Country Visions Cooperative v. Archer-Daniels-Midland Company

2021 WI 35SUPREME COURT OF WISCONSIN
CASE NO.: 2018AP960
COMPLETE TITLE: Country Visions Cooperative,
Plaintiff-Appellant-Cross-Respondent-
Petitioner,
v.
Archer-Daniels-Midland Company and United
Cooperative,
Defendants-Respondents-Cross-
Appellants.
REVIEW OF DECISION OF THE COURT OF APPEALS
Reported at 392 Wis. 2d 672,946 N.W.2d 169PDC No:2020 WI App 32 - Published
OPINION FILED: April 21, 2021
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: February 25, 2021
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Fond du Lac
JUDGE: Gary R. Sharpe
JUSTICES:
ZIEGLER, J., delivered the majority opinion for a unanimous
Court. ROGGENSACK, C.J., filed a concurring opinion.
NOT PARTICIPATING:
ATTORNEYS:
For the plaintiff-appellant-cross-respondent-petitioner,
there were briefs filed by David G. Peterson, J. Bushnell
Nielsen, Bridget M. Hubing, Malinda J. Eskra, and Reinhart
Boerner Van Deuren S.C., Waukesha. There was an oral argument by
J. Bushnell Nielsen.
For the defendants-respondents-cross-appellants, there was
a brief filed by Ryan J. Walsh, Amy C. Miller, and Eimer Stahl
LLP, Madison; with whom on the brief was John C. O’Quinn, Megan
M. Wold and Kirkland & Ellis LLP, Washington, D.C.; with whom on
the brief was Michael B. Slade, Yates M. French, and Kirkland &
Ellis LLP, Chicago, Illinois. There was an oral argument by Ryan
J. Walsh.
2
2021 WI 35NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2018AP960
(L.C. No. 2015CV546)
STATE OF WISCONSIN : IN SUPREME COURT
Country Visions Cooperative,
Plaintiff-Appellant-Cross-Respondent-
Petitioner, FILED
v. APR 21,2021
Archer-Daniels-Midland Company and United Sheila T. Reiff
Cooperative, Clerk of Supreme Court
Defendants-Respondents-Cross-
Appellants.
ZIEGLER, J., delivered the majority opinion for a unanimous
Court. ROGGENSACK, C.J., filed a concurring opinion.
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 ANNETTE KINGSLAND ZIEGLER, J. This is a review of a
published decision of the court of appeals, Country Visions
Cooperative v. Archer-Daniels-Midland Co., 2020 WI App 32, 392
Wis. 2d 672, 946 N.W.2d 169, affirming in part, reversing in
part, and remanding with directions the Fond du Lac County
circuit court's order1 granting Country Visions Cooperative
("Country Visions") specific performance of its right of first
1 The Honorable Gary R. Sharpe presided.
No. 2018AP960
refusal to a property that Archer-Daniels-Midland Co. ("ADM")
was attempting to sell to United Cooperative ("United"). This
case requires us to determine whether the circuit court properly
set the price at which Country Visions may exercise its right of
first refusal.
¶2 "A right of first refusal is a contractual right to be
first in line should the opportunity to purchase or lease a
property arise." MS Real Est. Holdings, LLC v. Donald P. Fox
Fam. Tr., 2015 WI 49, ¶24, 362 Wis. 2d 258, 864 N.W.2d 83.
Country Visions held a right of first refusal to a parcel of
property with a grain facility in Ripon, Wisconsin ("Ripon
Property"), which ADM owned. Unbeknownst to Country Visions,
ADM entered into negotiations with United to sell the Ripon
Property, along with three other parcels throughout Wisconsin.
When Country Visions learned of these negotiations, Country
Visions informed ADM of its right of first refusal. In
response, ADM and United attempted to sever the transaction into
two separate transactions. As part of this severance, one of
the new transactions became an offer from United to ADM to
purchase the Ripon Property alone for $20 million. Country
Visions did not match this purchase price, and ADM and United
closed on their deal.
¶3 Country Visions brought this lawsuit against ADM and
United (collectively, "Defendants") claiming that the $20
million sale was a sham and sought specific performance of its
right of first refusal at a lower price. Specifically, Country
Visions claims that Defendants artificially inflated the price
2
No. 2018AP960
to overcome Country Visions' right of first refusal. The
circuit court held a bench trial and concluded that the $20
million sale of the Ripon Property was a sham. As such, the
circuit court determined that the price for the Ripon Property
was actually $16.6 million and granted Country Visions 15 days
to exercise its right of first refusal at that price.
¶4 Country Visions and Defendants cross-appealed the
circuit court's decision to the court of appeals on a variety of
issues. The court of appeals affirmed in part, reversed in
part, and remanded the case to the circuit court. Country
Visions, 392 Wis. 2d 672, ¶64. As relevant to the issue before
us——whether the circuit court properly set the price at which
Country Visions may exercise its right of first refusal——the
court of appeals concluded that the circuit court did not err in
how it determined the appropriate right of first refusal
exercise price. Id., ¶37. Despite this conclusion, the court
of appeals remanded the case to the circuit court to determine
whether the $16.6 million exercise price included personal
property, which the right of first refusal contract excluded
from Country Visions' purchase rights. Id., ¶43.
¶5 Country Visions petitioned this court seeking to set
the exercise price at $7.7 million——the price that Country
Visions' expert determined as the "fair market value" of the
Ripon Property.2 Country Visions argued that we should do so
Neither Country Visions nor Defendants asked us to review
2
any of the other determinations of the court of appeals.
3
No. 2018AP960
because the circuit court violated basic right of first refusal
principles when it set the exercise price based on United's
willingness to pay more than the appraised value of the Ripon
Property. We disagree.
¶6 We conclude that the circuit court did not err in
considering the unique synergies that the Ripon Property
provides to United when it set the exercise price higher than
the appraised value. For rights of first refusal, a prospective
buyer may choose to offer significantly more than the appraised
value of a property, especially in the context of a package
deal. Thus, depending on the terms of the right of first
refusal contract and the facts of the case, a circuit court may
set an exercise price that exceeds the appraised value of the
burdened property. However, we conclude that remand is
necessary to determine whether the $16.6 million exercise price
includes more than is called for in the right of first refusal
contract. Accordingly, we affirm the court of appeals' decision
and remand to the circuit court for proceedings consistent with
this opinion.
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No. 2018AP960
I. FACTUAL BACKGROUND
¶7 This case centers on a right of first refusal contract
between Country Visions and ADM.3 The right of first refusal
contract provides as follows:
1. For a period of ten (10) years from the date
hereof (the "ROF Period"), [ADM] hereby grants to
[Country Visions] a right of first refusal to purchase
the [Ripon Property] or applicable portion thereof,
but only on the terms and conditions as provided in
this Agreement. During [the] ROF Period, [ADM] shall
not sell, convey or in any way convey or transfer any
part [of] the [Ripon Property] without first complying
with the provisions of this Agreement.
