Meridian Minerals Co. v. Nicor Minerals, Inc.
| Decision Date | 03 September 1987 |
| Docket Number | No. 86-591,86-591 |
| Citation | 742 P.2d 456,228 Mont. 274,44 St.Rep. 1516 |
| Parties | MERIDIAN MINERALS COMPANY, Plaintiff/Appellant, v. NICOR MINERALS, INC., and Nicor Mineral Ventures, Inc., Defendants/Respondents, and Costain Holdings, Inc., Intervenor/Respondent. |
| Court | Montana Supreme Court |
Gough, Shanahan, Johnson & Waterman, Ronald Waterman, Helena, for plaintiff/appellant.
Garlington, Lohn & Robinson, Gary Graham, Missoula, Goetz, Madden & Dunn, James H. Goetz, Bozeman, Mayer, Brown & Platt, Thomas P. Johnson, Denver, Colo., for respondents.
Meridian Minerals Company (Meridian) appeals an adverse declaratory judgment entered in the District Court, Eighteenth Judicial District, Gallatin County. Meridian brought suit against Nicor Minerals, Inc. (Minerals) and Nicor Mineral Ventures (Ventures) for a declaration that the proposed transaction by Minerals to merge Ventures into a subsidiary of Costain Holdings, Inc. (Costain) triggered preemptive right and resignation provisions of a venture agreement between Meridian and Ventures. Costain intervened in the action, which was tried without a jury. The District Court entered judgment in favor of Minerals, Ventures and Costain. Meridian appeals from that judgment. We affirm.
In early 1984, Meridian, a wholly-owned subsidiary of Burlington Northern (BN), and Ventures, a wholly-owned subsidiary of Minerals (in turn a subsidiary for Nicor, Inc., a holding corporation for Northern Illinois Gas Company) entered into a venture agreement to develop a talc mine in Madison County, Montana. Although BN owned the talc site, it leased the mineral interest to Ventures and authorized Meridian to explore and develop the property with Ventures on BN's behalf. Meridian and Ventures were the only parties to the agreement, each with a 50% interest in the venture.
In spring, 1985, Minerals began negotiations to merge its subsidiary, Ventures, with a subsidiary of Costain. Meridian learned of the deal and filed for a declaratory judgment from the District Court protecting what Meridian thought to be its preemptive right under the terms of the venture agreement. At issue here is the District Court's interpretation of that right.
The agreement negotiators used a Rocky Mountain Mineral Law Foundation model form for their mining venture agreement. The form language of the agreement gave each participant a preemptive right to purchase the other participant's interest in the agreement, before the other participant could transfer those interests to a third party. A clause was added by Meridian to the preemptive right provision form language which specifically brought within the limitations a transfer of protected interests effected by transfers of stock.
There were two other sections of this agreement central to this case. One, the agreement specifically excluded from the preemptive right a corporate merger of a participant. Second, it designated Ventures as the operator, but provided that a transfer by Ventures of its interest in the agreement would be deemed an offer to resign as operator.
The actual language of the contract follows:
15.1 General. A Participant shall have the right to transfer, grant, assign, encumber, pledge or otherwise commit or dispose of (transfer) to any third party all or any part of its interest in or to this Agreement, its Participating Interest, or the Assets.
15.2 Limitations on Free Transferability. The transfer right of a Participant in Section 15.1, expressly including a transfer of an interest effected by a transfer of stock, shall be subject to the following terms and conditions: (New language emphasized.)
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(i) Such transfer shall be subject to a preemptive right in the other Participant as provided in Section 15.3.
15.3 Preemptive Right. Except as otherwise provided in Section 15.4, if a Participant desires to transfer all or any part of its interest in this Agreement, any Participating Interest, or the Assets, the other Participant(s) shall have a preemptive right to acquire such interests as provided in this Section 15.3.
15.4 Exceptions to Preemptive Right. Section 15.3 shall not apply to the following transfers:
(a) Transfer by a Participant of all or any part of its interest in this Agreement, any Participating Interest, or the Assets to an Affiliate;
(b) Incorporation of a Participant, or corporate merger, consolidation, amalgamation or reorganization of a Participant by which the surviving entity shall possess substantially all of the stock, or all of the property rights and interests, and be subject to substantially all of the liabilities and obligations of that Participant; and (Emphasis ours.)
