Hirsch v. Cahn Elec. Co., Inc.

694 So. 2d 636, 1997 WL 257114
CourtLouisiana Court of Appeal
DecidedMay 9, 1997
Docket29327-CA
StatusPublished
Cited by10 cases

This text of 694 So. 2d 636 (Hirsch v. Cahn Elec. Co., Inc.) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hirsch v. Cahn Elec. Co., Inc., 694 So. 2d 636, 1997 WL 257114 (La. Ct. App. 1997).

Opinion

694 So.2d 636 (1997)

Marion Cahn HIRSCH, Plaintiff-Appellee,
v.
CAHN ELECTRIC CO., INC., Abry S. Cahn, Jr., and Abry S. Cahn, III, Defendants-Appellants.

No. 29327-CA.

Court of Appeal of Louisiana, Second Circuit.

May 9, 1997.

*637 Wiener, Weiss & Madison by Neil T. Erwin, Shreveport, for Defendants-Appellants.

Pugh, Pugh & Pugh by Robert G. Pugh, Shreveport, for Plaintiff-Appellee.

Before MARVIN, C.J., and HIGHTOWER and STEWART, JJ.

STEWART, Judge.

In this minority shareholders' derivative action against the corporation and its officer-directors, Abry S. Cahn, Jr. (Abry) and Abry S. Cahn III (Tab), appeal the trial court's judgment in favor of the minority shareholder, that orders Abry and Tab to remit to the corporation $200,000.00 in excess bonuses, and orders the corporation to declare a dividend, and assesses the corporation with plaintiff's expert witness fees and attorney's fees and the directors individually with the corporations' attorney's fees.

Plaintiff answers the appeal, seeking to increase the monetary awards and assessments and urging that the defendant-directors be personally liable for the plaintiff's attorney fees. For the following reasons, we amend in part, and affirm.

FACTS

Cahn Electric Company Inc. is a closely held electrical contracting corporation. Incorporated in 1949, the original shareholders were Mr. and Mrs. Abry S. Cahn, Sr., and Mr. and Mrs. Henry Cahn, respectively, the parents and aunt and uncle, of the plaintiff and Abry. Of the initial 800 shares of authorized common stock in Cahn Electric, 398 shares are now treasury stock.

Currently, Cahn Electric has only two shareholders, Abry S. Cahn Jr. and Marion Cahn Hirsch. Abry owns 203 shares of one hundred-dollar par value stock in Cahn Electric Co., Inc. He got 199 shares from his mother, Janice P. Cahn, in 1986, and four additional shares through various purchases from family members and the corporation. Mrs. Hirsch owns 199 shares of one hundred-dollar par value stock in Cahn Electric Co. Abry owns 50.48% of the outstanding authorized and issued stock of Cahn Electric Co., and is the majority shareholder. Mrs. Hirsch owns 49.502% of the outstanding authorized and issued stock of Cahn Electric Co., and is the minority shareholder.

When Mrs. Hirsch inherited her stock in 1986, the book value was $1,558,205. In 1992, that value had decreased to $1,276,013. The 1986 per share value was $3,876.00, her *638 share value being $771,324. On December 31, 1992, the per share value had dropped to $3,174.00, which totaled $671,626. The per share value decreased $702 per share, and the aggregate value decreased by $99,698. Cahn Electric and the board of directors ceased paying dividends in 1981 before Mrs. Hirsch inherited her shares.

Cahn Electric has employed Abry regularly since 1956. Since 1971, he has served as president of the corporation, while serving on the board of directors. When John Swart, the company's comptroller and member of the board of directors resigned, Abry assumed the role of treasurer. Then, the Board of Directors for Cahn Electric consisted of only Abry and Tab. Mrs. Hirsch was nominated to the board, but refused. She was invited to attend the monthly meetings with the Board of Directors, and attended all annual stockholders' meetings.

Cahn Electric has employed Tab regularly since 1983. Since 1984, he has served as vice-president. From February 1988, Tab has held the titles of vice-president and secretary.

Between 1986 and 1992 Cahn Electric suffered significant operational losses. The trial court determined that the average monthly loss amounted to $12,456.13. Cahn Electric did receive income from non-business investments, which netted an average monthly income of $7,901.10 reducing the average monthly loss to $4,555.03.

