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NY Business Divorce Information on Dissolution and Other Disputes Among Owners of New York Corporations, LLCs and Partnerships

Business Divorce, American Chopper Style

Posted in Buyout, Valuation

Have you heard about the episode of American Chopper in which Paul Sr. and Paul Jr. rev up their litigators and duke it out in the courtroom in a shareholder dispute? 

For all you recent arrivals from Mars, American Chopper is a highly successful reality television series that first aired on the Discovery Channel in 2003, and later moved to The Learning Channel (TLC).  The program centers on a custom motorcycle design and fabrication workshop in Newburgh, New York, known as Orange County Choppers (“OCC”), owned and operated by the Fu-Manchu-mustachioed, barrel-chested, tatooed father, Paul Teutul (“Senior”), and his wool-capped, design-wizard son Paul M. Teutul (“Junior”).  Here’s how American Chopper’s Wikipedia entry describes the onscreen fireworks between the two: 

The contrasting attitudes of the two men and their propensity for sulking often lead to fiery, but humorous, exchanges as they meet unusually short deadlines for building distinctive custom choppers.

The Teutuls founded OCC in 1999, owned 80% by Senior and 20% by Junior.  In January 2008, OCC and Junior entered into an employment agreement with a non-competition clause.  At the end of 2008, Senior famously fired Junior after they got into a nasty, chair-throwing, on-camera argument that was aired in April 2009.

In January 2009, after TLC gave the Teutuls a notice of default due to Junior’s departure, Senior and Junior entered into a letter agreement modifying the 2008 employment contract under which Junior resumed work as an independent contractor.  The letter agreement also gave Senior the following option to acquire Junior’s 20% interest in OCC:

[Junior] shall extend to [Senior], upon [Senior's] request, an option to purchase all of his shares in Orange County Choppers Holdings, Inc. for fair market value as determined by a procedure to be agreed to by the parties as soon as practicable.

Yes, dear readers, that’s all they wrote.  No mention of how long the option lasts or how it gets exercised.  No mention of a valuation date.  No mention of any adjustments to OCC’s income statement or balance sheet.  No mention of whether and how to factor into fair market value the continuation or not of the American Chopper series, or Junior’s ongoing services to OCC.  No mention of terms of the buyout payment.  And last but certainly not least, no mention of who decides fair market value and a timetable for doing so.  Can you see what’s coming next?

In November 2009, Senior’s lawyer sent a letter exercising his option as follows:

[T]his letter will constitute a formal exercise of the option provided for in the Letter Agreement dated January 21, 2009, effective immediately, November 19, 2009, at the current fair market value. . . . It is now left to the parties to determine the logistics of agreeing upon or ascertaining the fair market value of [Junior's] stock interests.  Please contact the undersigned so that we can discuss the procedure moving forward.

The buyout discussions either never got off the ground or quickly reached impasse, because in late 2009 Senior filed a lawsuit against Junior in Orange County Supreme Court seeking specific enforcement of his option including the appointment of an independent appraiser to value Junior’s shares.  Junior disputed the enforceability of the option and countersued for self-dealing and corporate waste by Senior.  (Read here a copy of Junior’s December 2009 answer with counterclaims.)  

In January 2010, Junior applied to the court for a preliminary injunction restraining Senior from engaging in various unilateral business transactions and compelling Junior’s access to books and records.  Senior responded with a cross-motion for summary judgment on his claims to enforce the buyout option. 

The task fell to Supreme Court Justice Lewis Jay Lubell to determine whether the January 2009 letter agreement, which expressly left to future accord the means of determining the shares’ fair market value, constituted a sufficiently definite, enforceable option agreement or, as Junior contended, was merely an unenforceable agreement to agree. 

In his decision in Teutul v. Teutul, 2010 NY Slip Op 30979(U) (Sup Ct Orange County Apr. 21, 2010), Justice Lubell frames the issue as whether the letter agreement satisfies the basic contract requirement of definiteness.  Quoting from the New York Court of Appeals’ ruling in Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp., 74 NY2d 475, 482 (1989), he observes:

Before rejecting an agreement as indefinite, a court must be satisfied that the agreement cannot be rendered reasonably certain by reference to an extrinsic standard that makes its meaning clear (1 Williston, Contracts §47, at 153-156 [3rd ed 1957]).  The conclusion that a party’s promise should be ignored as meaningless “is at best a last resort”.

