Opinion ID: 1153554
Heading Depth: 1
Heading Rank: 9

Heading: Analysis of plaintiffs' charges of specific acts of wrongdoing.

Text: As specific acts of wrongdoing upon which plaintiffs rely in support of its contention that Silers' conduct amount to oppressive conduct, plaintiffs list the following: Defendants continued to pay themselves ever increasing salaries and fringe benefits while excluding the Bakers from corporate participation. They have paid money to a debtor corporation in which they own a 1/3 interest during the time that corporation owes Defendant corporation money. They have permitted the other corporation, Advanced Hydro Wreckers, to compete with the Defendant corporation and to use the facilities of the Defendant corporation without just compensation   . Although the business is still profitable, Defendant have siphoned all profits off into their own pockets and have excluded the Plaintiffs from any corporate benefits and have openly and flagrantly applied the squeeze out  freeze out. Defendants have failed to notify the Plaintiffs of corporate meetings on occasion and have falsified the records concerning those meetings. They have at all times treated the corporation as if it were the Silers' private property with which they can do as they see fit, to the exclusion of the Bakers. Before undertaking to reach any conclusions whether the foregoing charges constitute oppressive conduct within the meaning of ORS 57.595 so serious as to require the intervention of a court of equity and, if so, what would be an appropriate remedy, reference should also be made to the following facts as they appear from the record in this case: (a) It is true that Siler and his wife excluded Baker and his wife from corporate participation. It must be remembered, however, that Siler had started the business before Baker came in; that Siler was probably the only one with the knowledge and experience required for the successful operation, and that his wife had also worked some six hours per day, five days a week, as bookkeeper for the business, whereas it appears that Baker only purported to spend one day per week with the business and apparently contributed little, if anything, to its successful operation other than his monetary investment. Accordingly, while he could not be properly excluded from corporate participation as a stockholder, it is an entirely different question whether it was oppressive to terminate his salary as an employee, together with his use of a company car and his medical insurance as an employee, despite the fact that Siler and his wife retained such benefits as full time employees of the corporation. (b) While this would not justify the Silers in siphoning all profits into their own pocket by the payment of ever increasing salaries and fringe benefits, to the detriment of plaintiffs, as stockholders, the evidence in this case does not support that charge. During the two-year period of Baker's active participation, Siler's monthly salary had been increased from $800 to $1,500 and his wife's salary from $200 to $350. In addition, Siler was paid bonuses of $1,750 and $2,625 and his wife received $500 and $750 in bonuses. During the period after Baker's termination on May 31, 1970, and continuing to the date of trial in January 1972, no further bonuses were paid, although Siler's salary was increased from $1,500 to $1,800 and his wife's salary from $350 to $500 per month. There was no evidence, however, that such salaries were excessive, whether on a comparative basis, considering salaries paid to others in the same business for similar work, or on any other objective basis. [31] In addition, the financial statement for the year ending June 30, 1971, as prepared by a CPA and conceded by plaintiffs to be accurate, showed a profit of $15,772.53 during that period. Plaintiffs also concede that the net worth of the business at the time of trial was at least as much as on that date. (c) It is also true that the Bakers, as stockholders, had a legitimate interest in the participation in profits earned by the corporation. Plaintiffs do not, however, request the court in this proceeding to require the declaration of a dividend so as to distribute profits improperly withheld by the corporation. The question whether profits must be distributed as dividends, rather than plowed back into a business, is by no means a simple problem. No attempt was made by plaintiffs to litigate that problem on the trial of this case and it is one that is normally litigated by a stockholder's derivative suit, rather than in a suit of this kind. [32] (d) It may have been improvident for Siler to advance corporate funds to Hydro, in which he owned an interest. However, there was no evidence that Hydro's production of wreckers, for which it apparently held some patents, improperly competed with Commercial or that Hydro was not charged just compensation for using corporate facilities. It appears, however, that defendants have provided plaintiffs with the accounting demanded by them and that there is no evidence that as a result of any such conduct the corporation suffered financial loss in any ascertainable amount. On the contrary, the corporation apparently made a substantial profit during that same year. Moreover, the Hydro venture is now being liquidated and there was no evidence to indicate that it may be revived in the future. (e) It was highly improper for defendants to prevent plaintiffs from examining the corporate records, to fail to notify plaintiffs of certain corporate meetings and to falsify records of such meetings so as to indicate that plaintiffs had been notified or were present. It appears, however, that plaintiffs have since been permitted to examine the records and that the meetings in question occurred in 1969 and 1970. There was also no evidence that there is any reason to believe that proper notice will not be given to them of future meetings. (f) In evaluating plaintiffs' further charge that defendants' conduct has not only been inequitable, but will result in a severe financial loss to plaintiffs, it must also be remembered that plaintiffs were offered $22,500 for their stock and that they apparently were not interested in any sale of their stock at that time. It is true this was less than what plaintiffs considered to be its book value of $36,504.07, which they demanded on trial as an alternative to a forced corporate dissolution. On the other hand, it is common knowledge that, as a practical matter, the stock acquired by one who purchases a 49% interest in a close family corporation, as in this case, is worth considerably less than 49% of the book value of such stock. Furthermore, considering the expenses of a receiver, as well as other expenses incurred in dissolution proceedings, as well as the fact that on such a dissolution the value of the assets of the corporation as a going concern might be destroyed, the result of a forced dissolution, as originally demanded by plaintiffs, might well result in a return to the stockholders, including plaintiffs, of considerably less than the book value of their stock. Upon considering plaintiffs' charges of specific acts of wrongdoing, in the light of the foregoing additional facts, we conclude that although some of the conduct of defendants Siler in 1970 was oppressive conduct within the meaning of ORS 57.595, we cannot say that the trial judge, who heard the witnesses and observed their demeanor, was in error in finding, in effect, that such conduct was not so serious as to require the relief prayed for by plaintiffs in this case and after examination of the entire record we agree with his finding to that effect. For the same reasons, we also conclude that none of the alternative equitable remedies listed above would be appropriate in this case. In that connection, it should again be noted that most of the conduct complained of by plaintiff occurred in 1970 and did not continue after that year. Affirmed, without costs to either party.