Ferolito v. Vultaggio

• Decision Date: 18 November 2010
• Citation: Ferolito v. Vultaggio, 911 N.Y.S.2d 323, 78 A.D.3d 529 (N.Y. App. Div. 2010)
• Parties: John M. FEROLITO, etc., et al., Plaintiffs-Appellants, v. Domenick J. VULTAGGIO, et al., Defendants-Respondents. Don Vultaggio, et al., Third-Party Plaintiffs, v. Richard N. Adonailo, Third-Party Defendant, Patriarch Partners LLC, Third-Party Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

911 N.Y.S.2d 323

78 A.D.3d 529

John M. FEROLITO, etc., et al., Plaintiffs-Appellants,

v.Domenick J. VULTAGGIO, et al., Defendants-Respondents.

Don Vultaggio, et al., Third-Party Plaintiffs,

v.Richard N. Adonailo, Third-Party Defendant,Patriarch Partners LLC, Third-Party Defendant-Appellant.

Supreme Court, Appellate Division, First Department, New York.

Nov. 18, 2010.

Milbank, Tweed, Hadley & McCloy LLP, New York (Andrew E. Tomback of counsel), for John Ferolito, Richard N. Adonailo, JF Capital, L.P., JMF Investment Holdings, Inc. and Elizabeth Ann Barulic, appellants.

Evan Sarzin, P.C., New York (Evan Sarzin of counsel), for John Ferolito, Jr., appellant.

Brune & Richard LLP, New York (Hillary Richard of counsel), for Arizona Beverage Acquisition, LLC and Patriarch Partners, LLC, appellants.

Cadwalader, Wickersham & Taft LLP, New York (Louis M. Solomon of counsel), for respondents.

TOM, J.P., ANDRIAS, NARDELLI, ACOSTA, DeGRASSE, JJ.

Order, Supreme Court, New York County (Martin Shulman, J.), entered August 17, 2009, which denied plaintiffs' and third-party defendant's respective motions for summary judgment, granted defendants' cross motion for summary judgment, dismissed count one of the complaint, and declared that restrictions on the transfer of corporate interests, as set out in a shareholders' agreement between plaintiffs and defendants, were valid and enforceable, unanimously affirmed, with costs.

In 1998, the plaintiff and defendant groups, each of whom held a 50% interest in a closely held enterprise, entered into an agreement whose intended purpose was to maintain appropriate and businesslike relationships among the parties and to assure continuity of ownership and management of their enterprise.Included in this agreement was a provision limiting the sale or transfer of either group's interest in the enterprise to "Permitted Transferees," defined as an affiliate; a lineal descendant, lineal ancestor, sibling or spouse of a party(or personal representative in case of death); a trust, corporation or partnership whose interests are held by the transferring party; and any other party.

A restraint on the transferability of stock will be upheld if it is reasonable, in accordance with public policy, and effectuates a lawful purpose ( Levey v. Saphier,54 A.D.2d 959, 960, 388 N.Y.S.2d 644[1976], lv. denied41 N.Y.2d 805, 395 N.Y.S.2d 1025, 363 N.E.2d 1186[1977];see generally18A Am. Jur. 2d, Corporations§ 570).Restrictions on the transfer of stock arenot uncommon in closely held corporations ( seeAllen v. Biltmore Tissue Corp.,2 N.Y.2d 534, 543, 161 N.Y.S.2d 418, 141 N.E.2d 812[1957];Sulkow v. Crosstown Apparel Inc.,807 F.2d 33, 37[2d Cir.1986] ), as they effectively protect day-to-day corporate operations."Such restrictions are considered to be reasonable[where]they do not represent an 'effective prohibition against transferability,' but merely limit the group to whom the shares may be transferred"( Matter of Gusman,178 A.D.2d 597, 598, 577 N.Y.S.2d 664[1991][quotingAllen,2 N.Y.2d at 542, 161 N.Y.S.2d 418, 141 N.E.2d 812, emphasis in original], lv. denied80 N.Y.2d 753, 587 N.Y.S.2d 905, 600 N.E.2d 632[1992] ).Under such circumstances, the relevant question is whether restrictions on transferring shares in a closely held corporation are ...