Get free summaries of new Delaware Supreme Court opinions delivered to your inbox! Forward, Joel Hunter, Ernest Mahler, B. S. Oberlink, Louis Quarles, W. G. Scholl, J. L. Singleton, R. S. Stevenson, Howard J. Tobin, L. W. Long, Frank M. Nolan, David W. Webb and J. W. McMullen, Defendants. The operating policy of Allis-Chalmers is to decentralize by the delegation of authority to the lowest possible management level capable of fulfilling the delegated responsibility. . In any event, we think, in the absence of any evidence telling against the Directors, any justifiable inference to be drawn from the failure to produce the witnesses could not rise to the height necessary to supply the plaintiffs' deficiency of proof. It employs in excess of 31,000 people, has a total of 24 plants, 145 sales offices, 5000 dealers and distributors, and its sales volume is in excess of $500,000,000 annually. which requires a showing of good cause before an order for production will be made. Graham v. Allis-Chalmers Manufacturing Co. John Coates. We therefore affirm the Vice Chancellor's ruling that the individual director defendants are not liable as a matter of law merely because, unknown to them, some employees of Allis-Chalmers violated the anti-trust laws thus subjecting the corporation to loss. The order denying the motion to produce the documents described in paragraph 3 is affirmed. See Caremark, 698 A.2d at 969-70. The Vice Chancellor did not rule on the validity of the constitutional privilege claimed, but refused to order the witnesses to answer on the ground that he was without power to compel answers from individuals over whom no jurisdiction had been obtained. The Vice Chancellor refused to order the production of the called-for documents on the grounds that the request was so broad as to open up a cumbersome and time-consuming examination of all aspects of the corporation's business within the field of inquiry, and would involve the disclosure, contrary to a long-established company policy, of precise sales information. It is, of course, true that the four non-appearing defendants were managing agents of Allis-Chalmers, and that, strictly speaking, the rule would seem to authorize the imposition of sanctions against Allis-Chalmers. Ch. Report. You already receive all suggested Justia Opinion Summary Newsletters. " Graham v. Allis-Chalmers Mfg. Plaintiffs are thus forced to rely solely upon the legal proposition advanced by them that directors of a corporation, as a matter of law, are liable for losses suffered by their corporations by reason of their gross inattention to the common law duty of actively supervising and managing the corporate affairs. Finally, it is claimed that the improper actions of the individual defendants of which complaint is made have caused general and irreparable damage to the business reputation and good will of their corporation. which basically impose a duty of inquiry only when there are obvious signs of employee wrongdoing. Plaintiffs contend first of all that the fact that the Federal Trade Commission in 1937 caused orders to be filed directing Allis-Chalmers and others to cease and desist from alleged price fixing in the sale of condensers and turbine generators, action claimed to have been engaged in since 1933, in itself put the board on notice of the future possibility of illegal price-fixing. Report to Moderator. He pointed to Graham v. Allis-Chalmers Mfg. In either event, it is plaintiffs' position that the director defendants are legally responsible for the consequences of the misconduct charged by the federal grand jury. By this appeal the plaintiffs seek to have us reverse the Vice Chancellor's ruling of non-liability of the defendant directors upon this theory, and also seek reversal of certain interlocutory rulings of the Vice Chancellor refusing to compel pre-trial production *128 of documents, and refusing to compel the four non-director defendants to testify on oral depositions. So, as soon as . We are largest vintage car website with the. Richard F. Corroon, of Berl, Potter Anderson, Wilmington, for corporate defendant. Graham v. Allis-Chalmers Mfg. * * *" Furthermore, such decrees, which are not by their very nature intrinsically evidenciary and do not constitute admissions, were entered at a time when none of the Allis-Chalmers directors here charged held a position of responsibility with the company. The indictments to which Allis-Chalmers and the four non-director defendants pled guilty charge that the company and individual non-director defendants, commencing in 1956, conspired with other manufacturers and their employees to fix prices and to rig bids to private electric utilities and governmental agencies in violation of the anti-trust laws of the United States. Mr. Stevenson, the president, as well as Mr. Scholl and Mr. Singleton, who alone among the directors called to testify learned of the 1937 decrees prior to the disclosures made by the 1959-1960 Philadelphia grand jury, satisfied themselves at the time that the charges therein made were actually not supportable primarily because of the fact that Allis-Chalmers manufactured condensers and generators differing in design from those of its competitors. Graham v. Allis-Chalmers Mfg. On Jan. 