Was the selection of the first appraiser and obtaining his result a revocable offer on the part of the Company pursuant to the buy-sell portion of the operating agreement? Was it okay to withdraw the “offer” prior to the time that Plaintiffs had accepted it? This was the Company’s basic argument. Or was the selection of the first appraiser by the Company a binding acceptance of the implicit call option that the Plaintiffs had negotiated at the time the operating agreement was signed? This was the Plaintiffs’ argument. Read this post to see what Vice Chancellor McCormick of the Delaware Chancery Court concluded.

The Indiana Court of Appeals reversed a trial court decision, concluding that valuation discounts in an unclear buy-sell agreement were appropriate even in light of the mandatory nature of the buyout. In other words, the agreement created a market and the trial court ignored this fact. This is an interesting case and yet another example of why valuation processes in buy-sell agreements must be carefully drafted to avoid such debacles when trigger events inevitably happen.

On May 7th at 2pm CDT, I will be joining Jeff Lerman of Lerman Law Partners, LLP on the Zoominar, “Coronavirus Alert: Is Your Buy-Sell Agreement Defective?”. The webinar is complimentary for all attendees.