2. If at any time during the ROF Period, [ADM]
desires to sell any part of the [Ripon Property] to a
party . . . , pursuant to a bona fide written offer
from a third party (the "Third Party Offer"), [ADM]
shall first notify [Country Visions] of [ADM's] desire
to sell the [Ripon Property] or applicable portion
thereof (the "Offered Property") and such notice (the
3 Country Visions and ADM were not the original parties to
this contract. Originally, Golden Grain, LLC and Agri-Land
Co-op sold the Ripon Property to Olsen Brothers Enterprises,
LLP. As part of this deal, Olsen Brothers Enterprises granted
to Golden Grain and Agri-Land Co-op a right of first refusal to
the Ripon Property, which is the right of first refusal contract
at issue in this case.
After the right of first refusal contract was executed,
Olsen Brothers Enterprises sold the Ripon Property to Paul and
David Olsen individually, which did not trigger the right of
first refusal. Paul and David Olsen later filed for bankruptcy.
As part of this bankruptcy, ADM purchased the Ripon Property.
Golden Grain and Agri-Land Co-op, through a series of
mergers and assignments, transferred their right in the right of
first refusal agreement to Country Visions.
Consequently, ADM became the owner of the Ripon Property,
and Country Visions became the holder of the right of first
refusal to the Ripon Property.
5
No. 2018AP960
"Notice") shall be deemed an offer to sell the Offered
Property upon the terms set forth in the Third Party
Offer. The Notice shall identify the bona fide
prospective purchaser of the Offered Property in
addition to specifying the purchase price and other
terms and conditions of such proposed sale (such price
and other terms being referred to as "the Third Party
Terms") and shall be accompanied by a copy of the
Third Party Offer. [Country Visions] shall have the
right and option to purchase the Offered Property on
the Third Party Terms but only if [Country Visions]
shall provide written notice of such election to [ADM]
within fifteen (15) days after [Country Visions']
receipt of the Notice. . . .
The parties do not dispute that the right of first refusal
contract outlines the following obligations for the exercise of
the right of first refusal: ADM cannot sell the Ripon Property
without first offering it to Country Visions; Country Visions
has a right to purchase the Ripon Property at the third party's
purchase price; and Country Visions has 15 days to exercise the
right of first refusal and provide notice of its intent to match
the third-party offer for the Ripon Property after receiving
notice of the third party's offer.
¶8 In May 2015, and unbeknownst to Country Visions, ADM
started negotiations to sell its Wisconsin grain business assets
to United. Defendants reached a tentative agreement for United
to purchase the Ripon Property and three other grain storage
facilities around Wisconsin4 from ADM for a total price of $25
million. The tentative agreement included the land,
improvements, and personal property of each facility; it did not
4The other facilities are located in Westfield,
Auroraville, and Oshkosh.
6
No. 2018AP960
include the inventory of grain that ADM had in storage at each
facility.
¶9 Sometime in early October 2015, Country Visions
learned of the proposed sale of the Ripon Property. On
October 8, 2015, Country Visions informed ADM that it held a
right of first refusal to the Ripon Property. Country Visions,
pursuant to the right of first refusal contract, requested a
copy of the third-party offer to purchase so that it could
determine whether it wanted to exercise its right of first
refusal.
¶10 At this point, Defendants had not executed their
tentative agreement. Upon learning of Country Visions' right of
first refusal, Defendants restructured their tentative
agreement. Defendants severed the tentative agreement into two
separate transactions. One transaction called for United to
purchase the Ripon Property from ADM, excluding all inventory
and personal property, for $20 million. The other transaction
called for United to purchase from ADM the other three
properties and all personal property for $5 million and all
inventory at its market value. Defendants assigned such a high
value to the Ripon Property in part due to the unique synergies
the Ripon Property would provide to United's business.5
The circuit court explained the unique synergies that the
5
Ripon Property provided to United as follows:
[The Ripon Property] was particularly beneficial to
[United] because its 50 railroad car loading capacity
in conjunction with United's second location in Ripon
and location in Oshkosh all serviced by the same rail
7
No. 2018AP960
¶11 On October 13, 2015, United provided ADM with a formal
offer to purchase the Ripon Property for $20 million, triggering
ADM's obligations under the right of first refusal contract.
The next day, consistent with its contractual obligations, ADM
notified Country Visions of United's formal offer and provided
Country Visions with a copy of the offer. Country Visions
claimed this $20 million purchase price was a sham and elected
not to meet the terms of the third-party offer.
¶12 On October 16, 2015, Defendants closed on the other
transaction, purchasing the other three properties and personal
property for $5 million. In early November, after the right of
first refusal exercise period lapsed, Defendants closed on the
line, allowed it to load 100 car trains to ship grain
to more lucrative markets.
In addition, the proximity of Auroraville and
Westfield allowed trucking of grain to the [Ripon
Property] for shipping, all within an operations
system geographically proximate to the subject
location.
. . . .
[United] intended to use and does use [the Ripon
Property] to store and ship grain and does and can
implement 100 car trains that increase profitability
and can reach markets not ordinarily available without
the ability to load 100 car trains. In addition,
unlike an agronomy use primarily for storage and
manufacture of livestock feed, the United operation
loads, ships, stores for future shipping and transfers
grain using a margin that requires larger amounts to
be handled in order to obtain profitability. The
Court does find synergies with United's other
facilities and with the ability to load 100 car
trains.
8
No. 2018AP960
Ripon Property transaction, with United purchasing it for $20
million. Country Visions brought a lawsuit against Defendants.
II. PROCEDURAL POSTURE
¶13 On November 11, 2015, Country Visions filed this
lawsuit seeking, as relevant to this appeal, a declaratory
judgment that it had the right to purchase the Ripon Property
for its fair market value and specific performance of the right
of first refusal contract at that fair market value.6
¶14 After several years of pre-trial motions and
decisions not relevant to this appeal, the circuit court held a
bench trial. During the bench trial, Country Visions and
Defendants supplied expert testimony as to the value of the
6 In response, ADM moved to reopen the bankruptcy proceeding
at which it purchased the Ripon Property. In re Olsen, 563
B.R. 899, 902 (Bankr. E.D. Wis. 2017), aff'd sub nom. Archer-
Daniels-Midland Co. v. Country Visions Coop., No. 17-cv-0313-
bhl, 2021 WL 651553 (E.D. Wis. 2021). The bankruptcy court
agreed to reopen the proceeding and addressed the issue of
"whether a final, non-appealable order approving a real estate
sale could extinguish a right of first refusal without affording
the holder of the right formal notice and the opportunity to
object." Id. The bankruptcy court held that Country Visions
"was not given notice during the bankruptcy proceedings
sufficient to satisfy due process before its rights were
extinguished," so ADM did not take the Ripon Property "free and
clear of [Country Visions]' interest." Id. at 909. Therefore,
ADM is still subject to the right of first refusal despite its
purchase of the Ripon Property out of bankruptcy.
9
No. 2018AP960
Ripon Property.7 Country Visions' expert, Mark Akers, opined
that the Ripon Property was worth $7.7 million.8 Defendants'
7 There were several experts in this case, but the circuit
court focused on two in reaching its decision: Mark Akers for
Country Visions and Jack Friedman for Defendants. Similarly,
the parties focused on Akers' and Friedman's testimony. Just as
the circuit court and parties did, we will focus on these two
experts.
