Blue Chip Stamps v. Manor Drug Stores

PETITIONER: Blue Chip Stamps
RESPONDENT: Manor Drug Stores
LOCATION: Municipal Court of Dallas Texas

DOCKET NO.: 74-124
DECIDED BY: Burger Court (1972-1975)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 421 US 723 (1975)
ARGUED: Mar 24, 1975
DECIDED: Jun 09, 1975

ADVOCATES:
Allyn O. Kreps - for the petitioners
David Ferber - for the Securities and Exchange Commission, as amicus curiae, by special leave of Court
James E. Ryan - for the respondent

Facts of the case

Question

Media for Blue Chip Stamps v. Manor Drug Stores

Audio Transcription for Oral Argument - March 24, 1975 in Blue Chip Stamps v. Manor Drug Stores

Audio Transcription for Opinion Announcement - June 09, 1975 in Blue Chip Stamps v. Manor Drug Stores

William H. Rehnquist:

In Blue Chip Stamps versus Manor Drug Stores, the question is the validity of the so-called Birnbaum rule which may mean very little to the public at large or even to the Bar at large but is of considerable importance to the securities bar.

Respondent Manor Drug Stores brought suit against petitioner, Blue Chip Stamps and others under Section 10 of the 1934 Securities Exchange Act.

Manor Drug was an offeree of a registered stock offering of newly issued stock of Blue Chip which was required to be made under the terms of a previously entered antitrust consent decree.

Manor urged that Blue Chip had distributed a materially over pessimistic prospectus in connection with this offering in order to cause offerees not to purchase the offered stock.

And that it in fact had not purchased the offered stock because of the false prospectus.

Manor sought to recover damages for loss of the opportunity to purchase shares under Rule 10b-5 of the Securities and Exchange Commission Act which prohibits certain fraudulent conduct in connection with the purchase or sale of securities.

Despite the fact that Manor Drug was not an actual purchaser or seller of shares, the United States Court of Appeals for the Ninth Circuit held that it was not barred from recovering under Rule 10b-5.

We granted certiorari to review that holding and we now reverse the judgment of the Ninth Circuit.

Since the judgment in Birnbaum versus Newport Steel Corporation in 1952, a case decided by the Second Circuit, almost all of the lower Federal District Courts to be presented with the issue have held that the purchaser or seller status is a prerequisite to the maintenance of a private damage action under Rule 10b-5.

Efforts to change this longstanding rule by amendment of the statute have been uniformly unsuccessful and there is considerable evidence that the Birnbaum rule reflects the intention of Congress as expressed in the 1933 and 1934 Acts.

Since respondent Manor Drug is neither a purchaser nor a seller of securities as defined in the 1934 Act and required by the Birnbaum rule, it cannot bring a 10b-5 damage action.

The judgment of the Court of Appeals for the Ninth Circuit is therefore reversed.

Mr. Justice Powell joined by Mr. Justice Stewart and Mr. Justice Marshall, while joining the opinion of the Court has filed a concurring opinion.

Mr. Justice Blackmun, joined by Mr. Justice Douglas and Mr. Justice Brennan, has filed a dissenting opinion.

Warren E. Burger:

Thank you Mr. Justice Rehnquist.