In Teutul, the extrinsic standard used in the January 2009 agreement — fair market value — is a well-defined appraisal standard.  The problem is, fair market value is not readily ascertainable in the case of a closed corporation such as OCC whose shares are not publicly traded, and where there are no comparable sales data.  Absent an agreed formula, the value of the company’s shares can be determined only by an appraisal process which the parties deliberately failed to spell out in their January 2009 agreement.

Justice Lubell’s opinion discusses several cases, including the above-mentioned Cobble Hill, in which the courts enforced option agreements that expressly delegated the determination of price to one or more unidentified third-party appraisers or arbitrators — a feature lacking in Teutul.  He nonetheless concluded that the January 2009 option agreement was enforceable, primarily under the authority of Marder’s Nurseries, Inc. v. Hopping, 171 AD2d 63 (2d Dept 1991).

Marder’s involved enforcement of an option to purchase real estate.  The purchase price was to be set by two appraisers, one appointed by each party, who were then to “diligently proceed to agree on the fair market value.”  If they didn’t agree, the agreement required the two appraisers to appoint a third appraiser.  The purchase price would then be fixed by “the decision of any two of such appraisers.”  The agreement made no provision, however, for the failure of the two party-appointed appraisers to agree on a third appraiser, or for the possibility that no two of the three appraisers would agree on a price.  The appellate court in Marder’s held that the option agreement, while ”flawed,” was “reasonably certain,” explaining that 

a contract should not be canceled solely on the ground that the parties, having stipulated that the purchase price was to be determined by a group of appraisers, failed to foresee all possible obstacles or hindrances which might arise during the course of the appraisal procedure. . . . That the procedure by which the “fair market value” is to be determined lends itself to stalemate is not a fatal defect since . . . a court may break any stalemate by determining fair market value itself. . . . The judgment under review in the present case, as we view it, properly reserves to the court the power, upon application of a party, to appoint a third appraiser and, in the event that two of the three appraisers are unable to reach an accord, to make its own finding as to the fair market value of the premises.

Does Teutul, in which the option agreement contained no procedure whatsoever for price determination, push Marder’s logic farther than it warrants?  Justice Lubell rejects this notion, stating:

This Court sees no distinguishable difference between the authority of this Court to select an appraiser, upon application, or to “fix the fair market value after a hearing” where, as in [Marder's], the option contains a “seriously flawed” method with which to determine fair market value and where, as here, the parties have never come to terms on the method to be used to determine fair market value.  The authority of the Court recognized in [Marder's] to resolve the parties’ stalemate is no less intrusive on the contractual rights of the parties than where, as here, the parties have yet to define the procedure to be employed to determine fair market value on the option exercise date.  In fact, an argument can be made that the latter is less so.

Justice Lubell accordingly granted Senior summary judgment on his claim for specific enforcement of the buyout option, but he denied Senior’s request to appoint a third-party appraiser to value the shares.  Instead, he decided to appoint a neutral appraiser to be jointly selected by the parties or, failing that, by the court.  In the event the parties do not agree to be bound by the neutral appraiser’s valuation, Justice Lubell ordered that the court itself will conduct a valuation hearing at which the neutral appraiser as well as the parties’ own appraisers may offer evidence of value.

What does all this mean for the American Chopper television series?  Apparently not much.  In the wake of the lawsuit’s filing, in February 2010, TLC announced the program’s cancellation.   Two months later, however, TLC announced that Senior and Junior will return for a new, seventh season, even though the pair reportedly have been incommunicado for a year and Junior recently opened his own, nearby competing motorcycle business called Paul Jr. Designs.  Will Junior’s new motorcycle creations, instead of carrying names like those of his famous Black Widow Bike and Fire Bike, be called the Corporate Waste Bike or the Summary Judgment Bike in honor of his litigation travails?  How about the Business Divorce Bike, with wheels that spin in opposite directions?  Stay tuned.

