Lewis v. Hirsc Cch Federal Law Reports

98,382, 1994 WL 263551 (1994)

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Nature of the Case

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Facts

P is and has been a stockholder of the D Corp at all times. The individual directors except for Lorthoff and Fisher, who are former officers and directors, are current directors of Corp. Between May 1991 and April 1993, the individual defendants, with the exception of Fisher, breached the fiduciary duties they owed to the Corp. by using its surgical materials non-public information when deciding to sell large quantities of their stock, thereby making huge profits for themselves before the value of the stock plummeted. It is alleged that Ds knew about the adverse effects that increased competitive pressures and new developments would have on the Corp's growth and sales and sold their stock at high prices before those adverse effects were disclosed to the other stockholders and the general public and before the price of Corp's stock began to plummet in 1993. One of the new developments that allegedly led to a significant decline in the price of Corp's stock was its implementation of a domestic Just In Time Program (JIT), thereby changing the way Corp did business. Before the program, Corp sold its surgical products directly to hospitals and the hospitals would maintain an inventory of those products. With the implementation of the program, Corp began selling its products to distributors at a reduced price. The distributors, in turn, maintained an inventory of the products and then sold them to hospitals on an as-needed basis. A significant decline in Corp's sales and the corresponding fall of the price of its stock had been largely attributed to the implementation of that program. Because we are not satisfied that P has adequately investigated the insider trading claims alleged against the individual defendants, approval of the proposed settlement cannot be given without further development of the record.