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ARC MANUFACTURING COMPANY v. JOSEF KONRAD (09/30/83)

filed: September 30, 1983.

ARC MANUFACTURING COMPANY, INC.
v.
JOSEF KONRAD, DEFENDANT AND THIRD PARTY PLAINTIFF, APPELLANT, V. ARC MANUFACTURING COMPANY, INC. AND JOHAN INDUSTRIES, INC. AND HANS TRUSTORFF AND EMIL FEUCHTER, THIRD PARTY DEFENDANTS, J. HOWARD FOOTE, CUSTODIAN. ARC MANUFACTURING COMPANY, INC. V. JOSEF KONRAD V. ARC MANUFACTURING COMPANY, INC. AND JOHAN INDUSTRIES, INC. AND HANS TRUSTORFF AND EMIL FEUCHTER, APPELLANTS



No. 381 Philadelphia 1982, No. 527 Philadelphia 1982, Appeal from the Decree of January 5, 1982 of the Court of Common Pleas, Civil Division, of Bucks County at No. 79-3754.

COUNSEL

John C. Fenningham, Warminster, for appellant (No. 381) and for appellee (No. 527).

Marc J. Sonnenfeld, Philadelphia, for appellants (No. 527) and for appellees (No. 381).

Spaeth, Wickersham and Lipez, JJ.

Author: Wickersham

[ 321 Pa. Super. Page 75]

This case comes to us on cross-appeals from a final decree in equity issued by the Honorable George T. Kelton of the Bucks County Court of Common Pleas. This complex and lengthy litigation between business associates began on April 6, 1979, when ARC Manufacturing Company, Inc. (hereinafter ARC) filed a complaint in equity against Josef Konrad, (hereinafter Konrad) a shareholder, director and officer of ARC. ARC's complaint alleged that although Konrad had been removed from his post as president of ARC, Konrad refused to leave the corporation. ARC sought a permanent injunction barring Konrad from its premises or from interfering with the conduct of ARC's business.

Konrad filed a counterclaim against ARC and a third party complaint against the other two shareholders of ARC, Hans Trustorff and Emil Feuchter. On his part, Konrad sought an injunction to restrain ARC from interfering with Konrad's exercise of his responsibilities as president of ARC; Konrad contended that his removal from that office was improper.

Preliminary hearings were held before Judge Kelton in April of 1979; after these hearings Judge Kelton denied ARC's request for a preliminary injunction. At Konrad's request Judge Kelton issued a special injunction preserving the status quo, freezing compensation for Trustorff and Feuchter and appointing Donald L. Toner, Esq., special receiver to insure compliance with the injunction. Further hearings were held.

Judge Kelton made detailed findings of fact, discussed the applicable law, made conclusions of law and issued a decree nisi on November 10, 1980. The most salient points of the decree nisi were the appointment of a custodian for ARC, the direction of a payment from ARC to Konrad and a payment from Trustorff and Feuchter to ARC for counsel fees paid by ARC.

[ 321 Pa. Super. Page 76]

Konrad, as well as ARC, Trustorff and Feuchter filed exceptions to the decree nisi. On January 5, 1982, the lower court en banc dismissed the exceptions, confirmed the decree nisi and entered a final decree. All parties appealed to this court. Subsequent to the filing of appeals Konrad sought a supersedeas and stay pending appeal; Konrad's application was denied by the lower court. A per curiam order of this court directed the lower court to hold a hearing and make factual findings with respect to Konrad's application. The lower court's findings were not disturbed by this court.

A paraphrase of the lower court's findings of fact may be made as follows. ARC was formed in 1968 by Trustorff, Feuchter and Konrad. Trustorff and Konrad were the most active incorporators but Feuchter was included in the pre-incorporation discussions. All of the businessmen agreed that the enterprise would be constituted as a Pennsylvania business corporation, with each of them to have a one-third share of the business. The corporate officers were Konrad as President and Trustorff as Secretary-Treasurer; Konrad was to be employed as Sales Manager and Trustorff as Production Manager. There was a formal pre-incorporation agreement as well as corporate bylaws.

During the early years of the corporation's life, Konrad was President-Sales Manager and Trustorff was Secretary-Treasurer-Production Manager. Between 1968 and 1979 Trustorff and Konrad received equal compensation and ARC prospered. During this period of time Feuchter, however, became dissatisfied because as outside shareholder he was not receiving as much benefit from his stock ownership as Konrad and Trustorff.

In February of 1979, Konrad, ARC's president, summarily fired an important employee who had a good relationship with ARC's most important customer. When Trustorff and Feuchter learned of Konrad's action they called a directors' meeting without notice to Konrad, fired Konrad and rehired the employee. After some negotiations between the three directors, Feuchter offered to buy Konrad's share of the

[ 321 Pa. Super. Page 77]

    business but Konrad refused the offer. Feuchter and Trustorff then called another directors' meeting to ratify their action in firing Konrad.

Konrad was present at this second board meeting yet Trustorff and Feuchter confirmed removing him as president, terminated his salary and eventually removed him as a director of both corporations. Another meeting was held in November 1979, ratifying the removal of Konrad from the presidency, amending corporate bylaws and increasing the compensation of Trustorff and Feuchter. The corporation also incurred large legal bills.

Both sides in this dispute submitted various proposals to the lower court. The judge below decided that a custodian would protect the interests of all the parties and allow an otherwise thriving business to continue.

Konrad phrases the issues involved in his appeal as follows:

Was there a binding agreement (i.e. "Arrangement") between the three shareholders that Konrad would be active in the management of ARC as President and a member of the Board of Directors and would receive compensation equal to Trustorff, ...


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