The opinion of the court was delivered by: MORRIS E. LASKER
This action arises from the 1989 acquisition of the fruit juice business of a company called Moser Farms Dairy, Inc. by Natural Country Farms, Inc. The moving force behind the acquisition was Harry Tsoukanelis, the individual defendant.
Tsoukanelis approached UBS Securities in 1989 for advice and assistance in raising the requisite capital to acquire Moser Farms Dairy's business. UBS had some difficulty finding interested investors and ultimately, to bring the transaction to a close, decided to participate in the investment by purchasing 25 shares of Natural Country Farms, Inc. for $ 100,000. The conditions of UBS's equity participation were set forth in a letter agreement dated November 27, 1989 between UBS and the other investors in Natural Country Farms, Inc., which specified the circumstances in which UBS would have the right to resell, or "put," its 25 shares to the other investors (the "Put Agreement").
Sometime after the acquisition, it became apparent that the investment had not been profitable and UBS sought to resell its 25 shares to the defendants. When the defendants refused, UBS filed suit. The complaint requests "an order requiring defendants to purchase the 25 shares from plaintiff for $ 10,976 per share" or "damages of $ 274,400." A bench trial has been held.
The parties agree that New York law controls.
To understand the Put Agreement, some background about the structure of the acquisition is required. Natural Country Farms, Inc., the acquisition vehicle, is majority controlled by Kane's Partners Limited, a Delaware general partnership, and that entity, in turn, is owned by HT Investing Co. (83.23%), Mr. S. Lawrence Feit (11.61%) and MJ Enterprise, Inc. (5.16%). Harry Tsoukanelis is the sole shareholder and director of HT Investing Co., a Delaware corporation.
The named parties to the Put Agreement are UBS, Natural Country Farms, Inc., and the three partners of Kane's Partners Limited. The agreement divides the rights and obligations of the partners in the event of a put by UBS in accordance with their share in the partnership. It provides that:
1. (a) UBS shall have the irrevocable right and option (the "Put") to cause the purchase of all or any portion of its 25 shares of NCF common stock (the "First Put Shares") . . . to HT, LF and MJ . . . . UBS shall be paid an amount . . . equal to $ 10,976 per share of NCF (the "Put Price") being sold pursuant to the Put. If UBS elects to exercise its Put, HT, LF and MJ shall have the option to purchase a portion of the First Put Shares being sold by UBS in the proportion that the net income/ loss allocation of HT, LF and MJ, as defined in the Partnership Agreement between HT Investing Co., LF and MJ, exercising its option bears to each other (sic) . . . . If all the First Put Shares being sold by UBS are not purchased by HT, LF and MJ pursuant to the option described above, HT will have the obligation to purchase the portion of First Put Shares not purchased by LF and/ or MJ.
The questions to be resolved are i) whether the Put Agreement requires HT Investing Co. to purchase all of the 25 shares UBS seeks to resell and, if so, ii) whether Harry Tsoukanelis is personally liable.
The defendants maintain that HT Investing Co.'s obligation under the Put Agreement is limited to purchasing those shares which the other partners could have, but failed to purchase from UBS. Since the Put Agreement limits the purchase rights of the other partners in accordance with their percentage ownership of Kane's Partners Limited -- totaling 16.77% -- the defendants contend that HT Investing Co.'s obligation under the Put Agreement is limited to purchasing 16.77% of the 25 shares UBS seeks to sell. The defendants rely on the sentence of paragraph 1(a) which provides that "if all the First Put Shares being sold by UBS are not purchased by HT, LF and MJ . . . HT will have the obligation to purchase the portion of First Put Shares not purchased by LF and/ or MJ."
UBS, on the other hand, maintains that the Put Agreement requires the defendants to purchase 100% of the shares that it seeks to sell. UBS argues that the defendants' position is inconsistent with the first sentence of paragraph 1(a) of the Put Agreement which provides that "UBS shall have the irrevocable right and option (the "Put") to cause the purchase of all or any portion of its 25 shares of NCF common stock (the "First Put Shares") . . . to HT, LF and MJ." UBS points out that, if the defendants' reading of the agreement were correct, HT Investing Co.'s obligations would paradoxically vary inversely with its percentage ownership of Kane's Partners Limited. That is, for example, if HT Investing Co. were to buy out the other partners, so that it owned 100% of Kane's Partners Limited, HT Investing would, according to the defendants, have no obligation to purchase any of UBS's shares.
I conclude that the Put Agreement cannot reasonably be read to mean what the defendants suggest. Paragraph 1(a) plainly states that "UBS shall have the irrevocable right and option. . . to cause the purchase of all or any portion of its 25 shares of NCF common stock" (emphasis added) and also that "HT will have the ...