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John M. Ferolito, Etc., et al v. Domenick J. Vultaggio

July 24, 2012

JOHN M. FEROLITO, ETC., ET AL., PLAINTIFFS-APPELLANTS,
v.
DOMENICK J. VULTAGGIO, ET AL., DEFENDANTS-RESPONDENTS. [AND OTHER ACTIONS] IN RE JOHN M. FEROLITO, ETC. PETITIONER-APPELLANT.



The opinion of the court was delivered by: Sweeny, J.

Ferolito v Vultaggio

Decided on July 24, 2012

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Luis A. Gonzalez,P.J. David B. Saxe John W. Sweeny, Jr. Rolando T. Acosta Dianne T. Renwick, JJ.

Plaintiff/Petitioner John M. Ferolito, appeals from the order of the Supreme Court, New York County (Martin Shulman, J.), entered June 2, 2011, which denied his motion for an order declaring invalid Beverage Marketing USA, Inc.'s Business Corporation Law § 1118 election to purchase his shares, the order, same court and Justice, entered June 3, 2011, which denied his motion to disqualify Cadwalader, Wickersham & Taft, LLP as counsel to BMU in the consolidated dissolution/valuation proceeding, and the order, same court and Justice, entered April 14, 2011, which denied his motion to compel shareholder distributions of profits. Plaintiffs appeal from the order, same court and Justice, entered June 24, 2011, which, insofar as appealed from, granted defendant Vultaggio's motion to dismiss the Ferolito Trust's cause of action for common-law dissolution, and to stay the remaining causes of action. Boies, Schiller & Flexner LLP, New York (David A. Barrett, Nicholas A. Gavante, Jr. and Helen M. Maher of counsel), for appellants. Cadwalader, Wickersham & Taft LLP, New York (Louis M. Solomon, Colin A. Underwood and Michael S, Lazaroff of counsel), for respondents.

SWEENY, J.

These are four related appeals from orders deciding motions made in the litigation involving the AriZona Iced Tea business and its principal operating company, Beverage Marketing USA, Inc. (BMU). The first order denied plaintiff/petitioner John M. Ferolito's motion for a declaration that BMU's election to purchase his shares of stock was invalid. Ferolito also appeals from the denial of his motion to disqualify Cadwalader, Wickersham & Taft, LLP (Cadwalader) as counsel to BMU and from the order dismissing a common-law derivative dissolution proceeding brought against defendants. Lastly, Ferolito appeals from the order denying his motion to compel BMU to make cash distributions of profits to all shareholders. A review of the factual and historical background of this litigation is necessary to place these appeals in their proper context.

In 1992, plaintiff Ferolito and defendant Vultaggio formed the AriZona Iced Tea business, consisting of 21 entities known as the "AriZona Entities." BMU, which conducts the preponderance of the business of producing, marketing and distributing the AriZona Iced Tea line of beverages, is one of those entities. All of the Arizona Entities are owned equally by Ferolito and Vultaggio, along with members of their respective families (Owners Groups).

In 1997, due to strained relations between Ferolito and Vultaggio, the parties agreed that Vultaggio would assume primary responsibility for the day-to-day management of the AriZona Entities. Ferolito retained his voting rights and, as co-owner of BMU, his right to participate in corporate decision-making.

In 1998, Ferolito, Vultaggio and their respective Owner Groups entered into an "Owners' Agreement." Its purpose was to set out the method of corporate governance, to maintain appropriate and businesslike relationships among the parties, and to assure the continuity of ownership and management of the Arizona Entities.

Section 3.1 of the Owners' Agreement provides that "all material matters respecting [the AriZona Entities] shall be resolved by mutual agreement of the [Owner Groups]." Section 2.1 provides that the general intent of the parties is that each Owner Group shall receive 50% of all distributions of profits. The Owners' Agreement also limits the sale or transfer of interest in the enterprise to "Permitted Transferees" (the Transfer Covenants).

In August 2008, the Ferolito Owners Group attempted to transfer a block of its shares in the AriZona Entities to an outside purchaser without Vultaggio's consent. Ferolito commenced litigation in New York County, seeking, among other things, nullification of the Transfer Covenants to allow him to sell those shares without restriction. Vultaggio asserted counterclaims and both sides moved for summary judgment. The motion court dismissed Ferolito's cause of action challenging the transfer restriction, finding that the Transfer Covenants were valid and ...


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