Ingalls v. Patterson
Decision Date | 17 January 1958 |
Docket Number | Civ. A. No. 8503. |
Citation | 158 F. Supp. 627 |
Parties | Robert I. INGALLS, Jr., and Jane S. Ingalls, Plaintiffs, v. George D. PATTERSON, District Director of Internal Revenue for the District of Alabama, Defendant. |
Court | U.S. District Court — Northern District of Alabama |
Pritchard, McCall & Jones, Birmingham, Ala., for plaintiffs.
W. L. Longshore, U. S. Atty., and M. L. Tanner, Asst. U. S. Atty., Birmingham, Ala., and Charles K. Rice, Asst. Atty. Gen., James P. Garland, Homer R. Miller, and Attys., Dept. of Justice, Washington, D. C., Anthony R. DeSanto, Alexandria, Va., for defendant.
This action was tried to the court, without the intervention of a jury, on the issues tendered by the pleadings and the proof, consisting of the stipulation of facts entered into by and between the parties, oral testimony of witnesses, and the documentary evidence adduced at the trial.
It was agreed by all of the parties at the pretrial conference and the formal order on pretrial hearing provided that the following were all of the issues in controversy in this cause:
Because of the ultimate conclusions reached by the court and its desire to limit its holdings to the precise facts of this case, the full stipulation of facts (without reproduction of the exhibits thereto) entered into by the parties and which the court finds as and to be facts is reproduced in the margin.1
COPYRIGHT MATERIAL OMITTED
Through the genius, diligence and perseverance of Robert I. Ingalls, Sr., the closely held and family owned corporation, The Ingalls Iron Works Company,2 had achieved a position of pre-eminence in the industrial economy of Alabama. At the beginning of the year 1948, Robert I. Ingalls, Jr., was president of the Ingalls Iron Works Company and vice-chairman of the Board of Directors of the Ingalls Shipbuilding Corporation, a wholly owned subsidiary, and was a member of the Board of Directors of both corporations. These positions he had held continuously for approximately seven years and for his services in such capacities he was paid an aggregate compensation of $45,000 per year. During the same period of time he received dividends of $5 per share on his stock therein.
In the early part of 1948, a serious personal disagreement arose between Robert I. Ingalls, Sr., the chief executive officer of the corporation, and his son, Robert I. Ingalls, Jr. Because this disagreement triggered the multiple and protracted litigation with which the larger claims for refund in this case are concerned, it is essential that its nature and effects be touched upon briefly.
Because Mr. Ingalls, Sr., is now deceased, this court is impelled by a sense of delicacy to emphasize that it is not undertaking to place the accent of blame on either father or son. Any slanting of this opinion in the direction of the son is necessarily to be explained by the fact that it is his own individual lawsuit with which this court is concerned.
Mr. Ingalls, Sr., was strongly opposed to his son's expressed intention to marry his present wife. He threatened that if such marriage were consummated against his wishes, he intended to starve his son into submission by cutting off his income from all sources. When son refused to be dictated to by father as to whom he should or would be married, and did in fact marry the lady to whom his father objected, discord between them culminated on or about May 10, 1948, when Mr. Ingalls, Sr., undertook to discharge his son as president of the corporation, ordered him from its premises, and discontinued payment to him of his compensation.
An abortive effort was made to effect a reconciliation between father and son. Thereafter, Mr. Ingalls, Jr., employed Francis H. Hare, a resourceful, able and honorable attorney, to perform whatever legal services might be required to regain for him his former executive position with the Ingalls companies, to maintain successful action for compensation for personal services since May 15, 1948, and to effect an increase in dividends paid on the stock of Ingalls Iron Works Company. Shortly thereafter, Mr. Charles W. Greer, a skillful and respected member of the Birmingham Bar, became associated with Mr. Hare in the representation of Mr. Ingalls, Jr.3
On November 1, 1948, Mr. Hare, in behalf of Mr. Ingalls, Jr., individually and as president of the corporation, filed a bill of complaint in equity against Mr. Ingalls, Sr., including prayers that Mr. Ingalls, Sr. be enjoined from interfering with Mr. Ingalls, Jr., in performing his functions as president and that his salary be paid. The theory underlying this bill was that under the controlling laws of Delaware, the chairman of its board of directors had no authority to discharge the president of a corporation; that the term of office of Mr. Ingalls, Jr., as president did not expire until the second Tuesday in January, 1949; the Delaware law provides that a president cannot be removed until his office has expired except for cause, and that cause must be established in a suit at law brought in behalf of the board of directors.
