was the first case in Delaware to acknowledge a board's duty to oversee compliance and preclude corporate misconduct. Contact us using the form below, or call on 01935 841307. 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. * * *" 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. Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. The Delaware Supreme Court found for the directors. The damages claimed are sought to be derivatively recovered for the corporation from the corporate directors on the grounds that: "The Directors of the Company knew or, in the exercise of reasonable diligence, should have known of the specified course of conduct and the damage of great magnitude which that course of conduct was causing the Company and its shareholders, but the Directors failed to exercise proper supervision over the officers, agents and employees of the Company who were carrying out that course of conduct, condoned, acquiesced in and participated in the specified course of conduct and were guilty of either negligence or bad faith in their conduct of the business affairs of the Company." 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 defence. Sort by manufacturer, model, year, price, location, sale date, and more. " Graham v. Allis-Chalmers Mfg. Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. 1963), the Delaware Supreme Court noted that: [I]t appears that directors of a corporation in managing the corporate affairs are bound to use that amount of care which ordinarily careful and prudent men We are largest vintage car website with the. Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, for Allis-Chalmers Manufacturing Co. SOUTHERLAND, C. J., and WOLCOTT and TERRY, JJ., sitting. Ch. The order denying the motion to produce the documents described in paragraph 3 is affirmed. Classic cars for sale in the most trusted collector car marketplace in the world. They argue, however, that they were prevented from doing so by unreasonable restrictions put upon their pre-trial discovery by the Vice Chancellor. 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. Click here to load reader. It employs over thirty thousand persons and operates sixteen plants in the United States, one in Canada, and seven overseas. We will take these subjects up in the order stated. Jan. 24, 1963. 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. Thus, the directors were not liable as a matter of law. 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 *333 director defendants for any damages flowing from the price fixing activities complained of. That they did this is clear from the record. 135 views. 368, and thus obtained the aid of a Wisconsin court in compelling answers. Category: Documents. Report. 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. The damages claimed are sought to be derivatively recovered for the corporation from the corporate directors on the grounds that: "The Directors of the Company knew or, in the exercise of reasonable diligence, should have known of the specified course of conduct and the damage of great magnitude which that course of conduct was causing the Company and its shareholders, but the Directors failed to exercise proper supervision over the officers, agents and employees of the Company who were carrying out that course of conduct, condoned, acquiesced in and participated in the specified course of conduct and were guilty of either negligence or bad faith in their conduct of the business affairs of the Company." Thirdly, the plaintiffs complain against the refusal of the Vice Chancellor to order the four non-appearing defendants to answer certain questions they had refused to answer during the taking of their depositions in Wisconsin, or, in the alternative, *133 to impose sanctions on the appearing defendants. Graham v. Allis-Chalmers Manufacturing Company, 9 however, the Del-aware Supreme Court examined the duty of care less exactingly. The shareholders argued that the directors should have put into effect a system of watchfulness, which would have brought the illegal activity to their attention. Graham v. Allis-Chalmers Mfg. manufacturer of machinery for various industries. 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. The first actual knowledge the directors had of anti-trust violations by some of the company's employees was in the summer of 1959 from newspaper stories that TVA proposed an investigation of identical bids. The director defendants and now officers of the company either were employed in very subordinate capacities or had no connection with the company in 1937. The first Allis-Chalmers Company was formed . Derivative Litigation 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. Ch. The directors of Allis-Chalmers appeared in the cause voluntarily. 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. On occasion, the Board considers general questions concerning price levels, but because of the complexity of the company's operations the Board does not participate in decisions fixing the prices of specific products. Graham v. Allis-Chalmers Mfg. John P. GRAHAM and Yvonne M. Graham, on behalf of themselves and the other shareholders of Allis-Chalmers Manufacturing Company who may be entitled to intervene herein, Plaintiffs Below, Appellants, It may have been and discarded. 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. ALLIS-CHALMERS 70 Online Auctions at EquipmentFacts.com. They failed to make such a showing in fact as well as in law and, consequently, we think the Vice Chancellor committed no abuse of discretion in refusing to subject Allis-Chalmers to the harassment of unlimited and time-consuming inspection of records, which, except for broad generality of statement made by plaintiffs, bore no relation to the issue of director liability. While the directors reviewed the general financial goals of the corporation it would not have been practical for the directors to consider in detail the specific problems of the various divisions. 