25, 2023, the Delaware Court of Chancery issued an opinion with significant implications for American corporate law. This site is protected by reCAPTCHA and the Google. Had there been evidence of actual knowledge of anti-trust law violations on the part of all or any of the corporate directors, obviously such would have been presented to the grand jury. Get free summaries of new Delaware Court of Chancery opinions delivered to your inbox! When there could be no doubt but that certain Allis-Chalmers employees had violated the anti-trust laws, such persons were directed to cooperate with the grand jury and to tell the whole truth. limited the scope of the duty to monitor due to "the chilling effect that the threat of legal liability Some shareholders instituted a derivative lawsuit against the directors for. Graham v. 1 Citing Cases Case Details Full title:JOHN P. GRAHAM and YVONNE M. GRAHAM, on Behalf of Themselves and the Other Nor does the decision in Lutz v. Boas, 39 Del. Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. Page 1 of 1. That they did this is clear from the record. In his opinion, the sought-for documents would not support the theory of director liability and, consequently, at the then juncture of the cause were not the proper subject of discovery. When there could be no doubt but that certain Allis-Chalmers employees had violated the anti-trust laws, such persons were directed to cooperate with the grand jury and to tell the whole truth. Finally, while an annual budget for the Power Equipment Division, in which profit goals were fixed, was prepared by Mr. McMullen and his assistants for periodic submission to the board of directors, the board did not, allegedly because of the complexity and diversity of the corporation's products and the burden of more general and theoretical responsibilities, concern itself with the pricing of specific items although it did give consideration to the general subject of price levels. Finally, it is claimed that the improper actions of the individual defendants of which complaint is made have caused general and irreparable damage to the business reputation and good will of their corporation. In either event, it is plaintiffs' position that the director defendants are legally responsible for the consequences of the misconduct charged by the federal grand jury. Its business lines included agricultural equipment, construction equipment, power generation and power transmission equipment, and machinery for utilise in industrial settings such as factories, flour mills, sawmills, textile mills, steel mills, refineries, mines, and ore mills. Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. Plaintiffs, however, point to two FTC decrees of 1937 as warning to the directors that anti-trust activity by the company's employees had taken place in the past. Allis Chalmers D15 Tractor - Local Tractor, Power Steering, 540 PTO, 1985 Hrs, 6.00-16 Front Tires, 14.9-26 Rear Tires, Rear Weights, Right Rear Rim May Need Replaced *See Pics & Video For More Details *Sells Absolute! These they were entitled to rely on, not only, we think, under general principles of the common law, but by reason of 8 Del.C. McMullen, vice president and general manager, is made up of ten departments, each of which in turn is headed by a manager. In other words, wrong doing by employees is not required to be anticipated as a general proposition, and it is only where the facts and circumstances of an employee's wrongdoing clearly throw the onus for the ensuing results on inattentive or supine directors that the law shoulders them with the responsibility here sought to be imposed. Plaintiffs contend that such alleged price fixing caused not only direct loss and damage to purchasers of products of Allis-Chalmers but also indirectly injured the stockholders of Allis-Chalmers by reason of corrective government action taken under the terms of the anti-trust laws of the United States for the purpose of rectifying the wrongs complained of. In his Caremark opinion, Chancellor Allen tightens the standard that was adopted in Graham v. Allis-Chalmers Mfg. ALLIS-CHALMERS MANUFACTURING COMPANY, and Fred Bohen, W. C. Buchanan, W. E. Buchanan, Hugh M. Comer, James D. Cunningham, D. A. Scholl, officer and director defendant, learned of the decrees in 1956 in a discussion with Singleton on matters affecting the Industries Group. None of the director defendants were directors or officers of Allis-Chalmers in 1937. The success or failure of this vast operation is the responsibility of a board of fourteen directors, four of whom are also corporate officers. CO., ET AL. 171 A.2d 381, a case in which the evidence established that certain directors in effect gave little or no attention to the very purpose for which their corporation was created, namely the purchase and sale of securities, control here, where the evidence establishes that corporate directors in fact paid close attention to the overall operation of a large corporation engaged in the manufacture and sale of diverse equipment throughout this continent and Europe. v. Similarly, in Winter v. Pennsylvania R. R. Co., 6 Terry 108, 68 A.2d 513, and Empire Box Corp. of Stroudsburg v. Illinois Cereal Mills, supra, the Wise case was considered