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Right of first refusal splits Court of Appeals

May 30, 2017

A dispute over contract language divided the Indiana Court of Appeals to the point where judges could not agree whether the case was one of first impression.

William E. Stoler, Kathlyn Stoker, Jeffrey A. Levy and Con-Serve, Inc., filed a breach of contract complaint against B&R Oil Co. Inc. after the business decided to sell its assets to Empire Petroleum Partners, LLC and EPP-Atlas Acquisitions, LLC. The Stolers had signed lease agreements with B&R Oil for several parcels of land on which they operated gas stations.

As part of the lease agreements, the Stolers had rights of first refusal (ROFR) if another party wanted to purchase the properties from B&R Oil. In 2014, B&R Oil entered into a deal to sell substantially all its assets, which included the Stolers’ leased property, to Empire for about $80 million.

B&R Oil then presented the deal to the Stolers, giving them the right of first refusal to purchase the premises and all other assets for $80 million. The Stolers asserted that B&R Oil was forcing them to purchase essentially company’s entire portfolio instead of complying with the lease agreements which would have allowed them to purchase their parcels of land prior to the sale to Empire.

Before the Court of Appeals, B&R Oil and the Stolers argued over the language of the contract. The company contended the Stolers’ interpretation would require the contract to specify the ROFR applies to the leased premises exclusively. The Stolers countered B&R Oil’s reading was incorrect since the contract did not include the right of first refusal be expanded from the leased premises to include any other offered property.    

The appellate majority agreed with the Stolers. Calling it a case of first impression, the majority ruled that a lease holder cannot circumvent the right of first refusal by requiring the offer to include the purchase of a package of additional properties.   

“Since the leases refer only to ‘the leased premises’ and not to any other property, it follows that each ROFR in itself or the lease as a whole, we cannot say that the inclusion of any property other than ‘the leased premises’ may reasonably have been within the contemplation of the parties at the time the leases were executed,” Judge Edward Najam wrote for the majority.

Judge Mark Bailey dissented. He found B&R Oil complied with the plain language of the contract and described the dispute as “an ordinary matter of contract interpretation” rather than a case of first impression.

“…the contract does not define conforming or non-conforming offers, nor does it restrict the ROFR from applying to any offer that B&R Oil intended to accept,” Bailey wrote. “Rather, the defined right is the opportunity to match a third-party offer. Had the parties wished to restrict B&R Oil from passing through package offers, they could have readily done so.”

The case is B&R Oil Company, Inc., Empire Petroleum Partners, LLC, and EPP-Atlas Acquisition LLC v. William E. Stoler, Kathlyn Stoler, Jeffrey A. Levy, and Con-Serve, Inc., 71A04-1603-PL-608.

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