Update #1:  The valuation proceeding is on hold.  Paul Jr. filed an appeal from the court’s order.  On June 9, 2010, the appellate court granted his motion to stay the valuation hearing pending determination of the appeal.  You can view the order here.

Update #2:  By order dated Juy 26, 2010 (read here), Justice Lubell denied Senior’s application to reconsider certain aspects of his prior ruling including those giving Junior access to OCC’s books and records, granted Junior’s application for leave to serve an amended answer and counterclaims, and denied Junior’s application for summary judgment on certain of his counterclaims including that Senior failed to convey an additional 10% of the company over to him.

Update #3:  The Appellate Division has scheduled oral argument of Paul Jr.’s appeal at 10:00 a.m. on October 12, 2010, at the courthouse in White Plains, New York.

Update #4:  I stopped by the White Plains courthouse today (10/12/10) to watch the oral argument of Paul’s appeal.  It was a lively argument with lots of questions from the judges.  I’ll post on it at greater length this coming Monday (10/18/10).  A decision can be expected in the next 30-60 days.

Update #5:  Read here my post on the hearing of Junior’s appeal by the Apellate Division, Second Department, on October 12, 2010.

Update #6:  On December 14, 2010, the Appellate Division issued its ruling granting Junior’s appeal and declaring the option agreement invalid and unenforceable.  I’ve posted on it here.

Update January 18, 2011:  I’m advised that the trial judge in the Teutul case, Justice Lewis Lubell, no longer sits in Orange County as a result of which the case was reassigned to Justice John McGuirk who held a status conference on January 10, 2011, and is scheduled for another conference on January 24.  No other information is available at this time.   

Update January 25, 2011:  The Court website shows that a conference with Justice McGuirk was held yesterday, January 24th, and the next one is scheduled on February 10th.  A reader comment posted today reports talk of a buyout settlement coming out of the New York IMS show.  I can’t confirm. 

Update February 8, 2011:  An article in today’s NY Times states that the litigation-injected father-son dispute has been good for American Chopper’s TV ratings.  Good to know the Times is only about a year behind the news.

Update February 12, 2011:  The Court website shows that another conference with Justice McGuirk was held on February 10th, and another one is scheduled for February 23rd.  The frequent conferences hint at ongoing settlement negotiations, but only the parties and their lawyers really know.

Update February 21, 2011:  An astute reader alerted me that the court’s calender now lists the case as “disposed” which translates as settled.  No other details are available at this time.

  • Pax

    It’s truly a shame to see a family dissolve simply because they don’t have the interpersonal skills to get along with each other. I see the love Senior has for his kids/family but has a difficult time showing it at times and lets his ego override his emotions. Being a father, animal lover, Harley owner, and a retired teacher I relate to many situations seen in the shows and become saddened no one has the skills to calmly resolve disputes. Truly sad, truly a tragedy.

  • Truth betold

    Man these guys are AWESOME! Got to give it up for paul jr designs. They have gained me as a fan and I would love to see what the future holds for them. I would love to see them do some mods to a car as well. I even went and bought a paul jr designs vinyl decal on ecrater I support them all the way! Hope he comes out on top in the legal battle. I know if I was in his shoes at occ I wouldn’t have enjoyed my job either listening to paul sr argue and yell all day. Paul sr truly let the show go to his head. In the show he even ADMITS that if jr wasn’t there the shop never would have made it…

  • Michael

    Great article for those of us who dont follow the pauls off screen. Keep the updates coming!

  • rolcan

    Get these dumb bums off the tube! They can’t stop feeling sorry for themselves and let go the old man! Get on with your lives!

  • Tess

    I cannot imagine a Father alienating his sons as Sr. has done. On one hand he claims his Love for them and on the other he looks to destroy. It’s apparent Sr has a lot of issues maybe if he confronts these issues and faces his own faults communication might be possible. He claims he gets no respect well you know what, you have to earn respect, and age doesn’t earn it. He constantly puts them down or makes fun of them. Who the hell is he, has he no faults? These are signs of a very insecure and jealous person. Personally, he doesn’t deserve these boys. I do believe he is jealous of his sons because they are making it without him. He can’t believe Jr. is making it. I truly believe he will try and sabotage Jr.’s business. If he does, he is SO LOW, He has to look up to look down.