as controlling authority, and in Sparks Co. v. Huber Baking Co., 10 Terry 267, 114 A.2d 657, the continuing authority of the Wise case was recognized. Paragraph 3 of the motion asks production of all correspondence, notes, memoranda, etc., arising out of meetings, conferences and conversations in which company personnel participated dealing with the anti-trust activity, limited to the subject matter of the criminal indictments. Classic cars for sale in the most trusted collector car marketplace in the world. Without exception they denied unequivocably having any knowledge of such activities until rumors of such began *331 to circulate from Philadelphia late in 1959. Sign up for our free summaries and get the latest delivered directly to you. Export. Allis-Chalmers is a manufacturer of a variety of electrical equipment. A secondary but potentially much greater type of injury is alleged to have been caused the corporate defendant as a result of its being subjected to suits based on provisions of the anti-trust laws of the United States brought by purchasers claiming to have been injured by the price fixing here complained of. You're all set! 40 HP to 99 HP Tractors. The short answer to plaintiffs' first contention is that the evidence adduced at trial does not support it. (citing Graham v. Allis-Chalmers Manufacturing Co., . Plaintiffs go on to argue that in any event as was stated in the case of Briggs v. Spaulding, 141 U.S. 132, 11 S. Ct. 924, 35 L. Ed. 16cm Anime Figure Toy Naruto Namikaze Minato Figurine Statues Collections NO BOX, Alfa Romeo Woven Silk Neck Tie New & Official 6002350225. The diverse nature of the manifold products manufactured by Allis-Chalmers, its very size, the nature of its operating organization, and the uncontroverted evidence of directorial attention to the affairs of the corporation, as well as their demeanor on the stand, establish a case of non-liability on the part of the individual director defendants for any damages flowing from the price fixing activities complained of. They were at the time under indictment for violation of the anti-trust laws. The latter group in turn is subdivided into a number of divisions, including the Power Equipment Division, which manufactures the devices concerning sales of which anti-trust indictments were handed up by a federal grand jury in Philadelphia during the year 1960, and about which collusive sales this suit is concerned. H. James Conaway, Jr., of Morford, Young & Conaway, Wilmington, and Harry Norman Ball and Marvin Katz, Philadelphia, Pa., for plaintiffs. Over the course of the several hours normally devoted to meetings, directors are encouraged to participate actively in an evaluation of the current business situation and in the formulation of policy decisions on the present and future course of their corporation. The directors of Allis-Chalmers appeared in the cause voluntarily. 828; 13 Fletcher, Cyclopedia of Corporations 5939 (1961). Finally, the gravamen of the 1937 charges was that uniform price had been agreed on by several manufacturers, including Allis-Chalmers. 1963) Allis-Chalmers and four of its directors were indicted for price fixing violations of anti-trust laws. The short answer to plaintiffs' first contention is that the evidence adduced at trial does not support it. The argument made under this phase of the appeal breaks down into three categories, viz., first, the refusal to order the production of certain documents; second, the refusal to order the production of statements taken by the company's Legal Division in connection with its investigations of the anti-trust violations and in preparation for the company's defense to the indictments, and, third, the refusal to order the four non-appearing defendants whose depositions were being taken in Wisconsin to answer certain questions, or, in the alternative, to impose sanctions on the appearing defendants. Whatever duty, however, there was upon the Board to take such steps, the fact of the 1937 decrees has no bearing upon the question, for under the circumstances they were notice of nothing. It appears that the statements in question were taken by Allis-Chalmers' attorneys as the result of interviews seeking to ascertain acts which, if imputed to Allis-Chalmers, might constitute anti-trust violations. Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. 3 ALLIS-CHALMERS MANUFACTURING COMPANY et al., Defendants Below, Appellees. Don't Miss Important Points of Law with BARBRI Outlines (Login Required). 