L. L. Minor Co., Inc. v. Perkins

• Decision Date: 10 June 1980
• Docket Number: No. 36169,36169
• Citation: L. L. Minor Co., Inc. v. Perkins, 268 S.E.2d 637, 246 Ga. 6 (Ga. 1980)
• Parties: L. L. MINOR COMPANY, INC. et al. v. PERKINS.
• Court: Georgia Supreme Court

Page 637

268 S.E.2d 637

246 Ga. 6

L. L. MINOR COMPANY, INC. et al. v. PERKINS.

No. 36169.

Supreme Court of Georgia.

Submitted April 25, 1980.

Decided June 10, 1980.

Robert N. Meals, Stanley E. Kreimer, Jr., Atlanta, Ray L. Allison, Columbus, for appellants.

Byrd & Anthony, Garland T. Byrd, H. Thad Crawley, Butler, for appellee.

MARSHALL, Justice.

This is a suit for liquidation of the assets of a closely held, family corporation, on the ground that those in control of the corporation have committed illegal or fraudulent acts and wasted or misapplied corporate assets. Code Ann. § 22-1317(a)(1)(B) and (D). This suit also seeks certain injunctive relief against the president of the corporation, who is being sued in his joint capacity as executor of the estate of the former president of the corporation, founder, and majority shareholder.

The corporation is the L. L. Minor Company, Inc., which was founded by L. L. Minor, Sr., in 1964. The corporate assets consist of approximately 10,000 acres of farm and timberland in Macon, Troup and Taylor Counties. Until L. L. Minor, Sr.'s, death in 1977, he served as president of the corporation at an annual salary of $25,000, ¹ and Dr. James B. Minor served as vice-president.

In 1967, the initial stock in the corporation was recalled, and there were reissued 19 shares of class A voting stock, of which L. L. Minor, Sr., was issued 15 shares; and there were also issued 1,751 shares of class B, nonvoting stock, of which L. L. Minor, Sr., was issued 1,083 shares. Thelma Barrow Minor, the wife of L. L. Minor, Jr., was issued one share of class A stock and 47 shares of class B stock. ² Holders of class B stock share equally in earnings, dividends, and in litigation, and in all respects with holders of class A stock, with the exception that the holders of class B stock lack voting rights.

At a stockholders and board of directors meeting in 1976, a resolution was adopted by the board giving Dr. James B. Minor the option to purchase the 15 shares of class A voting stock owned by L. L. Minor, Sr., in the event of L. L. Minor, Sr.'s death. However, the articles of incorporation provide that, "Any share of stock to be sold shall be first offered back to the corporation, and/or all the remaining stockholders at book value as disclosed by the books and records of the corporation on the last day of the month next preceding such offer, plus 10% of the last named amount . . ."

After L. L. Minor, Sr.'s, death in 1977, the board of directors elected Dr. James B. Minor president of L. L. Minor Co., Inc., and he also qualified as executor of L. L. Minor, Sr.'s, estate. ³ Dr. Minor testified at the hearing below that he has devoted a considerable portion of his time to performing his duties as executor of the estate and president of the corporation. The relative valuation of the corporation and the estate is the subject of dispute, but, from the evidence, it appears that the corporate property constitutes from one fourth to slightly less than one half of the estate. ⁴ The corporation has one employee, a Mr. Robert Standridge. Mr. Standridge had worked for L. L. Minor, Sr., for approximately 30 years. After L. L. Minor, Sr.'s, death, Standridge has performed services for the corporation and the estate, which have each paid one half of his salary. In addition, the corporation has furnished Standridge with a Bronco truck.

This suit to appoint a receiver to liquidate the assets of the corporation was filed by the temporary administrator ⁵ of the estate of Thelma Barrow Minor in the Superior Court of Taylor County in February of 1978. ⁶ In the complaint, the plaintiff alleges that over $200,000 has been improperly withdrawn from the corporation and is earning interest for the estate. ⁷ The case remained dormant for approximately a year, but in February of 1979, Dr. Minor informed the shareholders of L. L. Minor Co., Inc., by letter that he is seeking the approval of the Probate Court of Fulton County to purchase the 15 shares of class A voting stock from the estate of L. L. Minor, Sr. ⁸ The plaintiff then filed supplemental pleadings seeking to enjoin Dr. Minor from purchasing the stock from the estate on the ground that this would violate the preemptive rights granted the other shareholders in the articles of the corporation. In the supplemental pleadings, the plaintiff also alleges that Dr. Minor's payment of a salary from the corporation to himself is illegal.

