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Frandsen v. Jensen-Sundquist Agency, Inc. - 802 F.2d 941 (7th Cir. 1986)

Rule:

Rights of first refusal are to be interpreted narrowly. The right of first refusal is enforceable but only if the contract clearly confers it.

Facts:

Appellant minority shareholder, Dennis Frandsen, entered into a stockholder agreement with majority shareholders of appellee Jensen-Sundquist, Inc. that gave Frandsen a right of first refusal (ROFR) in the case of the sale of the majority's stock and as a second option, a right to have his stock purchased at the same price as the stock was sold. Appellee larger company, First Wisconsin Corporation, proposed to merge with appellee smaller company and later agreed instead to buy appellee smaller company's stock and assets and then to liquidate its assets. Frandsen refused to consent and filed suit. He alleged that appellee smaller company breached its agreement and appellee larger company tortiously interfered with the agreement. The district court entered summary judgment for appellees.

Issue:

  1. Did appellee smaller company breach its agreement with Frandsen by entering into an agreement with the appellee larger company instead of allowing Frandsen to exercise his ROFR?
  2. Did appellee larger company tortuously interfere with the agreement between Frandsen and appellee smaller company?

Answer:

1) No. 2) No.

Conclusion:

The court affirmed the entry of summary judgment and held that the agreement that gave appellant minority shareholder right of first refusal in the case of stock sale of majority did not apply to the sale of assets and liquidation of appellee company. The sale of the majority block's shares was not the same as the sale of appellee smaller company's assets. Appellant had no right to block the sale of assets and was not protected from the proposed merger or the actual liquidation of appellee smaller company. Appellant's tortious interference with a contract claim also was meritless because appellee companies' conduct did not constitute unfair competition, and there was no breach of contract.

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