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February 21, 1957

Fred J. EISERT and Ralph Oboth

The opinion of the court was delivered by: WILLSON

In this civil action the two plaintiffs have sued the defendant corporation, invoking the provisions of the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., to recover minimum wages, overtime compensation, liquidated damages and counsel fees under Sections 6, 7 and 16 of the Act. The case was tried nonjury. It has some unusual aspects. The defendant corporation is the successor in ownership of a foundry business formerly owned by the plaintiffs and three other persons and operated as a partnership in the City of Erie. On the formation of the defendant corporation on July 1, 1947, plaintiffs each became 20% stockholders, directors and vice presidents of the corporation. In this lawsuit plaintiffs contend that as of February 1, 1954 they became entitled to the minimum wages and overtime compensation as provided in the Act.

The Factual Situation Prior to April 26, 1954.

 Prior to the date mentioned there is no dispute of any consequence in the evidence. The evidence consists of the pretrial stipulations, documentary evidence introduced and the testimony taken during the trial. From the evidence the court finds the following facts:

 In 1937, Ray W. Britton and E. J. Hedland purchased the Erie Foundry Company, situate in Erie, Pennsylvania. This company was and is a manufacturer of gray iron and semi-steel castings. They formed a partnership to operate the business, Britton owning a 60% interest and Hedland owning a 40% interest.

 In 1941 Ray W. Britton divided his 60% partnership interest three ways. He retained for himself a 20% interest and transferred to his son, John E. Britton, a 20% interest and to his daughter, Betty B. Davis, a 20% interest, so that thereafter the partnership consisted of Ray W. Britton, John E. Britton, Betty B. Davis, each owning 20% or a total of 60%, and E. J. Hedland, owning a 40% interest. In October of 1942 Hedland died. The Britton family then purchased the Hedland interest in the partnership for the sum of $ 50,000. Neither Ray W. Britton nor his son or daughter had manufacturing knowledge or experience in the foundry business. Ray W. Britton and his son and daughter at all times pertinent here have depended upon others for practical foundry knowledge and experience. In 1942 plaintiff Ralph Oboth was the superintendent of production in the partnership. At that time plaintiff Fred Eisert was employed by the Griswold Manufacturing Company, also a manufacturer of gray iron castings in the City of Erie. The two plaintiffs had the requisite knowledge and experience needed by the Brittons for the foundry business and through Ray W. Britton were brought into the Urick Foundry Company as partners in charge of the active management of the production end of the firm. The two plaintiffs purchased the 40% interest formerly owned by Hedland from the Brittons for the sum of $ 40,000. They did not pay cash. The partnership was reorganized with each of the plaintiffs acquiring a 20% interest as owners and partners, with each to pay for his interest from the profits of the business as his share earned profits. The Britton family continued owning the 60% interest in the partnership, divided as it was at the time Mr. Hedland died.

 On January 1, 1943, therefore, on the reorganization of the partnership, each of the partners owned a 20% interest, with the plaintiffs having full charge of production; and the business was successful and profitable. During the five years from 1943 to 1947, inclusive, each of the plaintiffs drew as salary $ 17,550 and profits of $ 86,200, or a total of $ 103,750 each, for the five-year period.

 On July 1, 1947, the partnership was dissolved and the business was incorporated as a Pennsylvania corporation under the same name 'Urick Foundry Company.' Each of the five partners were the incorporators. Each took a 20% stock interest, so that the five former partners then became the owners of equal amounts of all of the corporate stock of the defendant. At the organization meeting of the corporation, Ray W. Britton was elected president and treasurer and plaintiffs were each elected as directors and vice presidents. The two plaintiffs remained as 20% stockholders and as directors until August 12, 1955, when they sold their stock to the company for $ 40,000 each. In the meantime, however, events occurred which led to ill feeling, particularly between Ray W. Britton and the two plaintiffs.

 During 1948, the first year of the corporate existence, each plaintiff received $ 11,000 as salary and dividends of $ 10,050. In 1949, each plaintiff received a salary of $ 12,000 and dividends of $ 10,000. Thereafter no dividends were paid. In 1950, plaintiffs each received a salary of $ 12,000. In 1951, their salary was $ 14,000. In 1952 and 1953, the salaries were $ 14,400 each and in 1954, they drew $ 8,400 in salaries, each plaintiff having, during the corporate existence from 1948 through February 1, 1954, drawn $ 86,200 as salary and $ 20,050 as dividends.

 Commencing in 1950 and continuing through 1951, 1952 and 1953, the corporation embarked upon an extensive expansion program costing the corporation in excess of $ 450,000. In 1953 business was bad. The defendant's sales and profits declined and losses were incurred. Because of the loss of business and the need for working capital to finance the expansion program, at a stockholders meeting attended by all five of the owners, the Britton family suggested that each of the stockholders advance the corporation $ 30,000 in new capital. The plaintiffs demurred to the proposal, but suggested that funds be borrowed from a bank to carry the corporation along. The suggestion was adopted and the corporation borrowed $ 150,000 from an Erie bank. Thereafter, because of a continuing decline in business and the need for working capital, a directors meeting was held on March 13, 1954, attended by all five stockholders and directors and a resolution was moved by John E. Britton, seconded by plaintiff Ralph Oboth, and passed unanimously, which read:

 'Resolved, that the payment of officers' salaries be deferred until further action of this Board.'

 From February 1, 1954, by reason of the resolution, and throughout the entire period covered by the complaint, none of the officers or directors of the company, which group, of course, included the three members of the Britton family and the two plaintiffs, received any salaries or dividends.

 The evidence shows that from the time the two plaintiffs became associated with the Brittons as general partners, up to and including at least the date April 26, 1954, they were engaged in proprietary functions in relation to the business, first as general partners and then as corporate officers. Plaintiffs were the experienced and practical foundrymen. They had full and complete charge of production and sales. They hired and fired some one hundred seventy production employees. They assumed the general management of all manufacturing phases of the business, including plant design, production lines and the make-up of work schedules. They determined manufacturing costs and prices for which the castings were sold. They interviewed customers and fixed customer delivery schedules. They were on the side of management in negotiating with the union, which had bargaining rights with the partnership and later the corporation. They devoted their full time and energy to the business without regard to any time clock. When the expansion program was undertaken, plaintiffs had at least equal voice with the Brittons in all phases of it. Plaintiffs at all times occupied executive offices. During the period of the partnership and the corporation, ...

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