8 Akers reached this valuation using the cost approach and
sales comparison approaches of appraisal. The cost approach
"seeks to measure the cost to replace the property." Adams
Outdoor Advert., Ltd. v. City of Madison, 2006 WI 104, ¶35, 294
Wis. 2d 441, 717 N.W.2d 803. "In the cost approach, the
appraiser analyzes the cost of the subject improvements by
comparison to the cost to develop similar improvements as
evidenced by the cost of construction of substitute properties
with the same utility as the subject property." Appraisal
Institute, The Appraisal of Real Estate, 377 (13th ed. 2008).
Using the cost approach, Akers estimated that the value of the
Ripon Property at $7,548,000.
"In the sales comparison approach, an opinion of market
value is developed by comparing properties similar to the
subject property that have recently sold, are listed for sale,
or are under contract (i.e., for which purchase offers and a
deposit have been recently submitted)." Id. at 297. Using the
sales comparison approach, Akers estimated the value of the
Ripon Property at $7,458,000.
Akers then averaged the cost approach and the sales
comparison approach to reach his opinion of value at
$7.5 million. The circuit court believed that his opinion of
value was in error based on "errors in the bin size and some
inaccuracy about access and some criticism regarding
comparables" and determined that $7.7 million was a more
accurate reflection of Akers' opinion of value as it was Akers'
"higher number on his margin of error." We accept this as
Akers' opinion of value for purposes of this appeal, as both
parties do.
10
No. 2018AP960
expert, Jack Friedman, opined that the Ripon Property was worth
$16.6 million to United.9
¶15 On May 3, 2018, the circuit court issued a written
decision. The court concluded "that the $20 million dollar
offer [for the Ripon Property] was a sham at an arbitrarily
inflated price" "for the purpose of preventing [Country Visions]
from exercising the right of first refusal." The court also
found that
the fair value for [United] to use in purchasing the
[Ripon Property] was the $16.6 million dollars
testified to by the witness the court believes was
9 Friedman reached this valuation amount by analyzing the
value of the Ripon Property "in the context of the $25 million
United spent when purchasing four facilities from ADM in 2015."
Specifically, Friedman said that "a reasonable approach to
valuing the Ripon Property in context of this transaction is to
consider what percentage of the total $25 million value was
attributable to the Ripon Property."
Friedman used the income capitalization method to
approximate the prices of the other three facilities——Westfield,
Auroraville, and Oshkosh——that were part of this deal. "In the
income capitalization approach, an appraiser analyzes a
property's capacity to generate future benefits and capitalizes
the income into an indication of present value." Appraisal
Institute, supra note 8, at 445. To reach his valuation for the
facilities, Friedman looked at the grain storage capacity, rail-
loading capability, and quality of cropland near the facility to
inform his estimate of value. Using these factors, among
others, Friedman assigned $500,000 for the Westfield facility as
salvage value only, $2 million for the Auroraville property, and
$5.9 million for the Oshkosh facility. Friedman then estimated
that the value of the Ripon Property was the remainder of the
$25 million total purchase price——$16.7 million. As the circuit
court noted in its decision, this number should have been
$16.6 million, but this error is of no consequence to our
conclusion, and we use $16.6 million as Friedman's opinion of
value.
11
No. 2018AP960
most credible in assessing valuation, Jack Friedman,
whose credentials as an operator in the grain industry
in Iowa and one with experience in valuing and
acquiring grain elevator properties together with his
own assessment of the values of the other three
properties acquired by [United] from [ADM] made his
opinion the most persuasive testimony. Although
Mr. Friedman valued the Ripon property at $16.7
million when that figure is coupled with the other
valuations for the remaining properties the value was
overstated by $100,000 so the Court has reduced his
estimate as to the Ripon property from $16.7 to $16.6
million.
. . . The plaintiff would have this court
construe fair market value to an appraiser's opinion
based upon comparables, assessed values and a
depreciated cost assessment. This Court believes that
appraised value can also include both the income
approach together with some inherent qualities that
would be attributable to a specific buyer. Those type
of inherent qualities can include things like
proximity in the case of an adjoining owner, access in
the case of a land locked parcel and synergies in a
case like [United] and its geographical and rail line
related enhancements to value.
Ultimately, the circuit court granted Country Visions specific
performance to exercise the right of first refusal——giving
Country Visions 15 days to exercise the right of first refusal
at the $16.6 million exercise price.
¶16 Both Country Visions and Defendants appealed the
circuit court's decision on numerous grounds. As relevant to
our review, the court of appeals was asked to address "the
appropriate price at which the [right of first refusal] was to
be exercised." Country Visions, 392 Wis. 2d 672, ¶31. The
court of appeals concluded that the circuit court "did not err
in considering the unique synergies specific to United in
determining an appropriate exercise price under the equitable
12
No. 2018AP960
remedy it adopted." Id., ¶37. However, the court of appeals
did not specifically affirm the Ripon Property's $16.6 million
valuation because it was unclear from the circuit court's
decision whether the $16.6 million valuation included personal
property, which the court of appeals determined was excluded
from the terms of the right of first refusal contract. Id.,
¶38. To remedy this lack of clarity, the court of appeals
remanded for the circuit court to "determine what portion of the
$25 million previously agreed-upon price is fairly allocable to
the real estate alone, had United made a bona fide offer for
just that property." Id., ¶43.
¶17 Country Visions petitioned this court seeking to set
the exercise price at $7.7 million——the price that Country
Visions' expert determined as the "fair market value" of the
Ripon Property. Country Visions argued that we should do so
because the circuit court violated basic right of first refusal
principles when it set the exercise price based on United's
willingness to pay more than the appraised value of the Ripon
Property. We granted review.
III. STANDARD OF REVIEW
¶18 This case requires us to determine whether the circuit
court properly set the price at which Country Visions could
exercise its right of first refusal. This requires us to apply
the law to the circuit court's findings of fact.
¶19 "We uphold a circuit court's findings of fact unless
they are clearly erroneous." Phelps v. Physicians Ins. Co. of
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No. 2018AP960
Wis., Inc., 2009 WI 74, ¶34, 319 Wis. 2d 1, 768 N.W.2d 615.
"[A] finding of fact is clearly erroneous when 'it is against
the great weight and clear preponderance of the evidence.'"
Id., ¶39 (quoting State v. Arias, 2008 WI 84, ¶12, 311
Wis. 2d 358, 752 N.W.2d 748). "Therefore, although evidence may
have presented competing factual inferences, the circuit court's
findings are to be sustained if they do not go 'against the
great weight and clear preponderance of the evidence.'" Id.(quoting Arias, 311 Wis. 2d 358, ¶12).
¶20 The application of the circuit court's findings of
fact to the law is a question of law. Id., ¶35. "We decide
questions of law independently." Id.
IV. ANALYSIS
¶21 We begin our analysis with a general discussion of
rights of first refusal, paying particular attention to the
interaction between rights of first refusal and inflated values
in package deals. We then apply that law to the facts of this
case.