After several years of stock ownership and no dividends from her investments, Mrs. Hirsch corresponded, through her legal counsel, with Abry Cahn Jr. in a letter dated July 10, 1991, which stated:

This is to advise that your sister has again visited with me for the purpose of expressing her concerns that you and your son continue to take enormous salaries and bonuses from a business that is jointly owned between yourself and your sister and when, as a matter of fact, for all intents and purposes the business is in a defunct status and the only way that you are able to continue to maintain your present salary and bonus arrangement is by depleting the liquid assets. The time that I met with you, your son, your sister and her husband I suggested to you that it was ludicrous to continue to run a business which was in the financial condition that Cahn Electric is in, while at the same time relying upon the business liquid assets to keep the business from being declared to be in a financial insolvent cash flow position.

Despite the receipt of this letter, Abry and Tab continued to draw salaries and bonuses for the years 1991 and 1992 totaling $311,818.00. Cahn Electric suffered operating losses for those same two years for $458,900. After continuously voicing her displeasure with the compensation and benefits awarded to Abry and Tab, Mrs. Hirsch broached the subject of Cahn Electric purchasing her shares. The corporation, through Abry, as an officer and director, offered $175,000 with 4% interest over a 10-year term. Mrs. Hirsch declined that offer.

The trial of Mrs. Hirsch's derivative action was held on October 17 and 18, 1995. Both sides presented expert testimony that concluded, according to the respective party, that the compensation and "bonus" payments were either excessive or reasonable.

First, George A. Burton, Jr., plaintiff's expert and a certified public accountant, testified. In preparation for the trial, Mr. Burton made a study and comparison based on Cahn Electric's federal income tax returns years 1986-1994, against the national average for electrical contractors. Plaintiff's exhibits 7-ten, respectively, included graphs that outlined the financial state of Cahn Electric in comparison to the national average for electrical contractors. Exhibit number 7 compared Cahn's net income according to their tax returns with the national industry average of electrical contractors. Upon which, Mr. Burton concluded that Cahn's net income was below the national average and the company had sustained losses. Net income was not limited to the operation of the business, but was the consolidated income that included investment income.

Exhibit eight compared Cahn Electric's investment income against the national industry average. Mr. Burton concluded that Cahn Electric derived a substantial amount *639 of income from preexisting investments, not from the operation of the business. Exhibit nine compared investment income to operating income or loss. Only Cahn's information was used in this assessment. Burton concluded that except a small income item operating profit in 1988, and 1994, a year not included in the plaintiff's petition, the actual operating income suggested losses.

Exhibit ten compared the total compensation of Cahn's officers salaries with the national industry average. Total compensation included the officers' salaries and bonuses. The national industry average consisted of electrical contracting firms with the same assets range one to five million. Abry and Tab's salaries exceeded the national average between the years 1986-1992. The final exhibit, number 11, identified net worth. Net worth is the combined factor of capital stock and retained earnings in a corporation, or stockholder equity.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Guillory v. Broussard
242 So. 3d 733 (Louisiana Court of Appeal, 2018)
Simone B. Guillory v. Samuel S. Broussard, Jr.
Louisiana Court of Appeal, 2016
Transpetco I Joint Venture v. Clearview Investments, Ltd.
139 So. 3d 49 (Louisiana Court of Appeal, 2014)
White v. St. Elizabeth BC Bd. of Directors
986 So. 2d 202 (Louisiana Court of Appeal, 2008)
Leary v. Foley
978 So. 2d 1018 (Louisiana Court of Appeal, 2008)
Atkins v. Hibernia Corp.
182 F.3d 320 (Fifth Circuit, 1999)
Thornton ex rel. Laneco Construction Systems, Inc. v. Lanehart
723 So. 2d 1127 (Louisiana Court of Appeal, 1998)
THORNTON EX REL. LANECO CONST. v. Lanehart
723 So. 2d 1127 (Louisiana Court of Appeal, 1998)

Cite This Page — Counsel Stack

Bluebook (online)
694 So. 2d 636, 1997 WL 257114, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hirsch-v-cahn-elec-co-inc-lactapp-1997.