  • D-man

    It was Paul Sr. who founded OCC and his $$$ that brought OCC to what it is today. His sons Paul Jr and Mickey are wanting an inheritance that they are not legally entitled. Maybe if Paul Jr and Mickey had developed a real work ethic they would appreciate what their Father has given them. I hope these wounds will heal and they can become a Family again.

  • vince

    Paul Jr…would never have made it if not for his father…he disgusts me!

  • DA_Man

    OCC is going under!!! So whose shoulders is that company really on?

  • Michael Mui

    Paul Sr started the company, with employees, equipment and material. Paul Jr had nothing but talent. Paul Jr couldn’t make anything without material. So Jr needed Sr for the equipment, material and manpower.
    Now that Jr has his own company, he got lucky with free equipment for advertisement. Consider him lucky as who can start a company with Lincoln welding equipment, FlowJet equipment, tools and the works? If it was you or I, we needed to start from the bottom … with nothing! As I said it before, Jr is lucky … I don’t see him lasting long as he still doesn’t show up to work on time, nor does he pass anything to his employees.
    Mikey can’t hold a job and has nothing for the future. People say he’s the comedy portion of the show. That’s true. I also have a co-worker that’s funny. But, he’s also working.
    Hope this lawsuit gets finished because you can’t have shares of a company that is competing against you.

  • landlockedsalmon

    Junior,is lucky his father put up with his laziness,all these years.I think junior is on drugs or something.Wearing sunglasses indoors after lunch is a giveaway.And Mikey is just a oxygen thief,he is useless,He should go out in the world and find a real job,he is a lazy slob.Talk about two ungrateful children,them two take the cake.I feel bad for senior,he has two useless ungrateful children.

  • been there

    They were a team. Sr.wouldn’t have made it without Jr. and vice versa. TV is what really made them. Sr.shows no appreciation for what Jr.contributed and Jr. was always insulting and disrespectful of his father but they were successful as a team. I have been working in the area, having never seen the show, I am now addicted. I have made many trips by both shops and have seen Jr.and the rest of his crew working late into the night at his new shop (probably financed by the Discovery Channel). Something I’m sure he didn’t do much of while working for his dad. Getting fired was the best thing to happen to Jr. because he now has to realize that he can’t run a business the way he used to work. They were a team and tv made them famous. Neither could have done it without the other.

  • chum

    Why all the negative comments , there is no amount of money worth what this family has endoored, the pain it has caused on both sides is incredible. Even though I set on Jr side if there has to be one, trust me when I say this god forbid something happen to either side. Try and put a price on a father or son even a brother, I went trough something similar on a different scale my father dug such a big hole ,his PRIDE would not allow him , forget about saying I was wrong or I’m sorry the hole is so deep now and what a sham because look at the way he shows his love and how much he misses Mickey, deep down in that hole he feels that way about the other two but his pride is so heavy, Paula I say this with all the respect help him , there is not a day that goes by that I don’t regret that I could not or did not .if something happens u will never forgive urself, you have nothing to prove anyone can see not only Ur talent but Ur love for mickey and the old man. Please don t. Make the mistake I made, and remember greed is worthless, you are not in it for money , u hav my respect and I’m sure most others, for the exception of the ones that ran there sons off they. Still. Don’t get it

  • Rea

    I became interested in the show when I started watching it with my son. He is a huge fan, and now I am too. As one of the postings stated, Paul Sr. and Jr. were a wonderful team. Paul Sr. started the business with his money and business smarts, and Paul Jr. brought the business to great heights with his creative abilities in designing motorcycles. One would not have made it in the business without the other. That is obvious when you watch the show. Paul Sr. has no creative motorcycle designing ability whatsoever. Paul Jr. did not have any business savvy at all. They were learning from each other and made a great team. Mikey, although some say he is lazy and a slob, has a wonderful heart and did pitch in and help when needed. He was also dealing with alcohol/drug problems (Sr. is a recovering alcoholic as well) from my understanding. I praise them both for going to rehab and for doing their best to deal with addictions. If I had to take sides, I would take Jr.’s. I think that both Jr. and Mikey love their father very much, but they have come to the conclusion, that although they love him, they can no longer allow him in their lives to cause them pain. I wish that Sr. would wake up and quit searching for “The son he always wanted” in his employees at OCC and see that he has great kids who love him and he needs to treat them right. And just to set the record straight… OCC was well known in the motorcycle arena before it hit the airwaves.

