Ronis v. Carmine's Broadway Feast, Inc. et al
Filing
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OPINION re: 23 MOTION to Intervene (Partial Consent) filed by Gary Croland, 20 MOTION for Summary Judgment -Exhibit Volume 2 (Exhibits 25-49). MOTION for Summary Judgment -Exhibit Volume 2 (Exhibits 25-49). MOTION for Summa ry Judgment -Exhibit Volume 2 (Exhibits 25-49). MOTION for Summary Judgment -Exhibit Volume 2 (Exhibits 25-49) filed by Ellen Libman Ronis, 25 CROSS MOTION for Partial Summary Judgment filed by Carmine's Broadway Feast, Inc., Ti mes Square Barbeque, Inc., Little Fish Corp., Carmine's Atlantic City, LLC, 13 MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against whom th ose claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against who m those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against w hom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants again st whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants aga inst whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants a gainst whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendan ts against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defend ants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defe ndants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective de fendants against whom those claims have been asserted breached shareholders agreements entered into between the MOTION for Summary Judgment (a)on the First, Second and Third Claims in the Complaint (the Complaint), determining that the respective defendants against whom those claims have been asserted breached shareholders agreements entered into between the filed by Ellen Libman Ronis, 19 MOTION for Summary Judgment -Exhibit Volume 1 (Exhibits 1-24). MOTION for Summary Judgment -Exhibit Volume 1 (Exhibits 1-24). MOTION for Summary Judgment -Exhibit Volume 1 (Exhibits 1-24). MOTION for Summary Judgment -Exhibit Volume 1 (Exhibits 1-24) filed by Ellen Libman Ronis. The court denies the parties' mot ions for partial summary judgment except that the court rules that the first three affirmative defenses are invalid. The motion by Gary Croland to intervene is granted. This opinion resolves document numbers 13, 19, 20, 23, and 25 on the docket. (Signed by Judge Thomas P. Griesa on 9/26/2011) (lmb) Modified on 9/26/2011 (lmb).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
ELLEN LIBMAN RONIS, as Executrix of
:
the Estate of Michael Ronis, Deceased,
:
:
Plaintiff,
:
:
– against –
:
:
CARMINE‘S BROADWAY FEAST, INC.,
:
LITTLE FISH CORP., TIMES SQUARE
:
BARBEQUE, INC., and CARMINE‘S
:
ATLANTIC CITY, LLC,
:
:
Defendants.
:
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10 Civ. 3355 (TPG)
OPINION
Plaintiff in this case is Ellen Ronis, the widow and executrix of the
estate of Michael Ronis, a chef and founder of restaurants which operate
as ―Carmine‘s‖ and ―Virgil‘s.‖ At the death of Michael Ronis, his interest
in certain restaurants was to be redeemed. Loan debts were to be closed
out. The estate did in fact receive payments relating to these obligations.
Plaintiff, as executrix, brings this action alleging that the payments were
inadequate. Defendants have answered, denying liability and asserting
certain affirmative defenses and counterclaims.
Plaintiff moves for partial summary judgment. She seeks
summary judgment on all phases of the case, except a set-off asserted by
defendants relating to an alleged indebtedness of Michael Ronis in the
amount of $105,000. Defendants oppose plaintiff‘s motion and crossmove for partial summary judgment on the $105,000 debt issue.
There is also a motion to intervene in the case by one Gary
Croland.
The court denies the motion for partial summary judgment by both
sides except that the court rules that the first three affirmative defenses
are invalid. The motion by Gary Croland to intervene is granted.
BACKGROUND
The following facts are undisputed except where otherwise
indicated.
Michael Ronis was a chef and founder of restaurants which
operate as Carmine‘s and Virgil‘s. Defendants Broadway Feast, Little
Fish, and Times Square are New York corporations that operate
Carmine‘s and Virgil‘s in New York, New York. Atlantic City is a New
Jersey limited liability company that operates Carmine‘s in Atlantic City,
New Jersey.
The Agreements
On February 22, 2007, Michael Ronis and the shareholders of
Broadway Feast, Little Fish, and Times Square entered into three
virtually identical Shareholder Agreements (the ―Corporate Agreements‖).
Section 3.03(a) of the Corporate Agreements gives the corporate
defendants the right to redeem the shares of any deceased shareholder
other than Cutler. Section 3.05(a) states that the purchase price for
shares to be redeemed is to be ―an amount equal to the amount
calculated using the formula set forth in‖ Section 3.05(b).
