Hornsby v. Lohmeyer
| Decision Date | 20 March 1950 |
| Citation | 364 Pa. 271,72 A.2d 294 |
| Parties | HORNSBY et al. v. LOHMEYER et al. (two cases). |
| Court | Pennsylvania Supreme Court |
Argued January 17, 1950
Appeals, Nos. 101 and 114, Jan. T., 1950, from decree of Court of Common Pleas No. 2 of Philadelphia County, June T. 1948, No. 4360, in case of Thomas Hornsby, individually and as Executor under Will of Belle P. Hornsby, Deceased et al v. Lloyd O. Lohmeyer et al. Plaintiffs' appeal quashed defendant's appeal sustained and bill dismissed; reargument refused March 30, 1950.
Amended bill in equity.
Defendants' preliminary objections sustained in part, and decree entered requiring defendants to answer to certain allegations in the bill and to render an account, opinion by LEWIS, J. Plaintiffs and defendants, respectively, appealed.
Plaintiffs' appeal (No. 114) is quashed; defendants' appeal (No. 101) is sustained, and the bill is dismissed at plaintiffs' costs.
Frederic L. Clark , with him Everett H. Brown, Jr., James F. McMullan and Clark, Brown, McCown, Fortenbaugh & Young , for defendants.
D. Arthur Magaziner , with him Mayer, Magaziner & Brunswick , for Thomas M. Browning, defendant.
Roland J. Christy , for plaintiff.
Before MAXEY, C.J., DREW, LINN, STERN, STEARNE and JONES, JJ.
Plaintiffs are minority stockholders in the Thurman Manufacturing Company, a Pennsylvania corporation. They brought a bill in equity against the officers and directors, naming the corporation also as a party defendant. The bill alleged fraudulent withdrawals of corporate property for which plaintiffs demanded an accounting and restitution; it complained also of allegedly improper sales and transfers of stock. Defendants filed preliminary objections all of which were sustained by the court below with leave to plaintiffs to file an amended bill. Plaintiffs thereupon filed such a bill and again defendants filed preliminary objections; this time the court sustained some of these and dismissed others. Plaintiffs have taken an appeal (No. 114) on the ground that the court improperly limited the period for which defendants should account. Defendants have likewise taken an appeal (No. 101) on the ground that they are not liable to account at all.
Except by statute no appeal lies from an order or decree to account. The Act of June 24, 1895, P.L. 243, as amended by the Act of March 30, 1921, P.L. 60, allows an appeal to the defendant in all cases where the plaintiff prays for an account and the defendant denies his liability to account and the decree of the court, upon this preliminary question of liability, is in favor of the plaintiff. It is not the province of the appellate court under this Act to determine preliminarily what period the account should cover; any objections on that score must await an appeal from the final decree: Betty v. Safe Deposit and Title Guaranty Co ., 226 Pa. 430, 432, 75 A. 592, 593; Rowley v. Rowley , 289 Pa. 171, 174, 137 A. 226, 228. This statutory right of appeal is confined to the defendant; there is no provision for appeal by a plaintiff: Lauer v. Lauer Brewing Co., Ltd ., 180 Pa. 593, 597, 37 A. 87, 89; Rowley v. Rowley , 289 Pa. 171, 174, 137 A. 226, 227. As far as a plaintiff's non -statutory right of appeal from the sustaining of preliminary objections is concerned, it would lie only if he were denied an accounting and his bill were dismissed, which is not the case here. Plaintiffs' appeal in the present case must therefore be quashed. It may be added, however, that, in the light of what is hereinafter shown to be the fatal inadequacy of their bill, the question raised by plaintiffs' appeal as to the proper period of accounting, is, in any event, wholly academic.
One of defendants' preliminary objections was to the multifariousness of plaitiffs' bill in that it sets forth two distinct causes of action, one, a stockholders' derivative suit seeking restitution of corporate property which the corporation itself had refused to reclaim, the other an action seeking relief for the individual plaintiffs from alleged improper sales and transfers of stock. Joining these two unconnected causes of action in one bill undoubtedly made it vulnerable to defendants' attack on the ground stated: Kelly v. Thomas , 234 Pa. 419, 431, 432, 83 A. 307, 311; Whitney v. Whitney , 296 Mass. 13, 4 N.E.2d 438; James v. P.B. Steifer Mining Co ., 35 Cal.App. 77, 171 P. 117. However, we shall disregard this formal defect and pass to a consideration of the merits.
The bill alleges that Lloyd O. Lohmeyer, President of the corporation, has been receiving 15%, and William E. Grafe Secretary and General Manager, 10%, of the net profits of the business, as well as bonuses, the amounts of which are not stated in the bill; [*] that these allowances were in addition to the regular salaries of those officers, the amounts of which salaries, however, are not set forth; that Lohmeyer has also received certain commissions, amounting to approximately $3000 a year over a period of three years, in connection with sales to customers whom he personally handled. A later paragraph of the bill alleges that Lohmeyer and Grafe unauthorizedly and improperly withdrew and distributed profits of the company to themselves totalling approximately $37,000 and $28,000 respectively in the years from 1927 to 1947 inclusive; these sums, however, apparently represent the percentages of the net profits already referred to. The bill itself discloses that all these payments were authorized by the Board of Directors, -- the percentages of the net profits by a resolution in 1919, the bonuses by resolutions in 1920 and 1929, and the commissions by a resolution in 1946; moreover they have all been approved, ratified and confirmed at a meeting of the shareholders. It is true, of course, that majority stockholders occupy a quasi-fiduciary relation toward the minority which prevents them from using their power in such a way as to exclude the minority from their proper share of the benefits accruing from the enterprise: Weisbecker v. Hosiery Patents, Inc ., 356 Pa. 244, 250, 51 A.2d 811, 813, 814. It is also true that directors may not vote to themselves or to the officers of the corporation compensation which is excessive, unreasonable and out of proportion to the value of the services rendered, and, if any such payments are made, the court, upon protest of a minority shareholder, may examine into their propriety and reduce them if found to be exorbitant. These principles, however, have no application to the present case for the reason that the bill not only fails to allege that the compensation paid to any of the directors or officers was in fact excessive or unreasonable, but it also fails to set forth any facts from which such an inference could be drawn; it does not state what the salaries were nor the amount of the sales and profits nor even the nature of the business conducted by the corporation. Certainly the payment of bonuses to the officers of a corporation is not in itself irregular or illegal; on the contrary it is quite usual in the case of profitable business operations the success of which is attributable at least in part to the industry and ability of the management, and a court is not ordinarily warranted in substituting its own judgment as to the proper compensation of the officers for that of the directors whom the stockholders have chosen to manage the affairs of the corporation. Nor, in the absence of averments of facts indicating that such compensation is improper, does plaintiffs' bill gain additional weight by its occasional employment of the adjective "fraudulent". In Bailey v. Bailey , 338 Pa. 221, 222,...
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