Cox Enterprises, Inc. v. Pension Benefit Guarantee Corporation , 666 F.3d 697 ( 2012 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 10-14240 FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
D.C. Docket No. 6:04-cv-00698-JA-DAB JAN 4, 2012
JOHN LEY
CLERK
COX ENTERPRISES, INC.,
a Delaware corporation,
Plaintiff-Appellee,
versus
PENSION BENEFIT GUARANTY CORPORATION,
United States Government Agency,
Interested Party-Appellant.
________________________
No. 10-14305
________________________
D.C. Docket No. 6:04-cv-00698-JA-DAB
COX ENTERPRISES, INC.,
a Delaware corporation,
Plaintiff-Appellee,
versus
MARC L. DAVIDSON,
JULIA DAVIDSON TRUILO,
ROBERT TRUILO,
Defendants-Appellants.
________________________
Appeals from the United States District Court
for the Middle District of Florida
________________________
(January 4, 2012)
Before MARCUS, WILSON, and COX, Circuit Judges.
COX, Circuit Judge:
Marc L. Davidson, Julia Davidson Truilo, Robert Truilo (the “Davidson
Directors”), and the Pension Benefit Guaranty Corporation (“PBGC”) appeal
following the district court’s order to distribute all of News-Journal Corporation’s
(“News-Journal”) assets to Cox Enterprises, Inc. (“Cox”), a long-time shareholder of
the closely-held News-Journal. Cox sued News-Journal in response to perceived
abuses by News-Journal’s directors in the handling of corporate assets, invoking the
court’s diversity jurisdiction. To avoid a possible dissolution, News-Journal elected
to repurchase Cox’s shares. Between the valuation of those shares and the court
ordered date for payment, News-Journal’s ability to pay diminished significantly. In
response, the district court appointed a receiver to manage News-Journal and prepare
2
it for sale. After the sale of News-Journal’s assets, the receiver solicited claims from
News-Journal’s various creditors. The district court disposed of these competing
claims for News-Journal’s limited assets by ordering the distribution of all the assets
to Cox as payment for its shares.
After thorough review, we vacate this order by the district court. We interpret
Florida’s election-to-purchase statute to require that any payment made as a result of
a corporation’s share repurchase decision comply with the distribution requirements
of Fla. Stat. § 607.06401, which prohibits the distribution of corporate assets to a
shareholder if it would render the corporation insolvent. Because we consider any
payment to Cox a distribution to a shareholder within the meaning of § 607.06401,
the district court erred when it ordered the distribution of all of News-Journal’s assets
to Cox without applying the insolvency test contained in § 607.06401. If on remand
the district court finds a distribution to Cox would violate this section, News-
Journal’s other creditors should receive payment before any distribution is made to
Cox.
I. FACTS AND PROCEDURAL HISTORY
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
3
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.
4
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
5
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
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.
6
offset from News-Journal’s future tax refunds based on the Federal Debt Collection
Act.
III. STANDARD OF REVIEW
The district court’s distribution of assets in a receivership is an equitable
decision that we review for abuse of discretion. See Godfrey v. BellSouth
Telecomms., Inc., 89 F.3d 755, 757 (11th Cir. 1996) (“Equitable remedies will not be
disturbed unless the District Court abused its discretion or made an error of law . . .
.” (citing Planned Parenthood Ass’n of Atlanta Area, Inc. v. Miller, 934 F.2d 1462,
1471 (11th Cir. 1991))). However, the court’s underlying interpretation of Florida
statutes “is a ‘purely legal issue’ that is reviewed de novo.” Commodity Futures
Trading Comm’n v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1343 (11th Cir. 2008)
(quoting Estate of Shelfer v. C.I.R., 86 F.3d 1045, 1046 (11th Cir. 1996)).2
IV. DISCUSSION
A. Florida’s Election-to-Purchase Statute, Fla. Stat. § 607.1436
Florida law contains a detailed statutory scheme which creates an alternative
to dissolution in derivative suits by shareholders against corporations. The election-
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 (1991).
7
to-purchase statute allows a corporation or other shareholders to avoid dissolution by
purchasing the shares of the petitioning shareholder who initiated a dissolution
proceeding. After a corporation has elected to repurchase all of the shares owned by
the petitioning shareholder, the parties may agree upon the value of the shares. Fla.
