Berry & Berry Acquisitions, LLC v. BFN Props. LLC

• Decision Date: 03 April 2018
• Docket Number: Case Number: 114442
• Citation: 416 P.3d 1061
• Parties: BERRY AND BERRY ACQUISITIONS, LLC, d/b/a Park Hill Nursery, Burl R. Berry, and Bob R. Berry, Plaintiffs and Counter-Defendants/Appellants and Counter-Appellees, v. BFN PROPERTIES LLC, and BFN Operations LLC, Defendants and Counter-Plaintiffs/Appellees and Counter-Appellants.
• Court: Oklahoma Supreme Court

416 P.3d 1061

BERRY AND BERRY ACQUISITIONS, LLC, d/b/a Park Hill Nursery, Burl R. Berry, and Bob R. Berry, Plaintiffs and Counter-Defendants/Appellants and Counter-Appellees,

v.BFN PROPERTIES LLC, and BFN Operations LLC, Defendants and Counter-Plaintiffs/Appellees and Counter-Appellants.

Case Number: 114442

Supreme Court of Oklahoma.

Decided: April 3, 2018

David E. Keglovits, Amelia A. Fogleman, Justin A. Lollman, GableGotwals, Tulsa, OK, for Plaintiffs and Counter-Defendants/Appellants and Counter-Appellees.

Wayne Bailey, Bailey Law, PLC, Tahlequah, OK, for Plaintiffs and Counter-Defendants/Appellants and Counter-Appellees.

James M. Reed & John T. Richer, Hall, Estill, Hardwick, Gable, Golden, & Nelson PC, Tulsa, OK, for Defendants and Counter-Plaintiffs/Appellees and Counter-Appellants.

Robert K. Wise & Thomas F. Lillard, Lillard Wise Szygenda PLLC, Pro Hac Vice, Dallas, TX, for Defendants and Counter-Plaintiffs/Appellees and Counter-Appellants.

GURICH, V.C.J.

Facts & Procedural History

¶1 Bob Berry, who resides in Tahlequah, Oklahoma, has been a nurseryman and businessman for more than fifty years. In the 1960s, Bob began working in the nursery business in Tahlequah, and in the early 1970s, he founded Midwestern Nursery. Bob grew and developed Midwestern Nursery, which later became American Nursery Products, and eventually took the company public. Upon his departure from American Nursery Products in the early 1990s, Bob and his son, Burl Berry, who also lives in Tahlequah, formed Tri-B Nursery. The Berrys purchased land near Hulbert, Oklahoma, and began operations in 1992. Wal-Mart was Tri-B Nursery's first customer in the spring of 1993.

¶2 In the late 1990s, Tri-B Nursery purchased its first out-of-state nursery, Judkins Nursery, with one location in Tennessee. The Berrys then acquired a nursery in Quincy, Florida, and subsequently bought Zelenka Nursery out of bankruptcy, thereby acquiring another nursery in Tennessee and nurseries in both Michigan and North Carolina. The Berrys then purchased an Oregon nursery, Zelenka West, out of bankruptcy. With such acquisition, Tri-B Nursery, or Berry Family Nurseries as it became known, emerged as one of the largest, if not the largest wholesale nursery business in the United States. Berry Family Nurseries specialized in the sale of trees, shrubs, rose bushes, and perennials to national and regional retailers including Wal-Mart, Home Depot, Lowe's, Sam's Club, K-Mart, ShopKo, Rural King, and Meijer, and generated hundreds of millions of dollars in sales. Berry Family Nurseries maintained offices in Tahlequah, Oklahoma, and Grand Haven, Michigan, and employed more than 400 people at seven nurseries in six states.

¶3 The Berrys also owned Sanders Nursery and Distribution Center, a retail nursery business with locations in Wagoner County and Rogers County, Oklahoma. Bob also owned an interest in a California wholesale nursery, Rosetree Nursery, that specialized in rose sales. In 2009, the Berrys purchased Park Hill Nursery (Park Hill), a nursery located in Tahlequah. At the time of the purchase, Park Hill was roughly 300-350 acres, and the Berrys paid just over $3 million for the sale. Park Hill was a supplier to Berry Family Nurseries and employed about 150 people. Until recent events, Park Hill was not a competitor to Berry Family Nurseries.

¶4 In early 2010, Berry Family Nurseries was heavily indebted and facing pressure from its lenders to infuse more than $20 million of equity into the business. The Berrys engaged a business broker to find an investor for Berry Family Nurseries. In the spring of 2010, the broker for the Berrys approached Insight Equity, a Texas investment company with headquarters in Southlake, Texas, about investing in Berry Family Nurseries. Insight Equity, a private-equity firm specializing in the acquisition of middle-market companies, was interested in Berry Family Nurseries because of its national scope and customer base. Insight Equity saw the opportunity to expand Berry Family Nurseries by acquiring other wholesale nurseries and to make Berry Family Nurseries more profitable by strengthening management and consolidating decentralized administrative functions.

