Filed: Jul. 22, 2015
Latest Update: Mar. 02, 2020
Summary: Case: 14-14115 Date Filed: 07/22/2015 Page: 1 of 41 [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 14-14115 _ D.C. Docket No. 6:04-cv-00698-JA-DAB COX ENTERPRISES, INC., a Delaware corporation, Plaintiff - Appellant, versus NEWS-JOURNAL CORPORATION, a Florida corporation, HERBERT M. DAVIDSON, JR., MARC L. DAVIDSON, JULIA DAVIDSON TRUILO, JONATHAN KANEY, JR., SERVICE, et al. Defendants – Appellees, PENSION BENEFIT GUARANTY CORPORATION, Claimant – Appellee. _ Appeal
Summary: Case: 14-14115 Date Filed: 07/22/2015 Page: 1 of 41 [PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 14-14115 _ D.C. Docket No. 6:04-cv-00698-JA-DAB COX ENTERPRISES, INC., a Delaware corporation, Plaintiff - Appellant, versus NEWS-JOURNAL CORPORATION, a Florida corporation, HERBERT M. DAVIDSON, JR., MARC L. DAVIDSON, JULIA DAVIDSON TRUILO, JONATHAN KANEY, JR., SERVICE, et al. Defendants – Appellees, PENSION BENEFIT GUARANTY CORPORATION, Claimant – Appellee. _ Appeal ..
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Case: 14-14115 Date Filed: 07/22/2015 Page: 1 of 41
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-14115
________________________
D.C. Docket No. 6:04-cv-00698-JA-DAB
COX ENTERPRISES, INC., a Delaware corporation,
Plaintiff - Appellant,
versus
NEWS-JOURNAL CORPORATION, a Florida corporation,
HERBERT M. DAVIDSON, JR.,
MARC L. DAVIDSON,
JULIA DAVIDSON TRUILO,
JONATHAN KANEY, JR., SERVICE, et al.
Defendants – Appellees,
PENSION BENEFIT GUARANTY CORPORATION,
Claimant – Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(July 22, 2015)
Case: 14-14115 Date Filed: 07/22/2015 Page: 2 of 41
Before ED CARNES, Chief Judge, JILL PRYOR and HIGGINBOTHAM, ∗ Circuit
Judges.
HIGGINBOTHAM, Circuit Judge:
This litigation has a long history in the Eleventh Circuit. In this latest
chapter Cox Enterprises and Pension Benefit Guaranty Corporation (PBGC) do
battle for what remains of the now-defunct newspaper publisher News-Journal
Corporation (NJC). This case arises at the intersection of Florida’s election-to-
purchase statute1 and its distributions-to-shareholders statute.2 The election-to-
purchase statute affords a corporation faced with a derivative suit the option to
purchase the shares of the complaining shareholder in order to cause dismissal of
the suit. The distributions-to-shareholders statute generally forbids a corporation
from reacquiring shares by distribution if such distribution would render the
corporation insolvent. Cox brought a derivative suit against NJC. NJC, in turn,
elected to purchase Cox’s shares. But at no time could NJC reacquire Cox’s shares
without rendering itself insolvent. As a consequence, NJC never made a
distribution to Cox and Cox never relinquished its shares. Although at all times a
∗
Honorable Patrick E. Higginbotham, United States Circuit Judge for the Fifth
Circuit, sitting by designation.
1
Florida Statutes § 607.1436.
2
Florida Statutes § 607.06401.
2
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shareholder, Cox attempts to prosecute its claim as a creditor of the now-defunct
company.
A prior panel of this court instructed the district court to determine whether
distribution of NJC corporate assets to Cox, a shareholder, would render NJC
insolvent and, if so, to direct NJC to pay PBGC, a creditor, before distributing any
assets to Cox. On remand, the district court heeded this court’s instruction. We are
now asked to reconsider the prior panel’s holding and the district court’s
application of it.
I.
We relate facts aptly stated in this court’s 2007 3 and 2012 4 decisions,
supplementing as necessary. Eugene C. Pulliam organized NJC in 1925 when he
acquired and consolidated two small Daytona Beach newspapers into a single
newspaper, the Daytona Beach News-Journal. Pulliam paid cash for one of the
acquired newspapers and granted a 40% interest in NJC for the other, owned by T.
E. Fitzgerald. NJC had one class of common stock with 4,000 shares issued and
outstanding. In 1927, Pulliam sold his 60% interest to Julius and Herbert Davidson,
giving the Davidson family a majority of NJC’s shares. Over the ensuing decades,
Fitzgerald’s minority 40% interest changed hands until, in 1963, the minority
3
Cox Enters., Inc. v. News-Journal Corp. (“Cox I”), 510 F.3d 1350 (11th Cir. 2007).
4
Cox Enters., Inc. v. Pension Ben. Guar. Corp. (“Cox II”),
666 F.3d 697 (11th Cir.
2012).
3
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interest holder, John H. Perry, Jr., purchased an additional 7.5% interest in NJC
from a member of the Davidson family, leaving him with 47.5% of NJC’s
outstanding shares. In 1969, Perry sold his minority interest to Cox, a privately
held media conglomerate. Cox has maintained the 47.5% interest comprising 1,900
shares in NJC. The remaining 2,100 shares, which comprise a controlling 52.5%
interest in NJC, are now owned by a closely held corporation controlled by the
Davidson family.
Cox I set out the more recent history of NJC’s corporate activities:
[When this case began,] NJC's directors were Tippen Davidson, Marc
Davidson, Julia Davidson Truilo, Robert Truilo, Georgia Kaney,
Jonathan Kaney, Jr., and David Kendall. Tippen Davidson also served
as the president and CEO of NJC until his death in January 2007.
Tippen Davidson's grandfather, Julius, served as the News–Journal's
publisher from 1927 until 1962, when he relinquished control of the
paper to his son Herbert M. Davidson. Herbert published the paper
until his death in 1985. Under Julius and Herbert's leadership, NJC
also owned and operated a radio station, WNDB–FM, from 1944 to
1972.
Although Tippen Davidson enjoyed a brief career as a professional
musician, he eventually returned to Daytona Beach to work as a
reporter and city editor for the News–Journal. Upon his father's death,
he became the paper's general manager and publisher. Tippen's wife,
Josephine, has also worked as a reporter and editor at the News–
Journal. Their two children, Marc Davidson and Julia Davidson
Truilo, are currently members of the News–Journal staff and the NJC
board of directors. Julia's husband, Robert Truilo, serves on the board
of directors and as the News–Journal's business manager.
