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Full-Text Articles in Law
Securities Class Actions And Bankrupt Companies, James J. Park
Securities Class Actions And Bankrupt Companies, James J. Park
Michigan Law Review
Securities class actions are often criticized as wasteful strike suits that target temporary fluctuations in the stock prices of otherwise healthy companies. The securities class actions brought by investors of Enron and WorldCom, companies that fell into bankruptcy in the wake of fraud, resulted in the recovery of billions of dollars in permanent shareholder losses and provide a powerful counterexample to this critique. An issuer's bankruptcy may affect how judges and parties perceive securities class actions and their merits, yet little is known about the subset of cases where the company is bankrupt. This is the first extensive empirical study …
Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey
Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey
Michigan Law Review
The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on "whistleblower information," that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized. Often, insider trading will be far more effective than whistleblowing at bringing fraud …
A Business Ethics Perspective On Sarbanes-Oxley And The Organizational Sentencing Guidelines, David Hess
A Business Ethics Perspective On Sarbanes-Oxley And The Organizational Sentencing Guidelines, David Hess
Michigan Law Review
This Article assesses the ability of Sarbanes-Oxley and other recent changes in the law and stock exchange listing requirements to reduce the incidence of fraud and to increase the reporting of financial misconduct. It begins by examining the individual decision-makers within a corporation and analyzing their intentions and behaviors under the Theory of Planned Behavior. It then examines the ability of the organization to influence the employees' intentions and behaviors through codes of ethics and compliance programs, and finds growing support for the usefulness of integrity based compliance programs. Finally, the Article considers how the Sarbanes-Oxley legislation and Organizational Sentencing …
Conscripting Attorneys To Battle Corporate Fraud Without Shields Or Armor? Reconsidering Retaliatory Discharge In Light Of Sarbanes-Oxley, Kim T. Vu
Michigan Law Review
This Note advocates that federal courts should allow attorneys to bring retaliatory discharge claims under SOX. Traditional rationales prohibiting the claims of retaliatory discharge by attorneys do not apply in the context of Sarbanes-Oxley. This Note contends that the Department of Labor and the federal courts should interpret the whistleblower provisions of § 806 as protecting attorneys who report under § 307. Assuring reporting attorneys that they have protection from retaliation will encourage them to whistleblow and thereby advance SOX's policy goal of ferreting out corporate fraud. Part I explores the legal landscape of retaliatory discharge suits by attorneys. This …
Abandoning Bankruptcy Law's "Identity Of Interest" Exception, Michigan Law Review
Abandoning Bankruptcy Law's "Identity Of Interest" Exception, Michigan Law Review
Michigan Law Review
Section I of this Note discusses the goals and weaknesses of the identity of interest exception; Section II explains the advantages of consolidation and novation; and the final Section suggests a way to separate cases where novation is appropriate from those where consolidation is the preferred remedy.
