Celauro v. 4C Foods Corp.

Decision Date05 December 2012
Citation38 Misc.3d 636,956 N.Y.S.2d 821,2012 N.Y. Slip Op. 22355
PartiesIn The Matter of the Application of Nathan J. CELAURO, individually; Nathan J. Celauro as Preliminary Executor of the Estate of Gaetana Celauro, the Deceased Sole Income Beneficiary of the Salvatore F. Celauro Revocable Trust and Salvatore F. Celauro Irrevocable Life Insurance Trust; Nathan J. Celauro as vested beneficial owner of the shares of 4C Foods Corp. held by the Salvatore F. Celauro Revocable Trust and Salvatore F. Celauro Irrevocable Life Insurance Trust; Nathan J. Celauro as Trustee and Linda Celauro as Successor Co–Trustee of the Salvatore F. Celauro Children's Trust f/b/o Nathan Celauro a/k/a the Nathan J. Celauro Irrevocable Trust u/a dated December 26, 1991, Petitioners, v. 4C FOODS CORP., Respondent, For a Determination as to the Fair Value of Petitioners' Shares Under Article 4 of the Civil Practice Law and Rules and sections 623 and 806 of the New York Business Corporation Law.
CourtNew York Supreme Court

OPINION TEXT STARTS HERE

Farrell Fritz, P.C., Uniondale, Robert & Robert, PLLC, Clifford S. Roberts, Melville, for Petitioners.

Herrick, Feinstein LLP, New York, for Respondent.

DAVID SCHMIDT, J.

Petitioners Nathan J. Celauro, individually, as preliminary executor of the estate of Gaetana Celauro and as the vested beneficial owner of shares of the respondent 4C Foods Corp. (4C Foods) held by certain trusts, petition for: (1) a judgment under Business Corporation Law §§ 623 and 806 providing that petitioners are entitled to payment of fair value for the respective shares of 4C Foods owned by them and directing a determination be had as to the fair value of such shares; (2) an order under CPLR 408 and Business Corporation Law § 623(h)(4) granting petitioners leave to take pre-trial discovery; and (iii) an order pursuant to Business Corporation Law § 623(h)(7) awarding petitioners the costs and expenses incurred in connection with this proceeding. Respondent cross-moves for an order: (1) pursuant to CPLR 404(a) and 3211(a)(1) and (7) dismissing the petition with prejudice; and (2) requiring petitioners to pay their costs and attorney's fees pursuant to section 12.16 of the Shareholders Agreement (7th Amendment)and imposing sanctions against petitioners and their counsel pursuant to the Rules of the Chief Administrator of the courts (22 NYCRR) § 130–1.1; or (3), in the alternative transferring venue of this proceeding to Nassau County.

Respondent 4C Food's cross-motion is granted to the extent that the petition is dismissed. Respondent's motion is otherwise denied.

Petitioners contend that, pursuant to Business Corporation Law §§ 623 and 806, they are entitled to a determination of the value of their shares in respondent and a judgment providing that respondent is required to pay petitioners fair value for their shares. According to petitioners, the event that triggered this statutory right of appraisal was respondent's amendment of its certificate of incorporation that was filed with the Department of State on December 8, 2011 that provided for a 4 to 1 split of its non-voting shares.

Respondent is a closely held, family owned corporation whose current president and chief executive officer, John Celauro, holds approximately 56 percent of its stock, and according to petitioners, controls a voting coalition that owns in excess of 75 percent of the stock. Petitioners represent that they are the direct or beneficial owners of 22.36 percent of respondent's shares.1 Petitioner Nathan Celauro owns 0.24 percent of the shares of respondent, and is the beneficial owner of an additional 1.84 percent of respondent's shares.2 Nathan Celauro is also the executor of the estate of his mother, Gaetana Celauro,3 which owns 1.48 percent of respondent's shares and is the beneficial owner of an additional 18.80 percent of its shares. Further, in her will, Gaetana Celauro distributed all of her interest in any shares she held in respondent to Nathan Celauro. Nathan Celauro filed a petition requesting probate of this will on or around December 21, 2011. Although Wayne Celauro, another son of Gaetana Celauro, had filed objections to the probate of the will, by way of a stipulation dated October 17, 2012, Wayne Celauro withdrew his objections and consented to the will being admitted to probate.

The minority and majority shareholders of respondent have had a contentious relationship for a number of years. In 2001, Nathan Celauro's father, Sal Celauro, who was then the chairmanof respondent's board, had accused John Celauro of misappropriation of corporate assets and self dealing, and had thereafter commenced a lawsuit against John Celauro raising such claims. Gaetana Celauro continued this lawsuit following Sal Celauro's death. Petitioners assert that John Celauro retaliated against the minority shareholders by passing amendments to respondent's shareholders agreement that placed limitations on intra-family transfer of respondent's shares.

As is relevant here, the transfer provisions of the fourth amendment to the amended and restated shareholders agreement (fourth amendment) require that any shareholder desiring to transfer shares (transferring shareholder) to a permitted shareholder (i.e., certain family members as defined in the amendments) must give notice of the intent to transfer the shares to the remaining shareholders and respondent,and allow the holders of the majority of the shares to approve or reject the transfer, or a portion thereof (fourth amendment § 4.3[a] ). To the extent that the holders of the majority of the shares reject the transfer, the fourth amendment requires that the transferring shareholder sell the shares for which transfer approval has not been granted to the respondent (fourth amendment § 4.3[b] ).

