Illustration by James Kim for Forbes; Photo by David Malan/Getty Images
A lawsuit claims that billionaire James Leprino, whose family controls the world’s largest mozzarella producer, didn’t give his brother’s daughters, Leprino Foods’ minority owners, the same chance to profit as he and his children had.
By Chloe Sorvino
The family-owned mozzarella maker that supplies most of the pizza cheese eaten in America could be headed toward a meltdown.
A feud between reclusive billionaire James Leprino and two daughters of his deceased brother is about to go public. The two nieces allege that Leprino and his two children, who are said to own 75% of Leprino Foods, profited in ways that weren’t available to them as minority owners. Leprino Foods maintains the minority shareholders have always received their fair share. A trial is scheduled to begin Nov. 28 in Denver. The lawsuit suggests the court could even take the rare step of dissolving the company.
“If these things are done to squeeze out the minority shareholders and harm them, it’s a problem,” said Chicago-based lawyer Peter Lubin, who specializes in shareholder disputes and isn’t involved in the Leprino case. “Is this to force them to sell out for cheap? That’s a question of fact, which will be illuminated in a trial. It really depends on the evidence.”
Camera shy: If you Google James Leprino’s picture, you’ll get fellow billionaire John Malone. This 1978 company portrait is the only known image of Leprino Foods’ founder (right). He speaks with former president Wes Allen (left).
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James Leprino took over his family’s business in 1958 and transformed his immigrant parents’ grocery store in Denver’s Little Italy into a cheese empire. The privately held company is the source of as much as 85% of the pizza cheese in the U.S., with customers including the country’s biggest chains — Domino’s, Pizza Hut, Little Caesars and Papa John’s. The company is also a big seller of whey, a cheese byproduct used in baby formula, protein shakes and grocery items like Yoplait yogurt and Pillsbury Toaster Strudel. Leprino Foods owns more than 50 patents and sells more than 1 billion pounds of cheese a year with $3.5 billion in estimated annual revenue. James Leprino, 84, hasn’t been photographed in public since 1978. He’s worth an estimated $1.9 billion.
Leprino and his two daughters, Terry Leprino and Gina Vecchiarelli, together control more than three-quarters of Leprino Foods. The remaining approximate 25% was historically held by James’ older brother, Mike, who was independently successful as a banker and real estate developer, according to the lawsuit. When Mike Leprino died in 2018, his share went to trusts laid out for his three daughters – Nancy and Mary Leprino, who are suing their uncle, and another, Laura, who’s not a party to the lawsuit.
The complaint says James Leprino and his daughters leveraged their majority ownership and voted as a block to manage the company so that Leprino Foods provided them the greatest financial reward while ignoring the minority shareholders.
The lawsuit’s main example dates to 2017, when the company board approved a special distribution of tax-free money to shareholders as the business shifted from one tax designation, S-Corp, to another, C-Corp. Leprino Foods paid $405 million to James and his daughters, and $135 million to Mike’s three daughters, according to the lawsuit.
James Leprino and his daughters then loaned the $405 million back to the company at the interest rate of 2.68% for 20 years. With interest added, James Leprino and his daughters will end up receiving more – $28.3 million annually in principal and interest, according to the complaint. The lawsuit alleges that Nancy and Mary were kept out of the loan deal and didn’t know about it until they read the firm’s annual financial report – though the legal discovery process turned up a note that suggests Nancy did hear about the plan. Since Leprino Foods has historically reinvested its profits and rarely doles out official dividends to its shareholders, the nieces say a deal like that would have been one of the only ways for them to make additional money from their long-term ownership. Leprino Foods counters that since Nancy and Mary joined as shareholders through their trusts in 2013, more than $250 million has been distributed to the minority shareholders.
Depositions of everyone named in the case, including one with James Leprino, have been completed and the discovery phase is wrapping up.
“My clients simply want to be treated fairly,” a lawyer for the minority shareholders told Forbes. “That’s what the litigation is about.” The lawyer said the nieces were open to settlement discussions before the trial begins.
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The majority shareholders say they don’t mind if the case goes to trial. The case, they argue, is no more than minority shareholders attempting to compel them to offer to buy them out of their inherited shares, or otherwise monetize their shares and cash out.
Cliff Stricklin, a lawyer for Leprino Foods and the majority shareholders at Denver-based King & Spalding, said the company’s leadership and 5,000-plus employees are always committed to doing the right thing. “While we are disappointed by the actions of some of our minority shareholders, we look forward to resolving this business dispute quickly and to continue providing our customers with the highest quality products at a competitive price,” he said.
“While we are disappointed by the actions of some of our minority shareholders, we look forward to resolving this business dispute quickly and to continue providing our customers with the highest quality products at a competitive price.”
A court will now decide whether these actions amount to the majority stakeholders breaching their fiduciary duty.
James Leprino didn’t build Leprino Foods over the past six decades without throwing a few elbows.
The youngest of five children born to an Italian immigrant who couldn’t read or write English, Leprino grew up hand-forming mozzarella balls with his family to sell in his parents’ grocery store. After Leprino graduated high school in 1956, he started working with his father at the grocery full time, and as the business struggled, Leprino realized his friends were spending their free time at neighborhood pizza joints. Pizzerias in the area were buying 5,000 pounds of cheese a week. As he recalled in a 2017 Forbes profile, “I thought, ‘This is a good market to go after.’ So I did.” The empire started in 1958 in a 20-by-40-foot room, with two 100-gallon cheese vats and a three-quarter horsepower boiler.
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The timing couldn’t have been more perfect. The same year, the first Pizza Hut appeared, in Wichita, Kansas. Then, a year later, Mike and Marian Ilitch opened the first Little Caesars, outside Detroit. Another year went by, and Domino’s began delivering pizza, in Ypsilanti, Michigan. After two years in business, Leprino Foods was delivering 200 pounds of block mozzarella a week to local Italian restaurants. Those chains’ quick growth launched one of the greatest turf wars in the history of American food.
Pizza Hut eventually became Leprino’s biggest customer. Pizza Hut went public in 1972 with around 1,000 stores and, at its peak in the 1990s, accounted for 90% of Leprino’s sales.
A product called Quality Locked Cheese – shredded and individually frozen portions – changed everything for Leprino Foods when it was introduced in 1986. The cheese was developed for franchises that required speed and consistency. Quickly, QLC
With a patent in place, Leprino made himself indispensable. That patent and others helped protect Leprino from smaller competitors that could neither catch up with the technology developed by Leprino Foods nor fight the giant in patent court.
“My success is a fairy tale.”
The spoils of Leprino’s mozzarella empire are vast. Leprino Foods owns three private planes — a Gulfstream G450, a Bombardier jet and a small 1980 commuter plane. Leprino’s house in Denver’s affluent Indian Hills suburb has 11 bedrooms, and he also owns an 8,000-square-foot vacation home in Scottsdale, Arizona.
The immigrant’s son has said that he has no intention to ever retire. Leprino’s succession plan has been simple: He’ll split his ownership between his two daughters, who have worked for the company over the years but never took on executive roles, other than being board members.
“I don’t want them to be living a corporate life resentfully,” Leprino told Forbes in 2017. “My success is a fairy tale.”
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Source: https://www.forbes.com/sites/chloesorvino/2022/10/05/family-feud-forces-reclusive-dominos-cheese-billionaire-into-court/