Criminal Law- False Pretenses - Partner Fraudulently Obtaining Partnership Funds, Paul R. Haerle
Criminal Law- False Pretenses - Partner Fraudulently Obtaining Partnership Funds, Paul R. Haerle
Michigan Law Review
Defendant and another were equal partners in a used car business. Defendant took in an automobile, paying for it with his own funds. Representing that he had paid more than he actually had, he induced his partner to write him a check drawn on the partnership account. Defendant was indicted for obtaining half of the excess by false pretenses. The district court directed a verdict of acquittal. On appeal by the state, held, affirmed, three justices dissenting. A partner cannot be guilty of obtaining by false pretenses from the partnership; the statute in question specifies that it must be …
Federal Procedure-Applicability Of State Decisional Law Interpreting State Statutes Of Limitations Under Section 11 (E) Of The Bankruptcy Act, Charles E. Oldfather S.Ed
Federal Procedure-Applicability Of State Decisional Law Interpreting State Statutes Of Limitations Under Section 11 (E) Of The Bankruptcy Act, Charles E. Oldfather S.Ed
Michigan Law Review
Plaintiff is the trustee in bankruptcy of a Virginia corporation whose petition for reorganization under chapter X of the Bankruptcy Act was approved by a Virginia federal district court in 1942. Plaintiff filed this action in a New York federal district court under section 11 (e) of the Bankruptcy Act against defendant, the principal stockholder, and others for breach of fiduciary duty. The alleged breaches of duty occurred in 1927 and 1929. The defendant pleaded the New York statute of limitations and contended that it should be applied as interpreted by New York decisions, which hold that the statute begins …
Corporations-Officers And Directors-Fiduciary Duty Of Officer Purchasing Stock From Shareholder, Walter H. Weiner
Corporations-Officers And Directors-Fiduciary Duty Of Officer Purchasing Stock From Shareholder, Walter H. Weiner
Michigan Law Review
Defendant, president of a corporation acquired stock owned by plaintiff and others by falsely representing that the corporation had been sold. After enhancing the value of this stock, defendant sold it. Plaintiff brought suit for fraudulent conversion and the trial court directed a verdict for the defendant. On appeal, held, reversed. An officer negotiating with a shareholder for the purchase of shares must act with scrupulous trust and confidence, and unless the officer acts with the utmost fairness the wronged shareholder may invoke the proper remedy. Blazer v. Black, (10th Cir. 1952) 196 F. (2d) 139.
Corporations-Election Of Directors-Power To Enjoin Shareholders' Meeting Until Shareholders Are Furnished Information Concerning Condition Of Corporation, Robert W. Shadd
Corporations-Election Of Directors-Power To Enjoin Shareholders' Meeting Until Shareholders Are Furnished Information Concerning Condition Of Corporation, Robert W. Shadd
Michigan Law Review
Defendant company was operating at a loss of approximately $50,000 per month; the directors delayed three months in reporting the financial affairs of the company; and the shareholders' meeting was delayed six months in violation of the by-laws. On January 24, 1948, the directors called an election meeting for February 16, 1948. On receipt of this notice, plaintiff and others formed an independent shareholders' committee to effect a change in management. The directors refused to allow the plaintiff to make a photostatic copy of the list of 3,080 shareholders, but did permit him to inspect the list five days before …
Corporations - Dissolution At Suit Of A Minority Stockholder, E. George Rudolph
Corporations - Dissolution At Suit Of A Minority Stockholder, E. George Rudolph
Michigan Law Review
The general statement has often been made that a court of equity has no power to dissolve a solvent corporation at the suit of a minority stockholder, in the absence of special statutory authority. However, some of the cases which seem to support this rule hedge considerably by saying that "ordinarily" or "generally" equity has no such jurisdiction. These cases would seem little different than those which hold that a court of equity has inherent jurisdiction to dissolve a corporation but will exercise it only in cases of extreme necessity. The latter seems to be the prevailing view and on …
Corporations - Rights Of Action By The Representative Of Corporate Creditors - Effect Of Corporate Assent, Edward W. Adams
Corporations - Rights Of Action By The Representative Of Corporate Creditors - Effect Of Corporate Assent, Edward W. Adams
Michigan Law Review
By various acts the directors and officers of a corporation--its agents for the conduct of corporate business--may wrong the corporation or make possible a wrong to the corporation or to the body of corporate stockholders. When the corporation becomes involved in insolvency proceedings, in order to make available to creditors as many assets as possible, the receiver or trustee in bankruptcy determines whether some cause of action will lie to recover damages or property, or whether he may successfully defend to preserve assets. If the corporation itself could have been successful in the litigation, the solution would be easy because …
Corporations - Pre-Emptive Rights Of Shareholders In Originally Authorized But Unissued Capital Stock, Everett R. Trebilcock