585, 171 A.2d 381, a case in which the evidence established that certain directors in effect gave little or no attention to the very purpose for which their corporation was created, namely the purchase and sale of securities, control here, where the evidence establishes that corporate directors in fact paid close attention to the overall operation of a large corporation engaged in the manufacture and sale of diverse equipment throughout this continent and Europe. The very magnitude of the enterprise required them to confine their control to the broad policy decisions. Graham v. Allis-Chalmers In 1963, Graham. Alternately, under the standard set by. He investigated his department and learned the decrees were being complied with and, in any event, he concluded that the company had not in the first place been guilty of the practice enjoined. During the years 1955 through 1959 the dollar volume of Allis-Chalmers sales ranged between a low of $531,000,000 and a high of $548,000,000 per annum. CO., ET AL Citing Cases Wilshire Oil Company of Texas v. Riffe 330 U.S. at 522, 67 S.Ct. Graham v. Allis-Chalmers 488 Mfg. Plaintiffs contend that such alleged price fixing caused not only direct loss and damage to purchasers of products of Allis-Chalmers but also indirectly injured the stockholders of Allis-Chalmers by reason of corrective government action taken under the terms of the anti-trust laws of the United States for the purpose of rectifying the wrongs complained of. Were the directors liable as a matter of law? This site is protected by reCAPTCHA and the Google. In denying the defendants' motion to dismiss in In re McDonald's Corporation Stockholder Derivative Litigation, Vice Chancellor J. Travis Laster held, for the first time, that corporate officers owe a specific duty of oversight comparable to that of directors. Plaintiffs argue that answers could have been forced by the imposition of sanctions under Chancery Rule 37(b) which applies to parties or managing agents of parties. Download; Facebook. GRAHAM, ET AL. Allis-Chalmers is a manufacturer of a variety of electrical equipment. Joined: 13 Dec 2000. as in Graham or in this case, in my opinion only a sustained or systematic failure of the board to exercise oversight - such as an utter failure to attempt to assure a reasonable information and reporting system exists - will establish the lack of good faith that is a necessary condition . It employs over thirty thousand persons and operates sixteen plants in the United States, one in Canada, and seven overseas. See cross reference chart for HIFI-FILTER SH76955V and more than 200.000 other oil filters. In the last analysis, the question of whether a corporate director has become liable for losses to the corporation through neglect of duty is determined by the circumstances. George Tyler Coulson, of Morris, Nichols, Arsht & Tunnell, Wilmington, and Charles S. Quarles, of Quarles, Herriott & Clemons, Milwaukee, Wis., for appearing individual defendants. Plaintiffs rely mainly upon Briggs v. Spaulding, 141 U.S. 132, 11 S. Ct. 924, 35 L. Ed. As we read this record, no other avenue to get the sought-for documents was explored by plaintiffs. The same result was reached in Zenith Radio Corp. v. Radio Corp. of America, D.C., 121 F. Supp. If such occurs and goes unheeded, then liability of the directors might well follow, but absent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists. Directors face heightened personal liability after Caremark. Having conducted extensive pre-trial discovery, plaintiffs were quite aware that the corporate directors, if and when called to the stand, would deny having any knowledge of price-fixing of the type charged in the indictments handed up prior to the investigation which preceded such indictments. The indictments, eight in number, charged violations of the Federal anti-trust laws. Anniversary Clock, DEPT 56 SNOW VILLAGE Accessory A DAY AT THE RACES NIB, Details about ALLIS CHALMERS B C CA G IB RC WC WD WD45 WF STARTER SWITCH 70226128 226128. 188 A.2d 125 (1963)John P. GRAHAM and Yvonne M. Graham, on behalf of themselves and the other stockholders of Allis-Chalmers Manufacturing Company who may be entitled to intervene herein, Plaintiffs, Appellants, below, v ALLIS-CHALMERS MANUFACTURING COMPANY et al., below defendant, complainant.Delaw. Indeed, the Federal Government acknowledged that it had uncovered no probative evidence which could lead to the conviction of the defendant directors. The trial court did not abuse its discretion in refusing to subject the corporation to the harassment of an unlimited inspection of records that had no relation to the directors' liability. Thereafter, a corporate policy statement, dated February 8, 1960, was adopted in which precise instructions were given as to strict observance by all employees of the anti-trust laws, and a program of education in the field was announced. Plaintiffs concede that they did not prove affirmatively that the Directors knew of the anti-trust violations of the company's employees, or that there were any facts brought to the Directors' knowledge which should have put them on guard against such activities. See auction date, current bid, equipment specs, and seller information for each lot. Singleton, in charge of the Industries Group of the company, investigated but unearthed nothing. The Board of Directors of fourteen members, four of whom are officers, meets once a month, October excepted, and considers a previously prepared agenda for the meeting. v. Graham was a derivative action brought against the directors of Allis-Chalmers for *368 failure to prevent violations of federal anti-trust laws by Allis-Chalmers employees. We will take these subjects up in the order stated. Thereafter, in November of 1959, some of the company's employees were subpoenaed before the Grand Jury. 456, 178 A. Plaintiffs go on to argue that in any event as was stated in the case of Briggs v. Spaulding, 141 U.S. 132, 11 S. Ct. 924, 35 L.Ed. Finally, the gravamen