Court OKs Minority Owner’s Pay, Distributions

A family business that operated a miniature golf course in Virginia Beach and whose majority owner died, cannot recoup “excessive compensation” paid to the minority owner, decedent’s son, who operated the business, says a Virginia Beach Circuit Court.

The executor of the estate of the majority owner alleges the son misused his authority as a director of Jungle Golf to confer upon himself improper benefits – to the detriment of the corporation – in the form of excessive compensation, disproportionate distributions and an interest-free loan that Jungle Golf has yet to call due.

The court rules as follows: 1) the decisions to establish the son’s compensation and to initially grant him an interest-free loan – though not protected by the business judgment doctrine because they are conflict-of-interest transactions – are cured by the provisions of Va. Code § 13.1-691; 2) the executor’s claim for recovery of disproportionate distributions was not properly demanded or pleaded, the distributions were paid outside of the time period claimed in the complaint, and the executor failed to prove the distributions harmed the corporation; and 3) the decision not to call the son’s loan due once demanded was an improper discharge of the son’s duties as a director that is not cured by an applicable statutory provision.

The court therefore finds for plaintiff co-executor in part and for defendant son in part. The court orders that the son pay to Jungle Golf interest on his remaining loan balance of $101,443 as of Dec. 18, 2015, until the loan is paid back in full.

O’Brien v. Midgett (Lannetti) No. CL 15-5459, July 26, 2017; Norfolk Cir.Ct.; Douglas E. Kahle, Gregory A. Giordano for the parties. VLW 017-8-067, 21 pp.