Pepper v. Litton case brief

Pepper v. Litton case brief summary
308 U.S. 295 (1939)

CASE SYNOPSIS

Petitioner sought review of a decision from the United States Court of Appeals for the Fourth Circuit reversing a judgment that allowed a claim in bankruptcy presented by respondent stockholder of the bankrupt company.

CASE FACTS
Respondent was the controlling stockholder of the company. Respondent made an alleged salary claim against the bankruptcy estate. The district court disallowed the claim, and the appeals court reversed.

DISCUSSION

• Affirming the district court, the court held that the claim should be disallowed. 
• Being a controlling stockholder, respondent's claim was to be subject to strict scrutiny. 
• The court explained that respondent had allowed the salary claims to lie dormant for years and sought to enforce them only when his debtor corporation was in financial difficulty. 
• Thus, the court concluded that the district court was correct in disallowing respondent's planned and fraudulent scheme to exclude his creditors.

CONCLUSION
The court reversed the appeals court judgment and affirmed the district court, finding that the appeals court had erred.


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