4C v. << (2011)

Argued—October 3, 2011

DECISION & ORDER

In an action, inter alia, for a judgment declaring that certain amendments to a shareholder agreement are illegal and unenforceable, the plaintiffs appeal (1) from an order of the Supreme Court, Nassau County (Driscoll, J.), entered December 17, 2010, which, among other things, granted the defendants' motion for summary judgment, in effect, declaring that the amendments are legal and enforceable, and (2) from an order of the same court entered April 11, 2011, which denied their motion for leave to reargue.

ORDERED that the appeal from the order entered April 11, 2011, is dismissed, as no appeal lies from an order denying reargument;  and it is further,

ORDERED that the order entered December 17, 2010, is affirmed, and the matter is remitted to the Supreme Court, Nassau County, for the entry of a judgment, inter alia, declaring that the challenged amendments are legal and enforceable;  and it is further,

ORDERED that one bill of costs is awarded to the defendants.

“A restraint on the transferability of stock will be upheld if it is reasonable, in accordance with public policy, and effectuates a lawful purpose” (Ferolito v. Vultaggio, 78 AD3d 529;  see Levey v. Saphier, 54 A.D.2d 959, 960).   Restrictions on the transfer of stock “are considered to be reasonable [where] they do not represent an ‘effective prohibition against transferability’ ” (Matter of Gusman, 178 A.D.2d 597, 598, quoting Allen v. Biltmore Tissue Corp., 2 N.Y.2d 534, 542).  “Restrictions on the transfer of stock are not uncommon in closely held corporations, as they effectively protect day-to-day corporate operations” (Ferolito v. Vultaggio, 78 AD3d at 529–530 [citation omitted] ).

The restrictions at issue here, which were adopted as amendments in accordance with the terms of the closely held corporation's shareholder agreement, “do not represent an ‘effective prohibition against transferability’ (Allen v. Biltmore Tissue Corp., 2 N.Y.2d at 542), but merely limit the group to whom the shares may be transferred” (Matter of Gusman, 178 A.D.2d at 598;  see Ferolito v. Vultaggio, 78 AD3d at 530).   Nor do the restrictions amount to “an annihilation of property” by giving one individual the arbitrary power to forbid a transfer of the shares (Allen v. Biltmore Tissue Corp., 2 N.Y.2d at 542 [internal quotation marks omitted];  see Matter of Gusman, 178 A.D.2d at 598;  cf.  Rafe v. Hindin, 29 A.D.2d 481, 484, affd 23 N.Y.2d 759).

New York law does not support the plaintiffs' further contention that, under the circumstances presented here, their consent was required for the challenged amendments to the shareholder agreement to take effect.   The amendments were enacted by majority vote of the shareholders, in accordance with the shareholder agreement and, thus, they are legal and enforceable.

Since this is an action, in part, for a declaratory judgment, we remit the matter to the Supreme Court, Nassau County, for a judgment, inter alia, declaring that the challenged amendments are legal and enforceable (see Lanza v. Wagner, 11 N.Y.2d 317, 334, appeal dismissed 371 U.S. 74, cert denied 371 U.S. 901).

SKELOS, J.P., CHAMBERS, SGROI and MILLER, JJ., concur.

ENTER:

Matthew G. Kiernan

Clerk of the Court