Court sets $1 billion payout to AriZona Iced Tea co-owner

The AriZona Iced Tea group of companies was worth about $2 billion as of October 2010, a state Supreme Court justice ruled Tuesday in Mineola, setting a figure that allows one of two feuding co-owners to sell his stake in the Woodbury enterprise.

AriZona, which had said in court that setting too high a price could drive it into bankruptcy, said after the ruling that it was "confident the court will protect the livelihood of [the company's] nearly 1,000 employees." The company employs 400 in Woodbury.

Justice Timothy Driscoll set the company's valuation between the competing claims proffered in court. The legal team of Sands Point resident Domenick Vultaggio claimed the value was roughly $426 million. The other owner, John Ferolito of Colts Neck, New Jersey, who wants to sell his stake, claimed the value was $3.2 billion.

In his 42-page ruling, Driscoll said that AriZona would have to pay Ferolito and a family trust about $1 billion, but that the court would consider the risk of insolvency in setting terms and conditions of the payout.

"AriZona is gratified that the court rejected the insane, fabricated valuations that Ferolito proposed, while recognizing the true uniqueness of AriZona," said Vultaggio attorney Louis M. Solomon. "But certain issues remain. The court said it will address the ability of AriZona to pay in subsequent proceedings."

Ferolito's attorney, Nicholas A. Gravante Jr., said that the ruling undervalued his client's stake. But he added: "It is payday for John Ferolito. He also prevailed in securing prejudgment interest -- something Don Vultaggio vehemently opposed -- at approximately $185,000 per day."

In his ruling, Driscoll credited Vultaggio, who sometimes found inspiration while stuck in traffic on the Long Island Expressway, with spearheading AriZona's product development and celebrity endorsement strategy.

AriZona's product line includes beverages endorsed by former basketball star Shaquille O'Neal and golfing legends Arnold Palmer and Jack Nicklaus.

Still, the justice held that Vultaggio "could not credibly explain" his insistence that AriZona maintain its 99-cent price for its flagship 24 ounce can of iced tea, a strategy that could crimp profits -- and potentially lower the company's value.

Driscoll also said there was no evidence to support a charge made in court that celebrity detective Richard Dietl, known as Bo, threatened AriZona employees when he accompanied Ferolito to company headquarters in July 2008.

The valuation was set as of October 2010, when Ferolito filed a lawsuit to dissolve the company.

Industry researcher Euromonitor International estimated that AriZona had a quarter of the U.S. iced tea market, excluding restaurants, in 2013, making it the No. 1 bottled tea, ahead of Snapple and Lipton.

The company was founded in Brooklyn in 1992. In 1998 the partners agreed that Vultaggio would run the company's day-to-day operations. By 2005, Ferolito was seeking a sale to let him cash out his shares.

Driscoll scheduled a hearing date of Nov. 3 to set a more precise valuation and payout.

By Ken Schachter

kenneth.schachter@newsday.comkschach

Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.