Supreme Court addresses right of first refusal principles in case involving ‘sham’ offer

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The Wisconsin Supreme Court has ruled that a Fond du Lac County court didn’t violate right-of-first-refusal principles in its decision to set an exercise price higher than fair-market value.

The case, decided on Wednesday, involved a contract between Country Visions Cooperative and Archer-Daniels-Midland Co. that granted Country Visions a right of first refusal to purchase a property in Ripon.

In May 2015, ADM started negotiations to sell its Wisconsin grain business assets to United, a third party. They reached a tentative agreement of $25 million for the Ripon property and three other grain-storage centers in the state.

Country Visions learned about the proposed sale in October 2015 and requested a copy of the offer to purchase to decide whether to exercise its right of first refusal. ADM restructured the agreement into two separate transactions and called for United to purchase the Ripon center for $20 million, and the other three properties and all personal property for $5 million. The state Supreme Court opinion said Country Visions claimed the $20 million purchase price was a sham and chose not to meet the terms of the third-party offer. United closed on both transactions.

Country Visions then filed a lawsuit against ADM seeking a declaratory judgment that it had the right to purchase the Ripon property for its fair-market value, which its expert placed at $7.7 million. Meanwhile, ADM’s expert said the property was worth $16.6 million to United.

Fond du Lac County Judge Gary Sharpe decided that the $20 million offer was “a sham at an arbitrarily inflated price” meant to prevent Country Visions from exercising the right of first refusal. Sharpe granted Country Visions specific performance to exercise the right of first refusal and gave the company 15 days to exercise the right of first refusal at the $16.6 million exercise price.

Both companies appealed. The Court of Appeals concluded that the circuit court was right to find that the higher valuation was appropriate, but the appellate court was unclear if the actual dollar amount, $16.6 million, was right. The judges remanded the case to decide what part of the $25 million sale price was fairly allocable to the Ripon property.

Those same issues then went to the state Supreme Court for review. The justices were unanimous in their decision that the circuit court had not violated the basic right of first refusal principles in setting the exercise price higher than the appraised value, but they agreed the case should be remanded to determine if the $16.6 million included more than what was called for in the right-of-first-refusal contract.

Country Visions argued that the exercise price should equal the property’s fair-market value of $7.7 million, but the justices rejected that request. Justice Annette Ziegler wrote that the circuit court, when setting the exercise price for a right of first refusal, must determine the actual price that a third-party buyer would have offered for the property, not its fair-market value.

“A prospective buyer may be willing to pay significantly more than the appraised value because the property gives the prospective buyer greater utility than a different buyer,” Ziegler wrote.

However, the opinion said the circuit court wasn’t clear on whether the $16.6 million valuation was correct because it used the package deal to set the exercise price.

“Accordingly, we conclude that remand is necessary to determine whether the $16.6 million exercise price included more property than what the right of first refusal contract covers,” Ziegler wrote.

The opinion directed the circuit court to create a record that the exercise price comprises the real property at the Ripon location only and then grant specific performance to Country Visions at that exercise price.

Chief Justice Pat Roggensack wrote a concurring opinion that elaborated on right of first refusal and how Country Visions’ agreement affects the exercise price.

“I conclude that there is nothing in the ROFR that provides any type of measurement by which to gage whether the price at which United asserts it purchased the Ripon Property is the actual price or whether it is a price manipulated to defeat Country Visions’ contractual rights,” Roggensack wrote.

She outlined two ways in which the circuit court could decide whether United included personal property in its $16.6 million actual price and agreed that additional briefing or testimony may be necessary to make a determination. Follow @WLJReporter