Kleeberg v. Eber
| Decision Date | 10 August 2020 |
| Docket Number | 16-CV-9517 (LAK) (KHP) |
| Parties | DANIEL KLEEBERG, et al., Plaintiffs, v. LESTER EBER, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
The instant diversity action is an intrafamily dispute for control of the family business: Eber Bros. & Co., Inc. ("EB&C"); EB&C's subsidiary, Eber Bros. Wine and Liquor Corp. ("EBWLC"); Eber Bros. Wine & Liquor Metro, Inc. ("Eber Metro"), a former subsidiary of EBWLC; and Eber Metro's subsidiary, Eber-Connecticut ("Eber-CT" and, collectively with the aforementioned companies, the "Eber Entities"). There are presently two Cross-Motions for Partial Summary Judgment before this Court - the Partial Summary Judgment Motion of Plaintiffs Daniel Kleeberg, Audrey Hays, and Lisa Stein on one side, and the Partial Summary Judgment Motion of Defendants Lester Eber, Wendy Eber, and Alexbay, LLC1 ("Alexbay," and, collectively with the aforementioned Defendants, the "Eber Defendants"), on the other.2
Plaintiffs have moved for summary judgment on the following claims: breach of fiduciary duty for improper transactions (Count I, in part); new elections pursuant to New York Business Corporation Law ("B.S.C.") § 619 (Count V); declaratory judgement with respect to Plaintiffs' rights as shareholders (Count VI); and for an accounting (Count IX). Plaintiffs also have moved for attorneys' fees pursuant to B.S.C. § 626(e).
For their part, in addition to opposing Plaintiffs' Motion, the Eber Defendants have cross-moved for summary judgment to dismiss the following claims asserted by Plaintiffs: breach of fiduciary duty under New York's faithless servant doctrine (Count II); declaratory judgment claim (Count VI); aiding and abetting breach of fiduciary duty and fraudulent concealment claim (Count VIII); and common law (equitable) indemnification (Count X).3 The Eber Defendants also have asked this Court to make several holdings regarding the valuation of the Eber Entities and the transactions at issue in this case. First, the Eber Defendants haveasked the Court to find that EB&C, EBWLC, and Eber Metro were jointly and severally liable for certain pension liabilities as of June 2012. Second, Defendants request that this Court hold that Plaintiffs are barred by the Rooker-Feldman doctrine and the principles of res judicata from challenging a 2012 New York Supreme Court order finding that Alexbay's acceptance of all of EBWLC's interest in the capital stock of Eber Metro was "commercially reasonable" during strict foreclosure. Third, the Eber Defendants have asked this Court to hold that the transfer of EBWLC's interest in Eber Metro to Alexbay, through strict foreclosure, cannot be rescinded under the New York Uniform Commercial Code ("U.C.C."). Fourth, and finally, Defendants request that this Court find that Canandaigua National Bank & Trust Company's ("CNB") attempt to distribute certain shares of EB&C stock to Plaintiffs, which were formerly held in trust, was ineffective.
In opposing the Eber Defendants' Motion for Partial Summary Judgment, Plaintiffs also have moved to strike certain portions of the Eber Defendants' Rule 56.1 Statement as well as certain portions of Lester and Wendy Eber's Affidavits. Plaintiffs also seek to preclude the affidavit of Michael Gallagher, a witness who Plaintiffs contend was not timely disclosed.
The parties consented to the undersigned's jurisdiction to issue a final opinion and order on all summary judgment motions. (Dkt. No. 271); see also generally 28 U.S.C. § 636(c)(1)). For the reasons set forth below, the Eber Defendants' Motion for Partial Summary Judgment is granted, in part, and Plaintiffs' Motion for Partial Summary Judgment is denied.
Allen Eber founded EB&C, including its wine and liquor distribution business. (Dkt. No. 265 ( ) He died in 1970 and his last will and testament (the "Allen Eber Will" or "Will") provided for the creation of a testamentary trust to hold his residuary estate, including all of the controlling stock for EB&C (the "Trust"). The Will stated that it was Allen Eber's "wish that [his] voting control of [EB&C] can be retained and, subject to that primary wish, . . . that [his] interests in certain other close corporations can also be retained and that [his] son, Lester [Eber], may have an opportunity to participate in the management thereof." (Will § 11.)
