Wight v. Heublein

• Decision Date: 09 November 1916
• Docket Number: 1443.
• Citation: 238 F. 321
• Parties: WIGHT et al. v. HEUBLEIN et al.
• Court: U.S. Court of Appeals — Fourth Circuit

238 F. 321

WIGHT et al. v. HEUBLEIN et al.

No. 1443.

United States Court of Appeals, Fourth Circuit.

November 9, 1916

W. H DeC. Wright, of Baltimore, Md. (Robert R. Carman, of Baltimore, Md., on the brief), for appellants.

Vernon Cook, of Baltimore, Md. (Haman, Cook, Chesnut & Markell, of Baltimore, Md., on the brief), for appellees.

Before KNAPP and WOODS, Circuit Judges, and JOHNSON, District Judge.

KNAPP Circuit Judge.

For a detailed statement of facts reference is made to the opinion of the court below. Heublein v. Wight, 227 F. 667. The appellants contend, it is true, that these findings are inaccurate or unwarranted in certain particulars; but we are satisfied, after careful study of the record, that everything claimed in that regard might be conceded without affecting the substantial matters upon which the learned District Judge based his decision.

The Sherwood Distilling Company, a Maryland corporation organized in 1882, has always been dominated by the Wights, as was also the prior partnership which the corporation succeeded. It has five directors, namely: John H. Wight, the president; his brother, William H. Wight, the secretary-treasurer; Alpheus H. Wight, another brother; Francis L. Wight, son of John H Wight, a salesman; and James W. Booth, representing the minority stockholder Heublein, who brought this suit to enjoin the payment of salaries alleged to be grossly excessive. Heublein owns one-third of the capital stock having bought a sixth about 1905, when the total was only $30,000, and another sixth in 1913, when it had been increased to $700,000. The other two-thirds is owned by members of the Wight family; John H. Wight and William H Wight together holding a majority. In connection with the increase of stock in 1907, which was a mere recapitalization of the business, no additional money being put in, there was an issue of bonds, amounting to $300,000, which were distributed to the stockholders as a dividend. Of these Heublein received one-sixth, corresponding to his stock ownership at the time; but it seems that he obtained no additional bonds with the stock afterwards purchased.

Measured by volume of business the company has fairly maintained its record of prosperity. Taking the 10 years from 1906 to 1915, inclusive, each year ending with the 31st of July, the average has been about $470,000. The lowest years were 1908 and 1909, when it was under $400,000, and the highest was 1913, when it rose above $600,000. The two following years, and notably 1915, showed a marked decline, though even this year was better than 1906, and not much below the average for the decade. But the company's net income, which was around $70,000 in 1906, has not nearly been maintained, and of late has fallen to comparatively low figures. For three years no dividends have been paid on the stock, and in 1915 the surplus over expenses was insufficient by upwards of $4,700 to pay interest on the outstanding bonds, and this without any charge for depreciation. Various reasons are put forward for this shrinkage of profits, and certainly not all of it can be laid to incompetent management; but, giving due weight to the explanations offered, the actual results of operation are still of significant bearing upon the reasonableness of the salaries in question.

These salaries were as follows: John H. Wight, president, $15,000; William H. Wight, secretary-treasurer, $7,500; and Francis L. Wight, salesman, $4,200. The salaries of the first two were voted at a meeting of the board in 1905, when they and a bookkeeper in their employ were the only directors present; and these salaries were continued without change until reduced by the decree now under review. The salary of Francis L. Wight was fixed about July, 1914. Heublein frequently complained of these salaries and insisted upon their reduction, but his protests were wholly without avail. At the directors' meeting in July, 1915, the entire board being present and all the stock represented, the matter was again brought up, and Booth made a motion that the president's salary be reduced to $7,500, and the secretary's to $5,000; but the only affirmative vote was his own. Alpheus H. Wight refrained from voting at all, and the other three Wights voted in the negative. This suit was begun a few weeks afterwards.

The nature of the issue and the...