In his capacity as CEO of NJC, Tippen Davidson continued to pursue
his interest in music and the performing arts. As early as 1966, he
began to help create several non-profit organizations, including the
4
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Florida International Festival (“FIF”), Central Florida Cultural
Endeavors (“CFCE”), Seaside Music Theater (“SMT”), and Lively
Arts Center, Inc. (“LACI”) (collectively “Cultural Entities”). SMT, in
particular, has consistently depended on funding from NJC. After NJC
pledged $1.8 million to SMT in 1993, NJC management developed a
“spin-off strategy” according to which contributions to SMT would go
down by $180,000 annually until they totaled no more than $500,000
per year. The strategy was never effectively implemented, and, in fact,
in 1999, NJC's total contribution to SMT came to $1.4 million. By the
following year, this figure had risen to $1.8 million—triple what it
had been eight years before.
In 1996, NJC's directors organized LACI as a part of the SMT spin-
off strategy. Tippen, Georgia Kaney, Marc Davidson, and Julia Truilo
served as its original board of directors. Their goal was to build and
operate an independent and upscale performing arts center for SMT,
thereby enhancing the stature of SMT and increasing its revenue. The
projected cost for the center was $29 million. NJC provided $13
million of this amount as part of a naming rights agreement. 5
In the beginning, NJC treated its contributions to the Cultural Entities
as charitable tax deductions. Over time, however, the donations began
to exceed the maximum allowed for charitable deductions.
Accordingly, in 1993, NJC began to classify its contributions as
business expenses for the purpose of corporate promotion. The district
court found these cultural expenditures to have been waste . . .
Cox first learned of the $13 million naming rights agreement on 10
March 2004. Unsatisfied with the explanations for this expenditure
5
Per Cox I:
In addition to financial support, the Cultural Entities [were]
intertwined with NJC by common management . . . [O]ver the five-
year period leading up to the filing of this action, seventeen CFCE
employees, thirty-eight SMT employees, and three LACI employees
were on the NJC payroll. Many of the Cultural Entities employees
also worked in the News–Journal building and received the same
benefits as News–Journal employees. Cox I, 510 F.3d at 1353 n.2.
5
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provided by NJC, Cox filed suit on 11 May 2004, alleging various
acts of fraud, waste, and mismanagement. 6
In response to Cox’s suit, NJC elected to purchase all shares owned by Cox at fair
value pursuant to Florida’s election-to-purchase statute, which allows a corporation
or one or more of its shareholders to purchase the shares of a petitioning
shareholder at fair value in order to cause dismissal of the suit.7
Because the parties could not agree on the fair value of Cox’s shares, the
statute required the district court to determine their fair value “as of the day before
the date on which [Cox’s suit] was filed.”8 Along with the News-Journal
newspaper, NJC had one wholly-owned subsidiary, Volusia Pennysaver, Inc. The
district court held an eight-day bench trial during which both sides presented
expert testimony regarding value and valuation methodology as to both entities.
The district court accepted the valuation for Pennysaver proffered by Cox’s
6
Id. at 1352-54.
7
Section 607.1436(1) provides:
In a proceeding under [section] 607.1430(2) or (3) to dissolve a
corporation, the corporation may elect or, if it fails to elect, one or more
shareholders may elect to purchase all shares owned by the petitioning
shareholder at the fair value of the shares. An election pursuant to this
section shall be irrevocable unless the court determines that it is equitable
to set aside or modify the election.
8
Fla. Stat. § 607.1436(4).
6
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valuation expert and valued Pennysaver at $36 million.9 The district court also
adopted the cash-flow analysis for the News-Journal proffered by Cox’s valuation
expert with minor modifications, premised on several conclusions: first, that NJC
was a marketable corporation—that its shares would command an attractive price
on the open market; second, that the News-Journal had experienced “abnormally
poor performance relative to comparably situated newspapers” as a result of
mismanagement; and third, that proper valuation of NJC as a going concern
required normalization of “the financial data of a poorly operated corporation
before determining what the corporation would sell for in an arm’s-length
transaction.”10 To this third point, related to normalization, although the News-
Journal at that time had an actual EBITDA margin 11 of 9.3%, the district court
applied a normalized EBITDA margin of 24.8% according to the EBITDA margins
of similarly situated newspaper corporations not subject to mismanagement.12
Based on the News-Journal’s 2004 gross revenue of approximately $66 million,
9
See Cox Enters., Inc. v. News-Journal Corp., 469 F. Supp. 2d 1094, 1103, 1108 (M.D.
Fla. 2006).
10
See id. at 1107-08.
11
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.”
The EBITDA margin is calculated as the ratio of EBITDA to net revenue (i.e., EBITDA
is divided by net revenue). An EBITDA margin essentially provides a sense of a
company’s core profitability—a higher EBITDA margin tends to reflect a more profitable
enterprise.
12
Cox Enters., Inc., 469 F. Supp. 2d at 1107-08.
7
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the cash-flow analysis yielded a value of $236 million for the News-Journal13
which, when combined with the $36 million valuation for Pennysaver, resulted in
an overall valuation of $272 million for NJC. Correspondingly, the district court
valued Cox’s 47.5% interest in NJC at $129.2 million. 14
At the end of its thorough memorandum and order setting the fair value of
Cox’s shares, the district court requested memoranda from the parties regarding
“what would constitute reasonable terms of purchase”15 given the valuation.16 Both
NJC and Cox abided the court’s request. In its memorandum to the court, NJC
indicated that “the amount necessary to complete the purchase [was]
approximately twice the amount that NJC [could] finance and pay while continuing
13
The math went as follows: $66,039,483 (gross revenue), multiplied by 24.8%
(normalized EBIDTA margin), multiplied by 14.4 (purchase price-to-EBIDTA ratio
derived from comparable newspaper corporation sales), equals $235,840,202 (normalized
value of the News-Journal).
14
Cox Enters., Inc., 469 F. Supp. 2d at 1112.
15
Id.