  • peanut

    I think “Sr.” wants “Jr. to fail so he can say, “I told you so.” A GOOD parent wants their children to do well in whatever they try. To do better than they did. Not fail. “Sr.” get a grip on yourself. Let me ask a question, who is the common denominator in all this arguing? By “Srs.” own admisson he has had some kind of problem with all his kids at one time or another. “Sr.” I welcome a response! Some that read this may wonder why I put quotation marks around “Sr.” and “Jr.”. They have different middle names.

  • Junior

    Senior would still be building bikes in his basement if it wasn’t for Junior. The golden goose left the day Senior fired Junior.

  • redfish45

    @Michael Mui , remember this you can have all the equipment, tools, building, and even clients but without the creative design (Paulie jr ) has added to OCC senior would still be in his basement, still runing OCC iron works. Yes discovery channel/TLC found them and were the ones that put them on the TV air waves causing it to be one of the highest rated shows. But it was Paul Jr who created/designed bikes like the web bikes, flo jet, he even beat Sr in a build off. So Paul Sr would not have a all of those bikes and cars along with a home/property worth millions without paul jr.

  • Steve

    As a father Sr. should watch what/how he talks to his son’s. There is NO reason to belittle anyone the way he does. Paul Sr. should be teaching and allowing his sons to grow, not call them stupid idiots. Or tell them I’ll punch in the throat. Paul Jr. just got sick and tired of Sr. coming in behind team criticizing the work they had done, as well as seeing Sr. do nothing everyday but come in and bitch about something to start a fight. He needs to be the father, treat people (his son’s) with some respect. Look at Sr. now. His health is sure being affected by this, he turned into an old man. This is wearing on him and he is the one that needs to FIX IT!!!!!!!

  • RSTLLC

    How low can it go? I saw an episode the other day where they were building a bike for St. Jude Children’s hospital. By the end of the show it seemed to come down to “Here’s the bike kids, hey good luck with the being sick thing, I gotta get back to having a pissing match with my son” Anybody else think they missed something here? The kids and families at that hospital have no choice in what is happening to them. But I know they show more love and kindness to each other than Sr. and Jr. are or ever have. They missed a great chance to really help and make a difference. They missed a chance to have their eyes opened to how fragile life is. They phoned it in. I’m done with them and their show. Shame on them both.

  • tlh

    when you come down to it, its just another reality tv show. they all seem to live well and have travelled all over the world. its fun to watch them make a beautiful bike from scratch. the fights arent fun though. maybe they just need a new name like Dancing with motorcycles or big motorcycles for little people. my favorite is the paul sr motorcycle diet.

  • kyle mcpherson

    Junior wants to blame his dad,for what? Putting up with his not being at work, bad mouthing him on everything.. Didn’t junior just fire someone for doing the same thing…..Now that he has a so called business, he is still not there. letting a kid build the quad, Vinnie is the one that builds and does everything, and as usual, Junior takes the credit.
    It is Senior’s fault for letting this go for so long. Junior has a big home, and he did not do it on his own. Dad made him and no thanks at all.

  • kyle mcpherson

    Junior wants to blame his dad,for what? Putting up with his not being at work, bad mouthing him on everything.. Didn’t junior just fire someone for doing the same thing…..Now that he has a so called business, he is still not there. letting a kid build the quad, Vinnie is the one that builds and does everything, and as usual, Junior takes the credit.
    It is Senior’s fault for letting this go for so long. Junior has a big home, and he did not do it on his own. Dad made him and no thanks at all.

