Minority Shareholders Were Permitted To Sell Stock To Bona-Fide Third Party After Option Exercise Period
In the business/commercial shareholders litigation case of TeleTracking Techs v. Gori, PICS Case No. 15-0864 (Pa. Super. May 27, 2015) the Honorable Anne E. Lazarus, writing on behalf of the Pennsylvania Superior Court, ruled that the minority shareholders were permitted to consummate the sale of their stock to a bona fide third-party offeror after the 120-day period for exercise of corporation’s right of first refusal, where the inability to consummate the transaction was the result of appellant’s intentional engagement in protracted and fruitless litigation.
Appellant TeleTracking Technologies, Inc. appealed from the order of the trial court affirming its ruling that Insight Venture Management LLC’s offer to purchase the stock of minority shareholders of TeleTracking, appellees in this case, was a bona fide offer, and directing the consummation of the purchase and sale of the stock.
Pursuant to a shareholders’ agreement, appellant held a right of first refusal to purchase stock on the same terms and conditions as any bona fide offer a shareholder received for his shares. Appellees informed appellant that they had received an offer from Insight to purchase their stock, the fourth such offer after appellant had maintained that the three previous offers were not bona fide. Appellant filed a complaint, seeking declaratory judgment that the Insight offer was not bona fide, injunctive relief to prevent appellees’ sale of their stock to Insight, and breach of contract and tortious interference claims against appellees and Insight, respectively. The trial court denied appellant’s request for injunction, and granted summary judgment in favor of appellees that the Insight offer was bona fide, dismissing the final two counts of appellant’s complaint.
After appellant had exhausted their appellate remedies, appellees attempted to consummate the sale of their stock to Insight, but appellant refused cooperation, arguing that appellees failed to complete the sale within the 120-day period required by the shareholders’ agreement, and therefore appellees were required to resubmit the Insight offer for first refusal procedures again. Appellees filed a motion in the trial court to enforce its prior order, which was granted.
On appeal, appellant argued that the trial court erred in allowing appellees to close on the Insight offer more than 120 days after it had been presented to appellant. However, the court rejected this argument, finding that the chairman and CEO of appellant, who was also the majority shareholder, had used the legal system to prevent appellees from selling their shares. The court held that the trial court had ruled that Insight’s offer was bona fide only 57 days after the offer was presented to appellant, and that appellant’s intentional protraction of litigation was the reason why appellees were unable to consummate the sale of their stock within the 120-day period.
The court held that because a party that prevented performance thereby created an excuse for performance, the trial court was within its authority to enforce the sale of stock outside the 120-day period contractual period, based on equitable principles.
In a dissent, Judge Bender argued that the plain language of the shareholders’ agreement provided that appellees’ sale of stock was to close within 120 days of its presentation to appellant, or in this case, within 120 days after the trial court determined that the Insight offer was bona fide, overriding any consideration of equitable principles. Since appellees did nothing to preserve the status quo during pending litigation, the plain terms of the agreement required them to resubmit the offer to appellant.
Reference: Digest of Weekly Opinions, Pennsylvania Law Weekly, 38 PLW 540 (June 9, 2015)
Filed Under: Business Litigation, Commercial Litigation, Third Party Bona Offer; Shareholders’ Agreement
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