Corporations - Pre-Emptive Rights Of Shareholders In Originally Authorized But Unissued Capital Stock, Everett R. Trebilcock
Michigan Law Review
Plaintiff, a minority stockholder, brought an action to cancel 58,400 shares of originally authorized but unissued stock which the directors had issued to defendant general manager in payment of his services. Plaintiff contended this violated his pre-emptive right to subscribe to the shares and alleged the transaction was fraudulent in that defendant and the directors conspired to gain voting control. Held, the issue was proper because the stock was part of the first offering of original authorized capital stock to which plaintiff's pre-emptive right did not attach, and plaintiff failed to show collusion between directors and defendant to gain …
Corporations - Receivers - Rights Of Creditors Or Receiver To Raise An Objection To Corporate Action Which Would Be Open To Shareholders, Jerome J. Dick
Corporations - Receivers - Rights Of Creditors Or Receiver To Raise An Objection To Corporate Action Which Would Be Open To Shareholders, Jerome J. Dick
Michigan Law Review
The writer will attempt to show that the courts, in spite of their language of fraud and breach of trust, are not applying the legal rules of fraud and trust relationship in allowing recovery to the creditor. The cases brought by the receiver for the benefit of creditors can be roughly divided into three broad groups: (1) instances where the court speaks of a trust relationship, holding that the corporation has breached the duty of trust to the creditors; (2) situations where the court speaks of some hazy principle of "fraud" on the creditors; (3) cases where the court forgets …
Corporations - Derivative Suits - Insolvency As A Bar, Edmund O'Hare
Corporations - Derivative Suits - Insolvency As A Bar, Edmund O'Hare
Michigan Law Review
Plaintiff, stockholder in defendant bank, brought a derivative suit against the bank's directors to recover moneys allegedly wrongfully appropriated by them from the bank's assets. Before the commencement of the suit the bank had become insolvent and was in the process of liquidation. Held, the directors' motion to dismiss should be granted, since a stockholder may not maintain an action to hold an insolvent corporation's directors liable for fraud or mismanagement unless it appears that he will be benefited by the relief demanded, and full recovery here would still leave an excess of liabilities over assets. Falvey v. Foreman-State …
Corporations - Conditions Under Which Settlement Of Corporate Claims Will Not Prevent A Stockholder's Derivative Suit On Such Claims, John M. Ulman
Corporations - Conditions Under Which Settlement Of Corporate Claims Will Not Prevent A Stockholder's Derivative Suit On Such Claims, John M. Ulman
Michigan Law Review
In the recent case of United States Lines, Inc. v. United States Lines Co. the plaintiff was a minority stockholder in United States Lines, Inc., whose only asset was a minority stock interest in the United States Lines Company. A majority of the stock in both companies was owned by the International Mercantile Marine Company. An action originally brought by the United States Lines, Inc., but settled out of court, was sought to be continued by the plaintiff, who alleged: (1) that the Marine Company and its subsidiaries had entered into fraudulent contracts with the United States Lines Company and …
Corporation Statutes As The Answer To Parent-Subsidiary Liability, Elvin R. Latty
Corporation Statutes As The Answer To Parent-Subsidiary Liability, Elvin R. Latty
Michigan Law Review
The purpose of these few pages is to call attention to the view concerning the liability of a parent corporation for obligations of its subsidiaries set forth in a comment in a recent number of the Review.
Corporations - Parent's Liability For Subsidiary's Obligations, Michigan Law Review
Corporations - Parent's Liability For Subsidiary's Obligations, Michigan Law Review
Michigan Law Review
A parent corporation owned all the stock of a subsidiary which it had organized to hold real estate, its own business being mercantile. The directors and officers of both corporations were identical. The subsidiary sublet premises for ninety-nine years, in turn leasing them to the parent for ten years. Improvements were made in accordance with the subsidiary's contract, and "leasehold trust certificates" were issued by an assignee of the underlying lease. The parent quit the premises before the expiration of its lease, but paid the rent for the whole period. The subsidiary then defaulted on the ninety-nine year lease, having …
Corporations - Common Board - Fraud - Ratification By Majority Stockholders, Theodore R. Vogt
Corporations - Common Board - Fraud - Ratification By Majority Stockholders, Theodore R. Vogt
Michigan Law Review
Defendants were directors and officers of a managing corporation and its subsidiary. Both corporations paid defendants salaries, those from the managing corporation approximating the fees paid to it by the subsidiary for management services which were rendered by defendants. Held, payment of management fees by the subsidiary under such circumstances is fraudulent and recoverable from defendants, in a derivative suit by minority stockholders, despite a resolution of the majority stockholders of the subsidiary ratifying the payment. Eshleman v. Keenan, (Del. Ch. 1936) 187 A. 25.
