Earlier this year, to honor the retirement of former Manhattan Commercial Division Justice Shirley Werner Kornreich, we published a special retrospective of some of her most notable business divorce decisions. This month, two of her former colleagues, Manhattan Commercial Division Justices Eileen Bransten and Charles E. Ramos, are themselves retiring. Justice Bransten concludes 25 years a jurist; Justice Ramos, 35 years on the bench.

With the departure of these two judicial titans, we here at New York Business Divorce thought it fitting to take another stroll down memory lane with a retrospective of some of their most significant contributions to New York’s business divorce jurisprudence. As Justice Ramos is senior career-wise, he will go first.

Three Memorable Decisions from Justice Ramos

For Justice Ramos, we focus on three LLC cases.

In the first, Roni LLC v Arfa, Mem. Decision, Index No. 601224/2007 [Sup Ct, NY County Apr. 14, 2009], Justice Ramos considered the important, first-impression question of whether LLC “promoters” or “organizers” (those who form the entity) owe fiduciary duties to investors / future LLC members. Continue Reading A Fond Adieu to Two Giants of the Manhattan Commercial Division Bench

I’m pleased to present my seventh annual list of the past year’s ten most significant business divorce cases. This year’s crop includes noteworthy rulings on a variety of issues in dissolution, appraisal, books-and-records, and other cases involving closely held corporations and limited liability companies. All ten were featured on this blog previously; click on the case name to read the full treatment. And the winners are:

  1. Zacharius v Kensington Publishing Corp., 42 Misc 3d 1208, 2014 NY Slip Op 50011(U) [Sup Ct, NY County Jan. 6, 2014], a lawsuit involving a family-owned publishing business in which Justice Eileen Bransten upheld a stock voting agreement that gave board control to the minority shareholders/step-children of the majority shareholder, although she allowed the majority owner’s suit to proceed on a claim challenging the authenticity of her late husband’s signature on the voting agreement.
  2. Pokoik v Pokoik, 115 AD3d 428, 2014 NY Slip Op 01502 [1st Dept Mar. 6, 2014], a first impression ruling in which the Appellate Division, First Department, in granting summary judgment against an LLC manager for breach of fiduciary duty, rejected the manager’s reliance on the safe-harbor provisions of LLC Law § 409.
  3. Mintz v Pazer, Decision and Order, Index No. 502127/13 [Sup Ct, Kings County Mar. 12, 2014], in which Justice David Schmidt enforced an unusual, “quick draw” buy-sell provision in the shareholders’ agreement of a real estate holding company owned 50/50 by two families, compelling a sale to the family that gave the first notice of purchase following unsuccessful mediation of a deadlock.
  4. JPS Partners v Binn, 2014 NY Slip Op 31204 [Sup Ct, NY County May 6, 2014], in which Justice Melvin Schweitzer held that the restructuring of an LLC, in which substantially all of its assets were transferred to a subsidiary, unintentionally triggered the LLC’s dissolution under a provision in the operating agreement.
  5. Budis v Skoutelas, Short Form Order, Index No. 702060/13 [Sup Ct, Queens County July 16, 2014], in which Justice Orin Kitzes held that the estate of a deceased LLC member had no standing to assert derivative claims on the LLC’s behalf.
  6. Retirement Plan for General Employees v McGraw-Hill Cos., 120 AD3d 1052, 2014 NY Slip Op 06154 [1st Dept Sept. 11, 2014], in which the Appellate Division, First Department, reversed the trial court’s ruling dismissing a books-and-records proceeding brought against McGraw-Hill, and held that the petitioning pension fund’s stated purpose of the requested inspection, to investigate the board’s oversight of McGraw-Hill’s subsidiary, Standard & Poor’s, was a proper purpose even if the inspection ultimately establishes that the board engaged in no wrongdoing.
  7. Zelouf International Corp. v Zelouf, 45 Misc 3d 1205(A), 2014 NY Slip Op 51462(U) [Sup Ct, NY County Oct. 6, 2014] [click here for Part 2], a post-trial ruling in a dissenting shareholder appraisal case in which, among other significant rulings, Justice Shirley Kornreich rejected a discount for lack of marketability and granted the petitioner a separate award on her quasi-derivative claims against the controlling shareholders.
  8. Ferolito v AriZona Beverages USA, LLC, 2014 NY Slip Op 32830(U) [Sup Ct, Nassau County Oct. 14, 2014], in which Justice Timothy Driscoll awarded close to $1 billion (that’s not a typo) to the 50% owner of the AriZona Iced Tea business in a fair value buy-out proceeding under BCL § 1118. The court’s many significant rulings included its sole reliance on the DCF method and its rejection of potential acquirers’ expressions of interest.
  9. Cortes v 3A N. Park Ave. Rest Corp., 2014 NY Slip Op 24329 [Sup Ct, Kings County Oct. 28, 2014], in which Justice Carolyn Demarest conditionally ordered the dissolution of a restaurant business from which the controlling shareholders were found to have skimmed about $3.7 million cash, unless they purchased the minority owner’s shares for about $1.2 million.
  10. Slayton v Highline Stages, LLC, 2014 NY Slip Op 24333 [Sup Ct, NY County Oct. 30, 2014], in which Justice Shirley Kornreich ruled that LLC Law § 407’s default rule, permitting members to act by written consents without a meeting, trumped the meeting requirement in LLC Law § 1002(c) governing member approval of mergers.

Two of the above cases — Ferolito and Zelouf — also made it onto the nationwide top-ten list published in the January 2015 issue of Business Valuation Update, the business valuation profession’s leading monthly newsletter.

 

Kensington Publishing Corporation, founded in 1974 by the late Walter Zacharius, is the largest independent publisher of mass-market books in the United States. When Zacharius died in 2011 at the age of 87, his obituary in the New York Times described Kensington as “a leading purveyor of bodice-rippers and other romance genres.”

Zacharius left behind his second wife, Suzanne, and two children from his first marriage, Steven and Judith. The three of them are now locked in a legal battle for control of Kensington, with Suzanne, who inherited 59% of the voting shares, pitted against her two stepchildren who own most of the remaining voting shares.

Why the battle for control when Suzanne owns a clear majority of the voting equity? The answer lies in a 2005 voting agreement made by Walter and his two children which effectively gave Steven and Judith the power, following Walter’s death, to vote his shares in any election of Kensington’s directors. The children subsequently have used their board control to frustrate Suzanne’s stated goal, to sell her majority interest in Kensington to a “major publishing house,” and allegedly to withhold distributions as part of a squeeze-out plan. Continue Reading Voting Agreement Triggers Fight for Control of Family-Owned Publishing House