Question

Business Law

CASE: COX ENTERPRISES, INC. v. PENSION BENEFIT GUARANTY CORPORATION

Please summarise the following case. Include the facts, issues, reasons, and decision of the case.

Answer 1

Please find the summary of CASE: COX ENTERPRISES, INC. v. PENSION BENEFIT GUARANTY CORPORATION

I. Facts

Cox sued Pension seeking relief for misuse of corporate funds and waste of corporate assets, which triggered Florida’s election-to-purchase status (it allows a corporation or other shareholders to avoid dissolution by purchasing the shares of the petitioning shareholder who initiated a dissolution proceeding).

Cox, a minority shareholder of News–Journal, filed suit in May of 2004 seeking relief for misuse of corporate funds and waste of corporate assets. This suit triggered Florida's election-to-purchase statute, Fla. Stat. § 607.1436. News–Journal elected to pursue the option created by the statute to repurchase Cox's shares. Because the parties could not agree on the fair market value of Cox's shares, the statute required that the district court determine their value. The court set the value of Cox's shares at $129.2 million and directed the terms of payment in a September 27, 2006 order (the “September 2006 repurchase order”).

Following the dictates of the election-to-purchase statute, the repurchase order dismissed Cox's original complaint for waste of corporate assets. It also directed that News–Journal pay Cox in installments; the first payment of $29.2 million was due within ten days of the issuance of this court's mandate if an appeal was taken from the order. The district court's order also imposed certain affirmative and negative covenants on the operation of News–Journal intended to prevent News–Journal from wasting corporate assets, dissolving, or engaging in business dealings that might jeopardize News–Journal's ability to pay Cox. The parties challenged the repurchase order on appeal in 2007, but this court affirmed. See Cox Enters., Inc. v. News–Journal Corp., 510 F.3d 1350, 1361 (11th Cir.2007). Specifically, News–Journal objected to the district court's valuation of Cox's stock. Cox challenged the court's refusal to include compensation for News–Journal's past misconduct and its refusal to award prejudgment interest. Id. at 1352. After the denial of News–Journal's request for en banc review, this court's mandate issued on April 9, 2008.

While the issuance of the mandate triggered the ten-day period for payment contained in the repurchase order, the district court extended this deadline at the request of both parties to allow time for an attempted joint sale of News–Journal to satisfy its liability to Cox. But, in an April 17, 2009 order, the court terminated the joint-sale process, commencing the ten-day period for News–Journal to make its initial installment payment or file notice of its intent to adopt articles of dissolution. That same order appointed a receiver to manage News–Journal's business and safeguard its assets “pending the consummation of a sale.” (R.25–507 at 2.) After entry of this order, News–Journal neither made a payment to Cox nor adopted articles of dissolution.

By January 2010, the receiver and Cox sought the district court's approval to sell News–Journal's publishing operations for just over $20 million. The court approved the sale and instructed the receiver to notify potential creditors of their right to file claims in the receivership. Cox filed a claim for the $129.2 million due under the September 2006 repurchase order plus accrued interest. PBGC claimed $26.5 million for deficiencies in News–Journal's maintenance and funding of its pension plan. The Davidson Directors sought indemnification for pending and any future claims against them with respect to their activities as officers, directors, and employees of News–Journal. Director Robert Truilo filed a claim for $91,153.59 based on his contributions to a “rabbi trust” established for the benefit of News–Journal employees. Claims were also filed by other creditors.

The receiver rejected the majority of the claims and recommended that News–Journal's assets be distributed to Cox to satisfy the September 2006 repurchase order.1 PBGC and the Davidson Directors filed objections, but the district court overruled these objections and awarded all of News–Journal's assets to Cox as payment for its shares. This appeal followed.

II. ISSUES ON APPEAL

PBGC and the Davidson Directors present the following issues on appeal: (1) whether the district court's order to distribute News–Journal's assets to Cox complied with Fla. Stat. § 607.1436, Florida's election-to-purchase statute; (2) whether the district court erred by granting Cox an equitable first priority claim to News–Journal's assets to the exclusion of News–Journal's other creditors; (3) whether the district court erred by denying Robert Truilo's claim for the contributions he made to a rabbi trust; (4) whether the district court erred by denying the Davidson Directors' claim for indemnification; and (5) whether the district court erred by denying PBGC an offset from News–Journal's future tax refunds based on the Federal Debt Collection Act.

III. DECISION

The court conclude that the district court misinterpreted Fla. Stat. § 607.1436 and in so doing erred in its order for the distribution of News–Journal's assets. The district court's order dated August 13, 2010 is VACATED in its entirety. Any distribution to Cox must satisfy subsection (8) of Florida's election-to-purchase statute, Fla. Stat. § 607.1436. It is unnecessary for us to resolve the other issues presented in this appeal because the district court's ruling on these questions was predicated on its erroneous decision to distribute News–Journal's assets to Cox without applying § 607.1436(8). On remand the district court must reevaluate the claims of all of News–Journal's creditors consistent with this opinion. VACATED AND REMANDED.

1, The receiver recommended that all of News–Journal's assets be distributed to Cox except for $347,639.70 in satisfaction of various claims filed with the receiver. Cox agreed to relinquish its claim to this cash to satisfy these other claims. Because the district court found that all of News–Journal's assets should be distributed to Cox, it interpreted this $347,639.70 as a distribution from Cox's own recovery of News–Journal's assets.

2.  While at one time circuit courts would afford deference in diversity cases to a district court's interpretation of the law of the state in which it sits, the Supreme Court rejected this approach and held that the proper standard of review was de novo. Salve Regina Coll. v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991).

3.  Section 607.1436(4) states,If the parties are unable to reach an agreement as provided for in subsection (3), the court, upon application of any party, shall stay the s. 607.1430 proceedings and determine the fair value of the petitioner's shares as of the day before the date on which the petition under s. 607.1430 was filed or as of such other date as the court deems appropriate under the circumstances.Fla. Stat. § 607.1436(4).

4.  More specifically, after the court determines the fair value of the shares it must,enter an order directing the purchase upon such terms and conditions as the court deems appropriate, which may include payment of the purchase price in installments, when necessary in the interests of equity, provision for security to assure payment of the purchase price and any additional costs, fees, and expenses as may have been awarded, and, if the shares are to be purchased by shareholders, the allocation of shares among such shareholders.Fla. Stat. § 607.1436(5).

5.  Subsection (8) states, “Any payment by the corporation pursuant to an order under ․ subsection (5) ․ is subject to the provisions of s. 607.06401.” Fla. Stat. § 607.1436(8).

6.  Subsection (7) states, “The purchase ordered pursuant to subsection (5) shall be made within 10 days after the date the order becomes final unless, before that time, the corporation files with the court a notice of its intention to adopt articles of dissolution.” Fla. Stat. § 607.1436(7).

7.  Subsection (6) states, “Except as provided in subsection (8), the effect of a distribution under subsection (3) is measured:(a) In the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of:1. The date money or other property is transferred or debt incurred by the corporation, or 2. The date the shareholder ceases to be a shareholder with respect to the acquired shares․”Fla. Stat. § 607.06401(6)