Project Wonderful - Your ad here, right now, for as low as $0, Allis-Chalmers and four of its directors were indicted for price fixing violations of anti-trust laws. 78, 85, 188 A.2d 125, 130 (1963). Show more Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for corporate defendant. No testimony was taken, however, on the quantum of such alleged damages, the scope of the trial having been confined in its initial phase to a receiving of evidence on the issue of alleged director liability for the damages claimed. Thereafter, Hickman v. Taylor was decided but in Reeves v. Pennsylvania R. R. Co., D.C., 8 F.R.D. CO., ET AL. No testimony was taken, however, on the quantum of such alleged damages, the scope of the trial having been confined in its initial phase to a receiving of evidence on the issue of alleged director liability for the damages claimed. In other words, the formalistic 1937 Federal Trade Commerce decrees were not directed against the practices condemned in the 1960 indictments but against an entirely different type of anti-trust offense. 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. Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for Allis-Chalmers Manufacturing Co. SOUTHERLAND, C. J., and WOLCOTT and TERRY, JJ., sitting. Graham v. Allis-Chalmers Mfg. 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 annum. And while several non-director officials are named in the complaint, plaintiffs' claims for relief were tried and argued as a matter of director liability. Sign up for our free summaries and get the latest delivered directly to you. 662 (a case in which national bank directors in a five to four decision were actually absolved of liability for frauds perpetrated by the bank president), directors may not safely hold office as mere figure heads and may not after gross inattention to duty plead ignorance as a defense. Ch. 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. It employs over thirty thousand persons and operates sixteen plants in the United States, one in Canada, and seven overseas. Finally, the gravamen of the 1937 charges was that uniform price had been agreed on by several manufacturers, including Allis-Chalmers. Graham v. Allis-Chalmers Manufacturing Co. 41 Del.Ch. Report. Its employees, under pressure to make profits, conspire to fix prices. And no doubt the director Singleton, senior vice president and head of the Industries Group, to whom was delegated the responsibility of supervising such group, in implementing such policy made it clear to his staff as well as representatives of Allis-Chalmers' business competitors that it was the firm policy of his company that ruthless price cutting should be avoided. which basically impose a duty of inquiry only when there are obvious signs of employee wrongdoing. 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. How did the court suggest that views on that question had changed since the 1963 decision of Graham v. Allis-Chalmers Mfg . The second subject urged as error is the refusal of the Vice Chancellor to order the production of statements taken from the non-director defendants in connection with its investigation of the antitrust violations and in preparation for the defense of the indictments. Posts: 33984. E-Mail. It set a new record by $1,000, which incidentally was held by the last A-C 8050 the Leerhoff family consigned through Wrightz Auction Co. in December 2021. The Delaware Supreme Court found that is was corporate policy at Allis-Chalmers to delegate price-setting authority to the lowest possible levels. From this background, the court separates two "species" of oversight claims. 368, and thus obtained the aid of a Wisconsin court in compelling answers. Additional claims for recovery of allegedly excessive amounts of compensation paid to corporate executives are also asserted in the complaint, but no proof of the impropriety of such payments having been adduced at trial, the matter for decision after final hearing is plaintiffs' claim for recovery of injuries suffered and to be suffered by the corporate defendant as a result of its involvement in violations of the anti-trust laws of the United States. 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. Graham v. Allis-Chalmers Mfg. As we read this record, no other avenue to get the sought-for documents was explored by plaintiffs. 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 And, while there is no doubt, despite the terms of the above statute, but that corporate directors, particularly of a small corporation, may cause themselves to become personally liable when they foolishly or recklessly repose confidence in an untrustworthy officer or agent and in effect turn away when corporate corruption could be readily spotted and eliminated, such principle is hardly applicable to a situation in which directors of a large corporation, whose operation is hedged about with numerous and sometimes conflicting federal and state controls, had no reason to believe that minor officials in the lower echelons of an industrial empire had become involved in violations of the federal anti-trust laws. Graham v. 1 Citing Cases Case Details Full title:JOHN P. GRAHAM and YVONNE M. GRAHAM, on Behalf of Themselves and the Other Jan. 24, 1963. As we have pointed out, there is no evidence in the record that the defendant directors had actual knowledge of the illegal anti-trust actions of the company's employees. The written memoranda made as the result of such interviews have remained in the exclusive possession of the company's attorneys. See cross reference chart for HIFI-FILTER SH76955V and more than 200.000 other oil filters. v. 662. 