Court Examines Complexities of ROFR Right

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In HUMC Holdco, LLC et al v. MPT of Hoboken TRS, LLC et al, the Delaware Court of Chancery examined numerous complexities attendant to an alleged violation of a right of first refusal in an LLC Agreement in connection with a motion for judgment on the pleadings.  Among other things, Hoboken HUMC sued Hoboken MPT for breach of the right of first refusal in Hoboken Opco’s LLC Agreement. In an initial purchase agreement, Alaris Health was to to acquire Hoboken MPT’s membership interests in Hoboken Opco together with some real estate not owned by Hoboken Opco. After the real estate sales closed, the parties entered into a second purchase agreement which related to an acquisition of the membership interests only.

One central issue in the case was whether the right of first refusal encompassed only the sale of the membership interests or also included the sale of real estate.  Looking to Delaware precedent, the court found the only reasonable way to interpret the agreement was to limit the first refusal right to relate to the membership interest and not to extend it to property the LLC did not own. The reason was under the Delaware statute a limited liability company agreement relates to the affairs of a limited liability company and the conduct of its business.  The court did not enter judgement on the pleadings however because by combining the sale of the real estate and the membership interest the court could not determine which terms were to be matched.

The court also noted the following issues were disputed:

  • In connection with entering into the second purchase agreement, was the defendant entitled to withdraw its right of first refusal notice issued on connection with the first purchase agreement, or was the first notice irrevocable for the period of time the LLC agreement required it to remain open?
  • Should the defendant have given the first refusal notice prior to entering into a binding purchase agreement since by its terms the right of first refusal applied to “offers”?

Finally, plaintiff argued that the first purchase agreement specifically provided that Hoboken MPT could not consent to any amendments to the LLC Agreement “without the prior written consent of [Alaris].”  Plaintiff claimed that Hoboken MPT breached the LLC Agreement by providing consent rights to Alaris concerning amendments to the LLC Agreement.  According to the court the claim raised questions of law such as whether the transfer of consent rights of this nature constitutes a transfer of governance rights. The court did not rule on the matter because it had not been adequately breached.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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