A. Rights of First Refusal Generally
¶22 "A right of first refusal is a contractual right to be
first in line should the opportunity to purchase or lease a
property arise." MS Real Est. Holdings, 362 Wis. 2d 258, ¶24.
As we have explained, a right of first refusal is
a right to buy before or ahead of others, thus, a pre-
emptive right contract is an agreement containing all
the essential elements of a contract, the provisions
of which give to the prospective purchaser the right
to buy upon specified terms, but, and this is the
14
No. 2018AP960
important point, only if the seller decides to sell.
It does not give the pre-emptioner the power to compel
an unwilling owner to sell, and therefore is
distinguishable from an ordinary option.
Id., ¶25 (quoting Edlin v. Soderstrom, 83 Wis. 2d 58, 68, 264
N.W.2d 275 (1978)). "Where the procedure [for exercising the
right] is clear and the time to exercise the right is
reasonable, a right of first refusal 'provides a possible buyer
who is constantly available.'" Id., ¶28 (quoting Bruns v.
Rennebohm Drug Stores, Inc., 151 Wis. 2d 88, 99, 442 N.W.2d 591(Ct. App. 1989)).
¶23 Thus, if a property owner receives an offer, the owner
must offer the property to the right holder first in compliance
with the right of first refusal contract terms.10 If the right
holder accepts the property owner's offer, the right holder
purchases the property. If the right holder declines the
property owner's offer, the property owner may then accept the
prospective buyer's offer. Accordingly, "[t]he holder of a
right of first refusal cannot force landowners to sell or lease
their property unless they freely choose to do so. Even then,
We note that generally, right of first refusal contracts
10
provide that the right holder must purchase the property at the
same purchase price with the same terms and conditions as the
prospective buyer. See, e.g., MS Real Est. Holdings, LLC v.
Donald P. Fox Fam. Tr., 2015 WI 49, ¶6, 362 Wis. 2d 258, 864
N.W.2d 83. As is the case with every contract, the parties to a
right of first refusal contract can set the terms of the
contract, including setting a fixed exercise price or setting
the methodology——such as "objective pricing by way of appraisal
or market index"——for calculating the exercise price. See
David I. Walker, Rethinking Rights of First Refusal, 5 Stan.
J.L. Bus. & Fin. 1, 37-38 (1999).
15
No. 2018AP960
landowners may condition such sale or lease on terms that are
acceptable to them." Id., ¶29.
¶24 These basic principles of rights of first refusal
become more complicated when the burdened property is sold as
part of a package deal with other real or personal property that
is not subject to the right of first refusal. In addressing
package deals and rights of first refusal, jurisdictions across
the nation have adopted varying approaches.11
¶25 In Wisconsin, the court of appeals addressed this
problem of package deals and rights of first refusal for the
first time in Wilber Lime Products, Inc. v. Ahrndt, 2003 WI
App 259, 268 Wis. 2d 650, 673 N.W.2d 339. In Wilber Lime, the
court of appeals addressed facts similar to those now before us.
There, the property owner sold 180 acres, of which Wilber Lime
held a right of first refusal to 25 of the acres. Id., ¶¶2-3.
To resolve the case, the court of appeals had to determine how a
court should address a right of first refusal when a property
11Some jurisdictions hold that the selling of a burdened
property as part of a larger package deal does not trigger the
right of first refusal but enjoins the sale of the burdened
property as part of a package deal. See Bernard Daskal, Rights
of First Refusal and the Package Deal, 22 Fordham Urb. L.J. 461,
475-79 (1995). Other jurisdictions hold that the selling of a
burdened property as part of a package deal does trigger the
right of first refusal. See id. at 480. These jurisdictions
that hold that the right of first refusal is triggered disagree
as to the remedy: one jurisdiction opting for contract damages;
another jurisdiction opting for specific performance on the
entire package deal; and the majority of jurisdictions opting
for specific performance on the burdened property alone. See
id. at 480-84.
16
No. 2018AP960
that is subject to that right of first refusal is sold as part
of a package deal. Id., ¶8. After surveying how different
jurisdictions addressed such a case, the court of appeals
settled on the "middle road" approach the Fourth Circuit Court
of Appeals set forth in Pantry Pride Enterprises v. Stop & Shop
Cos., 806 F.2d 1227, 1230 (4th Cir. 1986). Explaining the
Fourth Circuit's conclusions, our court of appeals stated the
following:
[T]he [Fourth Circuit] concluded that the right of
first refusal was triggered and that awarding specific
performance was consistent with the parties' intent
when they agreed to the right of first refusal.
[Pantry Pride, 806 F.2d at 1230]. However, the court
did not think that a simple pro rata valuation was
fair. Instead, the court remanded the case for an
allocation of the fair market value of the property
burdened by the right of first refusal. Id. at 1231.
"Permitting the exercise of the first refusal right
[based on the purchase price of the whole] provides
[the holder of the right] a windfall for which it
never bargained in the lease." Id. It would bear "no
relation to its worth" and the holder of the right of
first refusal would "have acquired [the property] at
an absurdly low price and on terms never really agreed
to between [the parties]." Id.Wilber Lime, 268 Wis. 2d 650, ¶11. Relying on Pantry Pride's
logic, our court of appeals held that the sale of a property
subject to a right of first refusal as part of a package deal
triggers the right of first refusal to the burdened property and
that the right holder is entitled to specific performance for
the sale of the burdened property. Id., ¶12.
¶26 The court of appeals went on to recognize "like the
court in Pantry Pride, [there is] the possibility that the acres
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No. 2018AP960
being sold are not all of equal value." Id., ¶13. The court of
appeals then concluded:
[T]he most equitable resolution is to determine the
fair market value of the twenty-five acres. This
protects the landowner from being forced to sell the
twenty-five acres at a price lower than its fair
market value and therefore lower than the owner would
accept if the twenty-five acres were sold alone. It
also prevents [right holder] from receiving a windfall
of being able to purchase the land at a price lower
than its value. This approach best fulfills the
intentions of the parties when they entered into the
agreement granting [right holder] the right of first
refusal.
Id.
¶27 This very passage is the basis of Country Visions'
argument that the circuit court did not apply a proper
methodology in determining the exercise price for the Ripon
Property. Country Visions argues that the exercise price for
the Ripon Property must be set at the "fair market value," as
determined using the three-tiered methodology of appraisals set
forth in Wis. Stat. § 70.32(1) (2019-20).12 This hierarchical
All subsequent references to the Wisconsin Statutes are
12
to the 2019-20 version unless otherwise indicated.
"Tier 1" of this three-tiered methodology requires the
appraiser to examine a "recent arm's-length sale" of the subject
property. Metro. Assocs. v. City of Milwaukee, 2018 WI 4, ¶32,
379 Wis. 2d 141, 905 N.W.2d 784. "If there is no recent sale of
the subject property, the appraiser moves to tier 2, examining
recent, arm's-length sales of reasonably comparable properties
(the 'sales comparison approach')." Id., ¶33. "When both tier
1 and tier 2 are unavailable, an assessor moves to tier 3."