Corporations - Rights Of Creditors Of Insolvent Corporation - Greater Than Rights Of Corporation
Corporations - Rights Of Creditors Of Insolvent Corporation - Greater Than Rights Of Corporation
Michigan Law Review
The dissenting and majority opinions of Justices Roberts and Cardozo in the recent case of McCandless v. Furlaud are illustrative of basically divergent conceptions of the status and function of the corporate receiver. In the following examination and evaluation of these conflicting positions, attention will be directed chiefly to those situations involving the problem of promoter's profits. The language and attitude of the courts, however, is typical of that adopted in all cases in which the questions considered arise and the conclusions suggested are of general application.
Corporations-Liability Of Promoters For Secret Profit
Corporations-Liability Of Promoters For Secret Profit
Michigan Law Review
In view of the peculiar position of control which a promoter occupies in relation to the proposed corporation, with resultant opportunities for making unconscionable profits, courts have uniformly regarded him as standing in a fiduciary relationship toward the corporation. Accordingly, when a promoter seeks to make a profit from a transfer of property to the corporation, he must obtain the consent of the latter under penalty of having to disgorge such profit at a later time at the suit of the corporation itself or persons acting in the latter's behalf. Such liability is to be distinguished from the liability of …
Corporations - Liability Of Directors To Creditors For Negligent Management
Corporations - Liability Of Directors To Creditors For Negligent Management
Michigan Law Review
There is much confusion in the cases concerning a director's liability to a creditor for negligent management of the corporation. A clearer answer might be indicated by an examination of analogous situations involving individuals instead of corporations. It adds confusion to the law to have a different rule for a corporation than for a human being, and such a result should be avoided unless separate treatment is required by something inherent in the corporation. The least that can happen if a court thinks along these lines is that it will be more likely to know what it is doing.
Corporations-State Privilege Taxes-Valuation Of Property To Determine Surplus
Corporations-State Privilege Taxes-Valuation Of Property To Determine Surplus
Michigan Law Review
Various bases have been evolved in this country for computing corporation privilege taxes. Of special interest is the fact that seven states have made corporate surplus together with capital the basis for such taxes - Louisiana, Michigan, Mississippi, Missouri, North Carolina, Ohio, and Texas. The statutes of these states adopt either the gross value or the net value of the assets of corporations as the foundation of the tax, depending upon whether or not liabilities may be deducted. In fixing the amount of such a tax, some valuation of corporate property to determine the corporation's surplus is necessary.
