“Food Fight” Sequel Ends Badly for Ousted Sibling

by Farrell Fritz, P.C.

A little over three years ago I reported on the first round of a fascinating “food fight” among four siblings, each of whom is a 25% shareholder of a Brooklyn-based, second-generation food distributor known as Jersey Lynne Farms, Inc. (the “Corporation”), and each of whom also is a 25% member of Catarina Realty, LLC (the “LLC”) which leases its sole realty asset to the Corporation.

The occasion back then was the court’s decision in Borriello v Loconte denying a dismissal motion in a derivative suit brought by Dorine Borriello on the LLC’s behalf in which she alleged that her three siblings breached fiduciary duty by leasing its realty to the Corporation at a drastically below-market rent and by imposing on the LLC certain expenses that ought to be borne by the Corporation as tenant.

In 2011 — the same year her siblings entered into the challenged lease — they ousted Dorine as a director, officer, and employee of the Corporation. In 2012 Dorine and her siblings negotiated a Separation Agreement and General Release setting forth terms for payment of compensation and benefits along with non-compete and non-disclosure provisions. The agreement left intact Dorine’s 25% stock interest in the Corporation.

Dorine’s derivative suit filed in 2013 claimed that the 2011 below-market lease rendered the LLC unprofitable while increasing the Corporation’s income used to pay salaries and other benefits to her siblings. The first round went to Dorine when the court ruled that her General Release did not encompass her derivative claim and enjoined her siblings from advancing their legal expenses from LLC funds.

In the end, however, and subject to any appeals Dorine may bring, it appears that the siblings have won the food fight’s final rounds.

The Court’s Mid-Trial Dismissal of Dorine’s Derivative Action

Dorine’s derivative action went to trial in August 2016 before Brooklyn Commercial Division Justice Sylvia Ash. Both sides offered the testimony of expert appraisers as to the rental value of the LLC’s property. Defendants’ expert was the same appraiser who in 2011 determined a fair market annual rent of $342,000 which the majority defendants adopted for the contested 2011 lease. Dorine’s expert testified that the fair market rent was near $600,000 annually.

Following completion of the expert testimony the defendants moved for a directed verdict which Justice Ash granted. In her transcript ruling (read here), Justice Ash found that the defendants did not breach fiduciary duty by relying on the 2011 appraisal in fixing the rent and that such reliance was protected from liability under the LLC’s operating agreement; that Dorine had not offered any proof undermining the appraiser’s independence; that Dorine’s expert’s appraisal relied on geographically remote comparables; and that since 2011 the LLC has remained profitable.

Dorine subsequently moved on procedural and substantive grounds to set aside the court’s decision granting a directed verdict. In a written Decision and Order dated April 3, 2017, Justice Ash denied Dorine’s motion, finding anew that Dorine failed to offer competent evidence questioning the independence of the defendants’ appraisal or any bad faith on the defendants’ part in relying on the appraisal.

The Court’s Summary Dismissals of Dorine’s Dual Petitions to Dissolve Both Companies

Dorine seemingly pulled out all the stops in August 2016 by filing for judicial dissolution of both the LLC and the Corporation in two separate proceedings.

She first filed the LLC dissolution proceeding the day before the start of the trial of her LLC derivative action. The petition’s gravamen (read here) was that her siblings were using the 2011 lease “as a vehicle to improperly waste and drain assets” of the LLC, and that dissolution also was warranted in anticipation that her siblings would enter into a similarly unfavorable “sweetheart” lease when the 2011 lease expired at the end of 2016.

Following the court’s dismissal of the derivative action challenging the same 2011 lease, not surprisingly the siblings moved to dismiss the petition, which Justice Ash granted by Decision and Order dated March 22, 2017, stating that “[t]his Court . . . has already determined, after a trial, that the Respondents have acted properly with regards to the subject lease with Jersey Lynne. Thus, Boriello is collaterally estopped from asserting the alleged impropriety of the lease with Jersey Lynne as a basis for Caterina’s dissolution.”

Dorine’s second dissolution petition, aimed at the Corporation and filed two weeks after the mid-trial dismissal of her LLC derivative action, met the same fate, albeit on different grounds.

Her petition (read here) asserted claims for dissolution both under Business Corporation Law Section 1104 based on “internal dissension” and under Section 1104-a based on oppression, corporate waste and diversion of assets. Neither claim survived her siblings’ subsequent dismissal motion which Justice Ash granted by Decision and Order dated March 30, 2017.

First, Justice Ash held that Dorine lacked standing under Section 1104 — the so-called “deadlock dissolution” statute — because it requires the petitioner to own 50% of the corporation’s voting stock whereas Dorine only owns 25%.

Second, as to the Section 1104-a claim, Justice Ash held that, as a matter of law, Dorine’s Separation Agreement and General Release “for which she was paid a severance package” barred her freeze-out oppression claim based on alleged exclusion from participation in management. Justice Ash also dismissed Dorine’s allegations of waste as “conclusory” and because “the petition fails to allege that any of the individual Respondents are misusing corporate assets for their personal gain.”

In hindsight, and without firsthand knowledge of the particulars, it’s all too easy to give advice about what could have been done to avoid a messy and likely painful series of litigations among family members like the one here. All I’ll say is, when you have a bitter falling out among family members who co-own a non-dividend paying business from which they take out profits in the form of employment compensation, the prospects for avoiding future strife are almost always better with a buy-out rather than, as occurred in this case, the ousted family member remaining as a outside minority owner whose interest in receiving profit distributions conflicts with the interests of the inside majority owners in reinvesting profits, compensating themselves for their labors, and perhaps bringing their children into the company as next-generation owner/managers.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Farrell Fritz, P.C. | Attorney Advertising

Written by:

Farrell Fritz, P.C.

Farrell Fritz, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.