## Facts

- A stockholder of Tide Water Associated Oil Company brought a derivative action under §16(b) of the Securities Exchange Act of 1934 seeking recovery of short-swing profits.
- Tide Water’s equity securities were registered on a national securities exchange.
- Lehman Brothers, a partnership engaged in securities trading, bought and sold Tide Water securities within a six-month period and realized profits.
- Joseph A. Thomas, a Lehman partner, served as a director of Tide Water during the relevant period.
- The plaintiff alleged Lehman “deputed” Thomas to represent the partnership on Tide Water’s board and that Thomas used inside information to cause the partnership’s trades.
- After a bench trial, the district court found no deputization and no use of inside information; it found the partnership traded based on public announcements and without consulting Thomas.
- Thomas had disclaimed any participation in the partnership’s risk or profit from the Tide Water transactions, and the partnership accepted the disclaimer.
- The district court held Thomas liable only for his proportionate share of the partnership’s profits and denied prejudgment interest; the court of appeals affirmed.

## Issues

1. Whether the district court’s findings rejecting deputization and use of inside information were clearly erroneous.
2. Whether a partnership is liable under §16(b) as a “director” solely because a partner is a corporate director, including under a deputization theory.
3. Whether a director-partner is liable under §16(b) for the entire partnership’s short-swing profits or only for profits realized by the director.
4. Whether denial of prejudgment interest on the recovery was an abuse of discretion.

## Decision

- The Supreme Court affirmed.
- The lower courts’ factual findings were not clearly erroneous, including findings that the partnership neither deputized Thomas nor traded using his inside information.
- Lehman Brothers was not liable under §16(b) because it was not an officer, not a more-than-10% beneficial owner, and—on the facts found—did not function as a director through deputization.
- Thomas was liable only for profit realized by himself (his share), not for all profits earned by the partnership.
- Denial of prejudgment interest was not so unfair or inequitable as to require reversal.

## Legal Principles

- §16(b) imposes strict liability for short-swing profits only on the statutory insider categories: directors, officers, and more-than-10% beneficial owners.
- A partnership is not an §16(b) insider merely because one partner is a director; partnership liability as a “director” requires a factual basis that the firm actually functioned as a director through a deputized partner.
- The statutory definition of “person” to include partnerships does not, by itself, expand §16(b) to make the entire partnership liable whenever a partner serves as a director.
- A director’s §16(b) liability may be limited to profits realized by the director, rather than all profits realized by the director’s firm, absent a basis to attribute the firm’s profits to the director.
- Awards of prejudgment interest in §16(b) recoveries are reviewed for fairness and equity, and denial will be upheld absent an abuse of discretion.

## Conclusion

The Court upheld factual findings rejecting deputization and insider-information use, refused to treat a director’s partnership as an automatic §16(b) insider, limited the director’s liability to his own share of the short-swing profits, and affirmed denial of prejudgment interest.


Blau v. Lehman, 368 U.S. 403 (1962)