Sugarman v. Sugarman,

797 F.2d 3 (1st Cir. 1986)

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Nature of the Case

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Facts

Four brothers started a partnership for selling paper products. In the 1930s, the principals in Sugarman Brothers organized Leonard Tissue Corporation, owned equally by Joseph, Myer, and Samuel. Following WWII Sugarman Brothers was incorporated with its stock owned equally. Eventually, Leonard Tissue changed its name to Statler, merged with Sugarman Brothers, and was called Statler Corporation. The equal division of stock was maintained until 1974 when one branch of the family controlled a majority of the stock. Leonard (D) owned 61% of the stock and Ps, Jon, James, and Marjorie owned 21.78%. Members of the other branches of the family were employed by the company from time to time. The court found that James had never sought employment and that Marjorie had but was denied. Jon was employed from 1974 until 1978. The court did not rule upon the fact that Jon was discharged improperly. In 1981, Ps sued D under a derivative lawsuit alleging that D had abused his fiduciary duties; D was getting excessive salary and had engaged in self-dealing, and D also froze out the minority shareholders and refused to pay dividends. The court found that D employed his father at a salary and pension not equal to Hyman's, Ps' father. It was also found that D offered to buy stock at grossly inadequate pricing and that D had received excessive compensation in an attempt to freeze out the minority interests. The court found that $1,353,837 had been improperly paid to D and Myer. The court then awarded Ps 21.8% of these improper payments. D appealed.