A Florida appellate court recently upheld a finding that a shareholder’s contractual right of first refusal was unenforceable where a court-appointed receiver sold assets of a statutorily dissolved business entity. Pecora v. Berlin, ___ So. 3d ___, 2011 WL 1135264 (Fla. 3d Dist. App. March 30, 2011).
The shareholders in Pecora became deadlocked after the unexpected death of their predecessors, prompting a trial court to appoint a receiver pending further proceedings in a statutory dissolution action. The court permitted the receiver broad authority to dispose of the business assets, and accordingly the receiver initiated efforts to sell certain business assets to third parties.
A shareholder objected on the grounds that the proposed sales violated her right of first refusal to purchase the assets pursuant to a shareholder agreement. The terms of the shareholder agreement granted a surviving shareholder a right of first refusal on any offer received for the purchase of the business assets where the personal representative of the estate of a deceased shareholder facilitated the sale. The trial court granted summary judgment in favor of the receiver finding that the shareholder’s right of first refusal did not apply to a sale procured by the receiver.
The appellate court agreed. Determining that a right of first refusal generally presumes a voluntary sale by an owner, the appellate court focused on (i) the voluntary or involuntary nature of the sale; and (ii) the express language of the shareholder agreement creating the right. The appellate court drew distinctions between a voluntary sale by a shareholder versus an involuntary sale initiated by a court or receiver. Because the sale in Pecora was by a third party receiver and not a shareholder, and the shareholder agreement only granted a right of first refusal where the personal representative procured the buyer, the appellate court confirmed that the right of first refusal did not apply.
Though the court in Pecora declined to enforce a contractual right of first refusal, it implied that a well-drafted buy-sell provision may overcome presumptions against enforceability where the sale is neither voluntary nor by an owner. In light of this decision, it is advisable to review buy sell provisions of a shareholder agreement, partnership agreement, operating agreement or similar owner agreement to ensure that desired outcomes can be achieved despite an involuntary sale of assets pursuant to a foreclosure or receivership. If you have any questions about rights of first refusal or any other rights present in your business agreements, please contact Michael Goodbread at (904) 598-3100 or Daniel Nunn at (904) 598-3100.
Right of First Refusal Inapplicable in Receiver’s Sale of Assets
