Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

IRVING J. WOLF v. JEROME FRIED (06/03/77)

SUPREME COURT OF PENNSYLVANIA


decided: June 3, 1977.

IRVING J. WOLF, TRUSTEE, APPELLANT AT NO. 329,
v.
JEROME FRIED, ARNOLD WEINSTEIN, LOUIS COMO AND LAWRENCE LAUPHEIMER AND NAZARETH FAIRGROUNDS AND FARMERS MARKET, INC.; IRVING J. WOLF, TRUSTEE V. JEROME FRIED, ARNOLD WEINSTEIN, LOUIS COMO AND LAWRENCE LAUPHEIMER, AND NAZARETH FAIRGROUNDS AND FARMERS MARKET, INC., APPELLANTS AT NO. 116

COUNSEL

Martin H. Philip, Palmerton, F. Paul Laubner, Allentown, for appellant at No. 329 and for appellee at No. 116.

Frank S. Poswistilo, Easton, for appellants at No. 116 and for Appellees at No. 329.

Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Jones, former C. J., did not participate in the decision of this case.

Author: Per Curiam

[ 473 Pa. Page 28]

OPINION OF THE COURT

This appeal*fn1 stems from a stockholders' derivative suit instituted by Irving J. Wolf as trustee for two minority stockholders*fn2 of Nazareth Fairgrounds and Farmers Market, Inc. against the corporation; two directors, Louis Como, president, and Lawrence Laupheimer, secretary; the general manager, Jerome Fried; and corporate counsel, Arnold Weinstein. Plaintiff asserts that directors Como and Laupheimer violated section 408 of the Business Corporation Law*fn3 by extinguishing a

[ 473 Pa. Page 29]

    valid debt which Fried owed to the corporation*fn4 through the guise of commissions and fees which were not supported by consideration.

Section 408 of the Business Corporation Law provides:

"Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith and with that diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in their personal business affairs."*fn5

In Selheimer v. Manganese Corporation of America, 423 Pa. 563, 224 A.2d 634 (1966), this Court interpreted section 408. We held that even in the absence of fraud, self-dealing, or proof of personal profit or wanton acts of omission or commission, the directors of a corporation may be held personally liable where they have been imprudent, wasteful, careless and negligent and such actions have resulted in corporate losses. Although this Court noted that "'courts are reluctant to interfere in the internal management of a corporation,'" we recognized that the "personal affairs rule" standard of section 408 imposed a higher duty of care on corporate fiduciaries

[ 473 Pa. Page 30]

    than the common law. 423 Pa. at 573-74, 224 A.2d at 644. Whether the duty of care has been met is a question of fact to be determined by an examination of all the circumstances in the case. 423 Pa. at 581, 224 A.2d at 644.

Applying this standard, the chancellor concluded that the directors did not violate their fiduciary relationship with the corporation and that they exercised sound business judgment in paying Fried the commissions and fees. The chancellor found that the commissions were reasonable and supported by adequate consideration.*fn6 The chancellor's findings, affirmed by the court en banc, will not be disturbed on appeal if supported by sufficient evidence. Cohen v. Sabin, 452 Pa. 447, 451, 307 A.2d 845, 848 (1973); Dozer Agency, Inc. v. Rosenberg, 431 Pa. 321, 323, 246 A.2d 330, 331 (1968); Selheimer v. Manganese Corporation of America, supra; McRoberts v. Phelps, 391 Pa. 591, 597-98, 138 A.2d 439, 443 (1958).

The chancellor found that in 1967 Fried, as general manager, supervised the Farmers Market and negotiated short-term leases with various local merchants. At that time, the corporation was experiencing financial difficulties. Fried approached Como, the president of the corporation, and indicated that he thought that he could build up the Farmers Market by negotiating long-term leases with major tenants. However, Fried threatened to quit

[ 473 Pa. Page 31]

    and refused to undertake additional work unless he was compensated at a higher salary. At a meeting of the Board of Directors, defendants Como, Laupheimer and Weinstein agreed that in order to induce Fried to remain with the corporation, the corporation would offer him a 5% commission on major leases which Fried negotiated, so long as Fried used the commissions to reduce the debt which Fried owed the corporation. In addition, directors Como and Laupheimer agreed to compensate Fried for supervising the renovation and reconstruction of the Farmers Market and to pay him 10% of construction costs for acting as general manager and supervising contractor. Fried remained with the corporation on these terms. Pursuant to these agreements, Fried received approximately $77,375 during 1967 and 1968 in addition to his regular salary. These amounts were used to reduce the debt which Fried owed to the corporation.

[ 473 Pa. Page 32]

Plaintiff alleges that the payment of $77,375 was not supported by consideration, and that the directors violated their fiduciary duty to the corporation and wasted corporate assets. The chancellor found that the directors thought that Fried, who had managed the Farmers Market since 1952, was in a unique and knowledgeable position because of his extensive experience.*fn7 The chancellor concluded that the commissions and fees were reasonable and did not waste corporate assets. We agree. The record does not support a conclusion that the directors did not exercise business judgment that "ordinarily prudent men would exercise under similar circumstances in their personal business affairs."*fn8 Selheimer Page 32} v. Manganese Corporation of America, 423 Pa. 563, 224 A.2d 634 (1966).

Decree affirmed. Each party pay own costs.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.