Opinion ID: 2197655
Heading Depth: 1
Heading Rank: 2

Heading: The Right of First Refusal Provision

Text: The interpretation of a contract, including whether a contract term is ambiguous, is ultimately a question of law for this court to decide. Accordingly, we review a trial court's interpretation of a contract de novo.  Behrens v. S.P. Constr. Co., 153 N.H. 498, 500, 904 A.2d 676 (2006) (citation omitted). When interpreting a contract, our inquiry focuses on the intent of the contracting parties at the time of the agreement. R. Zoppo Co. v. City of Dover, 124 N.H. 666, 671, 475 A.2d 12 (1984). In the absence of ambiguity, the parties' intent will be determined from the plain meaning of the language used. The words and phrases used by the parties will be assigned their common meaning, and we will ascertain the intended purpose of the contract based upon the meaning that would be given to it by a reasonable person. Greenhalgh v. Presstek, 152 N.H. 695, 698, 886 A.2d 1000 (2005) (citation omitted). The Foundation argues that the trial court erred in denying its motion for partial summary judgment because: (1) the plain language of the ROFR provision demonstrates an intent to reach parent-level stock transactions; (2) the ROFR provision and the APA as a whole demonstrate an intent to bind the entire corporate structure; (3) reading the APA as a whole reflects the broad reach of the ROFR provision intended by the parties; and (4) the inclusion of change of control language in the ROFR provision is not required for the ROFR to apply to a change in ownership of a parent company's stock. The Foundation first argues that under the plain language of the ROFR provision, stock transactions involving parents or other upstream entities of HCA3 may trigger the ROFR. We disagree. The ROFR provision states: Neither [HCA3] nor HCA-NH will. . . . We find this phrase to be unambiguous. It specifies only two actors that can trigger the ROFR: HCA3 and HCA-NH. This language does not demonstrate an intent that actions, such as a stock transfer, by a parent or other upstream entity of HCA3 trigger the ROFR. The Foundation, however, cites H-B-S Partnership v. Aircoa Hospitality, 137 N.M. 626, 114 P.3d 306 (Ct.App.), cert. denied, 137 N.M. 522, 113 P.3d 345 (2005), In re Asian Yard Partners, Nos. 95-333-PJW, 95-334-PJW, 1995 WL 1781675 (Bankr.D.Del. Sept.18, 1995) and Continental Cablevision v. United Broadcasting, 873 F.2d 717 (4th Cir.1989), and argues that these courts have conclude[d] that parent-level stock transactions trigger similar rights of first refusal where the language directly or indirectly was included in the right of first refusal. In H-B-S Partnership, the El Dorado Partnership (EDP) was formed by Aircoa Hospitality Services, Inc. (AHS), NZ EDP, Ltd. Company (NZ) and H-B-S Partnership (HBS), for the purpose of acquiring an interest in the El Dorado Hotel. H-B-S Partnership, 114 P.3d at 308. The partnership agreement contained the following right of first refusal (HBS ROFR): [I]f at any time a Partner proposes to sell, assign, or otherwise dispose of all or any part of his interest in the Partnership, such Partner (Offeror) shall first make a written offer to sell such Partnership interest to the other Partners on the same terms and conditions on which the Offeror proposes to transfer the Partnership interest. Such offer shall state the name of the proposed transferee and all the terms and conditions of the proposed transfer, including the price to the proposed transferee. . . . . . . . For purposes of this agreement, restrictions upon the sale, assignment or disposition of a Partner's interest shall extend to any direct or indirect transfer including, without limitation: (a) an involuntary transfer such as a transfer pursuant to a foreclosure sale; (b) a transfer resulting by operation of law, or as a result of any merger, consolidation or similar action; and (c) the transfer of an equity interest in a Partner which is a corporation, partnership or other entity if the transfer of the equity interest results in a change in control of such corporation, partnership or other entity. Id. at 308-09 (quotation omitted). Subsequently, notice of a proposed sale of Richfield Holding Corporation (RHC), the great-great-grandparent of AHS (one of the partners) was sent to HBS and NZ. Id. at 310. Under the terms of the proposed sale, the seller offered a one hundred percent equity interest in RHC, which included all of RHC's interests in assets. Id. Among the assets listed was AHS's equity interest in EDP. Id. HBS sought to enforce the HBS ROFR against AHS and demanded that it be provided with an identical written offer. Id. AHS refused, denying that the HBS ROFR was triggered. Id. The sale of RHC went through and HBS brought suit against AHS. Id. at 310-11. The court held that the sale of RHC constitute[d] an indirect transfer of an `equity interest in a Partner.' Id. at 314 (emphasis omitted). The court emphasized that `Transfer' is itself broadly defined by [the HBS ROFR provision] to encompass `any direct or indirect transfer' of an equity interest by or in a partner `without limitation[ ]' and that, therefore, the [HBS] ROFR is triggered regardless of whether the transaction is two or even five tiers removed, so long as it results in a change of that control of AHS. Id. Recognizing the general rule that a sale of a subsidiary by a parent corporation is not a sale of the subsidiary's assets, unless the assets are actually transferred, id., the court held that the HBS ROFR provision was worded broadly so as to include such indirect transfers and that while [t]he general rule will hold true in most cases,. . . [it] can be trumped by contract language, id. at 315. While we recognize that H-B-S Partnership stands for the principle that a right of first refusal can be triggered by stock transactions of entities far up the corporate chain from the parties to the right of first refusal, it stands equally for the principle that the plain language of the right of first refusal controls over general principles of law. Id. at 314-15; see also Glick v. Chocorua Forestlands, L.P., 157 N.H. ___, ___, 949 A.2d 693 (2008). As recognized by the H-B-S Partnership