## Facts

- Emerson Electric Co. acquired about 13.2% of Dodge Manufacturing Co. stock in June 1967 at roughly $63 per share during a takeover attempt.
- Dodge shareholders rejected Emerson’s bid and approved a merger with Reliance Electric Co.; Dodge became part of Reliance, and Emerson’s shares became an investment in a competitor.
- After the merger increased the stock price to about $68–69 per share, Emerson sought to dispose of its position while limiting exposure under Securities Exchange Act § 16(b).
- Emerson executed a two-step disposition within six months of its purchase:
  - Emerson sold 37,000 shares to a broker, reducing its ownership from 13.2% to 9.96%.
  - Emerson then sold its remaining shares back to Dodge/Reliance.
- Emerson conceded and paid § 16(b) profits on the first sale because it exceeded 10% ownership at both the purchase and that sale.
- Emerson refused to disgorge profits on the second sale, asserting it was below 10% ownership at the time of that sale.
- Reliance (as Dodge’s successor) demanded profits from both sales, arguing the two steps were a single plan designed to evade § 16(b).

## Issues

1. Whether § 16(b) permits recovery of profits from a sale within six months of purchase when the seller was a >10% beneficial owner at purchase but reduced holdings below 10% before the sale.
2. Whether courts may treat a two-step disposition as an integrated transaction based on evasion motive, despite the statute’s ownership-at-purchase-and-sale language.

## Decision

- The Supreme Court affirmed the court of appeals.
- Emerson was liable under § 16(b) for profits on the first sale made while it was a >10% beneficial owner.
- Emerson was not liable under § 16(b) for profits on the second sale because it owned only 9.96% at the time of that sale.
- The Court declined to aggregate the two sales under an integrated-plan or step-transaction approach.

## Legal Principles

- Section 16(b) imposes disgorgement only if the defendant is a beneficial owner of more than 10% of the relevant class of equity securities at both the time of purchase and the time of sale that generates the short-swing profit.
- Section 16(b) applies through objective ownership thresholds and timing rules; liability does not turn on the trader’s purpose in structuring transactions.
- Courts should not expand § 16(b) by treating separate transactions as one based on a purported overall plan when doing so would override the statute’s explicit ownership-status requirement at the time of each matched purchase and sale.

## Conclusion

Because § 16(b) requires more-than-10% beneficial ownership at the time of both purchase and sale, Emerson’s reduction to 9.96% before the second sale removed that transaction from § 16(b), even if the reduction was intended to avoid short-swing profit liability.


Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418 (1972)