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 *332 different type of anti-trust offense. 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! 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. Against this complex business background plaintiffs first argue that because of the very nature of the plotting charged in the indictments the defendant directors must necessarily have contemporaneously known of the misconduct of those employees of Allis-Chalmers named in eight true bills of indictment found by a federal grand jury sitting in Philadelphia in 1959 and 1960, or alternatively that if such defendants did not actually know of such illegal activities, that they knew or should have known of facts which constructively put them on notice of such. 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. Plaintiffs rely mainly upon Briggs v. Spaulding, 141 U.S. 132, 11 S. Ct. 924, 35 L. Ed. If he has recklessly reposed confidence in an obviously untrustworthy employee, has refused or neglected cavalierly to perform his duty as a director, or has ignored either willfully or through inattention obvious danger signs of employee wrongdoing, the law will cast the burden of liability upon him. Other cases are also cited by plaintiffs in which bank directors, particularly directors of national banks, have been held, because of the nature of banking, to a higher degree of care and surveillance as to management matters, including personnel, than that required of a director of a corporation doing business in less sensitive areas. Graham v., Full title:JOHN P. GRAHAM and YVONNE M. GRAHAM, on Behalf of Themselves and the Other, Court:Court of Chancery of Delaware, in New Castle County. Nor does the decision in Lutz v. Boas, 39 Del. *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. This group is divided into five divisions. That's an objective standard and asks whether a reasonable person would have seen the wrongdoing. On notice, an order may be presented dismissing the complaint. At the meetings of the Board in which all Directors participated, these questions were considered and decided on the basis of summaries, reports and corporate records. John P. GRAHAM and Yvonne M. Graham, on behalf of themselves and the other shareholders of Allis-Chalmers Manufacturing Company who may be entitled to intervene herein, Plaintiffs Below, Appellants, v. ALLIS-CHALMERS MANUFACTURING COMPANY et al., Defendants Below, Appellees. Co. - 188 A.2d 125 (Del. 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. limited the scope of the duty to monitor due to "the chilling effect that the threat of legal liability Graham v. Allis-Chalmers Manufacturing Co. Supreme Court of Delaware 188 A.2d 125 (1963) Facts Allis-Chalmers Manufacturing Co. (Allis-Chalmers) (defendant) was an equipment manufacturer with sales of over $500,000,000 yearly. 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. 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. CO., ET AL Citing Cases Wilshire Oil Company of Texas v. Riffe 330 U.S. at 522, 67 S.Ct. 1963-01-24. The operations of the company are conducted by two groups, each of which is under the direction of a senior vice president. 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 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. From this background, the court separates two "species" of oversight claims. Admittedly, Judge Ganey, sitting in the United States District Court for the Eastern District of Pennsylvania at the time of imposition of sentences on some forty-eight individual defendants and thirty-two corporations charged with anti-trust violations, including Allis-Chalmers and certain of its employees, while pointing out that probative evidence had not been uncovered sufficient to secure a conviction of those in the highest echelons, implied that the offenses brought to light in the indictments could not have been unknown to top corporate executives. Ch. 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. Allis-Chalmers Mfg. Allis-Chalmers is a manufacturer of a variety of electrical equipment. 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. 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. 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. 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. There was no claim that the Allis-Chalmers directors knew of the employees' conduct that resulted in the corporation's liability. 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. Page 1 of 1. Chancellor Allen in Caremark followed Allis-Chalmers and endorsed director liability for conscious failure to respond to red flags once presented. 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. 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. In . 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. 2 download. Notwithstanding this anticipated defense, plaintiffs did not either by deposition or otherwise develop any evidence designed to controvert the unequivocal denials made in open Court by those here charged. Admittedly, Judge Ganey, sitting in the United States District Court for the Eastern District of Pennsylvania at the time of imposition of sentences on some forty-eight individual defendants and thirty-two corporations charged with anti-trust violations, including Allis-Chalmers and certain of its employees, while pointing out that probative evidence had not been uncovered sufficient to secure a conviction of those in the highest echelons, implied that the offenses brought to light in the indictments could not have been unknown to top corporate executives. The success or failure of this vast operation is the responsibility of a board of fourteen directors, four of whom are also corporate officers. 