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Cannon v. U.S. Acoustics Corp.

United States District Court for the Northern District of Illinois

398 F. Supp. 209 (1975)

Facts

A group of shareholders (plaintiffs) filed a derivative suit on behalf of U.S. Acoustics Corporation and National Perlite Products, S.A. (collectively, the corporations) against four officer-directors of both corporations (defendants). The shareholders alleged that from 1968 to the present, the four officer-directors violated Securities and Exchange Commission Rule 10b-5 in regard to illegal stock options that were issued and purchased. Following the filing of the suit, the same law firm entered appearances for the corporations and for the four officer-directors of the corporations. The shareholders filed a motion to strike the appearance of the lawyers of behalf of the corporations. The shareholders argued that the firm could not represent both the corporations and the four officer-directors, because the corporations would benefit if the suit were successful, but the officer-directors would be liable to the corporations and shareholders. The law firm, along with the officer-directors and the corporations, argued that there was no conflict, that the transactions in question were legal, and that the corporations were not truly involved in the lawsuit, but if a conflict should arise, the firm would withdraw its appearance for the officer-directors.

Rule of Law

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Issue

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Holding and Reasoning (Marshall, J.)

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A "yes" or "no" answer to the question framed in the issue section;
A summary of the majority or plurality opinion, using the CREAC method; and
The procedural disposition (e.g., reversed and remanded, affirmed, etc.).

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