They brought this case initially as a freestanding suit in federal district court. The first was that there was insufficient evidence of proximate cause to allow a reasonable jury to render a verdict for the plaintiff, and the second was that there was likewise insufficient evidence of a breach of fiduciary duty. (Ordinarily the issue of duty would precede that of cause, but no matter.)The term “proximate cause” is pervasive in American tort law, but that doesn't mean it's well understood. The plaintiff had bought a building in Houston in reliance on what he claimed was the defendant's misrepresentation of its value.
But in an earlier decision in this long-running litigation, Kennedy v. A common definition is that there must be proof of “some direct relation between the injury asserted and the injurious conduct alleged.” Hemi Group, LLC v. Had it not been for the misrepresentation he would not have bought it.
Mcbreen, Attorney, Mc Breen, Mc Breen & Kopko, Chicago, IL, J.
Illinois choice of law principles, which govern this case because it was filed in Illinois, makes the law applicable to a suit against a director for breach of fiduciary duty that of the state of incorporation. The board considered a proposal from a group of Chicago investors and a joint proposal from Venrock and J. Morgan, and eventually decided on an million loan from Venrock and J. The board of directors had grown to seven members, of whom four, including Copeland, were employees of Venrock or J. The disinterested directors of Cadant (the directors who had no affiliation with Venrock or J. Morgan) who voted for the loan were engineers without financial acumen, and because they didn't think to retain their own financial advisor they were at the mercy of the financial advice they received from Copeland and the other conflicted directors. But “direct” is no more illuminating than “proximate .” Both are metaphors rather than definitions. But how could he have foreseen that his act would have triggered an explosion, as distinct from a possible injury to the boarder?
Cadant defaulted on the second bridge loan, and being in deep financial trouble agreed to sell all its assets to a firm called Arris Group in exchange for stock worth, when the sale closed in January 2002, some million. The sale was approved by Cadant's board, but also, as required by Delaware law and the company's articles of incorporation, by a simple majority both of Cadant's common and preferred shareholders voting together as a single class and of the preferred shareholders voting separately. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343–44 (7th Cir.1987); In re Ionosphere Clubs, Inc., 17 F.3d 600, 604 (2d Cir.1994). What the courts are trying to do by intoning these words is to focus attention on whether the particular contribution that the defendant made to the injury for which the plaintiff has sued him resulted from conduct that we want to deter or punish by imposing liability, as in the famous case of Palsgraf v. If an accident is so freakish as to be unforeseeable, liability is unlikely to have a deterrent effect.
It was later that year that the board proposed and the shareholders approved the reincorporation of Cadant in Delaware, effective January 1, 2001. The defendants attribute this to the deflating—beginning in the spring of 2000 and continuing throughout the year and into the next year—of the dot-com bubble of the late 1990s. The million bridge loan to Cadant was for only 90 days, at an annual interest rate of 10 percent; it also gave the lenders warrants (never exercised) to buy common stock of Cadant. Morgan then made a second bridge loan, in May, this one for million, again negotiated on Cadant's behalf by Copeland. She sued the railroad; it would have been unthinkable for her to sue the scale's manufacturer, even though if heavy metal scales did not exist she would not have been injured.
The suit involves decisions by Cadant's board made both when Cadant was incorporated in Maryland and when it was reincorporated in Delaware. We'll return to the question of what caused Cadant's financial distress, but whatever the cause the company needed fresh investment. The terms of the loan were negotiated on Cadant's behalf by Copeland. Cadant ran through the entire loan, which had been made in January 2001, within a few months. The loan agreement provided that in the event that Cadant was liquidated the lenders would be entitled to be paid twice the outstanding principal of the loan plus any accrued but unpaid interest on it; as a result, little if anything would be left for the shareholders. No one would think the scale's manufacturer should be liable, because no one would think that tort law should try to encourage manufacturers of scales to take steps to prevent the kind of accident that befell Mrs. The railroad was a more plausible defendant; its conductor had tugged the passenger aboard while the train was already moving.
The dot-com bubble was primarily in the stocks of firms that marketed their goods or services over the Internet.