Business Associations--1964 Tennessee Survey

In Denny v. Phillips & Buttorff Corp.,' the United States Court of Appeals for the Sixth Circuit affirmed a judgment of the United States Court for the Middle District of Tennessee which awarded $235,000 in fees plus $6,227.98 in expenses to counsel representing minority stockholders in a suit which had been brought to force cancellation of a purchase by the Phillips & Buttorff Corp. from the instrumentalities of the controlling stockholders of such corporation of 60,000 shares of stock in Win. R.Moore Dry Goods Company for $2,700,000. The purchase of the Moore stock had apparently been used as a means by which the controlling group in the Phillips corporation had obtained corporate funds with which to finance their acquisition of a controlling amount of stock. Although the purchase of the Moore stock was rescinded before the derivative action was tried, the court in a former opinion described the purchase transaction as constructive fraud and ordered judgment to be rendered on behalf of the corporation against the offending directors in an amount equal to interest on the $2,700,000 purchase price from the date of commencement of the action until recission.

The description, by the court of appeals, of the stock purchase transaction as constructive fraud is not readily reconcilable with an apparent finding of the district court that the purchase price paid by the corporation for the Moore stock was not unfair.