Court Opinion

ID: 2683174
Source: CourtListenerOpinion
Date Created: 2014-07-11 21:03:50.60893+00
Date Added: 2024-06-11T13:13:13.776085
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered:   July 10, 2014                   517481
                                                       517800
                                                       518007
________________________________

A. CAPPIONE, INC., et al.,
                    Respondents,
      v                                     MEMORANDUM AND ORDER

MARC J. CAPPIONE et al.,
                    Appellants.
________________________________

Calendar Date:   June 4, 2014

Before:   Peters, P.J., Stein, Rose, Egan Jr. and Clark, JJ.

                             __________

      Menter, Rudin & Trivelpiece, PC, Syracuse (Julian B.
Modesti of counsel), for appellants.

      Hodgson Russ, LLP, Buffalo (Ryan K. Cummings of counsel),
for respondents.

                             __________

Egan Jr., J.

      Appeals (1) from an order of the Supreme Court (Demarest,
J.), entered May 28, 2013 in St. Lawrence County, which, among
other things, granted plaintiffs' cross motion for summary
judgment declaring, among other things, that defendant Marc J.
Cappione was required to sell his shares in plaintiff A.
Cappione, Inc., (2) from an order of said court, entered November
6, 2013 in St. Lawrence County, which, among other things,
granted plaintiffs' motion to compel Marc J. Cappione's
compliance with the prior order, and (3) from an order of said
court, entered December 4, 2013 in St. Lawrence County, which,
among other things, partially denied defendants' motion for
reconsideration.
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      At all times relevant, defendant Marc J. Cappione
(hereinafter Cappione) and plaintiffs David P. Cappione and John
R. Cappione each owned a one-third shareholder interest in
plaintiff A. Cappione, Inc., a closely-held, family corporation
engaged in the business of wholesale beer distribution, which
includes an exclusive distribution agreement with Anheuser-Busch,
Inc. As a distributor of alcoholic beverages, the corporation
was subject to the licensing requirements, rules and regulations
of the State Liquor Authority (see Alcoholic Beverage Control Law
§ 17). Following Cappione's felony conviction of attempted
dissemination of indecent materials to a minor in the first
degree, for which he currently is serving a term of imprisonment,
the corporation's board of directors voted in July 2011 to
retroactively terminate Cappione's employment effective March 30,
2011. Pursuant to the shareholders' agreement, Cappione's
involuntary loss of employment entitled the corporation to
purchase his ownership interest therein. To that end, an
independent valuation of the corporation was conducted in
accordance with the terms of the shareholders' agreement and, in
May 2012, a report was issued valuing Cappione's shares in excess
of $911,000 as of March 31, 2011.

      Subsequent efforts to redeem Cappione's shares met with
resistance, prompting plaintiffs to commence this declaratory
judgment action seeking, among other things, to compel Cappione
to sell his ownership shares pursuant to the terms of the
shareholders' agreement.1 Defendants' pre-answer motion to
dismiss was converted to a motion for summary judgment dismissing
the complaint, wherein defendants argued that the corporation
failed to exercise its purchase option in strict compliance with
the time limits set forth in the shareholders' agreement and,

    1
        Shortly thereafter, plaintiffs received notice that the
Division of Alcoholic Beverage Control had commenced a proceeding
to cancel or revoke the corporation's license based upon the fact
that Cappione, as an officer of the corporation, had been
convicted of a felony (see Alcoholic Beverage Control Law § 126
[4]).
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therefore, Cappione should be permitted to retain his ownership
interest. Plaintiffs cross-moved for summary judgment noting,
among other things, that Cappione, as a convicted felon, was
precluded from engaging in the trafficking of alcoholic beverages
(see Alcoholic Beverage Control Law § 126 [1]). By order entered
May 28, 2013, Supreme Court, among other things, granted
plaintiffs' cross motion, without prejudice to defendants' right
– as per the shareholders' agreement – to dispute the valuation
of the shares. Defendants thereafter appealed from the May 2013
order.

      Plaintiffs subsequently moved, by order to show cause, to
enforce the May 2013 order, and defendants cross-moved for a stay
pending appeal. By order entered November 6, 2013, Supreme
Court, among other things, granted plaintiffs' motion and
directed that Cappione's shares be turned over to plaintiffs'
counsel within seven days. Defendants appealed from the November
2013 order and, further, moved before this Court for a temporary
restraining order and a stay of enforcement of both the May 2013
and November 2013 orders. A Justice of this Court denied the
requested temporary restraining order and set a return date for
the motion. Defendants then moved before Supreme Court seeking,
among other things, to renew their application for a stay pending
this Court's determination of their motion. By order entered
December 4, 2013, Supreme Court, among other things, granted
defendants' motion to the extent that enforcement of the prior
orders was stayed until a determination of defendants' then
pending motion before this Court. This Court thereafter denied
the requested stay and, pursuant to the terms of Supreme Court's
December 2013 order, Cappione's shares immediately transferred to
plaintiffs. Defendants now appeal from the December 2013 order
as well.

