Blue Chip Stamps v. Manor Drug Stores

Supreme Court of the United States · 1975 · Corporations

CorporationsSecurities RegulationRule 10b-5StandingRule 10b-5Section 10(b)purchaser-seller rulestanding

Facts

Under an antitrust consent decree, Blue Chip was reorganized and required to offer shares and debentures to certain former retailer-users of its stamp service who had not been shareholders. Respondent, one such offeree, alleged that Blue Chip's prospectus was intentionally and materially misleading because it painted an unduly pessimistic picture of Blue Chip's condition and prospects in order to discourage acceptance of what respondent claimed was a bargain offering. Respondent alleged that, in reliance on the prospectus, it and others in the class did not purchase the offered units. Respondent sought damages for the lost opportunity to purchase, despite never having bought or sold the securities at issue.

Issue

May a person who neither purchased nor sold securities maintain a private action for money damages under § 10(b) and Rule 10b-5 based on allegations that a misleading prospectus caused that person not to purchase the offered securities? More specifically, may a disappointed offeree who had no contractual right to buy avoid the Birnbaum purchaser-seller limitation?

Rule

In a private action for money damages under § 10(b) and Rule 10b-5, the plaintiff class is limited to actual purchasers and actual sellers of securities. Persons who neither purchased nor sold, including disappointed offerees lacking contractual rights to buy or sell, may not recover damages under Rule 10b-5.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lena Ortiz in Phoenix received a prospectus for a registered stock offering by Desert Lantern Robotics, Inc. She alleges the prospectus intentionally understated the company's prospects, so she decided not to buy; after the stock rose sharply, she sued for money damages under Rule 10b-5.

Is Lena likely to have standing for her private damages claim under Rule 10b-5?

Explanation. For a private action seeking money damages under Rule 10b-5, the plaintiff class is limited to actual purchasers and actual sellers. A disappointed offeree who never bought or sold lacks standing, even if she alleges reliance on a misleading prospectus and lost an attractive investment opportunity.