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. Shareholders claim directors had actual knowledge of employee anti-trust conduct or, in the alternative, knowledge of facts which should have put them on notice of such conduct. Enter your name : Enter your Email Id : . The question remaining to be answered, however, is, have the directors of Allis-Chalmers become obligated to account for any loss caused by the price-fixing here complained of on the theory that they allegedly should and could have gained knowledge of the activities of certain company subordinates in the field of illegal price fixing and put a stop to them before being compelled to do so by the grand jury findings? The order denying the motion to produce the documents described in paragraph 3 is affirmed. The fourth is under contract with it as a consultant. Classic cars for sale in the most trusted collector car marketplace in the world. Finally, plaintiffs argue that error was committed by the failure of the Vice Chancellor to even consider whether or not an inference unfavorable to the Directors should be drawn from their failure to produce as witnesses at the trial the Allis-Chalmers employees named as defendants in the indictments. The rule of Hickman v. Taylor, however, has not been followed in this state. Supreme Court case of Graham v. Allis Chalmers Mfg. 640, an accident report made by defendants' agents as a result of interviews with defendant's employees was held to be privileged if taken for the purpose of the guidance of an attorney in pending litigation. 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. We start with Francis v. United Jersey Bank3 or Graham v. Allis-Chalmers Manufacturing Co.,4 which I discuss in this Article, to explore the tort and business origins of the duty of care. One of these, the Power Equipment Division, produced the products, the sale of which involved the anti-trust activities referred to in the indictments. The indictments, eight in number, charged violations of the Federal anti-trust laws. 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. Court of Chancery of Delaware, in New Castle County. The decrees recited that they were consented to for the sole purpose of avoiding the trouble and expense of the proceeding. However, the filing of such order was not contested by Allis-Chalmers and the allegations therein were consented to "* * * solely for the purpose of disposing of this proceeding. 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. The Court concluded that the directors did not have actual knowledge of the illegal antitrust activities of employees, and two prior FTC decrees warning of antitrust violations did not give the directors notice of the possibility of future price fixings. Allis-Chalmers's policy was to delegate responsibility to the lowest possible level of management. In the 1963 case Graham versus Allis-Chalmers Manufacturing Company, the Delaware Supreme Court considered whether corporate officers and directors could be held liable for breach of the duty. 1963) The corporation and four (4) non-director employees pled guilty to indictments for price fixing, and the stockholders filed a derivative action to cover damages sustained by the corporation from defendants. Allis-Chalmers Mfg. 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. 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. 1963) Rule: Corporate directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. 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. 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. These directors hold meetings *330 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. H. James Conaway, Jr., of Morford, Young & Conaway, Wilmington, and Harry Norman Ball and Marvin Katz, Philadelphia, Pa., for plaintiffs. Supplied to the Directors at the meetings are financial and operating data relating to all phases of the company's activities. This latter type of claimed injury for which relief is here sought is alleged to arise in the first instance as a result of the imposition of fines and penalties on the corporate defendant upon the entry of corporate as well as individual pleas of guilty to anti-trust indictments filed in the District Court of the United States for the Eastern District of Pennsylvania. 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. Stevenson, officer and director defendant, first learned of the decrees in 1951 in a conversation with Singleton about their respective areas of the company's operations. 10 replacement oil filters for HIFI-FILTER SH76955V. It does not matter whether a contract was executed or money exchanged. Co. 188 A.2d 125 (Del. The non-director defendants have neither appeared in the cause nor been served with process. 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 Manufacturing Co. 188 A.2d 125 (1963) H Hariton v. Arco Electronics, Inc. 188 A.2d 123 (1963) Harris v. 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