Earlier this year the co-founders of the AriZona iced tea juggernaut, John Ferolito and Domenick Vultaggio, got a chance to air some long-simmering grievances against each other in an 18-day bench trial in Nassau County (NYLJ, March 6). Now a state appeals court has ruled that the trial, in which Vultaggio sought $287 million in contract damages from Ferolito, wasn’t necessary and that Ferolito should have won on summary judgment.
However, attorneys on both sides say the evidence that came out bodes well for them in two pending proceedings in which Ferolito is seeking more than $2 billion for his share in the company, as well as $600 million in damages.
The Appellate Division, Second Department, ruled on July 5 that Nassau County Supreme Court Justice Timothy Driscoll (See Profile) should have granted Ferolito and his lawyers at Boies, Schiller & Flexner summary judgment on breach of contract claims brought by Vultaggio, represented by Cadwalader, Wickersham & Taft.
Those claims went to a bench trial in Mineola in March but Driscoll had yet to rule. The focus in the long-running legal battle now shifts to a valuation proceeding to determine the price of Ferolito’s share of the privately held company.
Vultaggio and Ferolito founded AriZona’s parent company, Beverage Marketing USA, in 1992. BMU was an overnight success, but the duo’s business partnership soured over management disputes. The two parted ways in 1998, with Ferolito relinquishing day-to-day duties but retaining his 50 percent ownership stake. That truce held until the mid-2000s, when Ferolito expressed interest in selling his share.
The litigation kicked off when Ferolito sued BMU in 2008, demanding the return of $20 million he loaned the company. BMU eventually returned the money, but then countersued, arguing that the loan repayment violated a 1992 oral agreement in which Ferolito allegedly promised to co-fund the company equally with Vultaggio.
The Second Department in JMF Consulting Group v. Beverage Marketing USA, Inc. 2011-09485, has now held that the alleged 1992 agreement is unenforceable, wiping out Vultaggio’s claim for $287 million in damages. “Ferolito established, prima facie, that the alleged oral agreement was too indefinite to be enforceable and was merely an agreement to agree,” the court ruled. “Moreover, since the terms of each loan were set out in writing in each of the separate promissory notes executed by BMU, BMU was precluded from establishing the existence of an enforceable oral agreement by relying on [parol]evidence that contradicted the express terms of those notes.”
Nicholas Gravante Jr., Ferolito’s lead lawyer at Boies Schiller, said the ruling vindicates the strength of his client’s case. “Mr. Ferolito is grateful that the Appellate Division took the time to read the record so carefully,” Gravante said. “Faced with budget cuts and overwhelming caseloads, trial judges often do not have that luxury and, instead, sometimes rely on a party’s citation to ‘facts’ that do not exist. Unfortunately, this was one of those cases.”
Gravante added: “Although the Second Department’s decision today confirmed that the subsequent trial in the action—held over 18 days, involving 11 witnesses and 1,400 exhibits—was unnecessary, it was not for naught. Much of the evidence introduced during the trial is relevant to, and should substantially streamline, the evidence presented at the valuation hearing soon to be scheduled between the parties.”
“That’s a fabrication, I’m afraid,” said Louis Solomon, Vultaggio’s lead lawyer at Cadwalader. “The facts we asserted did exist,” he said. Solomon called it presumptuous for his opposing counsel to accuse him of failing to prove his alleged facts, since the appeals court decided the case on a purely legal issue. “I’m delighted with the evidence that came out at trial,” he said.
A date has not been set for the valuation proceeding, in which Vultaggio will dispute Ferolito’s estimate that he is entitled to more than $2 billion for his stake in the company. Ferolito also has pending claims against his former business partner for fraud and self-dealing, and pegs damages at $600 million.
@|Jan Wolfe, a reporter for The Litigation Daily, an affiliate of the New York Law Journal, can be contacted at email@example.com.