## Facts

- Edgar Wehrung formed E.E. Wehrung Parking, Inc. in 1948.
- The corporation’s sole activity was holding a lease to a Cleveland parking garage and subleasing it to another company for $41,600 per year.
- The corporation was closely held: Robert Wehrung owned 111 shares, Marilyn Wehrung owned 28.5 shares, Shirley Mlinarcik owned 9.5 shares, and Esther (Edgar’s widow) owned one share.
- Robert and Shirley were Edgar’s children; Marilyn was Robert’s wife.
- After Edgar’s death, Robert took over management. Marilyn and Shirley served on the board and received directors’ fees.
- Robert (president) and Marilyn (secretary) also received salaries. Marilyn was paid $3,900 per year from 1967 to 1982, then $7,200 per year beginning in 1982.
- From 1982 through 1990, Robert was paid $10,800 per year as president.
- Marilyn’s work for the corporation totaled about 30–35 hours per year.
- Robert’s tasks included visiting the garage about once a month; preparing monthly payroll checks (including checks to himself and Marilyn); preparing and depositing payroll tax payments; writing miscellaneous checks; and mailing shareholder reports annually.
- Before Edgar’s death, Edgar and Esther had received compensation for services to the corporation; Robert’s compensation was less than Edgar’s had been.
- Robert and Marilyn received no fringe benefits from the corporation.
- The corporation held no shareholders’ or directors’ meetings, and Shirley was not told what her duties were as a director; she was also unaware of Robert’s and Marilyn’s compensation.
- Shirley filed a shareholder derivative action against the corporation, Robert, and Marilyn alleging the salaries were unreasonable and excessive and should be repaid to the corporation.
- At trial, Shirley presented an expert who valued the annual services at $567 (based on time and tasks) to $2,000 (if performed by a management company), but the testimony lacked local market comparisons and did not account for the absence of fringe benefits.

## Issues

1. Whether the trial court erred in finding that Shirley failed to prove the compensation paid to Robert and Marilyn was unreasonable and excessive in a shareholder derivative action.
2. Whether the burden of proving reasonableness of compensation rested on Shirley (the complaining shareholder) or shifted to Robert and Marilyn.
3. Whether the trial court erred by awarding attorney’s fees to Shirley and by declining to dismiss the action, despite entering judgment for defendants on the excessive-compensation claim.

## Decision

- The appellate court affirmed the trial court’s judgment for defendants on the excessive-compensation claim.
- The court held Shirley did not carry her burden to show the salaries were unreasonable under the circumstances, and it deferred to the trial court’s weighing of the evidence (including the limits of the expert’s analysis).
- On defendants’ cross-appeal, the appellate court reversed the attorney-fee award because Shirley did not obtain relief for the corporation and did not show the suit produced a substantial corporate benefit.
- The judgment was affirmed in part and reversed in part, and the case was remanded for proceedings consistent with the opinion (including removal of the fee award).

## Legal Principles

- In a shareholder derivative challenge to insider compensation, the complaining shareholder bears the burden to prove the compensation is unreasonable or excessive in light of the services performed and the surrounding facts.
- A trier of fact may consider the nature and size of the business, the actual duties performed, historical compensation practices, and the presence or absence of fringe benefits when evaluating reasonableness.
- An appellate court generally will not reweigh evidence on compensation reasonableness and will uphold the trial court’s finding when supported by the record.
- Expert testimony on reasonable compensation may be discounted when it lacks market comparables or fails to account for compensation structure (such as no fringe benefits).
- Attorney’s fees in a derivative action require an equitable basis, commonly a recovery or other substantial benefit to the corporation; a plaintiff who does not obtain such a result is not entitled to fee shifting.

## Conclusion

Mlinarcik held that a minority shareholder challenging officer compensation in a closely held corporation must prove the payments were unreasonable; the appellate court upheld the trial court’s finding that Shirley failed to do so on this record, but reversed the attorney-fee award because the suit produced no recovery or other substantial benefit to the corporation.


Mlinarcik v. E.E. Wehrung Parking, Inc., 620 N.E.2d 181, 86 Ohio App. 3d 134 (1993)