Milner v. Milner
| Decision Date | 08 March 2022 |
| Docket Number | A21A1275 |
| Citation | 363 Ga.App. 69,870 S.E.2d 584 |
| Parties | MILNER v. MILNER. |
| Court | Georgia Court of Appeals |
Anthony O. L. Powell, Lawrenceville, Wesley Charles Ross, Dublin, Jay James Crowley Crowley, for Appellant.
Edwin Montgomery Cook, for Appellee.
Two brothers, Whit and Lat Milner, owned shares in a closely held insurance company. The shareholders’ agreement required any shareholder who wanted to transfer his shares to notify the company and offer a first right of refusal to the company and other shareholders. Whit, however, agreed to sell his shares to his nephew, Chad, without notifying the company. After the company and Lat learned of the sale from Chad, Whit rescinded his agreement with Chad. Lat then tried to exercise his right of first refusal, but Whit refused to sell, and so Lat sued him to enforce his right. The trial court granted summary judgment and ordered Whit to sell his shares to Lat on the same terms he had given to Chad.
We affirm. Based on the language of the contract and settled contract law, Lat's right of first refusal was triggered when the company received notice of Whit's intention to sell his shares to Chad. That right endured even after Whit rescinded his agreement with Chad, because a right of first refusal ripens into an option when it is triggered, and options are irrevocable for the duration of the option. So the trial court properly granted specific performance to enforce Lat's right to buy the shares.
In 1982, four brothers and their father formed British American Insurance Intermediaries, Inc. ("BAII") to sell and broker insurance.
The four brothers, BAII's original shareholders, signed a shareholders’ agreement.
Most relevant here, that shareholders’ agreement includes a section titled "Restriction on Sale, Transfer, or Encumbrance of Company Shares." In paragraph 2 (a) of that section, the shareholders "agree[d] that the Shares shall neither be sold, transferred, pledged, encumbered, nor otherwise disposed of without first giving written notice of the transaction and then offering a first right of refusal to the Company and to the other Shareholders." Paragraphs 2 (b) and 2 (c) then explain the procedure for when a shareholder desires to transfer his shares, which requires the shareholder to give "written notice of his intent to transfer" and then gives the company and the other shareholders, "upon receipt" of that notice, a 30-day "option" to elect to purchase the shares at issue:
Finally, section 7 of the shareholders’ agreement, titled "Notices," requires that "[a]ny and all notices, ... or any other communication herein provided for shall be in writing and hand delivered or given by registered or certified mail, postage pre-paid, addressed to the Company and its principal office, at to each Shareholder at his address[.]"
Over time, two of the brothers transferred their stock back to BAII, leaving the other two, hitner Reade Milner ("Whit") and Willis L. Milner ("Lat") as the remaining shareholders.
In 2017, Whit executed a stock purchase agreement to sell his shares in BAII to the parties’ nephew, Sexias Milner, III ("Chad") for $10,000. The stock purchase agreement stated that Whit "agrees to sell the Shares" to Chad, set a closing date, and provided that the agreement "will constitute the valid and legally binding agreement."
Whit did not give notice of the stock purchase agreement or the intended closing date to either BAII or Lat before executing the agreement. Seven days after Whit and Chad executed the agreement, Chad sent Lat an email notifying him of the stock purchase agreement and asking him to call a shareholders’ meeting.
Later that month, BAII's counsel informed Whit by letter that BAII considered the stock purchase agreement to be written notice of his intent to transfer his shares, thus triggering BAII's 30-day option to purchase the shares under the right-of-first-refusal provision in the shareholders’ agreement. BAII's counsel asked Whit, as a voting member of the board, to sign and return a corporate resolution allowing BAII to purchase the shares. Counsel further noted that if the board could not agree to such a purchase, the shareholders’ agreement required Whit to extend the right of first refusal to Lat, the remaining shareholder. Once notified of this requirement in the shareholders’ agreement, Whit and Chad executed a rescission agreement, but Whit did not then execute the necessary corporate resolution to allow BAI to purchase the shares within 30 days, so BAII did not purchase the shares.
