Thursday, November 7, 2013

Blue Chip Stamps v. Manor Drug Stores case brief

Blue Chip Stamps v. Manor Drug Stores case brief summary
421 U.S. 723 (1975)

Petitioners challenged a decision of the United States Court of Appeals for the Ninth Circuit, which reversed the district court and held that respondent could maintain an action under Rule 10b-5, 17 C.F.R. § 240.10b-5, alleging the distribution of a misleading prospectus by petitioners, even though respondent had not purchased or sold any of the offered securities.

As part of an antitrust consent decree, petitioner corporation was required to offer shares of common stock to a group of retailers, which included respondent. Respondent did not purchase any stock, but later sued the corporation and its shareholders under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, 17 C.F.R. § 240.10b-5, alleging it had not purchased stock due to a prospectus that was misleading as it was overly pessimistic regarding the corporation's status. The district court dismissed respondent's complaint, which the court of appeals reversed.

  • The court reversed and concluded respondent was not entitled to sue for a violation of Rule 10b-5, and held that a plaintiff class, for purposes of a private action under § 10(b) and Rule 10b-5, was limited to actual purchasers and sellers of securities. 
  • Moreover, the court declined to create an exception to that rule, as the court of appeals had, that would permit an offeree of securities pursuant to a consent decree, such as respondent, to sue under Rule 10b-5 regardless of whether it had purchased securities, at least in the absence of a contractual right or duty to purchase.


The court reversed.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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