16
The district court cited section 607.1436(5), which provides, in pertinent part:
Upon determining the fair value of the shares, the court shall enter an order
directing the purchase upon such terms and conditions as the court deems
appropriate, which may include payment of the purchase price in
installments, when necessary in the interests of equity, provision for
security to assure payment of the purchase price and any additional costs,
fees, and expenses as may have been awarded, and, if the shares are to be
purchased by shareholders, the allocation of shares among such
shareholders.
8
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to operate its newspaper business [rather than liquidating].” 17 NJC urged that
equity required the court to allow payment of the purchase price in installments—a
possibility expressed in the statute. 18 In an earlier motion submitted in anticipation
of the court’s determination of value, NJC had also requested that the court “frame
[the eventual purchase order] in such a way that NJC [would] not have to pay the
valuation amount until Cox’s ownership rights [over the shares were] fully
terminated.”19 NJC sought unrestricted right to Cox’s shares upon payment of the
purchase price to “relieve [itself] of the risk of watching those shares lose value
during an appeal.”20 NJC suggested that “Cox face[d] no similar risk [because] it
[would be] entitled to ‘fair value’ unaffected by post-judgment fluctuations in
share price.” 21
17
Dist. Ct. Docket No. 6:04-cv-00698-JA-DAB, Doc. 252 at 2. Citations to “Doc.” herein
refer to docket entries in the district court record in this case.
18
See Fla. Stat. § 607.1436(5) (providing that a purchase order “may include payment of
the purchase price in installments, when necessary in the interests of equity”); see also
Model Business Corporation Act § 14.34, Official Comment (“[M]any courts have
hesitated to award dissolution . . . because of its effects on shareholders, employees, and
others who may have an interest in the continuation of the business . . . [I]t is rarely
necessary to dissolve the corporation and liquidate its assets in order to provide
relief . . . .”).
19
Doc. 246 at 2-3.
20
Id. at 9.
21
Id.
9
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In response, Cox requested “full and complete payment . . . immediately,”
with interest accruing on the purchase price from the valuation date until the date
of payment, and the imposition of “conditions . . . by way of security in the
interim.” 22 Cox argued that based on its own valuation expert’s forecast, NJC
could finance immediate purchase consistent with newspaper industry lending
standards.23 Cox attached a sworn statement from the valuation expert that, in turn,
included as exhibits excerpts from NJC’s consolidated financial statements.24
Finally, Cox asserted that “requiring [it] to accept payment in installments would
plainly and unfairly subject [it] to considerable risk,” 25 presumably the risk of loss
in share value pending payment of future installments. Characterizing itself as a
creditor, Cox requested that, in the event the court were to order installment
payments, the order include a number of security provisions, most notably a first
priority security interest in all of NJC’s assets. 26 Cox submitted a proposed order to
this effect. 27
22
Doc. 253 at 3.
23
Id. at 6-7.
24
See id. at Ex. A–1-7.
25
Id. at 4.
26
Docs. 261, 261–1.
27
Doc. 253–3.
10
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Following a hearing on the terms of the transfer of Cox’s interest and a
second round of briefing, the court issued a purchase order in compliance with
section 607.1436(5) and dismissed Cox’s suit under section 607.1436(6). 28 Despite
Cox’s request for upfront payment of the purchase price in full, the district court
determined that “[e]ven absent wasteful conduct, NJC would likely not have the
means to be able to pay $129.2 million in one lump sum.” 29 The district court
found that based on industry lending standards NJC did “not have ready assets to
finance a purchase of [Cox’s] shares” to allow for immediate payment. 30 Counsel
for NJC framed the issue well during the hearing:
[NJC] has a historic EBITDA margin of around 12 percent. The
company was valued [by the district court] on the basis [of a
normalized] 24.8 percent EBITDA margin. Lenders lend on EBITDA
multiples, so [NJC] has to find a way and it struggled mightily to find
a way to buy a [hypothetical version of itself] that’s outperforming it
two times over. It had to find a way for a 12 percent EBITDA
company to buy the shares of a 24.8 percent EBITDA company, and in
doing that the result is what you would expect. The actual [NJC, a 12
percent EBITDA company,] trying to buy [the shares of] a
hypothetical [NJC, a 24.8 percent EBITDA company,] . . . the
finances don’t mesh up. And no lender lends money based on [what
the district court says NJC is worth or should be worth—lenders lend
based on actual EBITDA]. 31
28
Doc. 262.
29
Id. at 5.
30
Id.
31
Doc. 259 at 17-18 (emphasis added).
11
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In light of these limitations the purchase order directed NJC to pay the
$129.2 million purchase price in installments. A first installment payment of $29.2
million was to be made within ten days of either the issuance of the Eleventh
Circuit’s mandate, in the event of an appeal, or the expiration of the time for the
filing of a notice of appeal, in the event no appeal was taken. The remainder of the
purchase price was to be paid in five annual installments of $20 million, plus
accrued interest, each due on the one-year anniversary of the prior payment.
To safeguard Cox’s position during the repayment period, the court ordered
that Cox, upon receipt of the first installment payment, tender all of its shares of
NJC common stock to NJC in exchange for $100 million in face value preferred
stock with first priority dividends.32 Thereafter, each payment by NJC of an
installment, with accrued interest, was to constitute a redemption of that portion of
Cox’s preferred stock with a face value equal to the principal amount of the
payment. The purchase order also included several affirmative and negative
covenants curbing certain NJC corporate activities during the repayment period.
32
This at Cox’s request: “Cox suggests that it should retain possession of its NJC shares
until such time as the [c]ourt’s judgment and all related orders concerning payment
therefor become final and are no longer subject to appeal and the judgment is paid,
provided that, in the event the [c]ourt allows the purchase price to be paid in cash
installments, Cox would surrender such shares for cancellation by NJC concurrently with
the first payment therefore by NJC.” Doc. 261 at 3 (Cox’s Proposal Regarding Security
and Return of Stock).
12
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The purchase order did not grant Cox a security interest in any of NJC’s assets. In
short, despite its repeated requests, the district court did not afford Cox treatment
as a first-priority secured creditor rather than as a shareholder.33
Although the district court did not refer to NJC’s consolidated financial
statements in the text of the purchase order, those documents were part of the
record before the district court when it issued the purchase order on September 27,
2006. At that time the most recent available financial statements were those
pertaining to NJC’s fiscal year ending December 31, 2005. According to the 2005
balance sheet, NJC had approximately $57.9 million in total assets, $54.6 million
in total liabilities, and $3.3 million in total shareholders’ equity. 34 An
accompanying note to the consolidated financial statements explains that NJC had
33
See Docs. 253–3, 261 at 1-3.