      We affirm. A shareholders' agreement – like any other
contract – should be enforced according to its terms (see Matter
of Penepent Corp., 96 NY2d 186, 192 [2001]). In so doing, "[t]he
contract must be read as a whole to determine its purpose and
intent, and it should be interpreted in a way [that] reconciles
all its provisions, if possible" (Matter of El-Roh Realty Corp.,
                              -4-                517481
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                                                 518007

74 AD3d 1796, 1799 [2010] [internal quotation marks and citations
omitted]). To that end, "the goal should be a practical
construction of the language used so that the reasonable
expectations of the parties are realized" (Currier, McCabe &
Assoc., Inc. v Maher, 75 AD3d 889, 891-892 [2010]), and "the
contract must be interpreted so as to give effect to, not
nullify, its general or primary purpose" (Matter of El-Roh Realty
Corp., 74 AD3d at 1799 [internal quotation marks and citation
omitted]).

      Here, the shareholders' agreement reflects "[t]he
shareholders['] desire to establish a market value for their
shares, to effectively control the management of the company, for
their mutual best interests, and to protect against divisive
relationships which would arise if outsiders with incompatible
management philosophies gained interests in the company."
Consistent with that stated objective, the agreement further
recognizes that "[t]he company is dependent upon and derives
substantial benefit from the continued active interest and
participation of those shareholders who participate in the
management of the company." In an attempt to preserve the
closely-held nature of the corporation, the agreement provides
that when a shareholder's employment with the corporation ceases,
"he or she shall be treated as though he or she were selling all
of his or her shares under paragraph A of . . . [s]ection [t]wo
[of the agreement]," which outlines the procedures to be followed
when a shareholder, during the course of his or her lifetime,
"transfer[s] any of his or her shares to anyone other than a
family member." In such case, the shareholder is to give notice
of his or her intention to sell and, "[f]or a period of thirty
[30] days after the notice is delivered, the [corporation] shall
have an option to purchase all or any part of the offered shares
on the payment terms specified in [s]ection [f]our [of the
agreement]." If the corporation does not exercise such option,
then the remaining shareholders are granted an additional 30-day
option to purchase any or all of the available shares.

      Here, the corporation's board of directors voted to
purchase Cappione's shares on July 5, 2011 – the same day
                              -5-                517481
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Cappione was terminated from his employment due to his criminal
conduct. According to defendants, because Cappione's termination
was made retroactive to March 30, 2011, the corporation
necessarily did not exercise its option to purchase his shares
within the 30-day period set forth in the shareholders' agreement
and, therefore, he is entitled to retain his ownership interest
in the corporation. Assuming, without deciding, that the
retroactive termination date adopted by the corporation
necessarily rendered its option to purchase untimely, the
underlying shareholders' agreement nonetheless is not amenable to
the strained construction now urged by defendants.

      There is no question that the shareholders' agreement does
not expressly address the precise situation posed here – namely,
where the corporation (in the form of David Cappione and John
Cappione) purportedly fails to exercise its purchase option
within the initial 30-day window, there are no "other
shareholders" remaining to exercise the purchase option outlined
in section two, paragraph A of the agreement and the shareholder
whose shares are sought to be purchased not only is no longer
employed by the corporation but, more to the point, by virtue of
his underlying felony conviction, is statutorily precluded from
trafficking in alcoholic beverages. That said, reading the
agreement as a whole and affording it a practical construction
that is consistent with and gives proper effect to the parties'
stated intentions (see Currier, McCabe & Assoc., Inc. v Maher, 75
AD3d at 891-892), we are satisfied that Supreme Court properly
granted plaintiffs' motion to compel Cappione to sell his shares
to the corporation – even if that option to purchase was not
timely exercised. To hold otherwise and permit Cappione to
retain his shares due to the asserted noncompliance with the time
period set forth in the shareholders' agreement not only would
effectively rewrite the parties' agreement and undermine its
stated purpose, i.e., to retain managerial control within the
closely-held family corporation, but would place the corporation
at risk of losing its distributor's license, thereby rendering
its stock worthless. Furthermore, as aptly noted by Supreme
Court, there is no discernible prejudice flowing from the
corporation's asserted failure to strictly comply with the time
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period set forth in the agreement. Accordingly, Supreme Court's
orders directing the transfer of Cappione's shares in the
corporation are affirmed. In light of this conclusion, we need
not address the remaining arguments raised by defendants on
appeal, including their claimed entitlement to an automatic stay
under CPLR 5519 (a) (4).

     Peters, P.J., Stein, Rose and Clark, JJ., concur.

     ORDERED that the orders are affirmed, with costs.

                             ENTER:

                             Robert D. Mayberger
                             Clerk of the Court