  • Mickey

    I have only watched the show for two weeks and it saddens me that this family has fallen apart. From what I can tell so far, Sr, Jr, and Mike have a horrible relationship built on emotional abuse. I hope that someday they can get the professional counseling they all need to begin to have healthy relationships.

  • curtis

    I think Sr. should have sent Mikey and Jr. packing years ago. If Jr. would have kept the shop clean, showed up on time for work, and showed a little more respect to Sr. it would have been different. If I have an employee that does not follow the rules of my shop, I’d fire them too. That’s business. Mikey was wasted space. Lazy and couldn’t care less about the business, just a pay check.

  • mike cannon

    CHECK OUT WIKIPEDIA IF YOU WANT THE TRUTH ABOUT SR. AND JR. YOU WILL BE SURPRISED IF YOU HAVE BEEN SIDING WITH SR.!! JR. HAS PUT IN 3 TIMES THE HOURS AND NOT USED DRUGS TO DO IT!!!!!! ALL I CAN SAY ABOUT SR. IS HIS EXCESSIVE STEROID USE EXPLAINS ALOT!!!

  • CrankyCEL

    I do not believe any of the ‘lawsuit’ is or ever was real. I saw the show where the two producers swear it is/was real – To me it is all about falling ratings and $ – period. All three are idiots that fell into a big pile of cash. Good luck to all, now go away.

  • dewaltcarp

    Who the hell would trust WIKIPEDIA for info.
    Mike do your home work, we have.
    Thanks for the laugh any way.

  • Jrat

    I am late coming to the show and would like to see it continue. Jr. without Sr. would be fine. Jr. has all of the talent and without him Sr. has a design person who is good but not as detailed and good as Jr.

  • rob

    Personaly I liked the show when it first came on .Then it developed into a dysfunctional circus .I think the ratings were going down and someone thought up this family fued idea. In anycase the 2 kids are lazy and the oldman enabled them to become that way.And hey mike your arts a joke dude

  • Eddiemike Albano

    Hi I have watched the show from the begging and Paul Jr. has always been lazy if anyone has any questions just watch the old clips and as for Mikey its nice if you can go to work and do nothing and get paid for it don’t get me wrong Mikey is a nice kid but that its the gravy train is over and hes unhappy grow up and as for junior his father gave him that 20% so he would come to work and do something you know I think both Mikey and Junior should sit down and watch some or all of the old clips because in them you will see that Mikey says junior dosent do any thing and junior is late all the time. And for what I would say 99% of the time Mikey and his father got along great he just mad because the well went dry all he wanted was for him to get off his butt and do something I will say this about Jr.he can and is A great Designer so why do these to MEN go hug there Father and tell him they LOVE him and let start over Dad

  • Eddiemike Albano

    Hi I have watched the show from the begging and Paul Jr. has always been lazy if anyone has any questions just watch the old clips and as for Mikey its nice if you can go to work and do nothing and get paid for it don’t get me wrong Mikey is a nice kid but that its the gravy train is over and hes unhappy grow up and as for junior his father gave him that 20% so he would come to work and do something you know I think both Mikey and Junior should sit down and watch some or all of the old clips because in them you will see that Mikey says junior dosent do any thing and junior is late all the time. And for what I would say 99% of the time Mikey and his father got along great he just mad because the well went dry all he wanted was for him to get off his butt and do something I will say this about Jr.he can and is A great Designer so why do these to MEN go hug there Father and tell him they LOVE him and let start over Dad

  • warren morgan

    I come from england and when i first watched this show i was hooked. It reminded me of the situation that me and my dad were in. we have currently worked together for the last 14 years and had many ups and downs. but we still work together till this day running our own company he needs me as much as i need him. you can clearly see how much snr admire juniors work and how proud he was that he son could do such great things. he loved it when junior pulled it off ad built a stunning bike. he clearley wanted junior to follow in his footsteps and take OCC Over and keep the name and brand running. this i do relate to and when i found out all this stuff was going on it saddened me. These guys should still be making great bikes working together and being a happy family. The only people who win in court are the lawyers. Come on guys get it back together ENGLAND Needs ya,