34
See Doc. 253–2 at 6. A simplified version of NJC’s consolidated balance sheets from
2004 and 2005 states as follows:
NJC Consolidated Balance Sheets
December 31, 2005 and 2004
2005 2004
Total Assets $ 57,942,798 $ 51,304,042
Total Liabilities $ 54,597,839 $ 48,126,392
Total Shareholders' Equity $ 3,344,959 $ 3,177,650
Total Liabilities and Shareholders'
Equity $ 57,942,798 $ 51,304,042
13
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at that time recorded as a liability its own “estimated cost to settle [the Cox]
lawsuit through purchasing the common stock of Cox at $29,410,000”35—well
short of the district court’s later $129.2 million valuation of Cox’s interest.
Replacing NJC’s $29.4 million estimate with the eventual $129.2 million purchase
price would yield approximately $57.9 million in total assets, $154.4 million in
total liabilities, and negative $96.4 million in shareholders’ deficit—rather than
equity—on NJC’s 2005 balance sheet. The record also contains NJC’s
consolidated financial statements from 2006 through 2008, 36 which reflect an
increased estimated liability of $129.2 million for NJC’s potential repurchase of
Cox’s shares following the issuance of the purchase order, 37 along with a
35
Id. at 4.
36
Doc. 576–4 at 39-89.
37
See id. at 55, 72, 88-89.
14
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shareholders’ deficit figure of between negative $80 million and negative $100
million in each year. 38
Both Cox and NJC appealed the purchase order to this court in Cox I. Cox’s
arguments at that stage focused on defending the district court’s valuation
methodology, which favored Cox, and challenging the district court’s exclusion of
compensation for past director and officer misconduct, as well as its denial of
prejudgment interest.39 Cox did not challenge the district court’s refusal to grant it
a security interest in NJC assets. This court affirmed the purchase order as
38
See id. at 42, 59, 76. A simplified version of NJC’s consolidated balance sheets from
2006, 2007, and 2008 states as follows:
NJC Consolidated Balance Sheets
December 31, 2008, 2007, and 2006
2008 2007 2006
Total Assets $ 50,780,113 $ 59,103,143 $ 60,280,992
Total Liabilities $ 150,269,279 $ 141,490,729 $ 154,130,171
Total Shareholders'
Deficit $ (99,489,166) $ (82,387,596) $ (93,849,179)
Total Liabilities and
Shareholders' Deficit $ 50,780,113 $ 59,103,133 $ 60,280,992
39
See Brief of Plaintiff-Appellee Cross-Appellant Cox Enterprises, Inc. (Appeal No. 06-
16190); Reply Brief in Support of Cross-Appeal of Plaintiff-Appellee Cross-Appellant
Cox Enterprises, Inc. (Appeal No. 06-16190); see also Cox I, 510 F.3d 1350, 1357-61
(11th Cir. 2007).
15
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entered. 40 Notably, in rejecting Cox’s request for prejudgment interest this court
highlighted that “[d]uring the period in question, Cox continued actively to
exercise its rights as a shareholder, including the receipt of $2.8 million in
dividends, the receipt of annual audit reports, internal profit and loss reports, and
participation in shareholder meetings.” 41
The mandate from Cox I issued on April 9, 2008,42 triggering the ten-day
period within which the first payment was due under the purchase order.
Nevertheless, NJC was unable to make the first payment, and “at the [joint] request
of the parties [the district court] repeatedly extended that deadline so that the
parties could attempt to settle and to possibly sell NJC so that the liability to Cox
could be satisfied.” 43 During this period of repeated deadline extensions—spanning
from April 2008 through January 2010—the going-concern value of NJC
plummeted.
This period of deadline extensions merits explanation in more detail. In
anticipation of the Cox I mandate Cox had filed an emergency motion to appoint a
receiver to oversee NJC’s assets because it “believe[d] that NJC [would] exercise
40
Cox I, 510 F.3d at 1361.
41
Id.
42
Doc. 319.
43
Cox Enters., Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-28DAB,
2014 WL
3962694, at *1 (M.D. Fla. Aug. 13, 2014); see Doc. 497—1, 2.
16
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its right under [Florida Statutes § 607.1436(7)] to file notice of its intent to adopt
articles of dissolution so as to avoid payment to Cox of the ‘fair value’ of Cox’s
shares as determined by the [district court].” 44 In support of its belief, Cox noted
that NJC had unilaterally terminated what appears to have been the only financing
agreement with the potential to support payment according to the terms of the
purchase order.45 The district court denied Cox’s motion as premature, reasoning
that if NJC were to elect dissolution, appointment of a receiver might be
appropriate—in light of NJC’s track record of corporate waste and
mismanagement—but that NJC could only file notice of its intent to adopt articles
of dissolution after the issuance of the Eleventh Circuit’s mandate, subsequent to
which Cox could renew its motion. 46 The parties then filed a joint motion to set
April 21, 2008, as the deadline for NJC to file any notice of intent to adopt articles
of dissolution,47 which the district court granted.48
On April 21—the deadline—the parties filed an emergency joint motion to
extend the deadline “so as to permit the parties to attempt to resolve [the] case by
44
Doc. 315 at 2.
45
See Doc. 315 at 3 (Cox Emergency Motion to Appoint Receiver).
46
Doc. 318.
47
Doc. 320.
48
Doc. 321.
17
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settlement.” 49 In their joint motion the parties indicated they had entered into a
joint sale agreement on April 18 granting Cox exclusive management and control
over a potential sale intended to satisfy, or partially satisfy, NJC’s liability to Cox
due under the purchase order.50 The joint sale agreement provided for the terms,
conditions, and covenants of the purchase order to remain in effect and for
consideration to be paid to Cox along the following lines in the event of a
successfully consummated sale:
In Cox’s capacity as a shareholder of [NJC] in connection with the
[potential sale] and in consideration of Cox’s management of the
[s]ale process, and in settlement of any and all claims Cox may have
arising out of or related to the [underlying lawsuit], in the event of a
successfully consummated [s]ale, Cox shall be entitled to receive from
the [s]ale [p]roceeds an amount equal to the sum of:
(a) $22,500,000, increased by 20% of the excess of the [s]ale
[p]roceeds over $100,000,000, plus
(b) 47.5% of the [s]ale [p]roceeds. 51
The joint sale agreement also gave Cox exclusive power and authority to terminate
the joint sale process at any time and reinstate the statutory ten-day deadline within
which NJC would have to either make the first installment payment due under the
49
Doc. 322.
