The opinion of the court was delivered by: HULBERT
The corporate defendant brought on this motion for summary judgment.
Plaintiffs, both residents of this District, are two stockholders of the defendant corporation, owning, respectively, 200 and 150 shares of its common stock.
The American Woolen Company is a Massachusetts corporation authorized to do business in the State of New York, and the individual defendants are among its directors, all of whom are residents of Massachusetts.
This action was commenced on the 4th day of March, 1948, to enjoin and restrain the defendants from setting up a retirement income plan, and, in the event that any moneys shall have been or shall be paid into the trust for a decree surcharging the individual defendants with such payment and compelling the restoration thereof.
The issue presented to the court is whether, and if so, to what extent, the court may review the acts and limit the powers of a board of directors of a corporation, especially when their action has been submitted to and passed upon by the stockholders at a duly called meeting.
Some time prior to February 20, 1948, the corporate defendant promulgated a plan for the purpose of paying to all of its salaried employees, tentatively effective January 1, 1948, annual sums of money based upon the length of service of all such employees upon their retirement, respectively, from the employ of the corporate defendant.
The challenged plan is to be administered by means of a pension trust, of which the Guaranty Trust Company of New York is the designated trustee. The plan proposes that the corporation shall pay into that trust $ 4,657,202 to fund that part of the pensions based on the past services of approximately 1,000 employees and including eight officers of whom two, the President and Clerk (the latter performing services corresponding to Secretary) are directors, will become participants.
The defendants represent that the determination to set up a Retirement Income Plan was conceived for the purpose of improving efficiency and morale, by providing a means of removing over-age employees, assuring a measure of old age security for employees, enhancing the chances of promotion of younger employees, and attracting a high grade of personnel to the employ of the company.
The plaintiffs are not opposed, in principle, to a Retirement Plan for the employees of the defendant corporation, but contend that the Plan now before this court is unsound, and allege, inter alia the following objections:
(1) The payment of the full amount to fund past services, instead of in installments over a period of years, with a right at any time to cease the making of installment payments should the same become desirable and necessary because of any change in the financial position of the defendant corporation;
(2) The failure to fix a reasonable ceiling limiting the maximum amount of pension payable annually to any individual entitled to a pension under the Plan; and
(3) The unconscionable and excessive amount to be paid under the Plan to Moses Pendleton, the corporate defendant's President, would constitute waste of the assets of the defendant corporation.
They further allege that the defendant corporation, while having very substantial assets, does not have adequate cash on hand to finance the Plan; that it borrowed from banks in 1947 approximately $ 10,000,000, which is unpaid and still owing; that the Plan does not take into account the cost of financing with respect to future services of the employees; that a lump sum payment by the corporate defendant to fund past service benefits cannot be wholly deducted in the year when paid out, but is deductible only in part each year over a period of years under the alternative methods set forth in the Tax Law; that it does not accord with the custom and practices of other comparable corporations' Retirement Income Plans; and that it disregards the inflationary period now existing and the past history of the defendant corporation.
Defendant American Woolen Company, is said to be the largest producer of woolen cloth in the United States, and is a well-known and prosperous business corporation, earning substantial profits, paying good ...