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Section 3.05(b) states that the purchase price will be the pro rata
share of the valuation of each corporation calculated by a multiple of ―the
average of earnings before interest, taxes, depreciation, and amortization
(‗EBITDA‘)‖ of each corporation for the previous three years. The EBITDA
is to be adjusted downward ―for management and administrative fees,
not to exceed six (6%) percent of net sales, and adjusted upward for
distributions.‖
Section 3.05(c) states that the value of the corporations and the
EBITDA calculations are to be determined by ―the certified public
accountant regularly retained‖ by the corporations ―on a basis consistent
with past practices and accounting principles.‖ In addition, this
provision states that, absent ―manifest error,‖ the accountant‘s
determination is to be ―final, binding, and conclusive on the parties.‖
In addition, the Corporate Agreements contain a ―no-waiver‖
provision in Section 7.02, which states that any ―waiver by a party of a
breach of any provisions of this Agreement shall not be deemed to be a
waiver of any preceding or subsequent breach of the same or any other
provision.‖
Further, the Corporate Agreements discuss loans made by a
deceased shareholder. Section 3.06(f) states that ―any loans owed to the
deceased‖ shareholders are to be repaid on the same terms as the
purchase price for outstanding shares.
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In July 2006, Michael Ronis entered into an Operating Agreement
with Atlantic City (the ―Atlantic City Agreement‖). Section 6.4 of the
Atlantic City Agreement provides that Atlantic City has the right to
redeem the interest of a deceased member. The Atlantic City Agreement
is different from the Corporate Agreements in that it provides for
computation of the redemption price on the basis of a two-year average of
EBITDA, rather than a three-year average, and it contains no provision
for adjustments.
Communications After Michael Ronis‘s Death
Michael Ronis died on October 29, 2009. The Connecticut Court of
Probate appointed his widow, Ellen Ronis, as executrix on February 2,
2010.
At the time of Michael Ronis‘s death, the four defendants were
under the common control and ownership of Alice Cutler, who is the
principal executive officer of each of the corporate defendants and the
managing member of Atlantic City. At this time, Cutler owned more than
70% of the issued and outstanding shares of common stock in each of
the three corporate defendants. Michael Ronis owned 15.38% of
Broadway Feast, 26.6% of Little Fish, 20% of Times Square, and 13.47%
of Atlantic City.
On November 16, 2009, defendants‘ accountant, Roy S.
Tumpowsky of Joel Popkin & Company, P.C., submitted three letters to
Cutler, including: (1) a letter setting forth calculations of the amounts he
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computed to be due for the redemptions of Michael Ronis‘s interests in
the four defendants; (2) a letter with a computation of amounts due to
Cutler under a November 26, 2002 promissory note relating to Michael
Ronis‘s purchase of additional shares in Little Fish (the ―Little Fish
Note‖); and (3) a letter with a summary asserting that $227,213.62 was
due from Michael Ronis under three undocumented loan agreements.
Defendants assert that Cutler made these three undocumented loans to
Michael Ronis in 1994, 1998, and 1999 and that she subsequently
assigned them, along with the Little Fish Note, to Little Fish.
Defendants exercised their rights to redeem the Ronis interests in
a letter dated November 19, 2009. An exhibit attached to this letter
stated that, by defendants‘ calculation, the aggregate value of Michael
Ronis‘s interests was $6,112,383 In this letter, defendants asserted that
the $227,213.62 due under the three undocumented loan agreements
was an offset to the redemption valuations.
Subsequently, plaintiff, through her attorney, objected to the
$6,112,383 as being too low. The issue related to what was to be
included in the downward adjustment for management and
administrative fees. This was important, because such adjustment was
not to exceed 6% of net sales. Plaintiff relied on the audited financial
statements of the companies, which had specific items for ―Management
and administrative fees,‖ as items in the income statements. Plaintiff
claimed that the use of these figures would increase the redemption
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value of Broadway Feast, Little Fish, and Times Square by $1,785,951.
The attorney for the companies replied to the effect that the accountant
doing the calculations did not use the figures for management and
administrative fees from the financial statements but used the ―actual‖
amount of those fees. The attorney contended that the line item in the
financial statements included salaries and bonuses, and the consulting
fee to someone named Polistina, and that these amounts needed to be
―stripped out for the valuation calculation.‖
In addition, on April 29, 2010, Atlantic City tendered a check to
plaintiff‘s counsel for $126,105. Counsel rejected this check. Plaintiff
contends that certain consulting fees were erroneously used in the
calculation, thus improperly reducing the value.
