Opinion
612101-18
12-11-2020
LAMBRO INDUSTRIES, INC., Plaintiff, v. CHAI FOUNDATION, INC., Defendants.
MELTZER, LIPPE, GOLDSTEIN & BREITSTONE, LLP, Attorneys for Plaintiff, 190 Willis Avenue, Mineola, New York 11501. WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP, Attorneys for Defendant, 150 East 42nd Street, New York, New York 10017-5639.
MELTZER, LIPPE, GOLDSTEIN & BREITSTONE, LLP, Attorneys for Plaintiff, 190 Willis Avenue, Mineola, New York 11501.
WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP, Attorneys for Defendant, 150 East 42nd Street, New York, New York 10017-5639.
Elizabeth H. Emerson, J.
Upon the following papers read on these motions for preliminary injunction and summary judgment ; Notice of Motion/Order to Show Cause and supporting papers 38-57; 58-63; 92-112; Notice of Cross Motion and supporting papers; Answering Affidavits and supporting papers 64-80; 113-135 ; Replying Affidavits and supporting papers 81-88; 181-184 ; it is,
ORDERED that this motion by the defendant for summary judgment is granted; and it is further
ORDERED that the motions by the defendant for a preliminary injunction and a temporary restraining order, respectively, are denied as academic.
Edwin Berger was the founder and sole owner of the plaintiff, Lambro Industries, Inc. ("Lambro"). Several years before his death, Berger established an employee stock ownership plan ("ESOP") for Lambro, which currently holds approximately 30% of the shares.
Berger passed away in November 2008. Under the terms of his 2002 will, Berger left the majority of his assets to two charitable trusts. The trustees were authorized, in their sole discretion, to distribute the assets of the trusts to one or more organizations whose purpose was to assist and help animals, to Jewish-sponsored organizations, or to organizations that meaningfully assisted and helped Jews. On October 21, 2015, Berger's 6,500 shares of Lambro stock were transferred to the defendant, Chai Foundation, Inc. ("Chai").
In June 2018, Lambro commenced this action for a judgment declaring that the transfer of Berger's stock to Chai was null and void. The plaintiff alleged that the transfer violated Lambro's by-laws, which provide, in pertinent part, as follows:
"Section 10.1 Restrictions . The shares of the corporation ... shall be subject to the following restrictions upon ownership and transfer:
(a) Shares of the corporation's stock may not be acquired by any person other than an employee of the corporation (or one of its subsidiaries) or an employee retirement plan trust described in Section 401 (a) of the Internal Revenue Code established for the benefit of employees of the corporation (an ‘Employee Plan Trust’), other than pursuant to subsection (c) or by involuntary transfer upon the death of a shareholder."
Subsection (c) provides that a lender who has received a pledge of shares of Lambro stock is not subject to the restrictions on the disposition of such shares found in subparagraphs (a) and (b).
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The plaintiff alleged that, since Chai was not an employee of Lambro or an employee-retirement-plan trust for Lambro's employees, the transfer violated the restriction on the transfer of stock found in § 10.1 (a). Chai counterclaimed for a judgment declaring that the transfer was valid and that it is the rightful owner of Berger's 6,500 shares. Chai now moves for summary judgment.
As a broad general principle, it may be stated that provisions which restrict a stockholder's right to sell or transfer his stock are regarded with disfavor and are strictly construed ( Sands Point Land Co. v. Rossmoor , 43 Misc 2d 368, 372 ). Such restrictions generally apply only to voluntary sales and do not apply to judicial sales or other transfers by operation of law (Id. ). The draftsman of such a restriction must be very careful if it is the intention of the incorporators to bind the estate of a stockholder ( Matter of Estate of Spaziani , 125 Misc 2d 901, 903 ). In order to bind the estate, the restriction must not only be reasonable, it must also be clearly expressed as intended to bind the estate (Id. ). A restriction concerning a "transfer" of stock has generally been held not to include the passing of title by operation of law through a personal representative to the distributees or beneficiaries of a deceased stockholder (Id. ). If the certificate of incorporation specifically excludes stock passing by will or intestacy, the restrictive clause will not be applicable to such passage by will or intestacy (Id. ). If silent as to the contingency of death, a restrictive clause is not valid and enforceable against the estate (Id. ).
Lambro's certificate of incorporation dated August 29, 1967, and restated certificate of incorporation dated May 5, 2002, are both silent on the issue of stock passing by will or intestacy. Moreover, § 10.1 (a) of Lambro's by-laws provides that shares of the corporation's stock may not be acquired by any person other than an employee or ESOP or "other than ...by involuntary transfer upon the death of a shareholder ." The 6,500 shares of Lambro stock that were transferred to Chai upon Berger's death clearly fell within the exception carved out by § 10.1 (a) for involuntary transfers upon the death of a shareholder.
Lambro attempts to split the transfer of Berger's stock into two separate transactions: the initial transfer to the trustees of the trusts and the subsequent transfer to Chai. Lambro contends, without citing any authority therefor, that the second transfer was not directed either by the will or any governing law.
Lambro's attempt to split the transaction has no basis in law or fact. Berger's will clearly provided for the establishment of two charitable trusts to be administered under Article Third of the will. The trusts were merely the vehicles through which the stock was transferred to the beneficiary of Berger's estate. Contrary to Lambro's contentions, the transfer to Chai was a transfer by operation of law to which the restriction did not apply.
Lambro contends that Berger executed a will in 2005, which was witnesed by three Lambro employees and superceded the 2002 will. Lambro contends that the 2005 will increased the ESOP's ownership interest in Lambro from 30% to 49% and replaced Steven Etkind as co-executor of Berger's estate. Lambro contends that Etkind, who was later convicted of crimes related to Berger's estate, disregarded the 2005 will and filed the 2002 will for probate.
The issues that Lambro now raises are not properly before this court. Berger's will was probated in Nassau County Surrogate's Court in 2008. Any issues that Lambro or its employees had regarding the validity of the 2002 will should have been raised at that time. The record reflects that probate of the 2002 will was not contested.
Lambro contends that Chai's motion for summary judgment should be denied because Chai has failed to comply with the plaintiff's discovery requests and has withheld crucial documents and information solely within its possession. The mere hope that evidence sufficient to defeat a motion for summary judgment may be uncovered during discovery is insufficient to deny the motion (see Hess v. Schwartz , 7 Misc 3d 1011[A] at *3 [and cases cited therein] ). Contrary to Lambro's contentions, no additional discovery is necessary. The transfer to Chai was a transfer by operation of law to which the restriction did not apply unless there was a clearly expressed intention to bind the estate. No such intention is found in Lambro's certificates of incorporation. Moreover, Lambro's reliance on the language of § 10.1 (a) of the by-laws is misplaced. Section 10.1 (a) did not prohibit the transfer by the estate. Rather, it permitted the transfer.
In view of the foregoing, the court finds that Chai has established, prima facie, its entitlement to judgment as a matter of law and that Lambro has failed to raise a triable issue of fact in opposition thereto. Accordingly, the motion is granted, and the court declares that the transfer of Lambro stock to Chai did not violate the restriction on the transfer of stock found in § 10.1 (a) of Lambro's by-laws.