The Downside of Going into the Family Business: When Family Problems Become Business Problems

Leprino Foods Co. is the largest manufacturer of mozzarella cheese in the world and is solely responsible for making all the mozzarella that goes on top of Domino’s, Papa John’s, and Pizza Hut’s pizzas. It’s worth billions of dollars, but it’s also a family business.

It was founded in Denver, Colorado in the 1950s by Michael and Susie Leprino. The couple had five children, including Michael Jr. and James. James went into the family business as soon as he had graduated from high school, and while Michael Jr. was involved in the business, he also had his own career in banking and real estate.

James and his daughters, Terry Leprino and Gina Vecchiarelli, together own 75% of the company’s stock.

Michael Jr. died in August of 2018 and his daughters, Nancy, Mary, and Laura Leprino, together own the remaining 25% of the stock in the company. In July, Nancy and Mary sued their uncle and cousins in Denver District Court for allegedly managing the company in a way that provided the greatest financial reward for them, while ignoring the financial interests of the minority shareholders.

The lawsuit alleges James and his daughters tend to align their votes so the outcome always provides them with the greatest financial benefits, but allegedly leaves Nancy and Mary out in the cold. Nancy and Mary also allege they have been unable to obtain financial records to which they are legally entitled as shareholders of the company.

An attorney representing Nancy and Mary said he was unsure of the cause of the rift between the family members, but he said there were problems between the two brothers going back to at least November 2014 when Michael Jr. was removed against his will from the company’s board of directors.

The situation did not improve after Michael Jr.’s death when Nancy and Mary allege representatives from the company encouraged them to claim their shares of Leprino Foods were worth nothing during the estate proceedings. Recognizing that the shares are worth millions and that claiming otherwise could have severe implications for their finances and negotiating power when it comes to the company, Nancy and Mary refused to lie about the value of their stock in Leprino Foods.

Instead of paying regular dividends or declaring shareholder distributions, Leprino Foods reinvests its profits back into the company so it can expand. That’s not illegal, or even unusual, but the shareholder lawsuit alleges James and his daughters found a loophole that allowed them to receive regular income as part of their ownership of the company.

In 2017, Leprino Foods had a shareholder distribution that paid $400 million to James and his children and $90 million to Nancy, Mary, and Laura. The majority shareholders gave their profits back to the company, but only as a loan. The result was that they were paid $28.3 million per year in both principal and interest.

According to the lawsuit, Nancy and Mary were never given the opportunity to be a part of the deal or even made aware of its existence until they received the company’s annual financial report.

The lawsuit is asking for the court to dissolve the company, which is not outside the realm of possibility given the law in Colorado.

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At Lubin Austermuehle, we focus on relationships and are driven by results. When it comes to unraveling complex business disputes, we are proud of our track record of outright victories in court or substantial and lucrative settlements for our valued clients. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. We serve clients throughout Illinois and the DuPage and Kane County areas near Wheaton and Geneva. You can contact us online here or call us on our locally at 630-333-0333.

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