On April 21, 2010, plaintiff commenced the present action seeking
to recover the higher level of redemptions. The principal ground plaintiff
asserts for this claim is what has been described. Defendants deny
liability. Among the affirmative defenses asserted are theories of estoppel
and waiver.
A cross-motion has been filed as summarized earlier in this
opinion. There is also the motion to intervene by Croland.
DISCUSSION
There are issues of fact which stand in the way of summary
judgment in favor of plaintiff. To be sure, her theory is supported by
certain audited financial statements. However, defendants raise an issue
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about whether the accountant was in fact justified in using another
method of analysis and calculation. A voluminous record has been
submitted to the court in connection with these motions, but this record
only reinforces the view of the court that there are factual issues which
cannot be resolved by summary judgment. What has been said relates to
plaintiffs‘ request for summary judgment about the calculation of the
amounts for redemption.
Plaintiff also moves for summary judgment dismissing certain
affirmative defenses. The court will consider her motion as it regards
three of these—that plaintiffs‘ claims are barred (1) by Michael Ronis‘s
conduct, (2) by the doctrine of estoppel, and (3) by the doctrine of waiver.
Defendants‘ first three affirmative defenses share common factual
allegations—namely, that Michael Ronis was intimately involved with
reviewing and approving the corporate defendants‘ calculations of
redemption prices for other shareholders who were bought out in April
and December 2008. Consequently, they argue that plaintiff‘s breach of
contract claims concerning the corporate defendants‘ proposed
redemption of Michael Ronis‘s shares are barred by his conduct and the
doctrines of waiver and estoppel. The argument about conduct is
essentially an argument about waiver.
Plaintiff contends that these three affirmative defenses should be
dismissed, because Section 7.02 of the Corporate Agreements contains a
―no-waiver‖ provision which prohibits defendants from asserting them.
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Specifically, Section 7.02 states that any ―waiver by a party of a breach of
any provisions of this Agreement shall not be deemed to be a waiver of
any preceding or subsequent breach of the same or any other provision.‖
Plaintiff also argues that defendants‘ estoppel defense fails, because
defendants do not allege that they relied on Michael Ronis‘s alleged
conduct. Defendants do not respond to plaintiff‘s arguments in their
briefs.
Under New York law, waiver is ―the voluntary and intentional
abandonment of a known right.‖ Town of Hempstead v. Incorporated
Vill. of Freeport, 790 N.Y.S.2d 518, 520 (2d Dep‘t 2005). Nevertheless,
by including a ―no-waiver‖ provision in their contract, parties may limit
the effect of a waiver of contractual rights through a course of conduct
inconsistent with the contract‘s terms. Norwest Fin., Inc. v. Fernandez,
86 F. Supp. 2d 212, 230 (S.D.N.Y. 2000). Here, Section 7.02 of the
Corporate Agreements contains such a ―no-waiver‖ clause.
To establish estoppel, a party must prove that it relied upon
another party‘s actions, its reliance was justifiable, and that, as a result
of such reliance, it prejudicially changed its position. Town of
Hempstead, 790 N.Y.S.2d at 520. Here, defendants do not allege that
they relied on Mr. Ronis‘s conduct concerning prior redemptions. The
court finds that the three affirmative defenses are invalid as a matter of
law, and they are dismissed.
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Defendants assert that they are entitled to certain setoffs. The first
relates to an amount of $105,000, which Michael Ronis borrowed in
2002. Defendants also assert that there were three undocumented loans
made by Cutler to Michael Ronis, which she subsequently assigned to
Little Fish. It is alleged that these three loans amounted to a total of
$227,213.62.
There is a defense motion for summary judgment to recover on the
$105,000 loan. Plaintiff moves for summary judgment dismissing the
claims about the three undocumented loans.
As to the $105,000 loan, it would appear clear that there is a valid
debt for the principal amount. However, there is a substantial dispute
about interest. Therefore, the issues about this loan cannot be
completely resolved on the present record.
As to the three undocumented loans, there are issues which
cannot be resolved on summary judgment.
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CONCLUSION
The court denies the parties' motions for partial summary
judgment except that the court rules that the first three affirmative
defenses are invalid. The motion by Gary Croland to intervene is
granted.
This opinion resolves document numbers 13, 19, 20, 23, and 25 on
the docket.
Dated: New York, New York
September 26, 2011
Thomas P. Griesa
U.S.D.J.
SDCSDNY
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