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. 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. 78, 85, 188 A.2d 125, 130 (1963). 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. Without exception they denied unequivocally having any knowledge of such activities until rumors of such began to circulate from Philadelphia late in 1959. ALLIS-CHALMERS 6070 Online Auctions at EquipmentFacts.com. This site is protected by reCAPTCHA and the Google. The decrees in question were consent decrees entered in 1937 against Allis-Chalmers and nine others enjoining agreements to fix uniform prices on condensors and turbine generators. Co. | Case Brief for Law School | LexisNexis Law School Case Brief Graham v. Allis-Chalmers Mfg. Plaintiffs had a remedy to obtain a ruling on the propriety of the refusal to answer, and, if that ruling was favorable, to force answers under the ruling of a court. 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. 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. 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. Nor does the decision in Lutz v. Boas, (Del.Ch.) Co. about thirty years earlier. 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. 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. 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. the shareholder plaintiffs' claim for breach of the duty of oversight was a "Red-Flags" claim in the style of Allis-Chalmers. Enter your name : Enter your Email Id : . Allis-Chalmers is a large manufacturer of heavy equipment and is the maker of the most varied and diverse power equipment in the world. 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. Plaintiffs, who are stockholders of Allis-Chalmers Manufacturing Company, charge in their complaint that the individual defendants in their capacity as directors and officers of the defendant corporation "* * have violated the fiduciary duty which they owe, individually and as a group, to the Company and its shareholders by engaging in, conspiring with each other and with third parties to engage in and by authorizing the officers, agents and employees of the Company and by permitting, condoning, acquiescing in, and failing to prevent officers, employees and agents of the Company from engaging in a course of conduct of the Company's business affairs, which course of conduct was in blatant and deliberate violation of the anti-trust laws of the United States.". 3 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. The Board meetings are customarily of several hours duration in which all the Directors participate actively. which requires a showing of good cause before an order for production will be made. Co., the court held that directors of a large, public company were not expected to be aware of, or take action to guard against, anti-trust violations by subordinates.7 It would be another thirty years before the Delaware Chancery Enquiry about Allis Chalmers Model B. Finally, the gravamen of the 1937 charges was that uniform price had been agreed on by several manufacturers, including Allis-Chalmers. Pinterest. Allis-Chalmers is a manufacturer of a variety of electrical equipment. You can explore additional available newsletters here. GRAHAM, ET AL. Plaintiffs say that as a minimum in this respect the Board should have taken the steps it took in 1960 when knowledge of the facts first actually came to *130 their attention as a result of the Grand Jury investigation. Plaintiffs could have examined the four witnesses in Wisconsin under a Commission issued pursuant to 10 Del.C. During the year 1961 some seven thousand persons were employed in the entire Power Equipment Division, the vast majority of whose products were marketed during the period complained of at published prices. By force of necessity, the company's Directors could not know personally all the company's employees. 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. 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? Case law has established that the fiduciary duty of care requires directors to act with a degree of care that ordinary careful and prudent men would use in similar circumstances (Graham v Allis-Chalmers Mfg Co 188 A 2d 125, 130 (Del 1963)). Notwithstanding this anticipated defense, plaintiffs did not either by deposition or otherwise develop any evidence designed to controvert the unequivocal denials made in open Court by those here charged. 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. 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. 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. Co. 388 U.S. 175 1967 United States v. Wade 388 U.S. 218 1967 Gilbert Wade 388 U.S. 218 1967 Gilbert List of United States Supreme Court cases, volume 471 (57 words) [view diff] exact match in snippet view article find links to article The same result was reached in Zenith Radio Corp. v. Radio Corp. of America, D.C., 121 F. Supp. Graham v. Allis-Chalmers Manufacturing Co. 188 A.2d 125 (1963) H Hariton v. Arco Electronics, Inc. 188 A.2d 123 (1963) Harris v. Carter 582 A.2d 222 (1990) Hoover v. Sun Oil Company 58 Del. In Gra-ham, a shareholder claimed that indictments based on the alleged price-fixing activities of company employees were the result of the directors' 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 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. Every board member in America should be more concerned about personal liability in the wake of the September 25, 1996, Delaware Chancery Court case of In re Caremark International Inc. 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