After BAII's 30-day option expired, Lat then sent Whit a letter seeking to buy the shares on the same terms set forth in the stock purchase agreement. During a conversation later that day, Whit accepted Lat's offer, and followed up with a few days later with text message to Lat stating his intent to transfer the stock to Lat. Whit did not, however, respond to Lat's later request to close.
As a result, Lat sued to enforce the terms of his agreement with Whit and raised claims for breach of contract, declaratory judgment, and specific performance. Lat moved for summary judgment, and the trial court granted the motion. The court found that Whit's execution of the purchase agreement qualified as a "shareholder desiring to make a transfer of his Shares," which "trigger[ed] the notice and option provisions of the Shareholders’ Agreement, thereby vesting [Lat] with an irrevocable right to acquire such stock on the same terms within a specified time." Whit thus breached the shareholders’ agreement by failing to notify BAII and Lat of his intent to sell and offer the shares to them on the same terms, and Lat had timely attempted to exercise his option to buy the shares. The court went on to conclude that specific performance was an appropriate remedy for the breach because the stock was in a closely held corporation, and so the court ordered Whit to convey his BAII shares to Lat on the same terms he had accepted from his nephew. Whit appealed.
We review the trial court's grant of summary judgment de novo, viewing the evidence in the light most favorable to the nonmoving party. Cowart v. Widener , 287 Ga. 622, 624, 697 S.E.2d 779 (2010).
Whit contends that the trial court erred in granting Lat's motion for summary judgment and ordering specific performance for three reasons. First, he argues that Lat's right of first refusal was never triggered because Whit never gave BAII written notice of his intent to sell. Second, he argues that his rescission of the stock purchase agreement with Chad precluded Lat from exercising his right of first refusal. And third, he argues that Lat failed to strictly comply with the notice requirement for exercising his right of first refusal. Applying settled principles of contract law, we conclude that the first two arguments lack merit. The third argument is waived.
1. Whit first contends that the trial court erred in granting specific performance because Lat's right of first refusal under Section 2 of the shareholders’ agreement was never triggered. We disagree.
(a) As a threshold matter, we agree that the specific performance the trial court ordered was appropriate only if the right of first refusal had been triggered. Until a right of first refusal is triggered by whatever event or circumstances the contract specifies, it is "[e]ssentially a dormant option," Walters v. Sporer , 298 Neb. 536, 547 (1), 905 N.W.2d 70 (2017), or as our courts have described it, a "preemptive right." Hasty v. Health Serv. Ctrs., Inc. , 258 Ga. 625, 626, 373 S.E.2d 356 (1988). In that state, the right holder cannot force the owner to sell; he has a contingent right only.
This changes "when the owner decides to sell." Hasty , 258 Ga. at 626, 373 S.E.2d 356 (emphasis omitted). When that happens—and once whatever evidence of that intention that the contract requires (here, "notice") is established—the right of first refusal is "trigger[ed]," or "ripens" into an enforceable option. 25 Williston on Contracts § 67:89 (4th ed. 2021) ; see, e. g., Walters , 298 Neb. at 547–48 (1) (a), 905 N.W.2d 70 (2017) (); Chapman v. Mut. Life Ins. Co. of New York , 800 P.2d 1147, 1150 (Wyo. 1990) (); see also Hasty , 258 Ga. at 626, 373 S.E.2d 356 () (emphasis in original). At that point (and only then), a right-of-first-refusal holder who has exercised the "ripened" option is generally entitled to specific performance of the new contract formed by acceptance of the option—that is, the right holder can compel the owner to sell on whatever terms the option provided. See Hasty , 258 Ga. at 626, 373 S.E.2d 356 (); Walters , 298 Neb. at 549 (1) (a), 905...
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