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Specht v. Eastwood-Nealley Corp.

Decided: February 11, 1955.


Clapp, Jayne and Francis. The opinion of the court was delivered by Francis, J.A.D.


This appeal raises a single issue. Did the trial court err by sustaining the action of the board of directors of the defendant corporation in cancelling the pension of appellant, Harry G. Specht?

A number of additional issues were presented during the course of a protracted trial. However, appellant has expressly accepted the findings on all phases of the case except that relating to his pension.

Eastwood-Nealley Corporation is engaged primarily in the production of wire mesh for use in the paper industry. It has been in existence for about 80 years. From 1935 down to the present time it had outstanding 1,000 shares of common stock. As of 1941 Harry G. Specht was the owner of 45% thereof and shortly thereafter, apparently in 1942, he transferred 100 shares to his wife, Lily Specht, and 100 shares

to his son, Harry M. Specht. When the action was brought, this equity interest was still held by the Spechts. 502 shares, or 50%, were and are owned by the defendant, Calvin H. Nealley.

The senior Specht, the only appellant, was actively associated with the company for many years. From 1934 to 1948 he served as general manager and vice-president. On March 9, 1948 he was re-elected vice-president in charge of development (a position of semi-retirement), but was dropped as general manager. Throughout these years he was a director as well. At the meeting of the board of directors in December 1951 he was eliminated completely from the official family of the company, his services were terminated and the pension arrangement involved in this appeal was consummated.

In the years that followed 1942 some changes in the personnel of management took place. Thereafter, serious dissension arose between Specht and the new men over almost every matter of business policy and method of operation of the company. It continued until Specht was removed from active participation in the management.

A great mass of testimony was introduced as to the cause of this strife. The trial court appraised this proof saying:

"There is no one incident or series of incidents that the defendants can point to in order to justify their conclusion. It is something that built up gradually over the years until to them it became intolerable and the now famous reallocation of duties was acted upon in 1948. Apparently Mr. Specht's aggressiveness was the great difficulty. He apparently antagonized everybody he came in contact with, including the labor unions, tax officials, customers, competitors and the like.

Between 1948 and 1952, there is evidence that he did interfere with management to the point of harassment. * * *

Finally, the board of directors regretfully concluded it had not gone far enough in removing Specht as general manager and finally in 1952 he was dropped as an officer and director of the company. Again I say the board's action was inevitable. Concededly it was

drastic because it denied board representation to a forty-five percent stockholder of the corporation.

It is the Court's opinion, however, that the board's action in 1952 was justified. * * *"

It appears that in November 1935 the company had issued 300 first mortgage bonds of the face value of $1,000 each. Originally Nealley and his wife held all of them. They were a first lien and Specht concedes they were callable on any interest date prior to maturity. In April 1943 Specht and Nealley (Nealley then owning all the outstanding bonds) executed an agreement under which Nealley agreed to sell Specht one bond each year thereafter at $800 per bond. And Specht was given also an option on the death of Nealley to purchase from his estate all remaining bonds at $700 each.

Toward the end of 1951 the controlling management of the corporation advised Specht that he would not be re-elected an officer or director and negotiations were undertaken for his retirement on pension and for the purchase of his stock. Agreement could not be reached on a price for the stock. At a meeting of the board of directors on January 18, 1951 a resolution was adopted relating to the pension. It provided in part:

"Whereas, Harry G. Specht will be retired on March 11, 1952, and will not thereafter be associated with this company in any capacity, either as a director or as an officer and employee; and

Whereas, Harry G. Specht desires, and the Company is willing to pay, a pension to Harry G. Specht upon his complete retirement as aforesaid and upon certain other conditions hereinafter mentioned, * * *."

Thereafter the resolution provided for the payment of the aggregate sum of $50,000 at the rate of not less than $5,000 nor more than $10,000 a year beginning March 11, 1952 "upon the following conditions":

"(a) Harry G. Specht agrees that he will not disclose to any person, firm or corporation any secret or confidential information relating to any processes, methods of operation, formulae, mechanisms or compositions used by this corporation without its prior written consent;

(b) Harry G. Specht will not compete with this company in the manufacture or sale, or both, of fourdrinier wires, pulp and paper mill wire cloth, valves, special alloy wire and brass mill and foundry products as now or heretofore manufactured and sold by the Eastwood-Nealley Corporation;

(c) Harry G. Specht will not at any time by any representation, word or act on his part, wilfully prejudice, injure or harm the good will, business or reputation of this Corporation, nor will he interfere with, prejudice or disturb in any way the operations of this Company and the harmonious relations ...

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