Grob, Inc. v. United States

565 F. Supp. 391, 52 A.F.T.R.2d (RIA) 5094, 1983 U.S. Dist. LEXIS 17359
CourtDistrict Court, E.D. Wisconsin
DecidedApril 28, 1983
Docket80-C-1115
StatusPublished
Cited by5 cases

This text of 565 F. Supp. 391 (Grob, Inc. v. United States) is published on Counsel Stack Legal Research, covering District Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Grob, Inc. v. United States, 565 F. Supp. 391, 52 A.F.T.R.2d (RIA) 5094, 1983 U.S. Dist. LEXIS 17359 (E.D. Wis. 1983).

Opinion

DECISION AND ORDER

WARREN, District Judge.

I. STATEMENT OF CASE

This is an action under 28 U.S.C. § 1346(a)(1) wherein plaintiff, a machine tool company, seeks a refund with respect to assessments made by the Internal Revenue Service against the plaintiff for allegedly unreasonable accumulation of earnings and profits. The IRS assessed penalty taxes of $96,022 for plaintiff’s fiscal year ending September 30, 1976, and $141,- *393 562.20 1 for its fiscal year ending September 30, 1977. Plaintiff paid under protest and brought this action.

The matter was tried to the Court on June 3, 1982. At trial, the parties stipulated to certain uncontested facts and various modifications thereto and corrections as well as the admissibility of plaintiffs exhibits 1-50 and defendant’s exhibits A-R, although each side reserved the right to object to the relevancy of exhibits in post trial briefs. Each party did submit a post trial brief and proposed findings. The following constitute the Court’s findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

II. BACKGROUND

1. Grob, Inc. is a vigorous and financially healthy closely held corporation located in Grafton, Wisconsin. Its president and chief executive officer, Ben Grob, is 82 years of age but, to all appearances, remains as the active dominant force in the company’s affairs. He was born in Switzerland in 1900, was trained there in engineering, and immigrated to the United States during the 1920’s. In 1929, Ben Grob and his brother, Ted, started a tool and die business as partners. The firm survived the Depression, moving to Grafton in 1936. In 1953, the partnership was dissolved and Grob, Inc. was formed. At that time, the company manufactured band saws and continuous filing machines in a plant of 33,000 square feet.

2. In 1957, the company began production of gear rolling machines as well as its other products. The manufacture of both “hot” (extremely high speed saws for cutting hardened materials) and “cold” (conventional) metal band saws continues, but most of the firm’s growth has been in the area of gears and gear rolling machines. In 1960, the firm expanded to 66,000 square feet; in 1981 to 96,000 square feet.

3. Grob, Inc. produces gear rolling machines both for resale and for its own production runs of gears. It also produces various miscellaneous products, such as surgical nails, and does custom machine work on stock belonging to others. Ben Grob is an inventor and holds a number of patents in the machine tool field. He is also the primary sales entity in the firm as there has never been a formal sales or promotional unit. As the administrator, inventor, salesman, and the individual who makes all financial and production decisions, there is no doubt that Ben Grob is a “key-man” as that term is commonly understood. He is a remarkably active octogenarian, and “his” corporation is run in a ruggedly paternalistic fashion.

4. One of Ben Grob’s patents related to a so-called “splinescope” intended to serve as a substitute for the drive shaft of rear wheel drive automobiles. During the early and mid-70’s the company had great hopes for this blossoming into a tremendous business for the firm; and some expansion plans, discussed elsewhere in these findings, were based, in part, on “splinescope” expectations. Unfortunately, the device was never accepted by the American automobile industry and was subjected, according to plaintiff’s testimony, to a boycott such that it never developed into the bonanza hoped for. The only market for splinescopes existing now apparently relates to heavy duty trucks and vehicles. In FY 1976-77, spline-scopes represented only one-third of one percent of total sales. Sale of heat exchangers constituted ten to fifteen percent of sales during the same period.

5. The company is managed very conservatively. Some of the management and engineering functions are delegated but, as indicated above, Ben Grob does most of the *394 running of the firm. Employees, who are called “associates” are non-union, long term, highly-skilled craftsmen. There are 75 to 80 full-time employees. The company originally had a retirement plan but then made a conscious decision to go, instead, to a regular annual bonus plan such that now, and during the time pertinent, the managers and foremen arrive at an allotment to each department and each employee. Mr. Grob then passes on the bonus and sometimes increases, but never decreases, the bonus to an individual. Ben Grob testified that the firm distributed $255,000 in bonus money in 1976 and $225,000 in 1977. A unique aspect of the company is the complete absence of long-term corporate debt and an on-going policy of trying to anticipate and fund corporate needs out of current earnings. During the years in issue, there were no restrictions upon retained earnings and in these same years — and apparently all other years — it paid no dividends to its shareholders.

6. During the pertinent years, Grob, Inc. had 75,000 shares of Class A common voting stock authorized. Of these, 53,774 were issued. Ben Grob owned 23,745 shares and, by written proxy, voted 24,529 shares on behalf of his three children Karl, Lore, and Renatte.

Mr. Grob’s wife, Erica, owned 4,700 shares and Albert Reimer, Vice-President owned 800 shares. There were 300,000 shares of Class B, non-voting stock authorized with 211,096 issued. The board of directors consisted of Ben Grob, Erica Grob and Albert Reimer. Officers were Ben Grob, Albert Reimer and Erica Grob. Testimony indicated the board meets very infrequently — just enough to satisfy the statutory requirements.

7. The machine tool industry existing as it does at the base of the productive structure, is highly sensitive to fluctuations of the economy. The normal result of this condition is highly cyclical employment for workers. It is this company’s practice to avoid layoffs if humanly possible. When external business is down, the company produces replacement machine tools to modernize and update its own productive facilities. In times of heavy machinery orders, the company returns to production runs without having to rehire and retrain its highly-skilled work force.

8. The machine tool industry, in addition to being highly cyclical, is undergoing a technological revolution with the advent of tape controlled and computer controlled machinery. Mr. Grob testified to the company being subjected to what he called the “children of the shoemaker” effect — that, during the busy 1970’s, Grob’s production of new, automated gear rolling machines was gobbled up by industrial customers while Grob, Inc. was making production runs of the new sophisticated machines with tooling machines that were, themselves, badly outdated.

9. Both the machines used by Grob, Inc. to manufacture its products and the machines it produces are complex and subject to technological obsolescence. They are expensive and often times require long periods of time for manufacture. This results in highly variable income from sales, as large and costly machines are shipped.

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Bluebook (online)
565 F. Supp. 391, 52 A.F.T.R.2d (RIA) 5094, 1983 U.S. Dist. LEXIS 17359, Counsel Stack Legal Research, https://law.counselstack.com/opinion/grob-inc-v-united-states-wied-1983.