is that the members combine in furtherance of a common objective. The concerted action of the group's members need not be expressly memorialized in writing. 

Facts:

This appeal arose from seven separate actions brought against defendant-appellant, Fairleigh S. Dickinson, Jr., and eleven other defendants, for alleged violations of the federal securities laws, New Jersey state law, and the rules of the New York Stock Exchange. These seven actions included an enforcement action brought by the Securities and Exchange Commission ("SEC"), a private action filed by Becton, Dickinson & Company ("Becton") and certain of its officers, and five class actions brought on behalf of certain Becton shareholders. All seven actions stemmed from the acquisition by Sun Company, Inc. of approximately 34% of the outstanding stock of Becton, a New Jersey corporation engaged in the manufacture of health care products and medical testing and research equipment. The actions were consolidated for a bench trial before the Honorable Robert L. Carter, District Judge of the Southern District of New York. By agreement of the parties, the consolidated trial was bifurcated on the issues of liability and damages. On the issue of liability, Judge Carter held, inter alia, that Dickinson, in an effort to induce a third-party takeover or partial takeover of Becton, had violated Section 13(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(d) (1976), when he joined a group to sell more than 5% of the company's common stock without making the requisite filings with the SEC, Becton, and the exchange on which the securities were traded. Before the trial on damages commenced, the SEC withdrew its request for relief from Dickinson other than a judicial declaration that Dickinson had violated Section 13(d). Accordingly, by order entered on February 19, 1980, Judge Carter adhered to the court's findings concerning Dickinson's liability and, with the SEC's consent, terminated with prejudice its enforcement action against Dickinson. On July 31, 1980, Judge Carter issued a final opinion addressing, inter alia, the class plaintiffs' claims for damages or disgorgement of profits against Dickinson and other members of the group found to have violated Section 13(d). Judge Carter held that these plaintiffs had no right to monetary relief against Dickinson for a number of reasons, including their failure to demonstrate that the Section 13(d) violations directly caused any injury to the class. Thus, the district court entered a final judgment on September 29, 1980, denying the class plaintiffs' claims for disgorgement and other monetary relief against Dickinson for his violation of Section 13(d). Dickinson appeals from this final judgment and all prior orders in this case finding that he violated Section 13(d) of the Securities Exchange Act of 1934. Dickinson contends that plaintiffs have failed to prove either that the purported members of the Section 13(d) group had beneficial ownership of sufficient Becton stock to form a group with him, or that he had entered an agreement with anyone to dispose of Becton stock either directly or indirectly through agents. The class plaintiffs cross-appeal from those portions of the September 29, 1980 judgment denying their claims for disgorgement and other monetary relief against Dickinson and from the dismissal of their claims for breach of fiduciary duty against Dickinson. On appeal, the class plaintiffs renew their argument that Dickinson breached his fiduciary duty to the shareholders of Becton, and that he must disgorge a portion of the profits he obtained as a result of his actions in violation of Section 13(d) and in breach of his fiduciary duty.

Issue:

Did the district court err in ruling that Dickinson et. al,  violated § 13(d) of the Securities Exchange Act, 15 U.S.C.S. § 78m(d)?

Answer:

No

Conclusion:

The court held that the evidence supported the district court's ruling that Dickinson and others, in seeking to effectuate a shift in corporate control, reached an agreement to act in concert in disposing of shares, but failed to disclose this fact as required by § 13(d). The court agreed that plaintiffs were not entitled to relief, as they did not suffer damages from the violation.