Thereafter, on November 9, 1948, at a called meeting of the Board of Directors of the corporation, over which Mr. Ingalls, Sr. presided as chairman, the directors present, Ellen Gregg Ingalls, wife of Mr. Ingalls, Sr., and mother of Mr. Ingalls, Jr., W. R. Guest, and M. F. Pixton, unanimously adopted a resolution ratifying the father's action in discharging his son and declaring the tenure of the son's office to have ceased as of May 15, 1948. Mr. Ingalls, Sr., was named to serve as president in his stead.
On February 25, 1949, the stockholders of the corporation, at an adjourned annual meeting, elected Mr. Ingalls, Sr., Mrs. Ellen Gregg Ingalls and Mr. M. F. Pixton as directors. The by-laws of the corporation were amended to provide for only three directors. Mr. Ingalls, Jr., was nominated for the office of director but was defeated after receiving the votes of his stock only.
After February 29, 1949, the extremity of the position of Mr. Ingalls, Jr., was quite apparent. Since he had failed in election as a director, he could not, under the laws of Delaware, serve as president of the corporation. Although individually he was the largest single stockholder, owning more shares of voting stock than his father and mother combined, the balance of power was held by the seven trusts. In voting the stock held by the trusts, the First National Bank of Birmingham and M. F. Pixton, as trustees, were solidly arrayed on the side of Mr. and Mrs. Ingalls, Sr.
Mr. M. F. Pixton was an employee of The Ingalls Iron Works Company, of which Mr. Ingalls, Sr., was chief executive officer. Mr. Ingalls, Sr., was a member of the Board of Directors of the First National Bank of Birmingham and the corporation was one of its largest depositors. These facts created in the minds of counsel for Mr. Ingalls, Jr., a bona fide belief that as trustees they would be obedient to the demands and direction of Mr. Ingalls, Sr.
At no time did Mrs. Ingalls waiver in her loyalty to her husband and her consequent opposition to her son. Her consistent attitude in this respect is perhaps best pointed up by reference to the proceeding which she filed in the Circuit Court of Jefferson County, Alabama, Equity Division, to have her son declared mentally incompetent to serve as a trustee. It is not to digress to observe that if Messrs. Hare and Greer had not successfully...
To continue reading
Request your trial-
Sachs v. CIR
...In the absence of any liability of the corporation as found in Ruben v. Commissioner of Internal Revenue, supra, and Ingalls v. Patterson, D.C.Ala., 158 F.Supp. 627, it must be held that the voluntary payment of petitioner's fine by the corporation was in effect a payment of dividends, taxa......
-
Monahan v. Comm'r of Internal Revenue
...held by Group M at SP Bank to an account held by petitioners at the same bank (the payment). Petitioners, citing Ingalls v. Patterson, 158 F.Supp. 627, 641–642 (N.D.Ala.1958), argue that the payment “represents a reimbursement of legal fees paid by Petitioner on behalf of Group M Constructi......
-
Exchange Security Bank v. United States
...280 F. 2d 423 (5th Cir. 1960). Summaries of the dispute may be found in the opinions at 266 Ala. 656, 98 So.2d 30 (1957) and at 158 F.Supp. 627 (N.D.Ala.1958). Of particular interest in the instant case are the opinions on the original trial and appeal in action CA 8450, brought by the comp......
-
Caruso v. United States
...held deductible by a corporation officer when defending against an effort to remove him from control and management. Ingalls v. Patterson, 158 F.Supp. 627 (N.D. Ala.1958); Stanley v. Waldheim, 25 T.C. 839 (1956); E. L. Potter, 20 B.T.A. 252 (1930). Similarly in the Tax Court case of Annie L......