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Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)

Blue Chip Stamps v. Manor Drug Stores

No. 74-124

Argued March 24, 1975

Decided June 9, 1975

421 U.S. 723



Under an antitrust consent decree, petitioner New Blue Chip was required to offer a substantial number of common stock shares in its new trading stamp business to retailers like respondent which had previously used the stamp service but which were not shareholders in petitioner's corporate predecessor. Charging that New Blue Chip and other petitioners devised a scheme to dissuade the offerees by means of materially misleading statements containing an overly pessimistic appraisal of the new business from purchasing the securities so that the rejected shares might later be offered to the public at a higher price, respondent brought this class action for damages for violation of the provisions of § 10(b) of the Securities Exchange Act of 1934 (Act) and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (SEC), which make it unlawful to use deceptive devices or make misleading statements "in connection with the purchase or sale of any security." Acting on the basis of the rule enunciated in 1952 in Birnbaum v. Newport Steel Corp., 193 F.2d 461, which states that a person who is neither a purchaser nor a seller of securities may not bring an action under § 10(b) of the Act or the SEC's Rule 10b-5, the District Court dismissed respondent's complaint. The Court of Appeals reversed, concluding that the facts warranted an exception to the Birnbaum rule. The court noted that prior cases had held that the rule did not exclude persons owning contractual rights to buy or sell securities, and that the offering of securities in this case in compliance with the antitrust decree served the same function as a securities purchase or sales contract.

Held: A private damages action under Rule 10b-5 is confined to actual purchasers or sellers of securities, and the Birnbaum rule bars respondent from maintaining this suit. Pp. 421 U. S. 731-755.

(a) The longstanding judicial acceptance of the rule, together with Congress' failure to reject its interpretation of § 10(b)

Page 421 U. S. 724

argues significantly in favor of this Court's acceptance of the rule. P. 421 U. S. 733.

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