Bateman Eichler, Hill Richards, Inc. v. Berner

PETITIONER: Bateman Eichler, Hill Richards, Inc.
LOCATION: United States Courthouse

DOCKET NO.: 84-679
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 472 US 299 (1985)
ARGUED: Apr 15, 1985
DECIDED: Jun 11, 1985

Bruce M. Kuhlik - on behalf of Securities and Exchange Commission as amicus curiae in support of Respondents
Bruce Neil Kuhlik - for S.E.C. as amicus curiae in support of the respondents, by special leave of Court
Geoffrey P. Knudsen - on behalf of Respondents
Robert S. Warren - on behalf of Petitioner

Facts of the case


Media for Bateman Eichler, Hill Richards, Inc. v. Berner

Audio Transcription for Oral Argument - April 15, 1985 in Bateman Eichler, Hill Richards, Inc. v. Berner

Warren E. Burger:

We'll hear arguments next in Bateman Eichler against Berner.

Mr. Warren, I think you may proceed whenever you are ready.

Robert S. Warren:

Mr. Chief Justice, and may it please the Court:

This case presents the issue of whether a tippee who knowingly receives inside information in breach of fiduciary duty, intending to use it to defraud others, may in turn sue his tipper under Section 10 of the Securities Exchange Act.

The case arose in the context of a suit before the United States District Court in San Francisco.

A Judge Schwarzer dismissed the action on motion on the basis of the following critical allegations of the complaint.

The Plaintiffs alleged that they had invested in a company known as TONM that was engaged in exploration for gold in Surinam.

They said that they did so by obtaining information directly or indirectly through the Defendant broker of a number of matters, but the following was the essential point, and that was that there was a developed gold find in Surinam, and that there would shortly be announced a joint venture with a major mining company in order to exploit that gold find.

The complaint recites that they were told that this was inside information obtained from a president or a vice president of TONM.

They said that they purchased shares of stock in TONM over a period of time from November 1979 until 1981 on the premise that this was inside information from that source.

Warren E. Burger:

Was that a violation of the securities laws?

Robert S. Warren:

At that particular point there is a suggestion that it would be, Mr. Chief Justice.

However, it was confirmed by what happened in or about april of 1980 when they contacted Mr. Neadeau directly.

Mr. Neadeau was alleged to be the president of TONM, and they asked Mr. Neadeau whether this information that they had learned from the broker, Mr. Lazzaro, was true, and they were told by Mr. Neadeau as follows: first, that he could not confirm or deny that information; second, he told them why, because it was not yet public.

Then he told them when it would be public.

He said you will have to wait until you see the annual report.

And then to make sure that there was no misunderstanding, that the information might be inaccurate, he told them that Mr. Lazzaro, the broker, was a very trustworthy and a good man.

Warren E. Burger:

And you suggest that was a signal that in effect was a violation of the act?

Robert S. Warren:


I suggest that the following is true, that under the analysis of this Court in Dirks, that that conduct, their subsequent trading with that information, that inside information, was in fact a violation of Section 10 of the Act, for the following reasons.

The duty in question is derivative from Mr. Neadeau.

Mr. Neadeau is the person with the fiduciary responsibility.

As President of that company he had a fiduciary responsibility to his stockholders not to selectively tell a broker and that broker's customers so that that broker's customers could trade, that broker could earn commissions, that broker's own stock could be benefitted... and these parties were told about the stock of Mr. Lazzaro and his family.

Sandra Day O'Connor:

Well, Mr. Warren, is the tippee liable derivatively through Lazzaro or directly, in your view, from Mr. Neadeau?

Robert S. Warren:

The tippee here, Justice O'Connor, is liable both directly from Mr. Neadeau, through the contact with Mr. Neadeau, and derivatively by virtue of being, if you will, a subtippee from Mr. Lazzaro, knowing of Mr. Neadeau's involvement or of some counterpart of Mr. Neadeau.

Sandra Day O'Connor:

We have to look at this based on the face of the complaint, do we not?

Robert S. Warren:

Exactly we do.

Sandra Day O'Connor:

And the complaint does not say, of course, how Mr. Lazzaro got his information or what it was that Mr. Neadeau told Mr. Lazzaro, if anything.

Robert S. Warren:

That is correct.

All we know is--