(c) The grant by a Participant of a security interest in any interest in this Agreement, any Participating Interest, or the Assets by mortgage, deed of trust, pledge, lien or other encumbrance.
8.4. Resignation; Deemed Offer to Resign. The Operator may resign upon two months prior notice to the Management Committee, in which case, if there is only one other Participant, such Participant may elect to become the new Operator by notice to the Management Committee within 30 days after the notice of resignation. If upon such resignation there are more than two Participants, the new Operator will be selected by the Management Committee, with only the nonmanaging Participants entitled to vote. If any of the following shall occur, the Operator shall be deemed to have offered to resign, which offer shall be accepted by the other Participant(s) by notice to the Operator, if at all, within ninety days following such deemed offer:
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(h) the Participant acting as Operator transfers its interests in the Venture and in the properties to a third party that is not an Affiliate. (Emphasis ours.)
In spring, 1985, Nicor, Inc. decided to divest itself of its mineral interests, including the talc operation. The following October, Meridian found out about the proposed divestiture and wrote Ventures asserting the applicability of the Section 15.3 preemptive right. The president of Ventures responded that any contemplated transfer was not within the scope of the preemptive right because the right was restricted only to "participants," and the transfer contemplated by Nicor, Inc., and Minerals was a transfer of shares by Minerals, not Ventures, and was therefore not restricted by the Ventures agreement.
Meridian's response was to file an action for declaratory judgment in the District Court. Meridian's argument was that insofar as the talc operation was concerned, the proposed merger was within the scope of the Section 15.3 Preemptive Right and Section 8.4 Deemed Resignation provisions.
In February, 1986, Minerals went one step further with the proposed merger, through a letter of intent with Costain. Under the terms of this letter the parties agreed that Minerals would surrender its shares in Ventures to Costain for cash or other consideration and that Ventures would be the surviving corporation to the merger. The parties further agreed that Ventures would retain all of its pre-merger assets and liabilities and would be bound by all of its pre-merger contracts. Ventures only change after the merger would be that its stock would be owned by Costain, not Minerals. The negotiations for the merger were exclusively between Costain and Minerals. Ventures did not participate in these negotiations, nor was its director/president informed of the plans to merge until after the decision was made by Nicor, Inc. and Minerals.
After Minerals and Costain entered into the February, 1986, letter of intent, Meridian amended its complaint to specifically address that transaction and sought further declaration that the Costain merger would constitute a deemed offer by Ventures to resign as operator (under Section 8.4). The Meridian suit was brought against Minerals and Ventures. Costain has intervened on Minerals' and Ventures' behalf.
Minerals, Ventures and Costain contend that the Costain merger did not trigger either the preemptive right or deemed resignation clauses of the Ventures agreement on the claim that the merger was a divesture by Minerals of its interest in Ventures. The clauses were not enforceable, they argue, simply because Minerals was not a "participant" to the Ventures agreement. They also assert their right to avoid the preemptive right provision under the exception in the venture agreement providing that a corporate merger would not trigger Meridian's preemptive rights.
Meridian's position is that their specific addition of the qualifying phrase "expressly including a transfer of an interest effected by a transfer of stock," was meant to prevent avoidance of the preemptive right by use of stock maneuvers. It further asserts that the qualifying phrase of Section 15.2 was also meant to modify the Section 15.4 merger exception, so the preemptive right merger exception would not apply to mergers transferring ownership of either party's interest to an unaffiliated third party. In either case, Meridian asserts that this Court should not, in equity, allow the Nicor parties to use the merger form of the transaction as a device for avoiding the preemptive right. Finally Meridian contends that the merger transaction constituted a deemed offer by Ventures to resign as operator under Section 8.4.
Issues raised on appeal are:
1. Was the District Court correct in determining that Minerals and Ventures were separate and distinct corporate identities and that Minerals was not bound by the preemptive right provision of the venture agreement between Ventures and Meridian?
2. Was the District Court correct in refusing to find that the qualifying language added to the preemptive portion of the venture agreement applied to the merger transaction between Minerals and Costain, as Meridian argued?
3. Was the District Court correct in holding that the proposed merger negotiated...
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