American Choppers: The Value of Craftsmanship

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.

Gary Rosin

One Response to “American Choppers: The Value of Craftsmanship”

  1. Peter Mahler says:

    Gary,

    My October post reporting on the oral argument of Junior’s appeal (http://tinyurl.com/27aw2zw) highlighted some of the facts surrounding the negotiation and consummation of the January 2009 letter agreement, of which the option agreement was only one part, and likely not even the most important or urgent part. Both sides were represented by counsel, Junior’s a commercial litigator from a large Wall Street firm, Senior’s an estate planning lawyer from a small upstate NY firm. Senior’s lawyer initially proposed language that would have required a specified business appraiser to determine the fair market value of Junior’s shares. Literally on the eve of an execution deadline imposed by Discovery Channel, Junior’s lawyer struck the appraisal provision, and the two lawyers subsequently came up with the valuation-procedure-to-be-agreed language that eventually unraveled the option agreement. If one assumes that Senior was the proponent of the option agreement, the questions that come to mind are, whether Junior’s lawyer outmaneuvered Senior’s lawyer; whether Senior’s lawyer understood the risk associated with the substitute language; or whether both sides came up with an uncertain compromise on the point under pressure of completing their multi-faceted agreement before Discovery Channel pulled the plug.

    Peter Mahler

Leave a Reply