court, the HBS ROFR provision was worded broadly, as evidenced by the language: without limitation and including . . . the transfer of an equity interest in a Partner. . . if [such] transfer . . . results in a change in control. H-B-S Partnership, 114 P.3d at 309 (quotations omitted). The ROFR provision before us, however, is narrower than the one in H-B-S Partnership. While both ROFR provisions contain the term indirectly, the ROFR provision before us does not contain language such as without limitation and result[ing] in a change in control,  language that the H-B-S Partnership court relied upon in its interpretation. Id. at 313. Accordingly, we find H-B-S Partnership distinguishable on this point. In addition, we find that Asian Yard and Continental do not support the Foundation's argument that the language directly or indirectly binds corporate entities that are not parties to a right of first refusal. These cases, while involving a right of first refusal provision and an anti-assignment clause that contained directly or indirectly language, also involved transfers by a party to the agreement. Asian Yard, 1995 WL 1781675, at ; Continental, 873 F.2d at 719. The courts in these cases, therefore, never addressed whether the term indirectly bound other entities that were not parties to the agreements. Accordingly, we find the cases relied upon by the Foundation on this point to be unpersuasive. We rely instead upon the plain and unambiguous language of the ROFR provision, which unequivocally specifies the two actors that may trigger it, HCA3 or HCA-NH. If neither party acts, the ROFR is not triggered. The Foundation next argues that the parties to the ROFR provision intended that it bind the entire corporate structure. The Foundation claims: (1) the parties agreed to the terms `directly or indirectly' and `by merger or transfer of stock or otherwise,' language which has previously been held to evidence an intent to bind the entire corporate structure; (2) the APA contains language applicable to all of the post-closing covenants, that clearly places the obligation to comply with those commitments on any member of the . . . corporate family in a position to effect compliance or noncompliance; and (3) the parties included language that restricted [HCA3] from transferring direct or indirect ownership of the Hospital assets within its corporate structure in a way that might defeat or impair the intended operation of the ROFR. We address each argument in turn. The Foundation's first argument on this point is merely a reiteration of its previous argument, as noted in its brief. Therefore, we rely upon our analysis above regarding the directly or indirectly language. The Foundation next argues that language found elsewhere in the APA establishes that actions by any member of the corporate family may trigger the ROFR. Specifically, the Foundation cites the following provision: 5.2. Covenants Surviving the Closing. In addition to their other undertakings herein, each of [HCA3] and HCA-NH hereby covenants and agrees that it will comply (and, to the extent applicable, will cause . . . [the] subsidiaries of [HCA3] to comply) from and after the date hereof with the provisions set forth in this Section 5.2. We fail to see how this language establishes that actions by any member of the corporate family may trigger the ROFR. Its primary function is to bind HCA3 and HCA-NH to the terms set forth in Section 5.2. The Foundation, however, emphasizes the parenthetical language: will cause . . . [the] subsidiaries of [HCA3] to comply. We read this unambiguous language of this provision to promise, and only to the extent applicable, that HCA3 and HCA-NH will cause . . . [the] subsidiaries of [HCA3] to comply[ ] . . . with the provisions set forth in . . . Section 5.2. (Emphasis added). This provision, therefore, only addresses subsidiaries of HCA3. It does not evince an intent to include each member of the corporate family as an actor capable of triggering the ROFR contained in Section 5.2.11(a). Finally on this issue, the Foundation argues that the ROFR provision contains language which prevents the defendants from engaging in intracorporate transactions that would defeat the intended operation of the ROFR. The Foundation specifically points to a clause in the ROFR which allows a Transfer by [HCA3] or HCA-NH to a wholly-owned subsidiary of [HCA3] provided the subsidiary agrees in writing to the terms of the APA. APA § 5.2.11(a). This provision, however, specifically addresses only wholly-owned subsidiaries of HCA3. Next, the Foundation argues that the APA, when read as a whole, reflects the parties' intent that the ROFR can be triggered by other actors in the hospital's corporate chain other than HCA3 and HCA-NH. It argues that this Court has emphasized that rights of first refusal must be construed in the context of the entire agreement between the parties, and in view of both the situation of the parties at the time of contracting and the objects to be served by the contract provisions. The Foundation argues that HCA3 was carefully selected due to the trustees' concern about selling the Hospital to a for-profit entity and [that the trustees] negotiated an agreement designed to provide maximum protection to the community. This does not, however, change our reading of the unambiguous terms of the ROFR provision, which specify the constrained actors, HCA3 and HCA-NH. We do not agree with the Foundation's assessment that our interpretation fails to reflect the parties' intent, given the express terms of the ROFR provision. Finally, on this point, the Foundation argues that inclusion of change of control language is not required for [the] ROFR to apply to a change in ownership of a parent company's stock. This argument, however, misses the point. Even assuming, arguendo, that this is correct, it does not change the fact that the ROFR provision at issue is not triggered by transfers of stock by an upstream entity of HCA3. As we stated above, if neither HCA3 nor HCA-NH is the entity making the transfer, the ROFR is not triggered. Accordingly, we hold that, under the plain language of the ROFR provision, only the actions of HCA3 or HCA-NH can trigger the ROFR.