Stat. § 607.1436(3) (“If, within 60 days after the filing of the first election, the parties
reach agreement as to the fair value and terms of the purchase of the petitioner’s
shares, the court shall enter an order directing the purchase of petitioner’s shares upon
the terms and conditions agreed to by the parties.”). If the parties cannot agree on the
value, then the court must determine the “fair value”3 and enter an order detailing the
terms for the repurchase fixed by the court. These terms might include payment of
the purchase price in installments or the provision for security “to assure payment of
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).
8
the purchase price.” Fla. Stat. § 607.1436(5).4 Once the court’s repurchase order
becomes final the corporation has ten days to purchase the petitioning shareholder’s
shares unless it files with the court a notice of its intent to adopt articles of
dissolution. Fla. Stat. § 607.1436(7) (“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 . . . .”).
This repurchase order also triggers Fla. Stat. § 607.1436(6), which explains the
effect of the repurchase order on the petitioning shareholder. It states:
Upon entry of an order under subsection (3) or subsection (5), the court
shall dismiss the petition to dissolve the corporation under s. 607.1430
and the petitioning shareholder shall no longer have any rights or status
as a shareholder of the corporation, except the right to receive the
amounts awarded by the order of the court, which shall be enforceable
in the same manner as any other judgment.
Fla. Stat. § 607.1436(6). As this subsection makes clear, a corporation faced with a
petition for dissolution has an incentive to elect to repurchase the petitioning
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).
9
shareholder’s shares because it terminates the petitioning shareholder’s petition for
dissolution. In exchange for giving up this right, the petitioning shareholder has the
right to receive the payment awarded in the repurchase order, “which shall be
enforceable in the same manner as any other judgment.” Fla. Stat. § 607.1436(6).
The statute, however, places an important condition on these payments.
Subsection (8) provides: “Any payment by the corporation pursuant to an order under
subsection (3) or subsection (5), other than an award of fees and expenses pursuant
to subsection (5), is subject to the provisions of s. 607.06401.” Fla. Stat.
§ 607.1436(8). Therefore payments made pursuant to a repurchase order must
comply with Fla. Stat. § 607.06401, which governs the distribution of corporate assets
to shareholders.
This distributions-to-shareholders statute creates a scheme focused on the
corporation’s solvency to evaluate the propriety of distributions to shareholders. It
provides in part:
No distribution may be made if, after giving it effect: (a) The
corporation would not be able to pay its debts as they become due in the
usual course of business; or (b) The corporation’s total assets would be
less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution.
10
Fla. Stat. § 607.06401(3). Section 607.06401, by placing restrictions on the
distribution of corporate assets, maintains the fundamental tenet of corporate law that
creditors’ claims on corporate assets are superior to claims of shareholders. To
achieve this, a distribution of corporate assets to a shareholder must not result in the
violation of one of these insolvency tests contained in Fla. Stat. § 607.06401(3). The
statute also explains when to measure the effect of a distribution; in other words, at
what point in time must a distribution pass one of these insolvency tests. It requires:
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) (emphasis added). The exception contained in
§ 607.06401(8) contains a different timing provision. It provides, “If the
indebtedness is issued as a distribution, each payment of principal or interest is
treated as a distribution, the effect of which is measured on the date the payment is
actually made.” Fla. Stat. § 607.06401(8) (emphasis added). Thus any payment
made pursuant to a repurchase order must satisfy the insolvency test of the
11
distributions-to-shareholders statute judged at the time dictated by the distributions-
to-shareholders statute.
With these specific statutory provisions of Fla. Stat. § 607.1436 and
§ 607.06401 in mind, the overall scheme envisioned by the election-to-purchase
statute may be summarized as follows: First, if a shareholder petitions the court for
dissolution of a corporation, the corporation may elect to purchase the petitioning
shareholder’s shares for fair value. Once the corporation makes this election and the
court determines the value of the shares, the court will enter a repurchase order fixing
the terms for payment of the shares. After this repurchase order becomes final, a
corporation has ten days to make payment for the shares unless it files with the court
a petition for dissolution of the corporation. But, under subsection (8) any payment
by the corporation pursuant to the court’s repurchase order must comply with
Florida’s distributions-to-shareholders statute. That statute essentially provides that
corporate assets may not be distributed to shareholders if the distribution would
render the corporation insolvent. This case is before us because between the court’s
entry of its repurchase order and the time when payment became due, News-Journal’s
ability to pay the price contained in the repurchase order diminished significantly.
