Blue Chip Stamps v. Manor Drug Stores Case Brief

Why is the case important?

Blue Chip Stamps (Defendant) was obligated to offer shares of itself to vendors who has utilized the stamp service under an antitrust consent decree. A member of said class of vendors, Manor Drug Stores (Plaintiff) claimed that Blue Chip’s prospectus was deceptive, and as a result did not purchase the stock.

Facts of the case

Question

Can an offeree who is a member of the limited class, choose not to buy stock but claims that he would have bought stock had he been provided an honest prospectus, bring a 10b-5 action?

Answer

“(Rehnquist, J.) No. We embrace the holding of the Second Circuit in the 1952 Birnbaum case, 193 F2.d 461 (2d Cir. 1952). That rule demands that a plaintiff must be either a seller or a buyer to seek a remedy under 10b-5 and we reinforce this rule both through contemplation of legislative history and by policy deliberations. The SEC had attempted to get Congress to amend 10b-5 to contain “any attempt to purchase or sell a securityâ€, but Congress had declined to do this. Congress desired to restrict 10b-5 to cases of “actual damageâ€, and without Birnbaum, evidence of damage would be too theoretical. Regarding policy considerations,the Birnbaum rulemay incite the offerees, knowing that they would not be subject to summary judgment would sue to push the corporate defendant to settle out of court,would lead to “strike suitsâ€.Â&nbsp

  • The evidence presented by an offeree at trial would be too subjective, seeing as no objective criteria could assistin measuring plaintiff’s dependence on the prospectus. In conclusion, Manor Drugs has no contractual right to a Birnbaum rule. Manor Drugs was a member of a limited class, but permitting them to utilize the rule would lead to a breakdown of the Birnbaum rule. Reversed.”

    Conclusion

    The Court held that held that the plaintiffs were not entitled to sue for violation of Rule 10b-5 , since they neither purchased nor sold any of the offered shares.

    • Case Brief: 1975
    • Petitioner: Blue Chip Stamps
    • Respondent: Manor Drug Stores
    • Decided by: Burger Court

    Citation: 421 US 723 (1975)
    Argued: Mar 24, 1975
    Decided: Jun 9, 1975