Ben & Jerry’s to Take On Owner in Court Hearing Over Israeli Business

Under the 2000 acquisition agreement, Unilever agreed to allow Ben & Jerry’s to have a self-perpetuating board with nine independent seats and two given to Unilever nominees. The brand’s board has primary responsibility for the ice-cream maker’s social mission while Unilever has responsibility over operational and financial matters.

Last month, the independent members of its board filed a lawsuit against Unilever in the U.S. District Court in Manhattan seeking an injunction to block the sale of Ben & Jerry’s Israeli business to a licensee. Unilever’s two representatives voted against the lawsuit at a special board meeting held to discuss the issue, Ben & Jerry’s said in a court filing.

A subsidiary filing a lawsuit against its parent company is virtually unheard of, lawyers say, because typically a unit with its own separate board would still have most of its directors appointed by the parent.

Unilever announced the sale in June following backlash over Ben & Jerry’s decision last year to no longer sell its products in Jewish settlements in the West Bank and parts of East Jerusalem. The brand said at the time that such sales were inconsistent with its values.

The Ben & Jerry’s independent board members said in the court filing that the sale was made without their approval and deprived them of their rights to preserve the social mission of the company and safeguard the brand name. They say Unilever attempted “to usurp the board’s contractual authority and nullify its previous decision prohibiting the sale of Ben & Jerry’s products in the West Bank.”

Shahmeer Halepota, an attorney at AZA Law, which is representing Ben & Jerry’s in the suit, said, “This is the most unique merger agreement I’ve ever seen, the byproduct of a year and a half of negotiation which culminated in a corporate governance structure which provides the board with clearly delineated rights and the power to enforce those rights.”

Unilever has said that, because the acquisition agreement gave the company responsibility for financial and operational decisions, it has the right to sell Ben & Jerry’s Israeli business.

Ben & Jerry’s board isn’t using funding from Unilever for the lawsuit and the independent directors aren’t able to access funds held by the subsidiary, a person familiar with the matter said.

In the suit filed by Ben & Jerry’s, the brand asserts that it is entitled to recover reasonable attorney’s fees.

Executives at London-based Unilever believe that the lawsuit isn’t valid because the brand and parent organization should be considered the same entity given Unilever is the sole shareholder of the ice-cream maker, according to a person familiar with the matter.

In a letter recently filed to the court, Ben & Jerry’s said that Unilever has frozen the compensation of the independent board members.

“Unprecedented doesn’t begin to describe it,” Ann Lipton, a professor of business law and entrepreneurship at Tulane University, said of the case.

Ms. Lipton, who has examined the agreements between the two parties, said freezing board members’ pay could be interpreted as the equivalent of functionally removing directors and violating the agreement.

However, a person familiar with the matter said the agreement makes no mention of any obligation by Unilever to pay Ben & Jerry’s board members.

Unilever is obliged under the contract to agree to successors to independent board members, who are chosen by those directors.

Of the 11 available seats, seven are currently filled. The five independent directors are led by Chair

Anuradha Mittal,

founder of the Oakland Institute, a think tank focused on issues such as land rights and climate change. Others include Jennifer Henderson, a strategist advising companies and communities on areas such as civil rights and affordable housing, and Daryn Dodson, managing director of a private-equity firm that says it is focused on reducing bias in capital markets.

Representing Unilever are Ben & Jerry’s Chief Executive

Matthew McCarthy,

formerly Unilever’s vice president of North America foods, and Constantina Tribou, human-resources head for Unilever’s beauty and well-being division.

Monday’s scheduled telephone hearing comes after the board and Unilever failed to reach an agreement during a two-week mediation period. Any injunction granted at the hearing will be temporary with the ultimate outcome depending on the decision of the overall case, which not only considers the sale but also seeks to clarify the rights of the independent board members.

Jesse Fried, a professor at Harvard Law School, said the case would boil down to who had the contractual right to make decisions about the Israeli licensee, but he questioned how sensible Unilever was in ever handing power to the ice-cream brand. Organizations that don’t have a clear chain of command end up empowering people who might have totally conflicting views, creating chaos and making it impossible to run a company, he said.

“This is a very weird arrangement,” said Mr. Fried. “It’s not just that I haven’t seen it, it’s that I don’t think it exists anywhere in the world except for at Ben & Jerry’s.”

