Country Visions Coop. v. Archer-Daniels-Midland Co.

392 Wis.2d 672

946 N.W.2d 169

2020 WI App 32

COUNTRY VISIONS COOPERATIVE, Plaintiff-Appellant-Cross-Respondent,^†

v.ARCHER-DANIELS-MIDLAND COMPANY and United Cooperative, Defendants-Respondents-Cross-Appellants.

Appeal No. 2018AP960

Court of Appeals of Wisconsin.

Submitted on Briefs: November 14, 2019

Opinion Filed: May 6, 2020

On behalf of the plaintiff-appellant-cross-respondent, the cause was submitted on the briefs of David G. Peterson, J. Bushnell Nielsen, Bridget M. Hubing, L. Katie Mason, and Malinda J. Eskra of Reinhart, Boerner, Van Deuren, S.C., Waukesha.

On behalf of the defendants-respondents-cross-appellants, the cause was submitted on the briefs of Douglas M. Poland of Rathje Woodward, Madison, John C. O'Quinne of Kirkland & Ellis LLP, Washington, D.C., and Michael B. Slade and Yates M. French of Kirkland & Ellis LLP, Chicago, Illinois.

Before Neubauer, C.J., Gundrum and Davis, JJ.

DAVIS, J.

¶1 A right of first refusal (ROFR) is an agreement in which an owner of property (typically real estate) conveys a right to another party to match any offer made for the property. If the ROFR holder matches the offer, any sale must be to the holder. See MS Real Estate Holdings, LLC v. Donald P. Fox Family Trust , 2015 WI 49, ¶24, 362 Wis. 2d 258, 864 N.W.2d 83 (an ROFR "is a contractual right to be first in line should the opportunity to purchase or lease a property arise").

¶2 Ordinarily, exercise of such a right is straightforward—the property owner receives an offer from a prospective buyer which it wishes to accept and communicates that offer to the ROFR holder, who then has a certain period of time to match it. Whether and how the right applies becomes more involved, however, when the property owner wishes to sell the property as part of a larger parcel or, as in this case, as part of a sale of multiple parcels in a single transaction. In these circumstances, Wisconsin precedent requires that the transaction be scrutinized to determine what portion of the purchase price is properly allocable to the property subject to the ROFR. Wilber Lime Prods., Inc. v. Ahrndt , 2003 WI App 259, ¶¶11-14, 268 Wis. 2d 650, 673 N.W.2d 339. That allocated portion becomes the price at which the ROFR may then be exercised as part of a specific performance remedy. Id. , ¶¶12-13. Wilber Lime holds that in the event of a dispute on this point, the exercise price should be determined based on the subject property's actual "fair market value" (as opposed to a more formulaic, pro rata approach adopted in some jurisdictions, based on the percentage of acreage the subject parcel bears to the whole). Id. , ¶¶8-14.

¶3 The proper application and breadth of that holding is at the heart of this appeal. Here we must apply Wilber Lime to a case involving some complicating twists, starting with the fact that the property owner, Archer-Daniels-Midland Company (ADM), and the offeror, United Cooperative (United), (collectively, Defendants) purportedly carved out the sale of the subject parcel into a separate, standalone transaction after Defendants had initially negotiated a single $25 million "package deal" for that parcel, three other parcels, and accompanying business assets. We say "purportedly" because the ROFR holder, Country Visions Cooperative (Country Visions), alleged at trial, and the trial court agreed, that the claimed standalone nature of this sale was a sham—that in reality ADM and United agreed to an artificially inflated "standalone" price of $20 million for the property after learning of, and in order to defeat, Country Visions’ ROFR, while tying this sham sale to a collective sale of the other three parcels and all business assets at an artificially de flated price of $5 million.

¶4 Application of Wilber Lime ’s specific performance remedy leads to a second twist. Unwinding the sham $20 million sale required a judicial determination as to the appropriate price at which the ROFR could be exercised. In this case, that meant considering evidence that the buyer was uniquely situated to put the property to a specific use, and therefore incentivized to pay more than "fair market value" as measured by traditional appraisal methods. In other words, Defendants argued (while still denying there was any sham sale in the first place) that in a bona fide standalone transaction United would have paid considerably more than the property's "appraised" value. That is because United would be able to create an income stream with this parcel that few if any other buyers, including Country Visions, could duplicate. The trial court accepted this argument, resulting in a judicially determined price of $16.6 million, coupled with a new fifteen-day offer period for Country Visions to match it (currently stayed pending this appeal). That price was lower than the $20 million offer price that the trial court found was a sham, but higher than the price generated by appraisal methods chiefly designed to measure fair market value in the absence of an actual buyer.

