The stockholders of American Woolen Co. filed a complaint to enjoin the company from implementing a proposed retirement pension plan. The plan would provide the company's president an annual pension of $54,220, which was disproportionately higher than other officers. The stockholders argued the plan was excessive and intended to benefit the president. While courts are reluctant to interfere with business judgments, the disproportionate pension and other issues raised triable questions. The court determined the case should proceed to a full trial, rather than be decided by summary judgment, so the directors' judgment could be properly examined.
The stockholders of American Woolen Co. filed a complaint to enjoin the company from implementing a proposed retirement pension plan. The plan would provide the company's president an annual pension of $54,220, which was disproportionately higher than other officers. The stockholders argued the plan was excessive and intended to benefit the president. While courts are reluctant to interfere with business judgments, the disproportionate pension and other issues raised triable questions. The court determined the case should proceed to a full trial, rather than be decided by summary judgment, so the directors' judgment could be properly examined.
The stockholders of American Woolen Co. filed a complaint to enjoin the company from implementing a proposed retirement pension plan. The plan would provide the company's president an annual pension of $54,220, which was disproportionately higher than other officers. The stockholders argued the plan was excessive and intended to benefit the president. While courts are reluctant to interfere with business judgments, the disproportionate pension and other issues raised triable questions. The court determined the case should proceed to a full trial, rather than be decided by summary judgment, so the directors' judgment could be properly examined.
The stockholders of American Woolen Co. filed a complaint to enjoin the company from implementing a proposed retirement pension plan. The plan would provide the company's president an annual pension of $54,220, which was disproportionately higher than other officers. The stockholders argued the plan was excessive and intended to benefit the president. While courts are reluctant to interfere with business judgments, the disproportionate pension and other issues raised triable questions. The court determined the case should proceed to a full trial, rather than be decided by summary judgment, so the directors' judgment could be properly examined.
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CASE Fogelson v.
American Woolen AUTHOR: REYES
Co. NOTES: [G.R. No. DATE]170 F 2D. 660 (1948) TOPIC: PONENTE: FACTS: American Woolen Co. sought to implement a “Retirement Income Plan” for their salaried employees. The proposed plan fixes the retirement age at 65 and utilizes a “percentage formula” for determining the retirement income or pension to be paid annually by the corporation to its employees after their retirement. The formula takes into account the employee’s salary and length of service both before and after the date of implementation of the plan, which is on January 1, 1948. The plan is to be administered by means of a pension trust and it is proposed to pay into this trust at once $4, 657, 292.00 to fund that part of the pensions based on the past services of the employees. President Pendleton will be eligible for retirement on June 1, 1949, and under the plan will thereafter be entitled to receive an annual pension of $54, 220.00 for life. Two stockholders of the company filed a complaint against American Woolen Co. along with four of its directors enjoining them from implementing the plan. They argue that the pension is excessive and unconscionable, that the purpose of funding past service benefits with one single payment instead of installments is that the corporation wishes to protect the president irrespective of business vicissitudes which may overtake the company. They also argue that this plan is irresponsible because it disregards the fact that the Corporation still has an outstanding $10, 000,000.00 bank loan. Corporation filed its answer, arguing that the directors promulgated the plan in the exercise of their honest business judgment and that they have the support of both the majority stockholders and the Commissioner on Internal Revenue. They then moved for a summary judgment. The judge granted the motion and the case was adjudicated on the merits of the pleadings. ISSUE(S): whether or not the case should have been sent to trial rather than decided summarily.
HELD: Yes, decision overturned, case sent back to be tried in a full-blown trial. RATIO: Courts are properly reluctant to interfere with the business judgment of corporate directors; they do so only if there has been so clear an abuse of discretion as to amount to legal waste. Normally the decision of the directors to fund the pension payment via one lump-sum payment instead of an installment plan is conclusive. However the nature of the facts in the present case provide a triable issue. The complainants allege that such pension plan is 1. Excessive and unconscionable, 2. That it is simply a means to assure President Pendleton’s financial stability, and 3. That it goes against the customary practice of other corporations because it does not place a dollar limitation on the maximum pension payable under the proposed percentage formula. Also, as correctly pointed out by the complainants, the gross disparity between the president’s pension and that of the nearest officers and employees give a valid cause for the courts to make the inquiry. the president gets an annual pension support amounting to $54,000.00 while the nearest officer would get around 7,000.00 A retirement plan which provides a very large pension to an officer who has served, to within one year of the retirement age without any expectation of receiving a pension, would seem analogous to a gift or bonus. ROGERS V HILL is invoked because that case held that the size of a bonus may raise a justifiable inquiry as to whether it amounts to spoliation or waste of corporate property. The affidavits of the directors are not sufficient to provide a good justification for the costly intricacies of the pension payment plan, to be able to debunk complainants accusations and to defend their answer, the best recourse is to have a full-blown trial where the “sound and honest business judgment” of the directors can be examined in a proper cross-examination. CASE LAW/ DOCTRINE: DISSENTING/CONCURRING OPINION(S):
