Vanderbilt Law Review

First Page



In Marshel v. AFW Fabric Corp., decided on February 13,1976, the court unanimously sustained a challenge to long-form merger under New York law for the sole purpose of "going private,"concluding that despite full disclosure, the merger itself constituted a fraudulent scheme because it represented an attempt by the majority stockholders, in violation of their fiduciary obligations, to utilize corporate funds strictly for personal benefit and for no legitimate corporate purpose...

It is the purpose of this article to analyze the Green and Marshel decisions against the backdrop of previous cases in the area of fraudulent mismanagement, to gauge their impact on the future course of the rule's development, to test their premises, and to consider the likelihood that the expansive standards enunciated by the cases will be assimilated by other circuits or by the Supreme Court. In this regard it may be helpful to reflect on an observation made by Arthur Fleischer in 1965 that rule 10b-5 "is now at the most creative, hence valuable, stage of its growth." Much of this creativity can be attributed to the broad and malleable language of the section and rule. Certainly the judicial creativity has proceeded at an ever increasing pace since 1965. What we appropriately may ask is whether this creativity has ceased to have the value once attributed to it, or whether its value is outweighed by other considerations not clearly perceived under the decisions of a decade ago.