Schoenbaum v. Firstbrook

405 F.2d 200 (2d Cir. 1968)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Banff is a Canadian corporation and conducts all of its operations within Canada. Its common stock is registered with the SEC and traded upon both the American Stock Exchange and the Toronto Stock Exchange. Aquitaine Company of Canada, Ltd. (D) acquired control of Banff through a tender offer to Banff shareholders in the United States and Canada. Aquitaine is a wholly owned subsidiary of a French corporation, Societe National des Petroles d'Aquitaine, which in turn is a subsidiary of Enterprises for Research and Activities in Petroleum (ERAP), a French governmental oil agency. Banff and Aquitaine (D) entered into an agreement to conduct joint oil explorations with Socony Mobil. Banff received a 5% interest, and Aquitaine (D) received a 45% interest, pursuant to their joint exploration agreement, with the drilling costs to be paid 10% by Banff and 90% by Aquitaine (D). Banff's Board of Directors voted to offer to sell 500,000 shares of Banff treasury stock to Aquitaine (D) at the current market price allegedly for the purpose of financing Banff's share of the exploration expenses. Banff issued a press release announcing that Aquitaine (D) 'intended to purchase' 500,000 shares of common stock at the price of $1.35 per share, the closing price on the Toronto Stock Exchange on December 11, 1964. Actual delivery of the shares took place on March 16, 1965. On February 6, 1965, the test well flowed oil to the surface on a drillstem test. This information was released to the public on February 8. The well reached total depth on March 17, 1965, the day after delivery on the Aquitaine purchase. On March 18, Banff issued a press release indicating that the discovery well was completed and that no further information would be disclosed in the immediate future. A further release on April 20 explained that the company was taking advantage of the Alberta law permitting it to withhold information on its discovery for one year to reduce competition from other companies in bidding on government oil lands in the discovery area. Further exploration activity was undertaken. In September 1965, Banff announced a 3 1/3% interest and Aquitaine (D) has a 30% interest, in a new company to build a pipeline into the area. Banff's Board of Directors authorized negotiation of sales of treasury shares of common stock at $6.75 per share or more. Paribas Corporation negotiated a purchase of 270,000 shares of Banff Common at $7.30 per share, the current price on the Toronto Stock Exchange, on behalf of Banque de Paris et des Pays-Bas pour le Grand Duche de Luxembourg, another subsidiary of Banque de Paris. P brought this suit alleging that 'For some time prior to February 6, 1965, Aquitaine (D) and the other Ds knew Banff had exceptionally valuable oil properties located in the Rainbow Lake area in Alberta, Canada.' P alleged that the Aquitaine (D) purchase of 500,000 treasury shares at $1.35 per share took place March 15, 1965, and that the Paribas purchase of 270,000 shares at $7.30 on January 24, 1966, was on behalf of 'affiliates, business associates and friends' of Aquitaine (D) and its parent companies, and that Ds withheld information until March 16, 1966, in order to purchase the treasury shares at an artificially low market price, paying to Banff $10,000,000 less than the stock's fair market value. P predicated subject matter jurisdiction under Section 27, which gives the district courts exclusive jurisdiction over all 'actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder.' The district court concluded that the Act has no extraterritorial application and that therefore no liability arose under the Act with regard to the sales in question, which took place in Canada between foreign buyers and sellers. P appealed.