Mud-flavored yogurt? Chobani founder, ex-wife wage ugly ownership war

By Alison Frankel
April 7, 2014

For a scant two years, from 1997 to 1999, Hamdi Ulukaya, then a young Turkish immigrant with dreams of a business in Turkish-inspired dairy products, and Ayse Giray, a physician in New York with Turkish roots, were married. Giray believed in and supported Ulukaya’s vision, so much so that even after they were divorced, her family loaned him almost $200,000 in 2002 to keep his inchoate cheese-making business afloat. Ulukaya soon thereafter expanded from feta cheese into Greek yogurt, establishing a company called Chobani with a factory in upstate New York. Last month, Reuters revealed that Chobani is in negotiations to sell a minority stake for $2.5 billion. But Giray and Ulukaya are not jointly celebrating the company’s runaway success. Quite the contrary.

In filings last week in Manhattan state court, these once-friendly exes (or, more accurately their lawyers) exchanged allegations as vicious as those you’d see in the most bitter of custody disputes. Of course, in a way that’s what their litigation is: Giray is suing because she claims Chobani is at least partly her baby.

And she seems perfectly willing to undermine the company to prove it. I can’t imagine that it’s to Giray’s benefit to damage Chobani’s value if, as she claims, she owns a big percentage of the yogurt maker. Nevertheless, she’s claiming not only that Ulukaya deceived two different banks and the U.S. Department of Agriculture in order to obtain his start-up loans, but also that he paid a former employee of rival Greek yogurt maker Fage 30,000 Euros to obtain the recipe Chobani now uses.

By Giray’s account, her ex-husband has told lie after lie — to bank lenders, private investors, regulators and customers — to make Chobani a success. By Ulukaya’s account, she’s a deadbeat who uses an entirely separate identity to shield her assets from judgment creditors. Ulukaya’s lawyers at Kirkland & Ellis contend that Giray has been pestering him for money for years, and only filed her “fabricated … fantastical and completely baseless” suit when he refused.

This is the kind of litigation, folks, in which both sides lose.

Giray, who is represented by Robert Feldman of Rosenberg Feldman Smith, claims that she owns between 33 and 53 percent of Chobani via her purported financing of Ulukaya’s first company, a commercial feta cheese supplier called Euphrates. She asserts that she sold two Manhattan condominiums to help fund the start-up and that Ulukaya relied on her credentials to obtain loans for the business. In all, she says, she invested $200,000 in Euphrates and her family kicked in another $300,000.

She also says that Ulukaya and one of his business cohorts secretly dealt her out of the business while lying to the USDA and the business’s first bank lender about the other investor’s involvement and Ulukaya’s interest in his family’s dairy farm in Turkey. (To boot, Giray claims Ulukaya stole money from her brother using forged checks.) Giray contends that Chobani — which was created in 2004 and is a separate company from Euphrates — rightfully belongs to Euphrates, which mentioned yogurt manufacture in its initial business plan. Her stake in Euphrates, she says, gives her rights to Chobani ownership.

Giray made her most sensational accusation — that Ulukaya bribed a former Fage employee to obtain the formula for Chobani yogurt — for the first time last week, in a brief asserting that Ulukaya “boasted” of basing Chobani “upon a recipe he stole from a competitor.” Chobani’s response brief said Giray had obtained her “baseless” assertion from a former employee she’d deposed improperly.

The former employee isn’t named in either side’s briefs but his identity is obvious from a simultaneous motion Chobani filed to seal the testimony of former plant manager Joseph Andrews, who has been a Chobani adversary since he left the company’s employ in early 2008. When Euphrates reached a $985,000 settlement with New York authorities in 2009 to resolve allegations that it illegally discharged the cheese-making byproduct whey, a local newspaper attributed the investigation to Andrews. He also provided beneficial testimony to the Environmental Management Group, which advised Euphrates and Chobani on designing a waste product disposal system. EMG later sued the two companies for failing to pay more than $1 million in fees, calling Ulukaya “a man who cheats his way out of paying his bills” in its motion for summary judgment. (EMG voluntarily dismissed the suit in May 2010.) In his deposition in the EMG case, Andrews noted that he had sued his former employer but he declined to provide additional details.

In Giray’s case, Chobani’s lawyers argued in a brief filed Thursday that the testimony she had obtained from Andrews in a deposition in March wasn’t within the scope of the litigation, which is supposed to be just about Giray’s supposed ownership of Euphrates and Chobani. In a separate brief opposing Giray’s request for an injunction against any sale of a minority stake in Chobani, the company referred to Andrews’ allegations as “rank hearsay, espoused by a disgruntled former employee whose irrelevant testimony (Giray) has gratuitously procured for the purpose of distracting from the insufficiency of her own claims.”

As for Giray, the brief said, she’s out to squeeze Ulukaya by threatening to expose supposed bad acts, which Chobani’s lawyers said are not “remotely accurate.” And she’s one to talk, according to the Chobani brief. She never supplied Ulukaya with the start-up funding she claims, Chobani said. In fact, the brief said, there’s scant evidence she had that kind of money to invest. By 1998, creditors had secured judgments against her of about $75,000, and she had begun to use an alias, Sara Baran, to shield assets. According to Chobani, Giray has even denied under oath in different proceedings that she has any ownership interest in Euphrates, let alone in Chobani. (The company admits that Giray’s family extended it a $185,000 loan but says that the loan was repaid with generous interest.)

For now, the exchange of scandalous accusations is halted. Giray dropped her motion for a restraining order, her lawyer Robert Feldman told me Monday, when Chobani represented that her purported stake won’t be affected by the sale of a minority interest in the company. I asked about Chobani’s allegations that Giray was shielding assets from creditors with an alias. “They put a spin on it that’s incorrect,” he said, and declined to elaborate. He also declined to comment on Giray’s claims that Ulukaya bribed a former Fage employee to give him Chobani’s yogurt formula. “I don’t want to litigate this in the press,” he said. (That’s exactly what Chobani accused him of doing in its brief opposing Giray’s injunction motion.)

Chobani lawyer Yosef Riemer referred my call to a company spokesman who sent an email statement. “The plaintiff’s outrageous accusations are false, completely baseless and without merit,” it said, in part. “While Greek yogurt has been around for hundreds of years, Chobani’s unique recipe was developed at our plant in upstate New York, where we spent years perfecting a centuries-old tradition.

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