Appeals from the United States District Court for the Middle District of Florida D.C. Docket No. 6:04-cv-00698-JA-DAB
The opinion of the court was delivered by: Cox, Circuit Judge:
U.S. COURT OFAPPEALS ELEVENTH CIRCUIT
D.C. Docket No. 6:04-cv-00698-JA-DAB
Before MARCUS, WILSON, and COX, Circuit Judges.
Marc L. Davidson, Julia Davidson Truilo, Robert Truilo (the "Davidson Directors"), and the Pension Benefit Guaranty Corporation ("PBGC") appeal following the district court's order to distribute all of News-Journal Corporation's ("News-Journal") assets to Cox Enterprises, Inc. ("Cox"), a long-time shareholder of the closely-held News-Journal. Cox sued News-Journal in response to perceived abuses by News-Journal's directors in the handling of corporate assets, invoking the court's diversity jurisdiction. To avoid a possible dissolution, News-Journal elected to repurchase Cox's shares. Between the valuation of those shares and the court ordered date for payment, News-Journal's ability to pay diminished significantly. In response, the district court appointed a receiver to manage News-Journal and prepare it for sale. After the sale of News-Journal's assets, the receiver solicited claims from News-Journal's various creditors. The district court disposed of these competing claims for News-Journal's limited assets by ordering the distribution of all the assets to Cox as payment for its shares.
After thorough review, we vacate this order by the district court. We interpret Florida's election-to-purchase statute to require that any payment made as a result of a corporation's share repurchase decision comply with the distribution requirements of Fla. Stat. § 607.06401, which prohibits the distribution of corporate assets to a shareholder if it would render the corporation insolvent. Because we consider any payment to Cox a distribution to a shareholder within the meaning of § 607.06401, the district court erred when it ordered the distribution of all of News-Journal's assets to Cox without applying the insolvency test contained in § 607.06401. If on remand the district court finds a distribution to Cox would violate this section, News-Journal's other creditors should receive payment before any distribution is made to Cox.
I. FACTS AND PROCEDURAL HISTORY
Cox, a minority shareholder of News-Journal, filed suit in May of 2004 seeking relief for misuse of corporate funds and waste of corporate assets. This suit triggered Florida's election-to-purchase statute, Fla. Stat. § 607.1436. News-Journal elected to pursue the option created by the statute to repurchase Cox's shares. Because the parties could not agree on the fair market value of Cox's shares, the statute required that the district court determine their value. The court set the value of Cox's shares at $129.2 million and directed the terms of payment in a September 27, 2006 order (the "September 2006 repurchase order").
Following the dictates of the election-to-purchase statute, the repurchase order dismissed Cox's original complaint for waste of corporate assets. It also directed that News-Journal pay Cox in installments; the first payment of $29.2 million was due within ten days of the issuance of this court's mandate if an appeal was taken from the order. The district court's order also imposed certain affirmative and negative covenants on the operation of News-Journal intended to prevent News-Journal from wasting corporate assets, dissolving, or engaging in business dealings that might jeopardize News-Journal's ability to pay Cox. The parties challenged the repurchase order on appeal in 2007, but this court affirmed. See Cox Enters., Inc. v. News-Journal Corp., 510 F.3d 1350, 1361 (11th Cir. 2007). Specifically, News-Journal objected to the district court's valuation of Cox's stock. Cox challenged the court's refusal to include compensation for News-Journal's past misconduct and its refusal to award prejudgment interest. Id. at 1352. After the denial of News-Journal's request for en banc review, this court's mandate issued on April 9, 2008.
While the issuance of the mandate triggered the ten-day period for payment contained in the repurchase order, the district court extended this deadline at the request of both parties to allow time for an attempted joint sale of News-Journal to satisfy its liability to Cox. But, in an April 17, 2009 order, the court terminated the joint-sale process, commencing the ten-day period for News-Journal to make its initial installment payment or file notice of its intent to adopt articles of dissolution. That same order appointed a receiver to manage News-Journal's business and safeguard its assets "pending the consummation of a sale." (R.25-507 at 2.) After entry of this order, News-Journal neither made a payment to Cox nor adopted articles of dissolution.
By January 2010, the receiver and Cox sought the district court's approval to sell News-Journal's publishing operations for just over $20 million. The court approved the sale and instructed the receiver to notify potential creditors of their right to file claims in the receivership. Cox filed a claim for the $129.2 million due under the September 2006 repurchase order plus accrued interest. PBGC claimed $26.5 million for deficiencies in News-Journal's maintenance and funding of its pension plan. The Davidson Directors sought indemnification for pending and any future claims against them with respect to their activities as officers, directors, and employees of News-Journal. Director Robert Truilo filed a claim for $91,153.59 based on his contributions to a "rabbi trust" established for the benefit of News-Journal employees. Claims were also filed by other creditors.
The receiver rejected the majority of the claims and recommended that News-Journal's assets be distributed to Cox to satisfy the September 2006 repurchase order.*fn1 PBGC and the Davidson Directors filed objections, but the district court overruled these objections and awarded all of News-Journal's assets to Cox as payment for its shares. This appeal followed.
PBGC and the Davidson Directors present the following issues on appeal: (1) whether the district court's order to distribute News-Journal's assets to Cox complied with Fla. Stat. § 607.1436, Florida's election-to-purchase statute; (2) whether the district court erred by granting Cox an equitable first priority claim to News-Journal's assets to the exclusion of News-Journal's other creditors; (3) whether the district court erred by denying Robert Truilo's claim for the contributions he made to a rabbi trust; (4) whether the district court erred by denying the Davidson Directors' claim for ...