12
B. The District Court’s Interpretation of the Election-to-Purchase Statute, Fla.
Stat. § 607.1436
The Davidson Directors and PBGC primarily argue on appeal that the district
court misinterpreted Florida’s election-to-purchase statute when it ordered the
distribution of News-Journal’s assets to Cox. The district court decided to read
subsection (8), which requires that a payment made pursuant to the repurchase order
comply with Florida’s distributions-to-shareholders statute,5 in conjunction with
subsection (7), which allows a board of directors to adopt articles of dissolution
instead of making payment pursuant to the repurchase order.6 According to the
district court, when these two provisions are read together, dissolution is the only
option for a corporation if making a payment pursuant to a subsection (5) repurchase
order would violate the insolvency test in the distributions-to-shareholders statute.
By neither making a payment nor filing articles of dissolution, the district court held
that News-Journal “made the implicit decision to make the payment directed by the
Court under subsection (5) and must bear the consequences—if any—for this action.”
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).
13
(R.32-674 at 7.) It then ordered the distribution of News-Journal’s remaining assets
to Cox as a payment pursuant to the September 2006 repurchase order.
Both the Davidson Directors and PBGC argue this interpretation violates the
plain meaning of subsection (8). They contend that to distribute News-Journal’s
assets to Cox (a News-Journal shareholder) pursuant to the repurchase order would
render News-Journal insolvent, and that the distributions-to-shareholders statute as
cross-referenced by subsection (8) forbids this payment. Furthermore, they suggest
the district court order violates the fundamental principle of corporate law that equity
should be paid last in the event of corporate insolvency. Cox responds that the
district court correctly decided that News-Journal made an implicit decision to pay
Cox the sum due under the September 2006 repurchase order. In the alternative, Cox
argues subsection (8) does not apply in this case because the claim they submitted to
the receiver was not for payment to a shareholder, but instead a claim that sought
enforcement of Cox’s rights as a creditor. Entry of the repurchase order, Cox says,
terminated its status as a shareholder and gave it the right to enforce the September
2006 repurchase order “in the same manner as any other judgment.” Fla. Stat.
§ 607.1436(6).
14
C. Application of the Election-to-Purchase Statute, Fla. Stat. § 607.1436
This case presents the question of whether Florida’s election-to-purchase
statute forbids the distribution of corporate assets made pursuant to a repurchase
order when doing so would give a former shareholder priority over a corporation’s
other creditors and render the corporation insolvent. The Florida courts have not
addressed this question. We show why, as a matter of statutory construction, the
district court erred by directing the distribution of News-Journal’s assets to Cox
without deciding whether this distribution complied with the distributions-to-
shareholders statute. Then, we conclude that our interpretation can be reconciled
with other seemingly conflicting portions of the election-to-purchase statute.
When interpreting a statute, we give effect to the Florida legislature’s intent
and accord meaning to all parts of the statute. See Larimore v. State, 2 So. 3d 101,
106 (Fla. 2008) (“A court’s purpose in construing a statute is to give effect to
legislative intent, which is the polestar that guides the court in statutory construction.”
(citing Bautista v. State, 863 So. 2d 1180, 1185 (Fla. 2003))); Forsythe v. Longboat
Key Beach Erosion Control Dist., 604 So. 2d 452, 455 (Fla. 1992) (“Where possible,
courts must give full effect to all statutory provisions and construe related statutory
provisions in harmony with one another.”). When the language of a statute is plain
and unambiguous we must apply that meaning. Gomez v. Vill. of Pinecrest, 41 So.
15
3d 180, 185 (Fla. 2010) (“As this Court has often repeated, when the language of the
statute is clear and unambiguous and conveys a clear and definite meaning . . . the
statute must be given its plain and obvious meaning.” (alteration in original) (quoting
Velez v. Miami-Dade Cnty. Police Dep’t, 934 So. 2d 1162, 1164-65 (Fla. 2006))).
As the appellants advocate and the district court acknowledged, a plain reading
of subsection (8) prohibits a distribution to Cox to the extent this distribution would
violate Florida’s distributions-to-shareholders statute. As explained above, that
statute prohibits distributions to a shareholder if, after giving the distribution effect,
the corporation would be insolvent. Fla. Stat. § 607.06401(3). Following the plain
meaning of subsection (8) in this case would have required the district court to decide
whether a payment could be made to Cox in compliance with the distributions-to-
shareholders statute. The district court rejected this course.