¶5 Both sides appeal these findings, along with other rulings we will address in the course of this decision. With one exception that may or may not prove significant, we affirm the trial court. We find that the trial court did not err in finding the purported standalone $20 million sale a sham. Nor did the court err in fashioning a specific performance remedy that considered United's heightened economic incentives, to arrive at a price that best approximated the offer United would have made in a true standalone sale. We cannot, however, fully accept the exercise price found by the trial court. This is because it is not clear from the trial court's decision, or from the testimony and other evidence in this record, that the exercise price reflected only the value of the real estate that is the subject of Country Visions’ ROFR or whether it also included non real estate-related business assets that were not part of the real property to which the ROFR is limited.

¶6 Remand is thus necessary to ensure that the ROFR exercise price is based on an "apples-to-apples" comparison. That is, the trial court should determine whether the price at which it decided Country Visions can exercise its ROFR is based only on the value of the real property and, if it is not, what portion of that price is properly allocable to the real property. Further fact-finding may impact the trial court's denial of compensatory damages as well, since that denial was tied to its decision on the exercise price.

BACKGROUND

Factual Background

¶7 Although this case centers on Country Visions’ attempt to enforce an ROFR for a property that United purchased from ADM, none of these parties actually entered into the original ROFR. Rather, in 2007 two entities, Golden Grain LLC (Golden Grain) and Agri-Land Co-op (Agri-Land) (collectively, Golden), entered into an ROFR agreement with Olsen Brothers Enterprises LLP (Olsen Brothers) for certain real estate located in Ripon, Wisconsin. That property, which we will call the Ripon Property, included a substantial grain storage and transport facility surrounded by prime agricultural land and connected to rail lines. The ROFR provided that for a period of ten years, Olsen Brothers would notify Golden if it received and wished to accept a "bona fide written offer" from a third-party purchaser. In that event, the notice would be "deemed an offer to sell" the property to Golden "upon the terms set forth" in the offer.

¶8 In July 2010, Olsen Brothers sold the Ripon Property to Paul and David Olsen individually. The parties agree that this was a permitted transfer that did not trigger Golden's rights under the ROFR. Five months later, in December 2010, the Olsens filed for bankruptcy. ADM purchased the property out of bankruptcy in August 2011, the bankruptcy court having approved the sale, "free and clear of all Claims, Encumbrances (other than Permitted Encumbrances) and Liabilities." It is undisputed, however, that Golden, the then-ROFR holder, did not receive formal notice of the sale or attend the confirmation hearing. Around the same time, a series of assignments and mergers solely among the original ROFR holders transferred the ROFR from Golden to Country Visions.

¶9 In May 2015, ADM began negotiations to sell its Wisconsin graining business assets to United. By September 2015, the parties had negotiated an asset purchase agreement (APA) that included the Ripon Property and three other grain storage facilities, located in Auroraville, Oshkosh, and Westfield, Wisconsin. Though the APA was never consummated, the parties did agree on a purchase price of $25 million, which included land, improvements and personal property (excluding inventory, which was to be dealt with by separate agreement). For accounting purposes, the parties expressly allocated the purchase price between the real estate and the other assets, with $14,579,000 allocated to the intangible rights and hard assets of the business and $10,421,000 allocated to the real property (Ripon and the other three parcels).

¶10 Country Visions learned of the pending sale and informed ADM that it held an ROFR on the Ripon Property. ADM and United then attempted to separate the transaction into two sales: (1) the Ripon Property alone and (2) the remaining assets, including the other three parcels and the non real estate-related business assets of the four properties. On October 13, 2015, the parties signed a Commercial Offer to Purchase for the Ripon Property. The price was $20 million. The offer and acceptance was on a standard commercial real estate form but did specify that United "understands that there is a Right of First Refusal owned by Country Visions Cooperative on the Property which is subject to this Offer. In the event Country Visions matches this Offer, [United] agrees that [ADM] is free to close on the transaction with Country Visions ...." The agreement contained no other contingencies. The next day, on October 14, ADM forwarded the...