Write to Saabira Chaudhuri at [email protected]

Under the 2000 acquisition agreement, Unilever agreed to allow Ben & Jerry’s to have a self-perpetuating board with nine independent seats and two given to Unilever nominees. The brand’s board has primary responsibility for the ice-cream maker’s social mission while Unilever has responsibility over operational and financial matters.

Last month, the independent members of its board filed a lawsuit against Unilever in the U.S. District Court in Manhattan seeking an injunction to block the sale of Ben & Jerry’s Israeli business to a licensee. Unilever’s two representatives voted against the lawsuit at a special board meeting held to discuss the issue, Ben & Jerry’s said in a court filing.

A subsidiary filing a lawsuit against its parent company is virtually unheard of, lawyers say, because typically a unit with its own separate board would still have most of its directors appointed by the parent.

Unilever announced the sale in June following backlash over Ben & Jerry’s decision last year to no longer sell its products in Jewish settlements in the West Bank and parts of East Jerusalem. The brand said at the time that such sales were inconsistent with its values.

The Ben & Jerry’s independent board members said in the court filing that the sale was made without their approval and deprived them of their rights to preserve the social mission of the company and safeguard the brand name. They say Unilever attempted “to usurp the board’s contractual authority and nullify its previous decision prohibiting the sale of Ben & Jerry’s products in the West Bank.”

Shahmeer Halepota, an attorney at AZA Law, which is representing Ben & Jerry’s in the suit, said, “This is the most unique merger agreement I’ve ever seen, the byproduct of a year and a half of negotiation which culminated in a corporate governance structure which provides the board with clearly delineated rights and the power to enforce those rights.”

Unilever has said that, because the acquisition agreement gave the company responsibility for financial and operational decisions, it has the right to sell Ben & Jerry’s Israeli business.

Ben & Jerry’s board isn’t using funding from Unilever for the lawsuit and the independent directors aren’t able to access funds held by the subsidiary, a person familiar with the matter said.

In the suit filed by Ben & Jerry’s, the brand asserts that it is entitled to recover reasonable attorney’s fees.

Executives at London-based Unilever believe that the lawsuit isn’t valid because the brand and parent organization should be considered the same entity given Unilever is the sole shareholder of the ice-cream maker, according to a person familiar with the matter.

In a letter recently filed to the court, Ben & Jerry’s said that Unilever has frozen the compensation of the independent board members.

“Unprecedented doesn’t begin to describe it,” Ann Lipton, a professor of business law and entrepreneurship at Tulane University, said of the case.

Ms. Lipton, who has examined the agreements between the two parties, said freezing board members’ pay could be interpreted as the equivalent of functionally removing directors and violating the agreement.

However, a person familiar with the matter said the agreement makes no mention of any obligation by Unilever to pay Ben & Jerry’s board members.

Unilever is obliged under the contract to agree to successors to independent board members, who are chosen by those directors.

Of the 11 available seats, seven are currently filled. The five independent directors are led by Chair

Anuradha Mittal,

founder of the Oakland Institute, a think tank focused on issues such as land rights and climate change. Others include Jennifer Henderson, a strategist advising companies and communities on areas such as civil rights and affordable housing, and Daryn Dodson, managing director of a private-equity firm that says it is focused on reducing bias in capital markets.

Representing Unilever are Ben & Jerry’s Chief Executive

Matthew McCarthy,

formerly Unilever’s vice president of North America foods, and Constantina Tribou, human-resources head for Unilever’s beauty and well-being division.

Monday’s scheduled telephone hearing comes after the board and Unilever failed to reach an agreement during a two-week mediation period. Any injunction granted at the hearing will be temporary with the ultimate outcome depending on the decision of the overall case, which not only considers the sale but also seeks to clarify the rights of the independent board members.

Jesse Fried, a professor at Harvard Law School, said the case would boil down to who had the contractual right to make decisions about the Israeli licensee, but he questioned how sensible Unilever was in ever handing power to the ice-cream brand. Organizations that don’t have a clear chain of command end up empowering people who might have totally conflicting views, creating chaos and making it impossible to run a company, he said.

“This is a very weird arrangement,” said Mr. Fried. “It’s not just that I haven’t seen it, it’s that I don’t think it exists anywhere in the world except for at Ben & Jerry’s.”

Write to Saabira Chaudhuri at [email protected]