After conducting a hearing, the superior court entered a judgment appointing a receiver to liquidate the assets of the corporation. The reasons given by the superior court in support of its decision to order the assets of the corporation liquidated are: (1) The $25,000 annual salary withdrawn from the corporation by Dr. Minor constitutes a ground for his removal under Clark v. Clark, 167 Ga. 1, 144 S.E. 787 (1928); (2) Dr. Minor's withdrawal of this salary is unauthorized under Code Ann. §§ 113-1503, 113-2012; (3) In that the estate of L. L. Minor, Sr., has greater assets than the L. L. Minor Co., the corporation is wasting corporate assets by paying one half of the common employee's (Robert Standridge) salary and furnishing him a truck. The superior court also enjoined Dr. Minor from purchasing the 15 shares of class A voting stock from the estate of L. L. Minor, Sr., without honoring the preemptive rights of the other shareholders of the corporation. This appeal follows.

1. We reverse. There is no evidence in the record to support the grant of such drastic equitable relief as ordering the assets of the corporation liquidated. In addition, most of the matters urged as reasons for liquidation of the corporation are within the cognizance of the probate court rather than the superior court. Likewise, the question concerning approval or disapproval of the proposed stock sale from the estate to Dr. Minor is within the cognizance of the probate court; therefore, the entry of the injunction must also be reversed.

2. The superior court erred in ruling that the $25,000 annual salary withdrawn from the corporation by Dr. Minor constitutes a ground for his removal under Clark v. Clark, supra. The superior court also erred in ruling that the failure of Dr. Minor to comply with the provisions of Code Ann. § 113-2012 before withdrawing the salary constitutes a ground for liquidation of the corporation, and that the withdrawal of this salary is in violation of Code Ann. § 113-1503.

(a) In Clark v. Clark, supra, this court held that testamentary trustees' acceptance of salaried, elective offices in a corporation, whose stock constituted the principal part of the trust estate, was a ground for removal of the trustees, because of the possible conflict between their interests in retaining the stock when the interest of the trust might require its sale. The decision in Clark was, of course, grounded on a construction of the trust instrument under review in that case, and of importance was the fact that the testator had contemplated that it might become necessary for the trustees to sell the stock, as well as the fact that the testator had not authorized the trustees to elect themselves as officers of the corporation.

The concern was also expressed in Clark that the trustees' personal interests would conflict with their duties as trustees, because the salaries paid to them by the corporation would reduce the amount that would otherwise be distributed to the beneficiaries of the trust. However, the enactment of Code Ann. § 113-2012, supra, in 1973 authorizes an executor or trustee to receive compensation from a corporation or other business enterprise in which the estate or trust owns an interest, provided that: "(a) The services provided by such fiduciary to such corporation or other business enterprise are of a managerial, executive, or business advisory nature. (b) The compensation received for such services is reasonable, and (c) Said services are performed and said fiduciary is paid pursuant to a contract executed by the fiduciary and the said corporation, or business enterprise, which contract is approved by a majority of those members of the board of directors or other similar governing authority of the corporation or business enterprise, who are not officers or employees of such fiduciary and are not related to such fiduciary, and provided such contract is approved by the judge of the probate court of the county where such administration proceeding is pending or the situs of the trust." ⁹ Code Ann. § 113-2013 states that if an executor receives compensation from a corporation or other business enterprise under § 113-2012, the executor shall not receive extra compensation in respect to such services for extraordinary service as provided in § 113-2008. ¹⁰

(b) We find the conflict-of-interest situation condemned in Clark v. Clark, supra, to be inapposite to this case for the following reasons. The prohibition in Clark is against trustees' electing themselves as salaried officers of a corporation whose stock is owned by the trust, at least in the absence of authorization in the trust instrument. It is entirely unclear that this prohibition would apply against an executor of an estate who was serving as an officer of the corporation at the time of the testator's death and who is then elected by the board of directors as president. And, even if it be said that a conflict of interest exists by reason of Dr. Minor's simultaneously serving as executor of the estate of L. L. Minor, Sr., and president of the L. L. Minor Co., the conflict of interests is not a ground for liquidation of the assets of the corporation. Under Clark, such a conflict of interests would be harmful to the beneficiaries of the estate who would stand to inherit the stock ¹¹ and not the shareholders of the corporation. Therefore, it is the probate court, where the will has been probated and the estate is being administered, that should determine whether a conflict of...