Id., ¶34. For tier 3, an assessor:
may consider all the factors collectively which have a
bearing on value of the property in order to determine
its fair market value. These factors include cost,
18
No. 2018AP960
methodology is applicable in cases involving taxation and
eminent domain, where the need for uniform application is
essential. See Wis. Stat. § 70.32(1); Metro. Assocs. v. City of
Milwaukee, 2018 WI 4, ¶31, 379 Wis. 2d 141, 905 N.W.2d 784(applying the methodology to taxation cases); Adams Outdoor
Advert., Ltd. v. City of Madison, 2006 WI 104, ¶47, 294
Wis. 2d 441, 717 N.W.2d 803 (same to eminent domain cases);
State ex rel. Levine v. Bd. of Rev. of Vill. of Fox Point, 191
Wis. 2d 363, 372, 528 N.W.2d 424 (1995) (explaining that
§ 70.32(1) "seeks to ensure a uniform method of taxation by
requiring assessors to assess real estate at its fair market
value, using the 'best information' that the assessor can
practicably obtain"). However, the goal of the circuit court
when setting the exercise price for a right of first refusal is
not to determine the fair market value of the burdened property.
Rather, the circuit court must determine the actual price that
the prospective third-party buyer would have offered for the
burdened property, based on the terms of the contract and facts
of the case (we will refer to this actual price as the
depreciation, replacement value, income, industrial
conditions, location and occupancy, sales of like
property, book value, amount of insurance carried,
value asserted in a prospectus and appraisals produced
by the owner. Both the income approach, which seeks
to capture the amount of income the property will
generate over its useful life, and the cost approach,
which seeks to measure the cost to replace the
property, fit under the umbrella of tier 3 analysis.
Id. (cleaned up).
19
No. 2018AP960
"prospective offer price"). See Wilber Lime, 268 Wis. 2d 650,
¶13 ("This approach best fulfills the intentions of the parties
when they entered into the agreement . . . ."). This
prospective offer price, contrary to Country Visions' argument,
need not equal the appraised value nor the fair market value.
See Pantry Pride, 806 F.2d at 1231-32; In re Adelphia Commc'ns
Corp., 368 B.R. 348, 357-58 (Bankr. S.D.N.Y. 2007). As the
court in Adelphia explained,
The price paid by [the prospective third-party buyer]
apparently exceeded fair market value, but it was
their right to pay greater than market value. The
valuation expert for the [right holder] conceded as
much. It makes no difference that the [property]
might be worth more to [the prospective third-party
buyer] than to other potential buyers because of
synergies and economies of scale that [the prospective
third-party buyer] could bring to bear. It appears
that [the prospective third-party buyer] was willing
to pay more for the [property] than other potential
offerors would have paid. But that is exactly why one
could not simply rely on what the "fair market value"
of the [property] might be to those other potential
buyers. It is the offer made by [the prospective
third-party buyer] that must be matched by the [right
holder].
Adelphia, 368 B.R. at 357-58. Indeed, the prospective offer
price may be significantly higher than either the appraised
value or the fair market value of the burdened property. A
prospective buyer may be willing to pay significantly more than
the appraised value because the property gives the prospective
20
No. 2018AP960
buyer greater utility than a different buyer.13 This is perhaps
even more true when a potential buyer is purchasing the burdened
property in a package deal where the value of the burdened
property increases for the potential buyer because of synergies
or relationships between the properties that are a part of the
package deal. See, e.g., Adelphia, 368 B.R. at 357 ("It makes
no difference that the Consortium Systems might be worth more to
Time Warner than to other potential buyers because of the
synergies and economies of scale that Time Warner could bring to
bear."); In re Albion Disposal, Inc., 152 B.R. 794, 802 (Bankr.
W.D.N.Y. 1993) ("The value of the OSL land if sold alone is far
less than the value of the OSL lands if combined with the Smith
lands in a 'package deal.'" (footnote omitted)); see also It's
My Party, Inc. v. Live Nation, Inc., 811 F.3d 676, 688 (4th Cir.
2016) ("The real loss would be the productive synergies created
when sellers package complementary products."). Consequently,
we reject Country Visions' contention that the prospective offer
price must equal the appraised or fair market value.14
See, e.g., Ben Krumholz, Packers' Development Potential
13
Moves Across Lombardi Ave with Funeral Home Site Purchase,
Fox 11 News (July 1, 2020), https://fox11online.com/
news/local/green-bay/packers-development-potential-moves-across-
lombardi-ave-with-funeral-home-site-purchase (explaining that
the Green Bay Packers paid three times the assessed value for
two parcels to support its Titletown District development).
To the extent that Wilber Lime says that the circuit
14
court in that case was to determine the fair market value on
remand, we interpret that as requiring the circuit court to
determine the prospective offer price.
21
No. 2018AP960
¶28 This general discussion of rights of first refusal and
package deals elucidates certain key principles that are
applicable to the case before us. First, the sale of a property
that is subject to a right of first refusal as part of a package
deal triggers the right of first refusal. Wilber Lime, 268
Wis. 2d 650, ¶12. Second, a circuit court must break up the
package deal and allow a right of first refusal holder to
exercise that right on only the burdened property. Id. Third,
the circuit court must look to the contract to determine how to
calculate the exercise price for the right of first refusal. MS
Real Estate, 362 Wis. 2d 258, ¶¶24-29. Fourth, if the right of
first refusal contract provides that the right holder must match
the purchase price and terms and conditions of the prospective
buyer's offer, as is generally the case, the court must
determine the prospective offer price——the actual price that the
prospective third-party buyer would have offered for the
burdened property based on the terms of the contract and facts
of the case. See Wilber Lime, 268 Wis. 2d 650, ¶13; Pantry
Pride, 806 F.2d at 1231-32; Adelphia, 368 B.R. at 357-58.
Finally, the circuit court may grant specific performance to the
right holder to exercise the right of first refusal to purchase
the burdened property at the exercise price. See Wilber Lime,
268 Wis. 2d 650, ¶13.
B. Application
¶29 With these principles in mind, we turn to the facts of
the dispute between Country Visions and Defendants. The right
of first refusal contract between Country Visions and ADM was a
22
No. 2018AP960
typical right of first refusal contract, providing that Country
Visions has the right to purchase the Ripon Property at the
"purchase price and other terms and conditions" that a third
party offered.
¶30 When ADM and United entered an agreement to sell the
Ripon Property, the offer triggered Country Visions' right of
first refusal. The circuit court found that "the $20 million
offer was a sham at an arbitrarily inflated price" and, instead,
used the $25 million package deal price to determine an accurate
exercise price.
¶31 The circuit court then set the exercise price at $16.6
million and granted to Country Visions specific performance.
Country Visions argues that this number is far greater than the
appraised value of the property——$7.7 million——meaning we should
replace the circuit court's exercise price of $16.6 million with
the appraised value. As we described above, a prospective buyer
may choose to offer significantly more than the appraised value
of a property, especially in the context of a package deal.