Corporations - Exculpatory Provision In Bond - Stockholders' Liability For Illegal Dividends
Corporations - Exculpatory Provision In Bond - Stockholders' Liability For Illegal Dividends
Michigan Law Review
A bondholders' protective committee sued a holding company under a Michigan statute making stockholders in street railway companies, who knowingly receive dividends in impairment of capital stock, liable for corporate debt then existing and subsequently accruing while they remain stockholders. The defense relied on was a "no recourse" clause in the bonds wherein the creditors waived their rights to any assessment whatsoever "against any incorporator, stockholder, officer or director of the railway company, or any successor corporation." Held, the "no recourse" clause waived only liabilities where the defendant acted in good faith; not where the defendant acted fraudulently in …
Corporations -Liability Of Broker On Misleading Circulars
Corporations -Liability Of Broker On Misleading Circulars
Michigan Law Review
The possibilities of civil and criminal liability under the recent Securities Act of 1933 and the Securities Exchange Act of 1934 have caused considerable fear to those business groups which take part in the business of issuing and transferring corporate securities. The federal acts do subject the vendor of securities who induces sales by means of false or misleading prospectuses and circulars to a possibility of civil liability which was not present under the common law. In a recent Michigan case, the court reached substantially the objectives sought by these acts by applying the existing rules of common law in …
Corporations - Right Of Minority Stockholders To Interfere In Corporate Management
Corporations - Right Of Minority Stockholders To Interfere In Corporate Management
Michigan Law Review
In determining the relationship between the majority and minority stockholders of a corporation, the courts are faced with the problem of striking a correct balance between the rights of the plaintiff stockholder, who alleges that he is being oppressed by the majority, and the rights of the majority, acting through the regular corporate machinery, who allege that the corporation is being harassed by a troublesome minority. It is necessary to protect the minority from the machinations of those in control; it is likewise necessary to protect the corporation, as controlled by the majority, from the blackmailer who holds a few …
Corporations - Duty Of Director To Stockholder On Stock Exchange Sales
Corporations - Duty Of Director To Stockholder On Stock Exchange Sales
Michigan Law Review
The recent case of Goodwin v. Agassiz presents the problem of the duty owed by a director to existing and prospective stockholders in its most typical and difficult form. The defendants were president and general manager, respectively, as well as directors of the Cliff Mining Corporation which owned mineral lands in Northern Michigan. The stock of the corporation was listed on the Boston Stock Exchange. The defendants in their capacity of directors had knowledge of a geologist's report which forecast possible existence of copper deposits in the corporation's lands. The defendants were also directors of another mining corporation owning lands …
Corporations - Dissenting Stockholder's Suit -Conditional Decree
Corporations - Dissenting Stockholder's Suit -Conditional Decree
Michigan Law Review
The directors and majority stockholders of a Minnesota mining corporation which. needed financing were also the directors and majority stockholders of another Minnesota mining corporation which had a large surplus. They decided to consolidate the two in order to finance the one, offering the stockholders of each corporation a share for share exchange, which would result in the stockholders of the unsuccessful corporation having a 9/16 control of the consolidated corporation. Dissenting stockholders, holding 18/100 of 1% of the total stock in the successful corporation, brought a bill to restrain the consolidation and to have a receiver appointed to take …
Receivers - Individual Incorporating His Assets To Secure Consent Receivership
Receivers - Individual Incorporating His Assets To Secure Consent Receivership
Michigan Law Review
One Robinson, a lumber dealer in Philadelphia, was unable to pay his debts as they matured, but believed that he could satisfy his creditors and leave a surplus if he was not pressed. Neither in federal nor in Pennsylvania practice will a receiver be appointed for an individual. Robinson transferred his property to a Delaware corporation organized by him, receiving in return substantially all of the company's stock. The corporation agreed to assume his debts. A few days later Robinson and a simple contract creditor petitioned a federal district court for Pennsylvania for the appointment of receivers for the corporation, …
Corporations - Obligation To Refund Dividends Paid Out Of Capital
Corporations - Obligation To Refund Dividends Paid Out Of Capital
Michigan Law Review
The general rule is fairly well established that, where dividends are paid, in whole or in part, out of the capital stock, corporate creditors, being such when the dividend was declared, or becoming such at any subsequent time, may, to the extent of their claims, if such claims are not otherwise paid, compel the stockholders to whom the dividend has been paid to refund whatever portion of the dividend was taken out of the capital stock. This, however, has been modified in the federal courts to the extent that where the dividend, although paid entirely out of capital, was received …
Corporations - Rescission Of Contract Procured Through Fraud
Corporations - Rescission Of Contract Procured Through Fraud
Michigan Law Review
P purchased shares of stock in S Company through the fraud and misrepresentation of his agents in collusion with the agents of the S Company. Upon discovery of the fraud, P tendered back a number of shares equal to the number received by himself and his innocent associates. In the meantime, P had resold part of the shares at a higher price. Held, P must also tender the profit resulting from the resale and subsequent purchase of equivalent shares in a fallen market, together with any dividends paid on stock and interest from date of payment. Marr v. Tumulty …