Restructuring

Contributed by Alexander R. Liroff
Picture this: a court-appointed receiver attempts to sell corporate assets consistent with the authority vested in him by the court.  The holder of a right of first refusal on the property objects to the sale.  Who should prevail in this tug-of-war?  Does the court-appointed receiver always get the last word?
In Pecora v. Berlin, 62 So.3d 28 (Fla. Dist. Ct. App. 2011), the District Court of Appeal of Florida, Third District, recently held that a right of first refusal (ROFR) may not apply to a sale procured by a court-appointed receiver pursuant to a court-supervised statutory dissolution unless the language by which the ROFR was created expressly intends for the ROFR to apply in the context of a corporate dissolution or where a third party procures the buyer.  ROFRs that are created by language that speaks only in terms of voluntary sales procured by the asset owner may not be enforceable when the sale is being made by a court-appointed receiver.
In Pecora, two business partners, Mr. Pecora and Mr. Berlin, died in an accident, leaving each of their 50% business interests in various businesses to Mr. Pecora’s spouse (Mrs. Pecora) and Mr. Berlin’s estate, respectively.  At the Berlin estate’s request, the trial court appointed a single receiver for the various Pecora/Berlin business entities, concluding that there was a deadlock in the businesses’ ownership and management.  The appointment gave the receiver full authority to dispose of the receivership assets, and an order was later granted for a statutory dissolution of the Pecora/Berlin businesses.
The receiver began efforts to sell one of the business entities, a corporation, but Mrs. Pecora objected, asserting that she held a ROFR under a distribution agreement made between Mr. Pecora and Mr. Berlin with respect to the corporation.  The distribution agreement set forth procedures for operation of the corporation in the event of death of one of the two partners, although it did not contemplate the simultaneous death of both partners. The distribution agreement did, however, obligate the surviving partner to market the corporation’s assets for sale, subject to a ROFR in favor of the decedent’s estate.  If such a sale was not completed within three years of the decedent’s death, the decedent’s estate had the option likewise to market the corporation’s assets for sale, subject to a ROFR in favor of the surviving partner.
The trial court granted the receiver’s motion for summary judgment, ruling that the ROFR did not apply to the receiver’s sale.  On appeal, the District Court of Appeal of Florida, Third District, reviewed whether the ROFR applied in the case of a court-supervised sale procured by a court-appointed receiver pursuant to a statutory dissolution.  The appellate court focused its analysis on three factors to determine whether the ROFR applied to the sale: (i) whether the sale was voluntary, (ii) whether the sale was by an owner, and (iii) whether the sale was contemplated by the express language establishing the ROFR.
First, the court noted that ROFRs generally apply to a voluntary sale.  In the current case, however, the sale was not voluntary; rather, the receiver’s attempts to procure a sale pursuant to a receivership in a dissolution action were deemed to be more similar to a judicial or involuntary sale.
Second, the court observed that ROFRs generally apply to sales by owners.  In this case, however, the sale was not one in which the owner procured the buyer; rather, it was procured by the receiver under the supervision and authority of the trial court.
Finally, the court found that the express language of the ROFR only referred to sales procured by the surviving partner or the decedent’s estate.  Because the receiver’s sale was not procured by a surviving partner or the decedent’s estate, the ROFR did not apply.
Although noting that the case was one of first impression in Florida, the court looked to cases in other jurisdictions where courts similarly found that ROFRs were inapplicable where the sales were not voluntarily conducted by the original owner.  Ultimately, the appellate court upheld the trial court’s judgment, concluding that the ROFR did not apply to the case of a dissolution action where the court-appointed receiver, and not the survivor or the decedent’s personal representative, is procuring the sale because in such case, the sale in question was involuntary, procured by a non-owner, and not specifically contemplated by the express language that created the ROFR.  The court noted, however, that the outcome might have differed had the language of the ROFR expressed a clear intent for the ROFR to apply in the context of a corporate dissolution, or where a third party (such as a court-appointed receiver) was procuring a buyer.