This case typifies such a transaction. The circuit court found
that the "synergies in a case like [United] and its geographical
and rail line [serve as] enhancements to value." Because of
these unique synergies that the Ripon Property provided to
United, the circuit court determined that the prospective offer
price that United offered for the Ripon Property was $16.6
million. Accordingly, we reject Country Visions' request to set
the exercise price in this case at the $7.7 million amount that
its expert determined was the appraised value of the Ripon
23
No. 2018AP960
Property.15 Furthermore, we conclude that the circuit court did
not err in considering the unique synergies that the Ripon
Property provides to United when it set the exercise price
higher than the appraised value.
¶32 However, while the circuit court did not err in how it
reached its conclusion, it is unclear in the circuit court's
decision whether the court correctly valued only the portion of
the package deal that was subject to the right of first refusal.
This lack of clarity arises because the circuit court used the
package deal to set the exercise price, and that package deal
included the land, improvements, and personal property of each
of the four facilities. Country Visions' right of first refusal
was for the real property at the Ripon Property only.
Consequently, the package deal should be broken up, removing the
other three facilities and all personal property, and Country
Visions should be permitted to exercise its right of first
refusal on only the real property at the Ripon Property. See
Wilber Lime, 268 Wis. 2d 650, ¶12. While it is clear that the
circuit court removed the other three facilities, it is unclear
from the record whether the circuit court removed the personal
15This case involved sophisticated commercial actors. If
Country Visions had wished for the right of first refusal
contract to require that the exercise price be set at the
appraised value of the Ripon Property, it could have contracted
to do so. See Walker, supra note 10, at 37-38 (explaining the
different methods a right of first refusal can set the exercise
price).
24
No. 2018AP960
property when it determined that the actual value of the Ripon
Property was $16.6 million.
¶33 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.
On remand, the circuit court should create a record such that
the exercise price is comprised of the real property at the
Ripon Property only. Finally, the circuit court may then grant
specific performance to Country Visions at that exercise price.
We leave to the circuit court's discretion how best to
accomplish these directions on remand.
V. CONCLUSION
¶34 We conclude that the circuit court did not err in
considering the unique synergies that the Ripon Property
provides to United when it set the exercise price higher than
the appraised value. For rights of first refusal, a prospective
buyer may choose to offer significantly more than the appraised
value of a property, especially in the context of a package
deal. Thus, depending on the terms of the right of first
refusal contract and the facts of the case, a circuit court may
set an exercise price that exceeds the appraised value of the
burdened property. However, we conclude that remand is
necessary to determine whether the $16.6 million exercise price
includes more than is called for in the right of first refusal
contract. Accordingly, we affirm the court of appeals' decision
25
No. 2018AP960
and remand to the circuit court for proceedings consistent with
this opinion.
By the Court.—The decision of the court of appeals is
affirmed.
26
No. 2018AP960.pdr
¶35 PATIENCE DRAKE ROGGENSACK, C.J. (concurring). We
review a right of first refusal (ROFR) that is held by Country
Visions Cooperative. The ROFR burdens the Ripon Property, which
was owned by Archer-Daniels-Midland (ADM). The Ripon Property
was part of a package sale to United Cooperative that also
included three other properties, Oshkosh, Auroraville and
Westfield, all of which were owned by ADM.
¶36 We are asked to determine whether the price for the
Ripon Property under the ROFR is controlled by an appraisal
purporting to define the Ripon Property's fair market value or
whether the price is affected by the price that United assigned
to the Ripon Property in its package offer. I conclude that the
ROFR's terms, which do not mention fair market value, control.
The ROFR grants a right to purchase by matching "the purchase
price and other terms and conditions of such proposed sale" made
by a bona fide purchaser in a written offer.1 Therefore, the
terms Country Visions must match, i.e., the exercise price, in
order to purchase the Ripon Property are United's terms if they
comprise a bona fide offer. However, an opinion on the fair
market value of the Ripon Property may provide some guidance
about whether the price United alleges that it paid for the
Ripon Property in its package purchase was bona fide or an
artificial price created to defeat Country Visions' purchase
under the ROFR. In re Adelphia Commc'ns Corp., 368 B.R. 348,
356-57 (Bnkr. S.D.N.Y. 2007) (explaining that when the offeror
1 R. 826:2.
1
No. 2018AP960.pdr
and the seller have set a good faith price for an asset sold as
part of a group, that price should control).
¶37 The majority opinion concludes that the $16.6 million
exercise price for the Ripon Property that was set by the
circuit court should be reviewed to determine whether it
included personal property that was sold with the real estate
under the Asset Purchase Agreement (APA).2 For the reasons set
forth below, I agree and therefore, I respectfully concur and
join the majority opinion.
I. BACKGROUND
¶38 The majority opinion capably sets out the background
underlying this controversy. Therefore, I describe here only
that which is necessary to understand my writing below.
¶39 Country Visions brought this lawsuit to enforce its
ROFR to purchase the Ripon Property that ADM sold to United as
part of a $25 million package sale of four properties, which
included both real estate and personal property.3 The circuit
court held a lengthy bench trial.4
2 Majority op., ¶6.
3 Although the Ripon Property was subject to an allegedly
separate offer to purchase for $20 million, with the remaining
three properties selling for $5 million, the sales were inter-
dependent. As counsel for United said, "We need to be sure they
are tied. I know there must be a bit of a trust factor but we
need to do the 2 together." On review, there is no real
challenge to the Ripon Property being part of a package sale.
4 Circuit Court Judge Gary R. Sharpe of Fond du Lac County
did outstanding judicial work in addressing the many, many
factual and legal issues presented by this very complicated
case.
2
No. 2018AP960.pdr
¶40 The circuit court found that United had valued the
property it purchased from ADM in various ways. For example,
United and ADM allocated the $25 million purchase price as $14
million for personal property, leaving $11 million for all four
parcels of real estate.5 United's executive, David Cramer,
assigned $20 million of the purchase price to the Ripon
Property.6 And, United booked the cost of the Ripon Property at
$8.725 million.7
¶41 Country Visions and United provided experts to opine
on the actual price for the Ripon Property's part of the $25
million package sale. Country Visions presented Mark Akers who
appraised the property as having a fair market value of $7.5
million.8 The circuit court found that his approach to valuation
was "insufficient in determining value in a sale to United."9
¶42 The circuit court found that United "intended to use
and does use [the Racine Property] to store and ship grain and
does and can implement 100 car trains that increase
profitability."10 The court also found that the Ripon Property
Findings of Fact, ¶8.
5 Some of the "Findings of Fact"
actually are conclusions of law, and some of the listings after
the heading "Conclusions of Law" are findings of fact. However,
to assist a reader who is referring to the record, I use the
labels of the circuit court.