¶5 In mid-2010, Insight Equity sought to purchase Berry Family Nurseries and negotiations began. The Berrys were represented by counsel from both Oklahoma and Texas, and Insight Equity was represented by counsel from Texas. Negotiations were conducted primarily by phone calls and email exchanges and took the better part of six months to finalize. During Insight Equity's due diligence efforts, Insight Equity partners traveled to each of the nurseries owned by Berry Family Nurseries in Oklahoma, Florida, Michigan, Oregon, Tennessee, and North Carolina. In August of 2010, the Berrys met with Insight Equity partners at their Southlake, Texas office and signed a Letter of Intent regarding the eventual purchase of Berry Family Nurseries.

¶6 In November of 2010, Insight Equity formed BFN Properties and BFN Operations (BFN) to make the acquisition.¹ All of BFN's officers were Insight Equity partners who lived, worked, and maintained offices in the Insight Equity Southlake, Texas office. BFN opened and maintained bank accounts with several Dallas-area banks, and although BFN registered to do business in Oklahoma, BFN's Application for Employer Identification Number, filed with the federal government shortly after BFN's formation, listed Tarrant County, Texas, as BFN's principal place of business.

¶7 On December 7, 2010, the deal closed with BFN electronically signing the Purchase Agreement (Agreement) in Texas and the Berrys electronically signing the Agreement in Oklahoma. Pursuant to the Agreement, BFN purchased Berry Family Nurseries for $160 million. Park Hill was not included in the sale, but the Agreement included a three-year option allowing BFN to purchase Park Hill.² Sanders Nursery and Rosetree Nursery were also not included in the sale. The $160 million purchase price included assets of the business, debt assumption by BFN, and the Park Hill Purchase Option. The Berrys received millions of dollars in cash at closing, an "earn out" pursuant to which they could have earned tens of millions of dollars more based on BFN's financial performance, and the right to receive a portion of the proceeds from any profitable sale of BFN. At closing, BFN also paid millions of dollars to the Berrys' creditors, repaid a $30 million term loan, which released Bob and Burl from personal liability, and paid $21 million on a revolver note reducing the Berrys' personal liabilities.

¶8 The Agreement entered into by the parties contained a choice-of-law provision that provides that the Agreement "shall be governed by and construed in accordance with the domestic Laws of the State of Texas...."³ The Agreement also contained a five-year non-compete provision, prohibiting the Berrys from owning a company anywhere in the United States that competed with the business acquired by BFN, i.e., the wholesale nursery business, until December 7, 2015. The non-compete allowed the Berrys to continue to own and operate Park Hill, Sanders Nursery, and Rosetree Nursery so long as such entities did not compete with BFN while being owned by the Berrys .⁴ The Agreement also contained a five-year non-solicit provision, prohibiting the Berrys from soliciting the customers acquired by BFN in the purchase until December 7, 2015. Pursuant to separate Employment Agreements, Burl stayed on with BFN as the Chief Operating Officer, and Bob stayed on as the Chief Executive Officer.⁵

¶9 For the next three years, both BFN and the Berrys performed under the terms of the Agreement, and business continued as usual for the Berrys. Burl remained largely responsible for BFN's on-the-ground nursery operations and remained intimately involved in BFN's sales to its largest customers. Burl continued to operate Park Hill as well, and in fact, Park Hill became profitable for the first time in large part because it became BFN's largest supplier.⁶ In the spring of 2012, pursuant to the terms of the original Agreement, BFN refinanced its revolver loan, which released the Berrys from their guarantees of more than $100 million of bank debt. In June of 2012, the Berrys' employment contracts expired. Bob's contract was not renewed, but he stayed on with BFN as a consultant. Burl renegotiated his employment contract with BFN, and in the fall of 2012, he agreed to remain COO of BFN in exchange for BFN writing off yet another $2.7 million in Park Hill debt.

¶10 The three-year purchase option for Park Hill expired on December 7, 2013, with BFN opting not to purchase Park Hill. Less than three weeks later, on December 30, 2013, Burl notified BFN he would be resigning from BFN effective January 31, 2014. On February 21, 2014, BFN executives met with Burl to discuss his exit from the company. As we discuss in greater detail below, four days after that meeting, Burl began selling plants, trees, and shrubs, through Park Hill, directly to BFN's largest customers, including Wal-Mart and Home Depot. Upon learning of Burl's actions, BFN sent letters to its customers on or around March 10, 2014, advising them that Bob and Burl Berry "and entities controlled by either of them" were subject to a non-compete agreement with BFN and that any business dealings with the Berrys were impermissible under such agreement.⁷

¶11 On March 11, 2014, Burl Berry, Bob Berry, and Park Hill Nursery filed this action in the District Court of Cherokee County, seeking a declaration that the covenants were unenforceable and void under Oklahoma law. BFN filed a counterclaim against the Berrys, seeking damages and to enjoin the Berrys from violating the covenants. The trial court held a five-day non-jury trial beginning on June 29, 2015, and issued Findings of Fact and Conclusions of Law on August 19, 2015, wherein the court found that the Texas choice-of-law provision was valid and that the covenants were...