Janigan v. Taylor

John B. Janigan (defendant) was the president, general manager, and a director of Boston Electro Steel Casting, Inc. (BESCO). On December 27, 1955, at a BESCO director’s meeting, Janigan was asked whether he knew of any recent material change in BESCO’s affairs that would affect the other directors’ opinion of the company. Janigan responded that he did not. Based on Janigan’s response, Frederick B. Taylor and the other stockholders and directors (collectively, the former stockholders) (plaintiffs) sold all the remaining stock in BESCO to Janigan for $40,000. At the time of the December 1955 directors’ meeting, Janigan knew of several events that would likely result in an upcoming profit, and Janigan had taken steps to hide the likelihood of a prospective profit. After Janigan purchased all of BESCO’s outstanding stock, he continued to work in the same way as he would have if he had not purchased the stock. BESCO prospered, and in December 1957, Janigan sold the stock he had purchased after the December 1955 directors’ meeting for $700,000. The former stockholders sued Janigan for violating Rule 10b-5 promulgated by the Securities and Exchange Commission. Following a bench trial, the court found that (1) Janigan’s statement at the 1955 director’s meeting that there was no material change was knowingly and materially false, (2) the former stockholders relied on it, (3) they suffered damages as a result, and (4) Janigan was liable. The court ordered that the former stockholders’ damages were Janigan’s net profits. Janigan appealed. The appellate court affirmed the trial court’s finding of fraud, and at issue was the measure of damages.