April 30, 2021 – A party with a right of first refusal on agricultural land argued that a competing buyer’s offer was purposely inflated to circumvent the party’s right of first refusal, and asked the circuit court to set a an “exercise price” at fair market value.

Recently, in Country Visions Cooperative v. Archer-Daniels-Midland Company, 2021 WI 35 (April 21, 2021), the Wisconsin Supreme Court (7-0) ruled that the circuit court did not err when it set an exercise price that was higher than an expert’s appraised value.

“For rights of first refusal, a prospective buyer may choose to offer significantly more than the appraised value of a property, especially in the context of a package deal,” wrote Justice Annette Ziegler, who becomes chief justice on May 1.

“Thus, depending on the terms of the right of first refusal contract and the facts of the case, a circuit court may set an exercise price that exceeds the appraised value of the burdened property.”

Country Visions Cooperative held a right of first refusal on land owned by Archer-Daniels-Midland Company (ADM). United Cooperative (United) offered $20 million and Country Visions did not match the price, so United bought the property for $20 million.

But Country Visions sued, requesting that the circuit court set the exercise price at $7.7 million, the estimated fair market value as asserted by an expert for Country Visions.

The circuit court determined the sale was a sham, but set the exercise price at $16.6 million and gave Country Visions 15 days to exercise its right of first refusal at that price.

Country Visions appealed and the defendants cross-appealed. The appeals court ruled that the circuit court properly set the price at which Country Visions could exercise its right of first refusal, but remanded to determine if the price included personal property because the right of first refusal contract did not include personal property.

The supreme court affirmed but remanded to determine if the circuit court’s $16.6 million price “includes more than is called for in the right of first refusal contract.”

Three-Tiered Appraisal Approach not Applicable

Initially, ADM and United reached an agreement for United to buy the subject land and three other grain storage facilities for $25 million. That deal was restructured after Country Visions learned of the tentative deal and noted the right of first refusal contract.

The subject property (Ripon Property) would be sold to United for $20 million, and the other properties, not subject to the right of first refusal contract, for $5 million.

According to the supreme court, “defendants assigned such a high value to the Ripon Property in part due to the unique synergies the Ripon Property would provide to United’s business,” based on location and railroad car loading capacity.

Country Visions sought a declaratory judgment that it had the right to purchase the property for its fair market value and specific performance of the right of first refusal at that price. Ultimately, the circuit court held a bench trial with expert testimony on value.

The circuit court ruled that the $20 million price that United paid was “a sham at an arbitrarily inflated price” designed to prevent Country Visions from exercising its right of first refusal.

But the circuit court accepted United’s expert determination on value at around $16.6 million, not the $7.7 million appraisal value that Country Vision’s expert assigned to it.

The supreme court noted that the basic principles of rights of first refusal “become more complicated when the burden property is sold as part of a package deal with other real or personal property that is not subject to the right of first refusal.”

After examining the case law, the supreme court rejected Country Vision’s argument that a fair market price must be determined using a statutory three-tiered methodology of appraisals, which applies in cases involving taxation and eminent domain.

“[T]he goal of the circuit court when setting the exercise price for a right of first refusal is not to determine the fair market value of the burdened property,” Justice Ziegler wrote.

“Rather, the circuit court must determine the actual price that the prospective third-party buyer would have offered for the burdened property, based on the terms of the contract and facts of the case (we will refer to this actual price as the "prospective offer price").”

“This prospective offer price, contrary to Country Visions' argument, need not equal the appraised value nor the fair market value,” Justice Ziegler continued.

“Indeed, the prospective offer price may be significantly higher than either the appraised value or the fair market value of the burdened property.”

Chief Justice Patience Roggensack wrote a concurring opinion to reiterate that on remand, the circuit court should review whether the exercise price set by the circuit court included personal property that was sold with the real estate.

“On remand, the central question is whether United's expert included personal property acquired under the APA when he asserted that the actual price for the Ripon Property was $16.6 million,” Chief Justice Roggensack wrote.