Friday, December 6, 2013

Saylor v. Lindsley case brief

Saylor v. Lindsley case brief summary
456 F.2d 896 (1972)

In a stockholders' derivative action against defendants, controlling stockholders and corporations, the United States District Court approved the settlement of the action over plaintiff individual stockholder's objection. Plaintiff appealed the order.

A stockholder derivative action was filed against defendants, controlling stockholders and corporations, over the two-step sale of stock. An attorney for some of the stockholders entered in a stipulated settlement with defendants. Plaintiff individual stockholder, along with a few other stockholders, objected to the settlement. The trial court approved the settlement.

  • On appeal, the court reversed, holding that plaintiff had not had a full opportunity to develop the basis for his objection to the settlement, namely that untruthful or misleading statements had been made to the Securities Exchange Commission such that the sale was allowed to take place at a lower price. 
  • Two of the defendants had not been served, only three depositions had been taken of defendants, and there had been little discovery of documentary evidence. 
  • The court found that the settlement should not have been approved given plaintiff's opposition and the lack of truly adversary discovery.
The order was reversed because the procedures followed by the trial court did not adequately protect the rights of plaintiff individual stockholder and other objecting stockholders to develop a record that might have shown that the settlement with defendants, controlling stockholders and corporations, over the two-step sale of stock, was improper.

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