## Facts

- United Artists Communications, Inc. (United Artists) was a nationwide motion-picture distributor and exhibitor.
- Joseph R. Crotty worked for United Artists as head film buyer for its western division, covering six western states.
- In that role, Crotty supervised staff and had substantial autonomy in selecting and booking films for distribution, but his work was limited to that regional buying function.
- United Artists later elected Crotty a vice president; the company treated the title as largely honorary.
- After receiving the vice-president title, Crotty’s day-to-day responsibilities did not change, and he received no increase in compensation.
- While holding the vice-president title, Crotty bought and sold United Artists stock within a six-month period and realized a large profit.
- C.R.A. Realty Corporation (CRA), a United Artists shareholder, brought a derivative action under § 16(b) of the Securities Exchange Act of 1934 to recover Crotty’s short-swing trading profits for the issuer.
- After a trial, the U.S. District Court for the Southern District of New York (Carter, J.) dismissed the complaint, finding Crotty was not an “officer” within the meaning of § 16(b) because he was a middle-management employee without regular access to confidential corporate financial plans or future operations information.
- CRA appealed to the Second Circuit.

## Issues

1. For § 16(b) purposes, is “officer” status determined by an employee’s actual functions rather than by a formal corporate title such as “vice president”?
2. On the trial record, did Crotty’s responsibilities and information access make him an “officer” subject to § 16(b) short-swing profit disgorgement?

## Decision

- The Second Circuit affirmed the judgment dismissing CRA’s § 16(b) claim.
- The court held that an employee’s functions, not the corporate title alone, determine whether the employee is an “officer” within the meaning of § 16(b).
- The court agreed with the district court’s factual finding that Crotty’s duties were those of a middle-management regional film buyer and did not place him in a role that typically provides regular access to confidential information about the company’s financial plans or future operations.
- Because Crotty was not an § 16(b) “officer,” his short-swing trading profits were not recoverable under the statute.

## Legal Principles

- Section 16(b) imposes strict liability for short-swing profits on directors, officers, and 10% beneficial owners, allowing the issuer (or a shareholder suing derivatively on the issuer’s behalf) to recover profits from covered insiders.
- Whether an employee is an “officer” for § 16(b) is a functional inquiry; a title such as “vice president” is not, by itself, controlling.
- In deciding “officer” status, courts look to the employee’s real responsibilities and whether the position is one that ordinarily carries regular access to confidential, market-moving corporate information.
- Once a person is within a covered § 16(b) category, liability does not depend on proof of actual misuse of nonpublic information; however, the likelihood of such information access can matter when determining whether the person falls within the statutory category in the first place.
- Appellate review accepts the trial court’s supported factual findings about the employee’s job functions and information access unless clearly erroneous, and then applies the legal standard to those facts.

## Conclusion

The Second Circuit affirmed dismissal of CRA’s derivative § 16(b) action, holding that Crotty’s “vice president” title did not make him an “officer” because his unchanged, regional film-buying duties were middle-management in character and did not typically provide regular access to confidential corporate financial planning or operational information targeted by § 16(b).


C.R.A. Realty Corp. v. Crotty, 878 F.2d 562 (1989)