6 Id., ¶14.
7 Id., ¶22.
8 Id., ¶23.
9 Id., ¶25.
10 Id.
3
No. 2018AP960.pdr
had "synergies with United's other facilities and with the
ability to load 100 car trains."11
¶43 United presented testimony from Jack Friedman, who
opined that the Ripon Property had a value of $16.7 million to
United. Due to what the circuit court characterized as a math
error, the court concluded that the Ripon Property accounted for
$16.6 million of the $25 million United paid to ADM based on
Mr. Friedman's testimony.12
¶44 The circuit court also made a number of "Conclusions
of Law," most of which we were not asked to review. One
conclusion for which we accepted review is whether "the fair
value for United Cooperative to use in purchasing the subject
parcel was the $16.6 million dollars testified to by [] Jack
Friedman."13 The circuit court concluded that Country Visions
was entitled to specific performance against United at the
exercise price of $16.6 million.14
¶45 The court of appeals concluded that the ROFR required
a bona fide offer, but not necessarily an offer based on the
fair market value derived through the three tiered methodology
employed in taxation and eminent domain valuations. Country
Visions Coop. v. Archer-Daniels-Midland Co. and United Coop.,
2020 WI App 32, ¶33, 392 Wis. 2d 672, 946 N.W.2d 169. The court
11 Id.12 Id., ¶26.
13 Conclusions of Law, ¶5.
14 Id., ¶10.
4
No. 2018AP960.pdr
reasoned that because County Visions' right to purchase arose
under a ROFR, courts are "more interested in discerning the most
likely arms-length purchase price pertaining to this buyer."
Id., ¶34 (emphasis in original). The court of appeals was
concerned with whether the circuit court's $16.6 million
exercise price included the "business assets [] set forth in the
APA" because "nowhere does it appear that Friedman——and by
extension the trial court——took into account the value of the
personal property at all." Id., ¶¶39, 40 (emphasis in
original).
II. DISCUSSION
A. Standard of Review
¶46 On review, we affirm the circuit court's findings of
fact unless they are clearly erroneous. Phelps v. Physicians
Ins. Co. of Wis., Inc., 2009 WI 74, ¶34, 319 Wis. 2d 1, 768
N.W.2d 615. In the case before us, once the historic facts are
determined we compare them to the requirements of the ROFR.
This presents a question of law that we independently decide,
while benefitting from discussions in previous court decisions.
Id., ¶35.
5
No. 2018AP960.pdr
B. ROFR General Principles
¶47 It has been said that a ROFR is "simply a fancy name
for a small bundle of contract terms." Walker, David I.,
Rethinking Rights of First Refusal, 5 Stan. J.L. Bus. & Fin. 1,
5 (1999). As we have explained, a ROFR creates contractual
rights, the terms for which are stated in the document granting
the rights. Edlin v. Soderstrom, 83 Wis. 2d 58, 68, 264 N.W.2d
275 (1978) (noting that such a contract may give a prospective
purchaser the right to buy if the seller decides to sell). A
ROFR also imposes a duty on the owner of such property to offer
to the holder of the ROFR the opportunity to purchase at terms
another has offered, which terms the owner is willing to accept.
Wilber Lime Prods., Inc. v. Ahrndt, 2003 WI App 259, ¶8, 268
Wis. 2d 650, 673 N.W.2d 339.
¶48 When a ROFR burdens property that the owner has chosen
to sell together with other properties, sorting out the exercise
price for the property to which the ROFR applies can be
complicated. This is especially so when the ROFR contains no
yardstick, such as appraised value or fair market value, by
which to measure the terms of an offer that the owner says it is
willing to accept for an entire package. Daskal, Bernard,
Rights of First Refusal and the Package Deal, 22 Fordham Urb.
L.J., 461, 465 (1995) (explaining that where no criteria are
stated for the exercise of the ROFR, the third party's terms
provide relevant criteria). However, "allocations of price to
elements of a package may readily be manipulated to defeat
contractual rights of first refusal." Pantry Pride Enters.,
6
No. 2018AP960.pdr
Inc. v. Stop & Shop Cos., Inc., 806 F.2d 1227, 1231-32 (4th Cir.
1986) (emphasis in original).
¶49 Courts have examined various methods by which to value
the exercise price for ROFRs that burden one property in a
package sale. As with general contract interpretation
principles, some courts attempt to determine the intent of the
parties to the ROFR. See Gleason v. Norwest Mortg., Inc., 243
F.3d 130, 142 (3d Cir. 2001) (reviewing prior dealings between
the parties). Some courts have held that in the absence of bad
faith or another basis for a change in the allocated price,
proportionate pricing controls. See Adelphia Commc'ns, 368 B.R.
at 356-58. Other courts have said that when the ROFR contains
price terms, the owner must honor those terms if it wished to
sell. See Foster v. Bullard, 554 S.W.2d 66, 67 (Tex. Civ. App.
1977).
C. Country Visions' ROFR
¶50 Country Visions' ROFR is set out in a document
recorded at the Fond du Lac Register of Deeds. It states in
relevant part:
[T]he Grantor has agreed to grant to the Grantee a
right of first refusal to purchase the Property but
only upon the terms and conditions set forth
herein. . . . For a period of ten (10) years from the
date hereof (the "ROF Period"), the Grantor hereby
grants to the Grantee a right of first refusal to
purchase the Property or applicable portion
thereof . . . .
If at any time during the ROF Period, the Grantor
desires to sell any part of the
Property . . . pursuant to a bona fide written offer
from a third party (the "Third Party Offer"), the
Grantor shall first notify the Grantee of the
7
No. 2018AP960.pdr
Grantor's desire to sell . . . . The Grantee shall
have the right and option to purchase the Offered
Property on the Third Party Terms but only if the
Grantee shall provide written notice of such election
to the Grantor within fifteen (15) days after the
Grantee's receipt of the Notice.[15]
As with any written document under which a party is asserting
rights, we begin with the terms of the document. Solowicz v.
Forward Geneva Nat.l, LLC, 2010 WI 20, ¶13, 323 Wis. 2d 556, 780
N.W.2d 111. Having reviewed the entire ROFR, the dispositive
provisions of which are set forth above, 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.
¶51 In addition, Wisconsin has had limited appellate cases
that address property subject to a ROFR that is being sold with
other properties for a package price. Wilber Lime did so. It
arose in the context of the sale of a 180-acre farm in which 25
acres were subject to a ROFR. Wilber Lime, 268 Wis. 2d 650, ¶1.
The court of appeals was concerned that determining the exercise
price for the 25 acres by dividing the purchase price by 180 and
then multiplying the quotient by 25 assumed that each acre had
the same value when that may not be true. Id., ¶11. Therefore,
the court rejected proportionate pricing that other courts have
used. See Adelphia Commc'ns, 368 B.R. at 356-58.
15 R. 826:2.
8
No. 2018AP960.pdr
¶52 As it structured how the actual price for the 25 acres
should be determined, the court concluded that it was equitable
"to determine the fair market value" of the twenty-five acres
that were subject to the ROFR. Wilber Lime, 268 Wis. 2d 650,
¶13. Wilber Lime explained that the fair market value "protects
the landowner from being forced to sell the twenty-five acres at
a price lower than its fair market value and . . . [i]t also
prevents Wilber Lime from receiving a windfall of being able to
purchase the land at a price lower than its value." Id.¶53 Although Wilber Lime's directive to determine the fair
market value of the 25 acres subject to the ROFR is an equitable
solution given the context in which the court's decision was
made, it has very limited, if any, relevance to the commercial
package sale of which the Ripon Property was a part. This is so
because of the very different contexts in which Wilber Lime and
Country Visions arise.