of the 1937 charges was that uniform price had been agreed on by several manufacturers, including Allis-Chalmers. Plaintiffs have wholly failed to establish either actual notice or imputed notice to the Board of Directors of facts which should have put them on guard, and have caused them to take steps to prevent the future possibility of illegal price fixing and bid rigging. Except for three directors who were unable to be in Court, the members of the board took the stand and were examined thoroughly on what, if anything, they knew about the price-fixing activities of certain subordinate employees of the company charged in the grand jury indictments. The 1960 indictments on the other hand charged Allis-Chalmers and others with parcelling out or allotting "successful" bids among themselves. While the law clearly does not now require that directors in every instance establish an espionage system in order to protect themselves generally from the possibility of becoming liable for the misconduct of corporate employees, the degree of care taken in any specific case must, as noted above, depend upon the surrounding facts and circumstances. Make your practice more effective and efficient with Casetexts legal research suite. Pinterest. Significantly, 141(f) of the Delaware Corporation Law, no doubt in recognition of the size and diversity of purpose of many corporations, has for almost twenty years provided that a director who relies in good faith on "* * * books of account or reports made to the corporation by any of its officials * * *", as well as "* * * upon other records of the corporation", should be "fully protected." The acts therein charged in 1937 are obviously too remote, and actual or imputed knowledge of them cannot create director liability in the case at bar. This division, which at the time of the actions complained of was headed by J.W. These directors hold meetings once a month at which previously prepared sheets containing summaries such as sales data, the booking of orders, and the flow of cash, are furnished to the attending directors. None of the director defendants in this cause were named as defendants in the indictments. 553, 212 A.2d 214 (1965) Humble Oil & Refining Co. v. Martin 148 Tex. Supreme Court of Delaware. 330 U.S. at 522, 67 S.Ct. The complaint then goes on to name other electrical equipment manufacturers with whom the corporate defendant was allegedly caused to combine and conspire "* * * for the purpose of fixing and maintaining prices, terms and conditions for the sale of the various products of the Company *329 * * *", including a number of types of electric transformers, condensers, power switchgear assemblies, circuit breakers, and other types of power equipment, it being charged that by the use of rigged bids in the form of agreements on bidding and refraining from bidding, and the like, that prices of Allis-Chalmers' products were illegally manipulated over a period running from approximately May 1959 through at least June 1960. *129 Thereafter, on February 8, 1960, at the direction of the Board, a policy statement relating to anti-trust problems was issued, and the Legal Division commenced a series of meetings with all employees of the company in possible areas of anti-trust activity. Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for corporate defendant. While the law clearly does not now require that directors in every instance establish an espionage system in order to protect themselves generally from the possibility of becoming liable for the misconduct of corporate employees, the degree of care taken in any specific case must, as noted above, depend upon the surrounding facts and circumstances. This, we think, is a complete answer to plaintiffs' argument and supports the ruling of the Vice Chancellor. The Power Equipment Division, presided over by McMullen, non-director defendant, contains ten departments, each of which is presided over by a manager or general manager. George Tyler Coulson, of Morris, Nichols, Arsht Tunnell, Wilmington, and Charles S. Quarles, of Quarles, Herriott Clemons, Milwaukee, Wis., for appearing individual defendants. It has one hundred and twenty sales offices in the United States and Canada, twenty-five such offices abroad and is represented by some five thousand dealers and distributors throughout the world. 78, 85, 188 A.2d 125, 130 (1963). Graham v. Allis-Chalmers Mfg. Hemmings Motor News has been serving the classic car hobby since 1954. Court of Chancery of Delaware, New Castle. Chancellor Allen's opinion predicted the abandonment of the Delaware Supreme Court's older and heavily criticized approach in Graham v. Allis-Chalmers, which had limited the board of directors' compliance oversight obligation to situations where red flags were waving in the board's face. However, the hearing and depositions produced no evidence that any director had any actual knowledge of the anti-trust activity, or had actual knowledge of any facts which should have put them on notice that anti-trust activity was being carried on by some of their company's employees. Paragraph 5(a) of the motion asks the production of all such documents submitted to the Board of Directors.

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