Headline: Fractious Family Dispute Threatens Russellville Automobile Dealership
By George Waldon
A long-stewing family dispute has broiled into a lawsuit that threatens to dissolve a 51-year-old family business, Cogswell Motors Inc. in Russellville.
The company ranks among the 25 largest auto dealerships in Arkansas, with annual sales of more than $30 million. The firm employs an estimated 70 full-time staffers and its roster of new vehicle lines includes Ford, Lincoln, Mercury and Mazda.
The rift between family members places Keith B. Cogswell III, president and majority owner of the dealership, on one side. Opposing him and his management of the company are his mother, Margaret Cogswell, and two sisters, Ann Cogswell and Mary Kay Cogswell McNeill.
They accuse him of several breaches of fiduciary duty and outline allegations that portray Cogswell as overseeing the family business in a self-dealing fashion.
The alleged breaches regard abusing his positions as executor of his father’s estate, trusteeship of a family trust and majority stockholder in Cogswell Motors. The complaint asks for a court-appointed receiver and seeks to dissolve the corporation and liquidate its assets.
None of the participants could be reached for comment.
The case, filed in Pope County Circuit Court, is in the discovery phase, and no trial date is set.
Family Schism
The complaint describes the family business schism as erupting in 1987 when an unexpected sickness incapacitated Keith Cogswell Jr. He was stricken with encephalitis that took a physical and mental toll on his abilities.
According to the complaint, Keith Cogswell III “provided little, if any, assistance with his father and refused to help with the financial concerns of his parents, when approached by his sister to help.
“[He] took advantage of his father’s condition and used his newfound position as general manager to prevent [his mother and sisters] from gaining full knowledge of and participation in CMI operations, effectively gaining total control of CMI at the expense of his sisters and even his relationship with his mother.”
The complaint outlines the deteriorating relationship between Cogswell and his mother and sisters, a downward spiral that paralleled the declining health of his father.
Keith Cogswell III is accused of never holding legitimate shareholder meetings, failing to send notices of meetings, refusing to respond to questions, failing to provide financial information and failing to allow either of his sisters to participate in management of the CMI board. He is also alleged to have signed his father’s name to minutes of directors meetings concerning significant company matters related to rent and expenditures on company property.
After Keith Cogswell Jr. died in 1994, the friction escalated as ownership of Cogswell Motors was divvied among the children.
Prior to his death, the three children each held a 16 percent stake in the dealership. Afterward, Keith Cogswell III’s stake grew to 52 percent and his sister’s each held 24 percent.
The sisters’ grievances against their brother include using company funds on personal expenses such as a $200,000 airplane plus $6,000-$22,000 in annual operation costs and trips to France; for improvements on real estate owned by him and his wife; and to buy land that has no business purpose.
“Cogswell and his wife, Kelli, have facilitated and participated in an illegal civil conspiracy, the purpose of which was to enrich themselves, or other persons to whom they were associated,” the complaint states.
Benefits, profits and assets used in this alleged conspiracy would otherwise have been available to Ann Cogswell and Mary Kay Cogswell McNeill in the form of dividends, profits or proceeds from the company.
More Grievances
The complaint also accuses Cogswell of violating a month-to-month lease between the company and The Keith B. Cogswell Jr. Testamentary Trust.
On Feb. 19, 1999, Cogswell was ousted as a trustee of his father’s namesake trust by his mother and sisters. His mother is the initial income beneficiary of the trust, and his sisters are the successor beneficiaries.
The trust owns the real estate associated with the bulk of Cogswell Motors operations and had leased the property to the company at a monthly rate of $4,500.
He unsuccessfully attempted to get the rent cut to $2,500. However, the trust notified him on Aug. 22, 1999, that in light of his actions, the monthly lease rate would be increased to the fair market value of $13,500 per month.
Cogswell has failed to pay the new rate and continued to operate on the trust-owned property, even after he was notified the lease would be canceled on March 1. The trust has not instituted formal eviction proceedings as yet.
A confrontation two years ago between Ann Cogswell and her brother led him to suggest buying her share of the business. This gave rise to several evaluations on what the sisters’ Cogswell Motors stock was worth.
Wayne Jones, Cogswell Motors’ accountant, valued each sisters’ stock holdings in the company at $650,000 in May 1998. This reflects an overall company value of $2.7 million.
Rhea & Ivy, a certified business appraiser based in Memphis, was hired and valued each 24 percent block of stock at $950,000 on Aug. 31, 1998. This reflects an overall company value of $3.9 million.
Cogswell’s buyout offer remained dormant until May 24, 1999, when he produced a new valuation of his sisters’ shares produced by Walter L. Hall of Medina, Ohio.
The appraisal embraced the $3.9 million overall valuation but introduced two discounts that severely reduced the value of the stock owned by the sisters.
This evaluation subjected the value of their stock to a 70 percent “marketability discount” that is supposed to reflect the illiquidity of minority shares in a private firm. However, Hall’s appraisal subjects the sisters’ shares to an additional “minority discount” that carves another 70 percent off the value.
His evaluation stated their combined 48 percent stake was worth $168,960.
“This is one more attempt by the brother to frustrate and oppress his sisters,” said Jim Penick, the Little Rock lawyer representing the three Cogswell women.
The fractious dynamics among the siblings culminated in Keith Cogswell III indicating his willingness to entertain any good-faith buyout offers from any interested third parties.
However, he refused to respond to just such a proposal, according to the complaint.
On Jan. 12, his sisters notified him that a Little Rock-based auto concern, not identified in the complaint, was prepared to make an offer worth considering. A special shareholders meeting was called for Jan. 18 to address the buyout offer. Keith Cogswell said he had no interest in selling his stake in the company under any circumstances.
The sisters have been in contact with a second interested buyer. But their brother’s turnabout stance has thwarted any discussion. Until a judgment or settlement is reached, the future ownership of the dealership is in limbo.
Corporate History
Keith B. Cogswell Sr. bought the dealership in 1949 from Ray Lee Sr. His namesake son became involved with the company in 1950 and succeeded the elder Cogswell as president when he died in 1958.
The dealership thrived under Keith Cogswell Jr.’s leadership.
Cogswell Motors was recognized as one of the most decorated dealerships in the nation, winning the Ford Distinguished Achievement Award on numerous occasions.
Among the highlights was Time Magazine naming Keith Cogswell Jr. a top-20 quality dealer in 1986.
Keith Cogswell III became involved with the dealership in 1979 and assisted with the management of the business until his father became incapacitated with encephalitis in 1987.
Cogswell III took over management of the dealership and has retained effective control of the business ever since.
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