Liddle & Robinson Attorneys at Law New York City

Case Database
» Case Detail

Kaster v. Modification Systems, Inc. - 3/27/1984

Award Amount- $0.00

Case Summary: Our clients were shareholders of Modification Systems, Inc. (MSI), a closely held corporation that manufactured and modified computer simulators for nuclear power plant. They claimed in a derivative lawsuit that MSI and its president, Francis Meyers, as well as other officers and directors, engaged in securities fraud by voting to accept Meyers' subscription for MSI's stock below book value, as well claims for breach of fiduciary duty as the result of MSI awarding Meyers compensation and other benefits for non-corporate use. The plaintiff-shareholders did not make a demand on MSI's directors for corrective action. Demand on a board of directors is intended to allow the corporation itself to take over the suit, brought in the corporation's behalf, thereby permitting the directors to occupy their normal status as conductors of the corporation's affairs. The issue on this appeal was whether the federal district court should have permitted the shareholders to amend their complaint to plead in detail facts why a demand on the board of directors would be futile. The federal appeals court agreed that the district court had been wrong, and revered its decision, thereby allowing the shareholders to proceed with their claims. In a significant concurring opinion by Circuit Judge Henry Friendly, legendary for his knowledge of the securities laws, he explained that the shareholders had established that any demand on the board of directors would be futile. The case subsequently settled, in an agreement under which MSI's president agreed to purchase the plaintiff's stock at a 100 percent profit, as well as MSI agreeing to pay a portion of the our cleints' attorneys' fees.

Jeffrey L. Liddle

Liddle & Robinson, L.L.P.
1177 Avenue of the Americas, 5th Floor, New York, N.Y. 10036
Tel: (646) 452-7211  Fax: (646) 452-7001
©2001-2019, Liddle & Robinson, L.L.P. All Rights reserved.