Petrello v. White
2:01-cv-03082
E.D.N.YMar 8, 2018Background
- In April 1998 Plaintiffs Petrello contracted to buy Lots 4–6 from John C. White Jr.; the Contract (delivered Sept. 4, 1998) included a right of first refusal (ROFR) covering remaining "Farm Property."
- The ROFR’s Rider defined a "related party" to include, inter alia, any limited partnership at least 90% of whose equity is owned by descendants of John C. White Jr. and Elizabeth J. White.
- On November 28, 2000 White conveyed Lot 1 to White Investment Limited Partnership (WILP); the deed initially recited the wrong entity and zero consideration, but a correction deed in 2010 fixed the grantee.
- At the time of the 2000 transfer WILP’s ownership included substantial interests held by (a) Elizabeth J. White (≈17% after an amendment) and (b) the White Family Trust (WFT) (≈46.99% at transfer); WFT’s beneficiaries included non-descendants (the “Family and Close Family Friends” class) with a ~20% interest in the trust.
- Plaintiffs say the 2000 transfer was to a third party that did not qualify as a "related party" under the ROFR and so defendants breached the ROFR; Plaintiffs seek specific performance (purchase at fair market value as of Nov. 2000). Defendants argue WILP/wft structure made the transferee a related party (or that reformation/mistake/valuation defenses apply) and that Plaintiffs suffered no cognizable injury.
Issues
| Issue | Petrello's Argument | White/Defendants' Argument | Held |
|---|---|---|---|
| Whether the Nov. 28, 2000 transfer of Lot 1 triggered the ROFR | Transfer was to WILP, not a “related party” under the Contract (WFT and trusts are not "descendants"); ROFR triggered | Transfer was effectively to a related party because descendants held interests (including via WFT); alternative arguments: scrivener’s error, valuation methods, waiver/untimeliness | Court: ROFR was triggered; WILP did not qualify as a related party under unambiguous Contract language |
| Whether plaintiffs forfeited the argument about Elizabeth White’s ownership interest | Petrello asserted WILP was not a related party in amended complaints; ready/willing/able to buy at 2000 value | Defendants say omission about Elizabeth’s ownership is a new theory and untimely; also claim scrivener’s error (reformation) | Court declined to consider the Elizabeth White-specific re-characterization as a new theory raised too late; did not resolve reformation claim |
| Whether trust-held interests (WFT) make WILP a "related party" | WFT (a trust) is not a "descendant"; WFT’s non-family beneficiaries hold significant rights, so WILP fails the 90% descendant test | WFT’s assets effectively benefit descendants (IRS-style valuation shows non-family beneficiaries <10%), so combination yields >90% descendant control | Court: Contract language is unambiguous; defendant’s aggregation/valuation theory adds terms not in the Contract; WILP not a related party at transfer |
| Appropriate remedy for ROFR breach | Specific performance: Plaintiffs were ready, willing, able to buy Lot 1 at fair market value as of Nov. 2000 ($1,375,000) | Defendants invoke Cipriano to argue specific performance may be inappropriate or a windfall; also argue Plaintiffs remain in same position | Court: Specific performance is appropriate here (unlike Cipriano’s unique facts); Plaintiffs entitled to Lot 1 for FMV as of Nov. 29, 2000 ($1,375,000); no final judgment entered because other claims remain |
Key Cases Cited
- LIN Broad. Corp. v. Metromedia, 74 N.Y.2d 54 (1989) (defining nature and effect of contractual right of first refusal)
- Cipriano v. Glen Cove Lodge #1458, 1 N.Y.3d 53 (2003) (limitations on remedies when ROFR holder was denied opportunity but facts made specific performance inappropriate)
- Da Silva v. Musso, 53 N.Y.2d 543 (1981) (specific performance favored in real property contracts because land is unique)
- Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168 (2d Cir. 2004) (contracts construed to effectuate parties’ intent; plain meaning governs)