The reality show American Choppers involves a custom motorcycle shop and the day-to-day tensions between the founder, and chief owner, and his employees, one of whom is his son. As it turns out, the son is a 20% owner of the corporation that owns the shop. After the father fired his son on the air, the network was upset. To keep American Choppers on the air, father and son signed a letter agreement giving the father
an option to purchase all of [the son’s] shares in [the corporation] for fair market value as determined by a procedure to be agreed to by the parties as soon as practicable.
Within a few months, the father attempted to exercise the option. In its recent opinion in Teutul v. Teutul, 2010 NY Slip Op 09248 (2d Dept Dec. 14, 2010) (emphasis added), the court rejected the reasoning of the trial court that fair market value was sufficiently definite in the context of a closely held corporation, threw out the agreement as an agreement to agree. Peter Mahler’s New York Business Divorce blog has excellent discussions of both the trial court and appellate opinions.
Given the timing of the letter agreement, you would think that they hired a lawyer to advise them. Perhaps a transactional lawyer. Or even a lawyer who specialized in representing the owners of small businesses, and who presumably would be familiar with issues related to buy-sell agreements. Perhaps they did all of that. Perhaps the quoted language was as close as father and son could get to reaching an agreement, and they were told that they really did not have an agreement. Perhaps not.
In any event, the case illustrates that craftsmanship is as important in drafting agreements among owners of small businesses as it is in manufacturing custom motorcycles.