50
Id.; see Doc. 495–2 (Joint Sale Agreement).
51
Doc. 495–2 at 5.
18
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purchase order or file notice of its intent to adopt articles of dissolution. 52 In their
emergency joint motion to extend the deadline the parties represented to the district
court that they had:
. . . agreed to the potential sale of NJC . . . . It is anticipated that it
could take several months to determine whether a sale meeting the
terms and conditions of the joint sale agreement can be procured. If
the sale takes place pursuant to the joint sale agreement, all issues
would be resolved and the case dismissed. If the sale does not occur,
the parties wish to be restored to their current position in the
litigation. 53
The district court granted the motion, extending the deadline to October 21, 2008,
to permit the parties to proceed with their joint sale agreement. 54 At the parties’
request, the district court instructed the parties to provide a joint report every thirty
days as to the status of the anticipated sale of NJC. 55
The joint status reports filed over the ensuing months reflect that a formal
sale process for NJC was commenced on August 11, 2008, but was not completed
by the October 21 deadline. 56 On October 15 the parties filed a joint status report to
52
See id. at 3, 8.
53
Doc. 322 at 3-4.
54
Doc. 323.
55
Id.
56
See Docs. 331, 354, 369, 411, 434.
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this effect and requested a further extension to March 10, 2009,57 which the district
court granted.58 Cox persisted in its role at the helm of the sale process. Although
management presentations and site visits with potential purchasers apparently
resulted in the submission of some bids,59 no sale was consummated, and on
February 24, 2009, Cox (alone) requested another extension of the deadline “to
permit additional time for negotiation with prospective purchasers.” 60 The district
court extended the deadline until May 29, 2009. 61
This carried on until March 18, 2009, when Cox moved to terminate the
joint sale process and to appoint a receiver to oversee NJC’s assets.62 Following a
hearing,63 the district court granted Cox’s motion on April 17, 2009, 64 again
commencing the statutory ten-day period within which NJC was to either make the
first installment payment due under the purchase order or file notice of its intent to
57
Doc. 460.
58
Doc. 461.
59
Docs. 473, 476, 484.
60
Doc. 488.
61
Doc. 489.
62
Doc. 495.
63
Doc. 516 (Transcript from Hearing).
64
Doc. 507.
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adopt articles of dissolution. The district court appointed a receiver to manage
NJC’s business, safeguard its assets, and prepare it for sale. Despite the statutory
ten-day deadline, “[a]fter entry of this order, [NJC] neither made a payment to Cox
nor adopted articles of dissolution.”65
Nor did Cox tender any shares. It remained a shareholder in possession of
NJC common stock. In addition to referring to itself as a shareholder in the joint
sale agreement, 66 Cox continued to receive dividends after the purchase order
issued in 2006.67 And in parallel sanction proceedings regarding charitable
payments and dividends made by NJC in violation of the purchase order, Cox
requested that the court order NJC to declare a constructive proportionate dividend
payable to Cox as a shareholder of NJC 68—a request the district court granted in
part in April 2009. 69
The sale process continued, now under the direction of the receiver, who
provided the court with monthly status reports from May 2009 through November
65
Cox II, 666 F.3d 697, 700 (11th Cir. 2012).
66
See Doc. 495–2 at 5.
67
See Doc. 292–1 (Notice of Dividends).
68
See Doc. 312 at 12.
69
See Doc. 503.
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2009. 70 The receiver’s status reports reflect that the receiver engaged a broker and
that bids from potential purchasers were submitted and considered. The receiver’s
efforts culminated in a joint motion of the receiver and Cox in January 2010
requesting permission to sell the publishing operations of NJC for just over $20
million. 71 Following another round of briefing and a hearing, the district court
granted the joint motion in March 2010 and directed the receiver to execute the
sale. 72 The sale proceeds combined with all other remaining NJC assets totaled
approximately $36 million. 73 In short, following the 2010 sale NJC was worth
roughly one-eighth its estimated value per the district court’s 2006 purchase order.
Relevant to this appeal, the purchaser did not assume liability for NJC’s
pension obligations and PBGC became the statutory trustee for NJC’s terminated
pension plans and guarantor of its unfunded pension obligations. 74 Cox filed a
claim in the receivership for the $129.2 million due under the 2006 purchase order
and PBGC filed a claim for unfunded pension obligations. The district court
70
Docs. 523, 524, 528, 537, 569.
71
Doc. 576; see Doc. 576–2 at 9 (Asset Purchase Agreement).
72
Doc. 625.
73
See Cox Enters., Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-28DAB, 2014 WL
3962694, at *2 (M.D. Fla. Aug. 13, 2014).
74
See Doc. 652 at 16-17; see also 29 U.S.C. § 1302 (establishing the Pension Benefit
Guaranty Corporation).
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characterized Cox as a first-priority, quasi-secured creditor and ordered the
receiver to distribute all of NJC’s assets to Cox in partial satisfaction of Cox’s
claim. 75 PBGC, along with other smaller creditors, appealed.
In Cox II, we rejected the conclusion that Cox had an equitable first priority
claim to NJC’s assets, vacated the district court’s order, and remanded the case
with specific instructions. We held, in accordance with section 607.1436(8), that
the election-to-purchase statute “require[s] that any payment made as a result of a
corporation’s share repurchase decision [must] comply with the distribution
requirements of [Florida Statutes § 607.06401], which prohibits the distribution of
corporate assets to a shareholder if it would render the corporation insolvent.” 76
We further held “that Cox qualifies as a shareholder for purposes of the
distributions-to-shareholders statute,” and mandated that the district court “must
consider whether a payment to Cox would comply with the insolvency test
[provided for at section 607.06401(3)] at the time of payment to Cox.”77 We
directed that “[i]f on remand the district court finds a distribution to Cox would
75
Cox Enters., Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-28DAB, 2010 WL
3220198, at *3-*4 (M.D. Fla. Aug. 13, 2010) (“Cox has an equitable first priority claim
to all of the assets to be distributed up to the extent of its judgment. Though not expressly
stated in the [purchase order], the [c]ourt’s intent in entering the positive and negative
covenants was to provide security for Cox’s award . . . .”).