Rather than apply a literal interpretation of subsection (8), the court held that
News-Journal’s directors, by neither paying Cox nor filing articles of dissolution, had
made an implicit decision to pay Cox for its shares. The court then ordered the
distribution of News-Journal’s assets to effectuate the directors’ implicit decision.
This interpretation, however, does violence to the basic principle of statutory
interpretation that when the language of a statute is plain, the court should follow the
plain language. The district court apparently avoided this construction because it
16
recognized that following the plain language in this case might result in the
petitioning shareholder, Cox, receiving nothing. But, by subjecting payments made
with corporate assets pursuant to a repurchase order to a solvency test, the Florida
legislature must have anticipated precisely this result. The legislative scheme, in
some circumstances, precludes payment to a shareholder pursuant to a repurchase
order.
Despite the district court’s interpretation, subsection (7) does not dictate a
different result. While subsection (7) affords directors the voluntary option to file
articles of dissolution after the repurchase order becomes final, it does not force
directors to make a payment due under a repurchase order in violation of
subsection (8). We, therefore, do not conclude that the News-Journal directors
implicitly decided to pay Cox in violation of the distributions-to-shareholders statute.
Rather we recognize the course chosen by the Florida legislature—in some
circumstances, subsection (8)’s requirement that a payment comply with the
distributions-to-shareholders statute will act to bar payments that would otherwise be
due under a subsection (5) repurchase order.
The district court also suggested the repurchase order gave Cox a security
interest. It stated, “Though not expressly stated in the September 27, 2006 Order, the
Court’s intent in entering the positive and negative covenants was to provide security
17
for Cox’s award . . . .” (R.32-674 at 7.) Cox and the district court also suggest Cox
has an equitable interest in News-Journal’s assets. Cox argues that the “September
27, 2006 [repurchase] order imposed an equitable lien on [News-Journal’s] assets in
favor of Cox.” (Appellee’s Brief at 18.) Similarly, the district court in its order
distributing News-Journal’s assets to Cox stated that “Cox has an equitable first
priority claim to all of the assets to be distributed up to the extent of its judgment”
and that “Cox has continued to hold an equitable right to receive the assets of
[News-Journal] otherwise not encumbered as of the September 27, 2006 Order.”
(R.32-674 at 7.) It is unnecessary for us to resolve whether the September 2006
repurchase order gave Cox an equitable lien on News-Journal’s assets because no
distribution to Cox can violate subsection (8), irrespective of security or of an
equitable lien.
Cox presents a variety of arguments which suggest our reading of
subsection (8) is incompatible with other subsections of the statute. The subsections
that Cox finds incompatible with subsection (8) have not yet been interpreted by
Florida courts. But we think they can be harmonized with our construction. See
McGhee v. Volusia Cnty., 679 So. 2d 729, 730 n.1 (Fla. 1996) (“The doctrine of in
pari materia requires the courts to construe related statutes together so that they
18
illuminate each other and are harmonized.” (citing Singleton v. Larson, 46 So. 2d 186
(Fla.1950))).
Cox argues that subsection (8) should not even apply in this case because its
claim to the receiver “was not a payment as a shareholder, but the enforcement of its
rights as a creditor to enforce a judgment.” (Appellee’s Brief at 35 n.13.) This
highlights an arguable conflict between § 607.1436(6) and (8). Subsection (6) states
that “Upon entry of an order under . . . subsection (5) . . . the petitioning shareholder
shall no longer have any rights or status as a shareholder of the corporation . . . .” Fla.
Stat. § 607.1436(6). Yet, the distributions-to-shareholders statute cross-referenced
by subsection (8) only governs distributions to shareholders. See Fla. Stat.
§ 607.06401(1) (“A board of directors may authorize and the corporation may make
distributions to its shareholders subject to . . . the limitations in subsection (3).”). So,
the argument goes, subsection (8) does not apply to a payment to Cox because
subsection (6) terminated Cox’s status as a shareholder.
We reject Cox’s construction regarding its status as a shareholder for the
purposes of the distributions-to-shareholders statute because it would render
subsection (8) inapplicable in any case. See, e.g., Forsythe, 604 So. 2d at 456 (“It is
a cardinal rule of statutory interpretation that courts should avoid readings that would
render part of a statute meaningless.”). Instead, we give meaning to both
19
subsections (6) and (8) by recognizing Cox’s continued status as a shareholder for
purposes of the distributions-to-shareholders statute but construing subsection (6) to
eliminate other rights Cox held as a shareholder. We hold that Cox qualifies as a
shareholder for purposes of the distributions-to-shareholders statute.
