Opinion ID: 1494647
Heading Depth: 1
Heading Rank: 4

Heading: executive salaries, expense accounts & legal fees

Text: The administrator found that the amount projected by the Company for executive salaries, expense accounts and legal fees was unreasonable and he deducted $25,000 from its estimate of operating expenses. His reason was that increases in general and administrative expenses were not appropriate to a Company whose operations were contracting. We do not question his authority to determine that the estimated expenses in these areas were unreasonable but in order to enable us to pass on his conclusion that the amount projected was unreasonable and imprudent, we are required to know, for example, what portion of the total deduction he allocated to each of the three accounts, the nature and the quality of the services to be rendered by each of the executive officers, the legal work reasonably to be anticipated, the necessity of the expense accounts, and which of the officers are to be paid unreasonably excessive salaries and by what amounts. In short, in order to pass on reasonableness, we must be advised as to those circumstances which are relevant under recognized standards to a determination of what is a reasonable salary or legal fee or expense account. Because we lack that information we are unable to determine either the fair value of the estimated executive salaries and legal fees or the legitimacy of the expense accounts. Ordinarily, the determination of what shall be expended in the areas under consideration is a function of management and should not be interfered with absent evidence tending to prove that the projected expenditures unreasonably and unjustly affect the fare-paying public. Narragansett Electric Co. v. Kennelly, 88 R.I. 56, 86, 143 A.2d 709. While the Company may own an obligation to the fare-payers to pare these expenses as the system shrinks, a conclusion that they are unreasonable and unjust grounded solely on that reason constitutes an invasion of the office of the Company's board of directors and an unwarranted invasion into the field reserved to management. For the reasons indicated, we hold that the administrator acted arbitrarily when he deducted $25,000 from the estimated general and administrative expenses and a remand is required. The administrator in any supplementary decision should advert to circumstances in addition to the Company's contracting operations which lend support to the conclusion that the estimated expenses in these areas are unreasonable.