76
Cox II, 666 F.3d at 699 (emphasis added).
77
Id. at 706, 708.
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violate [the insolvency test],” as assessed at the time of payment, “[NJC’s] other
creditors should receive payment before any distribution is made to Cox.”78
On remand, in an effort to allow the parties to fully develop the record, the
district court referred the case to a magistrate judge to hold an evidentiary hearing
regarding the value of PBGC’s claim. The district court adopted the magistrate
judge’s report and recommendation and valued PBGC’s claim at $13,887,822.00.79
The district court also found that “payment to Cox would violate the insolvency
test” as assessed at the time of payment and, concluding that this court’s mandate
so required, ordered that PBGC’s claim be paid in full first, before any distribution
to Cox. 80
Cox appeals.
II.
The law of the case doctrine dictates that “an appellate decision is binding in
all subsequent proceedings in the same case unless the presentation of new
evidence or an intervening change in the controlling law dictates a different result,
or the appellate decision is clearly erroneous and, if implemented, would work a
78
Id. at 699.
79
Doc. 794 (Order Adopting Magistrate’s Report and Recommendation).
80
Cox Enters., Inc. v. News-Journal Corp., No. 6:04-cv-698-Orl-28DAB, 2014 WL
3962694, at *6-*8 (M.D. Fla. Aug. 13, 2014).
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manifest injustice.”81 The mandate rule is “a specific application of the law of the
case doctrine.”82 Subject to the three “narrow”83 exceptions mentioned above,
“when an appellate court issues a specific mandate it is not subject to
interpretation; the district court has an obligation to carry out the order.” 84 “The
trial court must implement both the letter and the spirit of the mandate . . . taking
into account the appellate court’s opinion . . . and the circumstances it embraces.”85
“Although the trial court is free to address, as a matter of first impression, those
issues not disposed of on appeal, it is bound to follow the appellate court’s
holdings, both expressed and implied.” 86 Because “[a] mandate may be vague or
precise” depending on the issues presented, where a mandate’s scope is contested
we must “determine the scope of the issues considered in [the prior] appeal.” 87 We
81
Litman v. Mass. Mut. Life Ins. Co., 825 F.2d 1506, 1510 (11th Cir. 1987) (en banc).
82
Piambino v. Bailey, 757 F.2d 1112, 1120 (11th Cir. 1985) (alterations omitted).
83
United States v. Tamayo, 80 F.3d 1514, 1520 (11th Cir. 1996).
84
Litman, 825 F.2d at 1511.
85
Piambino, 757 F.2d at 1119.
86
Transamerica Leasing, Inc. v. Inst. of London Underwriters,
430 F.3d 1326, 1331
(11th Cir. 2005) (internal quotation marks and citation omitted).
87
United States v. Crape, 603 F.3d 1237, 1241 (11th Cir. 2010).
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review de novo the district court’s interpretation and application of this court’s
mandate in Cox II. 88
A.
Cox first argues that the district court was relieved of its obligation to assess
the insolvency test as of the time of payment because the Cox II panel clearly erred
in so mandating. Cox claims that the purchase order constituted a distribution of
indebtedness from NJC to Cox, the effect of which must be assessed as of the time
the purchase order issued. Cox also claims, as it must, that such a distribution
would not have been prohibited under the insolvency test and therefore later
repayment of the debt must be allowed, even if it would render NJC insolvent as of
the time of payment. Cox also claims that the purchase order transformed it into a
creditor of NJC, even though Cox at all times retained its shares.
The record before the Cox II panel—specifically, NJC’s balance sheets—
belies Cox’s claims. At no point in time could NJC have reacquired Cox’s shares
by distribution without rendering itself insolvent. The record demonstrates
conclusively that a distribution of indebtedness to Cox in the amount of $129.2
million would have rendered NJC insolvent in 2006. Cox’s position is premised on
construing the purchase order to have directed NJC to make a distribution
prohibited by the statute in the first instance; it is therefore untenable. We cannot
88
Id. (citing Litman, 825 F.2d at 1511).
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conclude that the district court’s order required this untoward result. 89 Nor can we
conclude that Cox became a creditor when it never relinquished its shares.
1.
Turning to our holding in Cox II, we have emphasized that the “clear error”
exception must be rarely invoked.90 Accordingly, “in a close case, a court must
defer to the legal conclusion of a coordinate court in the same case; only when the
legal error is beyond the scope of reasonable debate should the court disregard the
prior ruling.”91 Needless to say, this is a high bar.92 We emphasize that our inquiry
is focused on whether the prior panel’s decision was so clearly erroneous that we
cannot construe it as a reasoned outcome. We cannot hold under this exacting
standard that the Cox II panel clearly erred in requiring assessment of the
insolvency test as of the time of payment.
89
See Durr v. Shinseki, 638 F.3d 1342, 1344 (11th Cir. 2011) (“[T]he law tries to avoid
absurd results.”); cf. Griffin v. Oceanic Contractors, Inc.,
458 U.S. 564, 575 (1982)
(“[I]nterpretations of a statute which would produce absurd results are to be avoided if
alternative interpretations consistent with the legislative purpose are available.”).
90
Jenkins Brick Co. v. Bremer, 321 F.3d 1366, 1370 (11th Cir. 2003).
91
Id. at 1370-71.
92
See, e.g., Parts & Elec. Motors, Inc. v. Sterling Elec. Inc.,
866 F.2d 228, 233 (7th Cir.
1988). (“To be clearly erroneous, a decision must strike us as more than just maybe or
probably wrong; it must . . . strike us as wrong with the force of a five-week-old,
unrefrigerated dead fish.”).
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2.
The Florida Business Corporation Act, codified at Florida Statutes § 607 et
seq., largely tracks the language of the Model Business Corporation Act. Florida’s
election-to-purchase statute requires that “[a]ny payment by the corporation
pursuant to an order under subsection (3) or subsection (5) . . . is subject to the
provisions of [section] 607.06401,” the distributions-to-shareholders statute. 93 It is
undisputed that the purchase order in this case was issued under subsection (5) of
the election-to-purchase statute. Correspondingly, “any payment” made pursuant to
the purchase order is subject to the provisions of the distributions-to-shareholders
statute.
