Cox Enterprises, Inc. v. News-Journal Corporation
794 F.3d 1259
11th Cir.2015Background
- Cox (47.5% shareholder) sued majority-controlled News-Journal Corp. (NJC) for waste/mismanagement; NJC elected under Fla. Stat. § 607.1436 to purchase Cox’s shares at fair value.
- District court valued Cox’s 47.5% at $129.2 million (normalizing EBITDA, valuing subsidiary separately) and ordered purchase in installments with covenants; Cox retained shares and received dividends while NJC owed the purchase obligation.
- NJC could not pay the full lump sum; parties repeatedly sought extensions and pursued a joint sale; receivership was later appointed and NJC’s going-concern value collapsed (sale proceeds ≈ $36M).
- PBGC (statutory pension trustee) claimed priority as an unsecured creditor for unfunded pension obligations after purchaser did not assume pension liabilities; receiver initially paid Cox but this was reversed.
- Eleventh Circuit in Cox II held that any payment under a purchase order is subject to the distributions-to-shareholders insolvency test (Fla. Stat. § 607.06401) and directed the district court to determine whether payment to Cox at the time of payment would render NJC insolvent; if so, other creditors must be paid first.
- On remand the district court valued PBGC’s claim (~$13.9M), found payment to Cox would violate the insolvency test at the time of payment, ordered PBGC paid first, and Cox appeals.
Issues
| Issue | Plaintiff's Argument (Cox) | Defendant's Argument (PBGC/NJC) | Held |
|---|---|---|---|
| Whether the prior panel (Cox II) clearly erred in requiring insolvency to be assessed at time of payment rather than at time the purchase order issued | The purchase order created indebtedness assessed at issuance; NJC would not have been insolvent then; insolvency test should be measured at issuance and Cox should be treated as a creditor | The statute and Cox II require each payment to be tested for insolvency at the time payment is made; here NJC could not have made the distribution at issuance without insolvency | Court affirmed Cox II: insolvency must be assessed at time of each payment (subsection (8) framework or by construing the order as directing future distributions) |
| Whether Cox became a creditor (and is entitled to parity with general unsecured creditors) by virtue of the purchase order | Cox contends the purchase order converted its share claim into a debt at parity with unsecured creditors under § 607.06401(7) | PBGC/NJC contend Cox remained a shareholder (never tendered shares), and Cox II already resolved relative priority in favor of testing insolvency first and protecting creditors | Court held Cox did not become a creditor by tendering shares (it never did) and that Cox II resolved priority: if a payment would violate insolvency test, other creditors are paid first |
| Whether § 607.06401(8) exception (deferred indebtedness not a liability until payments are permissible) applies absent explicit terms in the purchase order | Cox argues the purchase order did not invoke subsection (8); therefore the large indebtedness should not be deferred and insolvency should be measured at issuance | PBGC/NJC and court note subsection (8) allows conditioning deferred payments so each installment is tested at time of payment; Cox II reasonably applied the statutory scheme to avoid absurd results | Court upheld Cox II’s interpretation: either the order created an inchoate obligation assessed upon each payment, or it invoked the §607.06401(8) mechanism; either way insolvency is measured at time of payment |
| Whether the district court abused discretion by paying PBGC in full (versus reducing PBGC’s award on equitable grounds) | Cox urges equitable reduction of PBGC’s allowed claim so Cox could recover more | PBGC relied on statutory valuation under ERISA rules and receiver process; district court adopted magistrate’s valuation and followed Cox II mandate | Court found no abuse of discretion: district court properly adopted the magistrate’s valuation and followed the mandate to pay creditors before any distribution to Cox |
Key Cases Cited
- Cox Enters., Inc. v. News-Journal Corp., 510 F.3d 1350 (11th Cir. 2007) (prior Eleventh Circuit decision affirming district court valuation and purchase order terms)
- Cox Enters., Inc. v. Pension Ben. Guar. Corp., 666 F.3d 697 (11th Cir. 2012) (held payments under a purchase order are subject to the distributions-to-shareholders insolvency test and directed that creditors be paid first if a payment would cause insolvency)
- Litman v. Mass. Mut. Life Ins. Co., 825 F.2d 1506 (11th Cir. 1987) (law-of-the-case/mandate rule principles governing obedience to appellate mandates)