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Lehman Brothers v. Schein

416 U.S. 386, 94 S. Ct. 1741, 40 L. Ed. 2d 215 (1974)

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Lehman Brothers v. Schein

United States Supreme Court

416 U.S. 386, 94 S. Ct. 1741, 40 L. Ed. 2d 215 (1974)

Facts

Melvin Chasen (defendant) was the president of Lum’s, a Florida corporation. Chasen called Benjamin Simon, a representative of Lehman Brothers, and told Simon confidential information about financial problems of Lum’s. Simon told an employee of Investors Diversified Services, Inc. (IDS) about the financial problems of Lum’s, and IDS, relying on the inside information, sold shares of Lum’s on the New York Stock Exchange before knowledge of the financial problems became publicly available. A group of Lum’s shareholders (plaintiffs) filed shareholder derivative suits in federal district court against Chasen, alleging that Chasen breached his fiduciary duty to Lum’s by sharing confidential information about its financial problems. The district court determined that Florida’s fiduciary-duty law should be applied to the case. The Florida Supreme Court had never decided whether actions such as Chasen’s violated state law, so the district court relied on New York state law to find that no cause of action existed against Chasen. The shareholders appealed, and the court of appeals affirmed the district court, reasoning that a Florida court would probably reach the same conclusion as New York courts had reached. One judge on the court of appeals dissented, urging the court to certify the question of Florida law to the Florida Supreme Court as allowed by state law and procedures. The shareholders appealed, and the United States Supreme Court granted certiorari.

Rule of Law

Issue

Holding and Reasoning (Douglas, J.)

Concurrence (Rehnquist, J.)

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