¶54 For example, in Wilber Lime, the court sought to
determine an equitable exercise price for 25 acres of farmland
that was part of a 180-acre farmland purchase. In the case
before us, four commercial properties were purchased as part of
a package. All have revenue generating potentials, but those
potentials vary considerably. Some are on a rail line and some
are not; some were in good repair and some were not. In
addition, United's purchase of the four properties gives it
control of grain storage and shipping in an area west of Lake
Winnebago in which United had been only a participant prior to
9
No. 2018AP960.pdr
the purchase. This control factor likely affected the price
United was willing to pay.
¶55 Furthermore, it is without question that United
purchased the Ripon Property to generate revenue.16 There is
nothing in Wilber Lime that indicates that revenue generation
was part of the motivation for the purchase of 25 acres.
Because the ROFR grants Country Visions the right to match the
purchase price and other terms and conditions that United
actually paid, but grants no right to a cap or ceiling price set
by the fair market value, I conclude that it is United's actual
price paid for the Ripon Property that controls Country Visions
exercise price.
¶56 On remand, the central question is whether United's
expert included personal property acquired under the APA when he
asserted that the actual price for the Ripon Property was $16.6
million. This question can be addressed on remand in at least
two ways.
¶57 First, personal property belonging to all four parcels
of real estate should be identified and valued. The exercise
Friedman discussed EBITDA (Earnings Before Interest Taxes
16
Depreciation and Amortization), which is gross revenue achieved
before paying the costs of doing business, in the context of
evaluating the potential purchase of property. R.630:155-57.
EBITDA is a metric used in measuring strength of performance for
an on-going business. Hon. Christopher S. Sontchi, Valuation
Methodologies: A Judge's View, 20 Am. Bankr. Inst. L. Rev. 1,
11 (2012). EBITDA differs significantly from the NOI (Net
Operating Income), another metric used to measure the strength
of a business. The NOI focuses on the income generated by a
business after the costs of doing business have been addressed.
Regency W. Apartments LLC v. City of Racine, 2016 WI 99, ¶9, 372
Wis. 2d 282, 888 N.W.2d 611.
10
No. 2018AP960.pdr
price for the Ripon Property cannot include personal property
because the ROFR affords Country Visions no right or obligation
to purchase personal property. Pantry Pride, 806 F.2d at 1229.
¶58 Second, Friedman testified to both the value of the
Ripon Property as a standalone parcel (the value without "taking
into consideration any synergies from anything around it")17 and
its value to United. Both values must be carefully reviewed.
¶59 It was Friedman's opinion that "the Ripon Property has
high strategic value to United because it is centrally located
within United's grain facility network and located on the same
rail line as three of United's other large rail-loading
facilities."18 He used two valuation methods for the Ripon
Property.
¶60 In part of his trial testimony, he started his
valuation with the $25 million package purchase price. He then
deducted $500,000 for the value of Westfield and $2,000,000 for
Auroraville.19 This left $22,500,000 to be divided between
Oshkosh and Ripon. He said that he divided that number based on
the percentage of the total volume handled by these two
properties, with 26% ($5,850,000) attributed to Oshkosh and 74%
($16,650,000) attributed to Ripon.20 However, in his written
report he attributed "52% of the total volume handled in the
17 R. 630:155.
18 R. 773:12, Expert Report of Jack Friedman.
19 R. 630:163-65.
20 R. 630:166.
11
No. 2018AP960.pdr
last full year that ADM owned those facilities" to Ripon.21 He
did not mention personal property that also was purchased under
the APA.22
¶61 Friedman also calculated a stand alone value for the
Ripon Property by using 16 cents EBITDA-per bushel times the 5.2
million bushel capacity of Ripon, which results in an annual
EBITDA of $832,000. He then multiplied the annual EBITDA by 10,
yielding a standalone value for the Ripon Property of $8.3
million.23 This valuation is based solely on the revenue
generating potential of the Ripon Property and Friedman's
opinion that a multiple of 10 is reasonable for a grain business
such as the Ripon Property.
¶62 Friedman also opined that United achieved a 6 to 10
cent per bushel "margin gain" by using rail shipping with 100-
car trains. This is in addition to the usual per bushel revenue
generation.24 Therefore, if Friedman had stayed with the
$832,000 annual EBITDA he calculated for the Ripon Property and
added a 6 to 10 cent per bushel margin gain onto Ripon's volume
21 R. 773:19.
22If 52% of the $25,000,000 package price were assigned to
the Ripon Property, Ripon would have a value of $13,000,000, and
if 52% were applied to what remained of the package price after
Friedman's deductions for Westfield and Auroraville, Ripon would
have a value of $11,700,000. Simply stated, Friedman is a
skillful witness and his opinion that $16.6 million is the
actual price United paid for the Ripon Property is based on his
choice of percentages that he applied to the package purchase
price.
23 R. 630:155-57.
24 R. 630:141.
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No. 2018AP960.pdr
of 5,200,000, the adjusted annual EBITDA that includes the
margin gain would be $1,144,00025 to 1,352,000.26 If those
adjusted annual EBITDAs for the Ripon Property are then
multiplied by 10, the multiple Friedman testified was used in
assessing potential grain business purchases, the actual price
for the Ripon property would be between $11,440,000 and
$13,520,000.
¶63 Friedman was asked similar questions on cross-
examination that related to United doing only twelve 100-car
trains in 2016.27 He was asked, based on United's actual 2016
production, if margin gains of 2.83 to 4.8 and were added to
Ripon's standalone value of $8.3 million, the range of prices
for Ripon would be between $11.13 million and $13.1 million.28
¶64 Friedman agreed with opposing counsel's valuation if
actual 2016 performance were used.29 However, Friedman objected
to the valuation because United had plans to move 22 million
bushels of grain each year, which he believed it could
accomplish.30
25 5,200,000 x .06 = 312,000 + $832,000 = $1,144,000.
26 5,200,000 x .10 = 520,000 + 832,000 = $1,352,000.
27 R. 630:211-215.
The above two examples are based on revenue production.
28
Therefore, they may have value to the circuit court when this
matter is remanded to determine whether personal property was
included in the $16.6 million price that the circuit court found
as the price United paid for the Ripon Property.
29 R. 630:215.
There are approximately 400,000 bushels of grain in a
30
100-car train. R. 773:12. Therefore, to ship 22 million
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No. 2018AP960.pdr
¶65 I agree with the majority opinion that on remand
additional briefing or testimony may be necessary.31
III. CONCLUSION
¶66 The majority opinion and the court of appeals both
concluded that the $16.6 million exercise price for the Ripon
Property that was set by the circuit court should be reviewed to
determine whether it included personal property that was sold
with the real estate under the APA. For the reasons set forth
above, I agree and therefore, I respectfully concur and join the
majority opinion.
bushels of grain each year, United would have to ship 55, 100-
car trains per year, rather than the 12 it shipped in 2016.
31 Majority op., ¶33.
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No. 2018AP960.pdr
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