HARRIS V. CARTER
582 A.2d 222 (1990)
NATURE OF THE CASE: This was a suit over the looting of a corporation. Harris (P),
minority shareholder, sued Carter (Ds) alleging that the new owners looted the corporation
and that the selling shareholders were negligent and that their negligence breached a duty
they owed the corporation. Ds moved to dismiss.
FACTS: P is a minority shareholder of Atlas. He brought this action after the change in
control from the Carter group to the Mascolo group had occurred. In an amended complaint P
alleged that the Carter group, qua shareholders, owed a duty of care to Atlas to take the
steps that a reasonable person would take in the circumstances to investigate the bona fides
of the person to whom they sold control. P alleged that the duty was breached here, and that
if it had been met the corporation would have been spared the losses that are alleged to
have resulted from the transactions effected by the board under the domination of Mascolo. P
did not allege that the Carter group conspired with Mascolo. The Carter group sold for
shares of common stock of a corporation that P claims was a worthless shell and which was
later employed in the transactions that are said to constitute a looting of Atlas. The
Carter group, which collectively owned 52% of the stock of Atlas, and Mascolo entered into a
Stock Exchange Agreement. Ds sold their stock interest in the corporation and resigned as
directors. The resignations were done seriatim in a way that permitted the designation of
the buyers as successor directors. The buyers then proceeded to loot the corporation. P
alleges a series of complex corporate transactions effectuated once Mascolo took control of
Atlas, and claims that those transactions wrongfully injured Atlas. P alleges that the
Carter defendants had reason to suspect the integrity of the Mascolo group, but failed to
conduct even a cursory investigation into any of several suspicious aspects of the
transaction. Ds moved to dismiss the complaint for failure to state a claim for which relief
can be granted.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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