As the Cox II panel identified, “the [distributions-to-shareholders] statute
essentially provides that corporate assets may not be distributed to shareholders if
the distribution would render the corporation insolvent.”94 The insolvency test
contained in the distributions-to-shareholders statute generally forbids a
distribution of indebtedness to a shareholder if such distribution: (a) would render
the corporation unable to pay its debts as they become due in the usual course of
business (so-called “equity insolvency”), or (b) would, when added as a debt to the
liabilities column of the corporation’s balance sheet, cause the corporation’s total
93
Fla. Stat. § 607.1436(8).
94
Cox II, 666 F.3d at 703.
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liabilities to exceed the corporation’s total assets (so-called “balance sheet
insolvency”). 95
The distributions-to-shareholders statute also contains default timing
provisions for when the insolvency test must be assessed with regard to a particular
distribution.96 “In the case of distribution by purchase, redemption, or other
acquisition of the corporation’s shares,” the default rule requires assessment of the
insolvency test as of the earlier of:
1. The date money or other property is transferred or debt incurred by
the corporation, or
2. The date the shareholder ceases to be a shareholder with respect to
the acquired shares . . . . 97
95
See Fla. Stat. at § 607.06401(3) (treating senior liquidation preferences as liabilities
unless the articles of incorporation provide otherwise). Subsection (3) provides in full:
No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation
permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those
receiving the distribution.
96
Id. at § 607.06401(6).
97
Id. at § 607.06401(6)(a).
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In short, where the default timing provisions apply a corporation cannot purchase
shares by making a distribution of indebtedness to a shareholder if such
distribution would cause the corporation’s total liabilities to exceed its total assets
as of the time the debt is incurred.
Under the statutory scheme subsection (8) offers a workaround for
corporations seeking to overcome this default rule. Subsection (8) provides that:
. . . indebtedness . . . including indebtedness issued as a distribution,
is not considered a liability for purposes of [the insolvency test] if its
terms provide that payment of principal and interest are made only if
and to the extent that payment of a distribution to shareholders could
then be made under this section. 98
A corporation can escape the statute’s general prohibition by distributing
indebtedness to a shareholder on the condition that any future payment of principal
and interest is treated as a distribution that must comply with the distributions-to-
shareholders statute. In essence, the statutory structure affords an alternative to a
corporation, allowing it to make an otherwise forbidden distribution of
indebtedness by kicking down the road assessment of the insolvency test, which
operates as to each future payment on the debt. 99 The exception provides that
98
Id. at § 607.06401(8).
99
See Model Business Corporation Act § 6.40, Comment 8.B (“[I]t is anticipated that
[the subsection (8) exception] will be applicable most frequently to permit the
reacquisition of shares of the corporation at a time when the deferred purchase price
exceeds the net worth of the corporation.”).
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“each payment of principal or interest is treated as a distribution, the effect of
which is measured on the date the payment is actually made.”100 This plain
language reading of the statute controls our decision. It is also faithful to the
purpose claimed for the statute by the drafters of the Model Business Corporation
Act adopted by Florida.
At issue here, the Cox II panel concluded that upon issuance of the purchase
order NJC “had a debt of $129.2 million owed Cox to be paid in regular
installments,” that “[t]his indebtedness of [NJC] triggered the timing provision
of [subsection (8)],” and that the insolvency test must be assessed “at the time of
payment to Cox.” 101
3.
The circumstances of this case fit imperfectly with our plain language
reading of the statutory scheme. This for several reasons. First, although the
election-to-purchase statute provides that “[t]he purchase ordered . . . shall be
made within 10 days after the date the order becomes final unless, before that time,
the corporation files with the court a notice of its intention to adopt articles of
dissolution,”102 the parties in this case repeatedly—and jointly—requested and
100
Fla. Stat. § 607.06401(8) (emphasis added).
101
Cox II, 666 F.3d at 707-08.
102
Fla. Stat. § 607.1436(7) (emphasis added).
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received extensions of that deadline. By all accounts it appears that Cox initiated
and sustained these requests in its effort to stave off the dissolution of NJC. After
NJC terminated what appears to have been the only financing agreement with the
potential to support payment according to the terms of the purchase order, 103 it
became apparent that dissolution was imminent. At this juncture Cox faced two
alternatives. On one hand, if NJC were to adopt articles of dissolution, Cox would
revert to its position as a minority shareholder with a 47.5% equity interest in the
actual value of the dissolved corporation and the right to “continue to pursue any
claims previously asserted.”104 In this scenario Cox’s reversionary position would
have been much less valuable than its position as valued under the purchase order
and the joint sale agreement—a position premised on normalized EBITDA figures
per the district court’s valuation methodology and the joint sale agreement’s
provision for ample consideration to Cox in the event of a consummated sale. The
disparity between these two alternatives increased over time as the value of NJC
declined precipitously. Seeking to avoid the reversionary fate it faced under
dissolution, Cox endeavored alongside NJC to confect a joint sale of the
corporation that would allow NJC to satisfy, or partially satisfy, its liability due
103
See Doc. 315 at 3 (Cox Emergency Motion to Appoint Receiver).
104
Fla. Stat. § 607.1436(7).
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Cox as a shareholder as set out in the purchase order.105 Cox in essence made a
business judgment to bet on the prospect of a sale that could provide a greater
return than dissolution.
Second, and as a result of the parties’ joint requests to extend the deadline,
Cox never relinquished its shares. Cox’s theory of the case—that under the default
timing rule insolvency must be assessed as of the time the purchase order issued—
is in tension with the plain language of the distributions-to-shareholders statute,
which provides that the default timing provisions apply “[i]n the case of
distribution by purchase, redemption, or other acquisition of the corporation’s
shares.”106 This language appears to presuppose that the recipient of such a
distribution relinquishes its shares when the corporation purchases, redeems, or
otherwise acquires them. 107 That did not happen here. Cox retained its shares and,
indeed, continued to receive dividends and constructive dividends as a shareholder
long after the purchase order issued.
Third, and admittedly cutting somewhat against this court’s reasoning in Cox
II, the purchase order did not contain on its face terms explicitly invoking the
105
See Cox II, 666 F.3d at 700.
106
Id. at § 607.06401(6)(a) (emphasis added).
