Friday, November 22, 2013

Litwin v. Allen case brief

Litwin v. Allen case brief summary
25 N.Y.S.2d 667 (1940)

In consolidated actions, plaintiffs filed derivative stockholder suits against defendants for allegedly improper transactions involving a trust company in which plaintiffs owned shares.

In derivative stockholder action, plaintiffs sued defendants over four allegedly improper transactions. Plaintiffs first claimed defendant officers' stock purchase of a third-party corporation for their personal benefit violated their fiduciary duties.


  • The court held trust company had no interest in third-party corporation; thus, defendant officers had not breached their duty. 
  • Plaintiffs also charged defendant officers' bond acquisition on trust company's behalf constituted an improper loan to third-party corporation. 
  • The court held that the bonds were purchased negligently but that the applicable statute of limitations prevented recovery against three defendant officers. 
  • Plaintiffs also claimed defendant officers negligently extended a loan to a third-party company and then improperly auctioned the loan's collateral due to improper influence from defendant banking firm. 
  • The court followed the rule that allowed deference to business decisions, and held defendant directors properly extended the loan using information they possessed and that their auction of the loan's collateral was equitable.
The court entered partial judgment in favor of plaintiffs as to their claim involving the improper purchase of bonds, due to defendant officers' negligence in approving the bond purchase. The court entered judgment in favor of defendants as to plaintiffs' other claims.

Recommended Supplements for Corporations and Business Associations Law

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