Following the adoption of the amendments, Gaetana Celauro commenced a declaratory judgment action against respondent requesting a declaration that the amendments were illegal and unenforceable on the ground that they constituted an unlawful restraint on transferability of the shares. The court, however, rejected Gaetana Celauro's arguments, granted respondent's motion for summary judgment and declared that the amendments are legal and enforceable ( see Celauro v. 4C Foods Corp., 30 Misc.3d 1204[A], 2010 N.Y. Slip Op. 52264 [U], 2010 WL 5394813 [Sup. Ct. Nassau County 2010],affd.88 A.D.3d 846, 931 N.Y.S.2d 250 [2d Dept.2011],lv. denied19 N.Y.3d 803, 2012 WL 1590971 [2012] ).

On December 2, 2011, respondent's board of directors unanimously passed a resolution, and shareholders holding over a 75 percent interest in respondent adopted, by written consent, a resolution to amend respondent's certificate of incorporation to increase the number of authorized non-voting shares by four shares for every one non-voting share outstanding, declare a dividend to the holder of each of the non-voting shares by issuing four non-voting shares for every one non-voting share held, and amend the shareholders agreement accordingly. The amendment to the certificate of incorporation reflecting these changes was filed with the Department of State on December 8, 2011. Respondent did not provide Gaetana Celauro and Nathan Celauro with notice of the amendment until December 7, 2011. Within a few days of receiving notice, Gaetana Celauro and Nathan Celauro sent notices to respondent giving notice, pursuant to Business Corporation Law § 623, of their election to dissent from respondent's action in amending the certificate of incorporation and demanding payment of the fair value of their shares. Respondent, however, replied to Gaetana Celauro and Nathan Celauro's notices by stating that the amendment to the certificate of incorporation increasing the number of non-voting shares was not an action that provided a basis for Gaetana Celauro and Nathan Celauro to invoke the procedures of Business Corporation Law § 623. Upon, respondent's declining to recognize the applicability of section 623, petitioners commenced the instant proceeding and respondent has since moved to dismiss the petition.

Business Corporation Law § 623 lays out procedures for minority shareholders to object to majority actions and be paid a fair value for their shares. Where the corporation and dissenting shareholder cannot agree to the fair value of shares and the corporation does not initiate proceedings under section 623, section 623 allows a dissenting shareholder to commence a proceeding for the court to determine the value of the shares and require the corporation to pay that amount per share to the dissenting shareholder (Business Corporation Law § 623[h] ). Section 623, however, does not delineate when a shareholder may use its procedures. Here, petitioners assert they are entitled to relief under section 623 based on Business Corporation Law § 806(b)(6), which provides:

A holder of any adversely affected shares who does not vote for or consent in writing to the taking of such action [involving certain amendments to the certificate of incorporation] shall, subject to and by complying with the provisions of section 623 (Procedure to enforce shareholder's right to receive payment for shares), have the right to dissent and to receive payment for such shares, if the certificate of amendment (A) alters or abolishes any preferential right of such shares having preferences; or (B) creates, alters or abolishes any provision or right in respect of the redemption of such shares or any sinking fund for the redemption or purchase of such shares; or (C) alters or abolishes any preemptive right of such holder to acquire shares or other securities; or (D) excludes or limits the right of such holder to vote on any matter, except as such right may be limited by the voting rights given to new shares then being authorized of any existing or new class.

As noted by the parties, there is little case law addressing what kind of corporate charter amendments implicate section 623 appraisal rights...

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6 cases
  • Nathan J. Celauro Celauro Revocable Trust v. 4C Foods Corp. (In re Celauro)
    • United States
    • New York Supreme Court
    • May 28, 2013
    ...facts are more fully detailed in this court's December 5, 2012 order that granted respondent's motion to dismiss (Celauro v. 4C Foods Corp., 38 Misc.3d 636, 956 N.Y.S.2d 821 [Sup Ct, Kings County 2012] ). 2. Petitioners represent that, prior to the amendment, they held 3,220 voting shares o......
  • Celauro v. 4C Foods Corp.
    • United States
    • New York Supreme Court
    • November 17, 2014
    ...in mind that the transfer denial came not long after a stock split reduced the value of 4C Foods' voting shares (Matter of Celauro v 4C Foods Corp., 38 Misc 3d 636, 641 n4 [Slip Ct, Kings County 2012]), and that the transfer denial will eliminate plaintiffs' statutory right to petition for ......
  • Celauro v. 4C Foods Corp., INDEX NO. 500373/2012
    • United States
    • New York Supreme Court
    • October 12, 2016
    ...Law § 806 (b) (6), and that plaintiffs thus did not have a right to appraisal under Business Corporation Law §623 (Matter of Celauro v 4C Foods Corp., 38 Misc 3d 636, 644 [Sup Ct, Kings County 2012]). After Nathan Celauro was appointed executor of Gaetana Celauro's estate, he, by way of the......
  • Celauro v. 4C Foods Corp., INDEX NO. 500373/2012
    • United States
    • New York Supreme Court
    • November 9, 2017
    ...fully detailed in this court's prior decisions in this action, which was initially commenced as a special proceeding (Matter of Celauro v 4C Foods Corp., 38 Misc 3d 636 [Sup Ct, Kings County 2012, Schmidt. J.]; Matter of Celauro v 4C Foods Corp., 39 Misc 3d 1234 [A], 2013 NY Slip Op 50875 [......
  • Request a trial to view additional results

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