The Allen Eber Will nominated three trustees to manage the Trust: Lester Eber; Allen Eber's attorney, Elliott W. Gumaer, Jr. ("Gumaer"); and Marine Midland Trust Company, a bank. (Id. § 12.) M&T Bank subsequently replaced Marine Midland Trust Company as co-trustee, and CNB replaced M&T Bank in July of 2007. (Pls.' Rule 56 Statement ¶ 4.) The Will provided that the Trust assets would transfer to the Trust beneficiaries per stirpes, that is, "[p]roportionately . . . according to their deceased ancestor's share." Black's Law Dictionary (11th ed. 2019); (see also Will § 9.) Allen Eber's three children, Mildred Eber Boslov, Sally Eber Kleeberg, and Lester Eber, were the original beneficiaries of the Trust and each held a one-third "equal" interest inthe Trust. (Will § 9.) When Mildred Eber Boslov died in 1973, her only child, Plaintiff Audrey Hays, became a one-third beneficiary of the Trust. (Pls.' Rule 56 Statement ¶ 2.) When Sally Kleeberg passed away in 2014, her two children, Plaintiffs Daniel Kleeberg and Lisa Stein, each became a beneficiary of the Trust, each holding a one-sixth interest in the Trust. (Id.)
Under the terms of the Will, the Trust could be terminated in one of two ways. The Trust would automatically terminate upon the death of the last of Allen Eber's three children. In the alternative, the Will provided that the Trust could be terminated if "all, or substantially all, [the] stock of [EB&C] . . . [was] sold." Such a decision to terminate the Trust early would be made at the "absolute discretion" of the Trustees. (Will § 9.)
EB&C is a New York corporation. (Pls.' Rule 56 Statement ¶ 8.) In their Third Amended Complaint ("TAC"), Plaintiffs represented that EB&C functions primarily as a holding company. (Dkt. No. 236 ("TAC") ¶¶ 26, 29.) EB&C's capital structure is comprised of three classes of shares: Class A Common Shares (Voting); Class B Common Shares (Nonvoting); and 6% Non-Cumulative Preferred Shares (Nonvoting). As of February 2017, the Trust held the following shares of EB&C stock registered in the name of the Trustees: 1,850 Class A Voting Shares; 290 Class B Nonvoting Shares; 2,000 6% Preferred Nonvoting Shares. Brook Decl. in Supp. Ex. 134 ("EB&C Stock Certificates"); see also Dkt. No. 262-21 ( ).) It appears that these shares are still registered under the names of the Trust's former co-trustees. The parties contend that the only other registered shareholders of EB&C at any time over the last20 years have been Lester Eber and Sally Kleeberg, with each holding 100 shares of Class B Nonvoting Common Shares.
EBWLC is a direct subsidiary of EB&C. (Pls.' Rule 56 Statement ¶ 9; Dkt. No. 277-8 ( ) Plaintiffs represented in the TAC that EBWLC is a New York corporation and, like EB&C, operates as a holding company. (TAC ¶¶ 27, 29.) Plaintiffs also allege that EBWLC is the sole owner of nominal defendant Eber Bros. Acquisition Corp. ("Eber Acquisition"), a New York corporation that maintained its principal place of business in Rochester, New York. (Id. ¶ 32.)
Plaintiffs contend that, until at least February 2017, EB&C directly held all of EBWLC's voting shares. They also maintain that, prior to February 2017, the Trust held at least some of EBWLC's nonvoting common and preferred shares of stock. (Id.) For their part, the Eber Defendants contend that EBWLC was a wholly-owned subsidiary of EB&C.
Eber Metro was a wholly-owned subsidiary of EBWLC until June 5, 2012, when all 20,000 shares of Eber Metro stock were transferred to Lester Eber's company, Alexbay. (Pls.' Rule 56 Statement ¶¶ 10, 61; Eber Defs.' Rule 56 Counterstatement ¶ 10.) Plaintiffs represent that, like EB&C and EBWLC, Eber Metro also is primarily a holding company without its own business operations. (TAC ¶ 29.) Plaintiffs also aver that Eber Metro is the sole owner of nominaldefendants Eber-Rhode Island, LLC ("Eber-RI") and Eber-Metro, LLC ("Eber-NDC"). (Id. ¶¶ 31, 33.) Plaintiffs contend that both Eber-RI and Eber-NDC are Delaware limited liability companies, and Eber-RI was registered to do business in New York. (Id.)
Eber-CT is Delaware limited liability company that operates as a wine and liquor distributorship in Connecticut. (Pls.' Rule 56 Statement ¶ 11; Eber Defs.' Rule 56 Counterstatement ¶ 11.) Out of all the Eber Entities, it is the sole operating business. (Pls.' Rule 56 Statement ¶ 70; Eber Defs.' Rule 56 Counterstatement ¶ 70.)
Eber-CT conducts business under the trade name Slocum & Sons.5 .) The Slocum & Sons distributorship was the result of a 2005 merger between Slocum & Sons, Inc. and Eber-CT. At the time of the merger, Eber-CT was a wholly owned subsidiary of Eber Metro. (Id.) As part of the 2005 merger, Eber Metro acquired a call option...
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