Cox next heralds subsection (6)’s provision that states a repurchase order “shall
be enforceable in the same manner as any other judgment.” Fla. Stat. § 607.1436(6).
Cox maintains that under this provision it has a claim to News-Journal’s assets as a
judgment creditor. A proper construction of subsection (6) requires a closer
inspection of the nature of the repurchase option created by the election-to-purchase
statute. Thus far, we have focused on the fact that the corporation has the option to
purchase the petitioning shareholder’s shares in the event of a petition for dissolution.
However, under the election-to-purchase statute, shareholders also have the option
to purchase the petitioning shareholder’s shares if the corporation does not. See Fla.
Stat. § 607.1436(1) (“[T]he corporation may elect or, if it fails to elect, one or more
shareholders may elect to purchase all shares owned by the petitioning shareholder
at the fair value of the shares.”). The implication of the fact that either shareholders
or the corporation may repurchase the petitioning shareholder’s shares is that the
election-to-purchase scheme operates differently depending on the purchaser. For
example, subsection (8) only applies in the event of repurchase by the corporation.
20
It has no effect in the event of a shareholder repurchase because subsection (8) only
deals with distributions by the corporation. See Fla. Stat. § 607.1436(8) (“Any
payment by the corporation pursuant to an order under . . . subsection (5) . . .is
subject to the provisions of s. 607.06401.” (emphasis added)). This distinction guides
our construction of subsection (6).
In the event a petitioning shareholder seeks to enforce a repurchase order
against a shareholder who has repurchased shares, it may do so “in the same manner
as any other judgment.” Fla. Stat. § 607.1436(6). But this case involves repurchase
by the corporation. Here, because the corporation has repurchased Cox’s shares, we
must interpret subsection (6) in conjunction with subsection (8). As we have
explained, while subsection (8) would have no application in the event of a
shareholder repurchase, subsection (8) makes any payment by the corporation subject
to the distributions-to-shareholders statute. Thus, the petitioning shareholder may
enforce the repurchase order only to the extent allowed by subsection (8). If
enforcing Cox’s repurchase order would require a payment by News-Journal in
violation of the distributions-to-shareholders statute, the statute forbids the payment.
We hold that any payment to Cox based on the district court’s September 2006
repurchase order must comply with the condition of § 607.1436(8) that the payment
21
satisfy Florida’s distributions-to-shareholders statute. This requires that we consider
the application of that statute to this case.
D. Date to Measure News-Journal’s Insolvency Under Fla. Stat. § 607.06401
As mentioned previously, Florida’s distributions-to-shareholders statute forbids
distributions by the corporation to shareholders if those distributions would render
the corporation insolvent. The parties here dispute when the court should evaluate
News-Journal’s insolvency. Cox asserts that News-Journal’s solvency should be
measured as of September 2006 based on § 607.06401(6), which states that the effect
of a distribution is generally measured on the date the corporation incurs a debt or the
date a shareholder ceases to be a shareholder.7 PBGC suggests that § 607.06401(8)
requires solvency be measured on the date of payment. As we have already
highlighted, § 607.06401(6) applies “[e]xcept as provided in subsection (8).” If
subsection (8) applies in this case, then PBGC correctly recognizes that the effect of
a distribution to Cox is measured on the date of payment.
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).
22
Section 607.06401(8) provides, “If the indebtedness is issued as a distribution,
each payment of principal or interest is treated as a distribution, the effect of which
is measured on the date the payment is actually made.” Fla. Stat. § 607.06401(8).
PBGC contends that the court’s September 2006 repurchase order created an
indebtedness by News-Journal to Cox so News-Journal’s solvency should be
measured on the date of payment. We agree. Once the district court’s September
2006 repurchase order became final, News-Journal had a debt of $129.2 million owed
Cox to be paid in regular installments. This indebtedness of News-Journal triggered
the timing provision of § 607.06401(8). Thus, on remand, the district court must
consider whether a payment to Cox would comply with the insolvency test of the
distributions-to-shareholders statute at the time of payment to Cox.
V. CONCLUSION
We 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
23
§ 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.
24