## Facts

- Texas International Airlines (TI) sought to gain control of National Airlines and, by March 14, 1979, was a more-than-10% beneficial owner of National’s common stock.
- On March 14, 1979, TI purchased 121,000 shares of National common stock in open-market transactions.
- National had a pending merger agreement with Pan American World Airways (Pan Am) under which Pan Am would pay at least $50 cash per National share (subject to conditions and shareholder approval).
- On July 28, 1979 (less than six months after TI’s March 14 purchase), TI agreed to sell 790,700 shares of National common stock to Pan Am for $50 per share; the sale closed on July 30, 1979.
- The 790,700-share block was treated as including the 121,000 shares TI purchased on March 14, creating a purchase-and-sale match within six months.
- TI sued for a declaratory judgment that it owed no disgorgement under § 16(b) of the Securities Exchange Act of 1934; National counterclaimed to recover TI’s short-swing profits.
- The district court granted summary judgment for National, and TI appealed.

## Issues

1. Whether TI, as a more-than-10% beneficial owner, was strictly liable under § 16(b) for profits from a purchase and sale of National stock within a period of less than six months.
2. Whether TI could avoid § 16(b) liability by arguing (a) lack of access to inside information, (b) equitable considerations tied to a takeover contest, or (c) characterization of the sale as an exempt “unorthodox transaction.”

## Decision

- The Fifth Circuit affirmed summary judgment for National.
- TI was a statutory insider (more-than-10% beneficial owner) and executed a purchase and sale within six months; the statutory conditions for § 16(b) disgorgement were met.
- Arguments based on TI’s asserted nonaccess to inside information and equitable considerations could not defeat § 16(b)’s strict-liability rule.
- TI’s voluntary cash sale to Pan Am was not an “unorthodox transaction” that would take the trade outside § 16(b).

## Legal Principles

- Section 16(b) is a mechanical, strict-liability disgorgement rule: when a covered insider realizes profit from a purchase and sale (or sale and purchase) within six months, the profit is recoverable by the issuer regardless of intent.
- Defenses premised on lack of actual misuse of nonpublic information, or on equitable fairness in the context of control contests, do not negate § 16(b) liability when its objective elements are satisfied.
- The “unorthodox transaction” concept is narrowly limited and generally does not exempt a voluntary, negotiated cash sale of stock, even if it occurs against the background of a merger or takeover activity.
- Summary judgment is appropriate in § 16(b) cases when insider status, matched transactions within six months, and resulting profits are established without genuine dispute.

## Conclusion

The court held TI liable to disgorge short-swing profits because it was a more-than-10% beneficial owner that purchased and sold National stock within six months, and § 16(b) does not allow avoidance based on nonaccess to inside information, equitable arguments, or labeling a voluntary cash sale as an “unorthodox transaction.”


Tex. Int’l Airlines, Inc. v. Nat’l Airlines, Inc., 714 F.2d 533 (5th Cir. 1983)