This educational guide is based on the linked primary sources. It is not a Court publication, is not affiliated with the Court, and is not legal advice.
In brief
Overview
Petitioner (John D. Cline) argues that Congress placed the phrase “with respect to its stock” in §301(a) to limit the application of §301(c) to corporate payments made in a non‑shareholder capacity.
The Government argues that a controlling shareholder cannot embezzle from his corporation and that, under Ninth Circuit precedent, a defendant must show objective intent to make a distribution with respect to stock before a return‑of‑capital defense can be presented.
The Court requires factual evidence of three elements: a distribution with respect to stock, the corporation’s lack of earnings and profits, and the defendant’s sufficient basis in the stock to cover the funds received.
Background and question before the Court
The dispute arises from allegations that Michael H. Boulware, a controlling shareholder, took corporate funds that the Government characterizes as embezzlement.
Justice Souter asked whether the limiting phrase “with respect to the stock” is the key threshold condition in the statute.
Justice Ginsburg asked whether the burden of proof rests on the defendant to show that the corporation had no earnings and profits, making the distribution a return of capital.
What each side argues
Petitioner (Michael H. Boulware)
According to Petitioner (John D. Cline), according to Petitioner (John D. Cline), petitioner argues that Congress intended the phrase “with respect to its stock” to limit the application of §301(c) to corporate payments made in a non‑shareholder capacity.
According to Mr. Cline, petitioner contends that an adequate proffer of evidence was made in the record (page 97 of the joint appendix).
Respondent (United States)
The Government maintains that a controlling shareholder cannot embezzle from his own corporation.
According to Government (as presented by Respondent Ms. Maynard), according to Government (as presented by Respondent Ms. Maynard), the Government asserts that, under Ninth Circuit precedent, a defendant must show objective evidence that the corporation intended a distribution with respect to its stock before a return‑of‑capital defense can be raised.
What happened at oral argument
Justice Souter asked whether the limiting phrase “with respect to the stock” is the key threshold condition in the statute.
According to Chief Justice Roberts, chief Justice Roberts noted the petitioner’s proffer of expert testimony that the corporation lacked earnings and profits, which the district court rejected.
Justice Ginsburg asked whether the burden of proof rested on the defendant to show that the corporation had no earnings and profits, making the distribution a return of capital.
What the Court decided
Why it matters
Terms to know
No glossary terms are available for this guide.
Primary sources
Read the source materials on the official site or open the immutable repository copy used for this guide.
- d849b19342963da46787-r1-809007d149a746f9.pdforal argument transcript
Guide generated September 22, 2026. Automated validation accepted this version.