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The district judge granted the motion with a brief oral statement of reasons, precipitating this appeal.

This suit, brought by a trust that holds the common stock of a bankrupt company formerly known as Cadant, charges several former directors with breaches of their duty of loyalty to the corporation, and charges two venture-capital groups, which we'll abbreviate to “Venrock” and “J. Morgan,” with aiding and abetting the disloyal directors. Seven weeks into the trial on liability the plaintiff rested and the defendants then moved for judgment as a matter of law.

Yet we ruled, without using the term “proximate cause,” that he could not recover from the defendant because (among other reasons) that would produce overdeterrence by making the defendant an insurer of conditions that he could not control. And indeed the district court ruled that the plaintiff had failed to prove that the defendants' misconduct had been a “proximate cause” of Cadant's ruination, just as in Movitz. First, the burden of proof on the issue of causation (or if one prefers, of “proximate causation”) was on the defendants rather than on the plaintiff and the judge cut off the trial before the defendants presented their defenses.

Second, there was enough evidence that the bursting of the dot-com bubble did not account for the entire loss to Cadant to make causation an issue requiring factfinding and therefore for the jury to resolve.

There may have been a crossover effect; the collapse of stock values, and the recession (mild though it was) that accompanied it, reduced the amount of venture capital available for technology companies generally, and so may have made it difficult for Cadant to obtain needed investment on reasonable terms.

Our point is only that the effect of the bubble's bursting on Cadant was a jury issue, not an issue that the judge could resolve because the effect was incontestable.

The dot-com bubble was primarily in the stocks of firms that marketed their goods or services over the Internet.

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.

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.

The plaintiff presented evidence of disloyalty, as we'll see later, but we are uncertain whether it proves “active and deliberate dishonesty.” The briefs virtually ignore the issue, and we cannot find a case decided by a Maryland court that construes the term.

An unpublished decision by the Fourth Circuit interprets the term in the Maryland statute as including fraud, Hayes v. App'x 857, 865 (4th Cir.2003), which is a possible characterization of the defendants' alleged conduct in the present case. Richardson, 817 F.2d 1203, 1210 (5th Cir.1987), construes the identical term appearing in a liability insurance policy to cover “wilful neglect of duties,” embezzlement, and fraud—and willful neglect of duties seems a pretty good description of the defendants' alleged wrongdoing.

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