Nahikian v. Mattingly

• Decision Date: 05 December 1933
• Docket Number: No. 93,June term, 1933.,93
• Citation: Nahikian v. Mattingly, 265 Mich. 128, 251 N.W. 421 (Mich. 1933)
• Parties: NAHIKIAN v. MATTINGLY et al. YOUNG et al. v. SAME.
• Court: Michigan Supreme Court

265 Mich. 128

251 N.W. 421

NAHIKIAN

v.MATTINGLY et al.

YOUNG et al.

v.SAME.

No. 93, June term, 1933.

Supreme Court of Michigan.

Dec. 5, 1933.

Appeal from Circuit Court, Allegan County, in Chancery; Fred T. Miles, Judge.

Bills by Sarkis M. Nahikian and by Esther MacDonnell Young and others against Leonard H. Mattingly, Sr., and others. From a decree, named defendant and another appeal, and the Blood Bros. Machine Company and plaintiffs cross-appeal.

Decree modified in accordance with opinion, and, as modified, affirmed.

Argued before the Entire Bench except SHARRE, J.Leo W. Hoffman, of Allegan, for Sarkis M. Nahikian.

Clare E. Hoffman, of Allegan, for Esther MacDonnell Young and Agnes R. Blood.

Wilkes & Stone, of Allegan, and Knappen, Uhl, Bryant & Snow, of Grand Rapids, for Blood Bros. Machine Co.Mason & Sharpe, of Kalamazoo, for Leonard H. Mattingly, Sr., and Leonard H. Mattingly, Jr.

Dunham & Sherk, of Grand Rapids, amicus curiae.

WIEST, Justice.

Two bills, upon hearing consolidated, were filed by three minority stockholders of the Blood Bros. Machine Company to obtain decree that Leonard H. Mattingly, Sr., hereinafter styled defendant, pay back to the corporation excessive salary, unauthorized expense moneys, royalties received on a patent, assign the patent to the company, also turn over shares of stock held by him, in trust for the company, pay his admitted indebtedness to the company, and remove him from the office of president and director and the position of general manager. The decree in the circuit court adjudged that defendant forthwith pay to the clerk of the court the following sums, together with interest thereon: Unauthorized salary $18,064.46; excess expense money $671.31; unauthorized expense money $30,137.72; indebtedness to the company $23,916.25; royalties on patents $39,139.15, or a total sum, inclusive of interest, of $136,469.19. The decree also ordered assignment of certain stock certificates to the company, transfer of patents, and removed Mr. Mattingly, Sr., from the board of directors, from the office of president and the position of manager. Leonard H. Mattingly, Jr., was also required to assign certain certificates of stock to the company.

Some years ago the company was in financial straits and its principal creditors selected and induced defendant to enter the company and manage its affairs. Under his management the company prospered. Evidently he became the dominant factor in the company and others interested therein deferred to his will. Unless he used his power for selfish ends and to mulct the company, the remedy of those dissatisfied is within the company and not in court. The decree is drastic for it assumes corporate management, but, if justified by the record, constitutes a remedy open to resort by the wronged, unless they have acquiesced or have slept on their rights. The record is voluminous.

The fixing of the salary of defendant by the board of directors may have been illadvised action, considering the financial condition of the corporation and the character of the services of the president, but it was a matter of corporate management, vested in the directors, and their action, in the absence of fraud or willful or wanton departure from known or manifest duty, bars judicial substitution of opinion.

In McKey v. Swenson, 232 Mich. 505, 205 N. W. 583, we held action in fixing salaries wholly void and cast the burden upon the officers to give the court information upon which reasonable compensation could be fixed. Such, however, is not the case at bar, for here we do not have wholly void action, but only assertion of unreasonable compensation and the burden is on plaintiff to establish the charge.

As said in Burden v. Burden, 159 N. Y. 287, 54 N. E. 17, 23: ‘The plaintiff is in the position of all minority stockholders, who cannot interfere with the management of the corporation so long as the trustees are acting honestly and within their discretionary powers.’

A minority complaining stockholder, if he avers excessive salary, must show facts establishing unjustifiable oppression in such respect. The evidence fails to show that salary voted defendant by the board of directors was so unreasonable or excessive, under the circumstances, as in itself to be deemed fraudulent and, therefore, authorizing restoration in whole or in part. We may not readjust the salary without a yardstick applicable to the particular circumstances and not even then upon mere difference of opinion from that of the board of directors, but only upon concrete proof that the salary evidences wrongdoing or inexcusable oppresion to the point of being fraudulent. Less than this would constitute an intolerable interference with legitimate internal corporate management.

It a well-settled rule of law that the authority of the directors is absolute when they act within the law, and that questions of policy and internal management are, in the absence of nonfeasance, misfeasance, or malfeasance, left wholly to their decision. Ratification by the board of directors of an increase in defendant's salary, if made in good faith and believed to be for the best interest of the company, validated the increase. Decree as to salary reversed.

Defendant purchased a residence in the city of Washington at the expense of the company and resided there some time and claims it was good business judgment and in the interest of the company. The expense was not justified and the purpose, considering the disclosed circumstances, was gratification of personal inclination and social enjoyment rather than business interests of the company. Defendant's activities in Washington, as described by himself, were quite nebulous, and in no...