Irving Trust Co. v. Deutsch

Acoustic Products Company (Acoustic) wanted to acquire rights to manufacture radio art from De Forest Radio Company (De Forest). Bell was employed by Acoustic to negotiate with Reynolds and W. R. Reynolds & Co. (collectively, Reynolds) (defendant), who controlled De Forest. Although Bell did not obtain the manufacturing rights, Bell obtained an offer of 200,000 shares of De Forest stock for $100,000 cash. On April 3, Acoustic’s board of directors directed its president, Deutsch (defendant), to obtain sufficient funds to accept the offer. Deutsch reported that he was unable to obtain the funds, but that individuals were willing to extend Acoustic funds to accept the offer. On April 10, Deutsch accepted the offer and informed Reynolds that if Acoustic could not fund the stock purchase, the directors would individually acquire the stock. On April 24, payment was made by Biddle, Deutsch, and Hammond. On May 25, Reynolds was informed that the stocks were being purchased by the individuals Bell, Biddle, Deutsch, and Hammond and others (collectively, the syndicate) (defendants). The members of the syndicate sold their shares, making a significant profit. Irving Trust Co. (plaintiff), Acoustic’s bankruptcy trustee, sued the syndicate for appropriating to themselves Acoustic’s rights under the contract with Reynolds and failing to preserve those rights for Acoustic, arguing that the syndicate members were forbidden from taking a position that created a conflict of interest between themselves and their principal, Acoustic. Irving Trust also sued Reynolds for participating in the transaction. The syndicate argued Acoustic did not have funds to make the purchase and they believed that if they bought the stock, they would have access to De Forest’s radio art for the benefit of Acoustic. The district court dismissed claims against all defendants. Irving Trust appealed.