Michaels v. Michaels

A dispute arose among stockholders in a family business, Hyman-Michaels Company. As a result, Joseph Michaels (plaintiff) desired to sell his stock to his uncles, Ralph and Everett Michaels (uncles) (defendants). Over the years, Hyman-Michaels looked to sell its assets or the stock owned by the three stockholders. All three of the Michaels participated in these endeavors to sell the company’s assets or stock. Eventually, relations among the family became so tense that the uncles pushed Joseph out of his role at the company, and Joseph sold his stock to his uncles. However, the uncles failed to inform Joseph of the true status of their plans to sell Hyman-Michaels. The uncles told Joseph a loan request had been denied, but the loan was still a possibility. The uncles failed to inform Joseph about the existence of prospective purchasers found by a broker, Littlejohn. Several months after the uncles executed the agreement to purchase Joseph’s stock, they sold Hyman-Michaels for $13.4 million. The sale also included lifetime employment contracts for the two uncles. Joseph filed a claim against his uncles for violation of the Securities and Exchange Commission (SEC) Rule 10b-5. A jury found the uncles had violated SEC Rule 10b-5 and had committed fraud against Joseph. The uncles appealed to the United States Court of Appeals for the Seventh Circuit.