107
Cf. Model Business Corporation Act § 6.40, Comment 8.B (“In an acquisition of its
shares, a corporation may transfer property or incur debt to the former holder of the
shares.”) (emphasis added).
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subsection (8) exception. As Cox and amici point out, the plain language of the
statutory scheme appears to allow a corporation to invoke the subsection (8)
exception as to a distribution of indebtedness only if “its terms provide that
payment of principal and interest are made only if and to the extent that payment of
a distribution to shareholders could then be made under this section.” 108
Finally, and key to this case, the record makes clear that, were the $129.2
million debt to have hit NJC’s books as a liability at the time the purchase order
issued, it would have caused NJC’s total liabilities to exceed its total assets,
resulting in a shareholders’ deficit of nearly $100 million. 109 We cannot conclude
that such a distribution would have been allowed under the distributions-to-
shareholders statute if its effect were measured as of the time the purchase order
issued. To the extent that the relevant distribution in this case constitutes a
distribution of indebtedness from NJC to Cox at the time the purchase order issued,
such a distribution would have been forbidden unless analyzed under the
subsection (8) exception.
108
Fla. Stat. § 607.06401(8) (emphasis added).
109
See NJC Consolidated Balance Sheets for 2005, 2006, 2007, and 2008, supra notes 34
& 38.
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4.
Given the unique circumstances of this case, the scope of reasonable debate
allows for two constructions of the district court’s purchase order. First, the
purchase order can reasonably be construed to direct NJC to, in the future, make a
series of payments to Cox in exchange for Cox’s common-stock shares—
distributions that have yet to occur, as it remains undisputed that NJC has made no
payment and Cox has tendered no shares. Under this construction the relevant
initial distribution for purposes of assessing the insolvency test is the inchoate first
installment payment from NJC to Cox in the amount of $29.2 million. Along these
lines it matters not whether the purchase order invoked the subsection (8)
exception, because the purchase order would not have constituted a distribution of
indebtedness at the time it was issued. It would not at that time have constituted a
distribution at all. Although it traverses a different route than that taken in Cox II,
this construction converges on the same result reached there: insolvency must be
assessed as of the time of payment to Cox.
Second, the purchase order can reasonably be construed to have constituted
a distribution of indebtedness from Cox to NJC at the time it was issued that
invoked the subsection (8) exception. This second construction resists the
conclusion that the district court directed NJC to make a distribution prohibited
under the statute. Under this construction the relevant distribution for purposes of
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assessing the insolvency test is any future payment made in satisfaction of the
$129.2 million distribution of indebtedness from NJC to Cox incurred upon
issuance of the purchase order. And again, under this construction insolvency must
be assessed as of the time of repayment of the debt to Cox under the provisions of
subsection (8). The Cox II panel adopted this second construction.
Cox cries foul at the Cox II panel’s apparent reliance on subsection (8)
viewed in isolation because the terms of the purchase order itself do not expressly
invoke the subsection (8) exception. What Cox looks past is the prior panel’s
simultaneous emphasis on the “overall scheme” set forth in sections 607.1436 and
607.06401 and that scheme’s interaction with the unique circumstances of this
case.110 Again, to our eyes, to the extent that the relevant distribution in this case
constitutes a distribution of indebtedness from NJC to Cox at the time the purchase
order issued, such a distribution would have been forbidden unless analyzed under
the subsection (8) exception. We construe the holding of Cox II to be consistent
with this reasoning.
As to whether the “terms” of the indebtedness at issue invoked the
subsection (8) exception, Cox also steps past the prior panel’s express focus on the
“plain language” of the election-to-purchase statute,111 which provides that “[a]ny
110
See Cox II, 666 F.3d at 703.
111
Id. at 705.
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payment by the corporation pursuant to [a purchase] order” under that section is
subject to the provisions of the distributions-to-shareholders statute. 112 In
discussing whether each installment payment under the purchase order would
constitute a payment to a shareholder for purposes of invoking the distributions-to-
shareholder statute, the panel identified an “arguable conflict” among the
provisions of the election-to-purchase statute. 113 We understand that in its effort to
resolve that conflict the prior panel sought to “give effect to the Florida
legislature’s intent and accord meaning to all parts of the statute” by interpreting a
“payment” made pursuant to a purchase order under section 607.1436(5) to qualify
as a “payment” under section 607.06401(8) that must undergo the insolvency test
as assessed at the time of “payment.” 114
Acknowledging the purchase of alternative interpretations, in light of the
imperfect fit between the unique circumstances of this case and our plain language
reading of the statutory scheme we cannot hold that the panel clearly erred in
112
Fla. Stat. § 607.1436(8) (emphasis added); see Cox II, 666 F.3d at 707.
113
See Cox
II, 666 F.3d at 706 (highlighting “an arguable conflict between [sections]
607.1436(6) and (8)”).
114
See id. at 704 (citing Larimore v. State,
2 So. 3d 101, 106 (Fla.2008); Forsythe v.
Longboat Key Beach Erosion Control Dist.,
604 So. 2d 452, 455 (Fla.1992)), 707-08; see
also McGhee v. Volusia Cnty.,
679 So. 2d 729, 730 n.1 (Fla. 1996) (“The doctrine of in
pari material requires the courts to construe related statutes together so that they
illuminate each other and are harmonized.”).
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charting the reasonable course it chose. The district court was obligated to obey the
mandate of Cox II and did so.
B.
Cox next argues that even if distribution according to the terms of the
purchase order is barred by the insolvency test, its resulting claim in the assets of
NJC held by the receiver must be treated “at parity” with that of PBGC. Cox relies
on section 607.06401(7), which provides that “[a] corporation’s indebtedness to a
shareholder incurred by reason of a distribution made in accordance with this
section is at parity with the corporation’s indebtedness to its general, unsecured
creditors except to the extent subordinated by agreement.” The district court held
that this argument was foreclosed by this court’s clear mandate. We agree.
The matter of relative claim priority between Cox and PBGC was within the
scope of issues considered and decided in Cox II115—indeed, it can be fairly said
that relative claim priority comprised the essence of PBGC’s appeal. Among the
stated “issues on appeal” in Cox II was the following: “[W]hether the district court
erred by granting Cox an equitable first priority claim to [NJC’s] assets to the
exclusion of other creditors.”116 Although the Cox II panel did not address section
115
See Transamerica Leasing, 430 F.3d at 1332 (“The law of the case doctrine
applies . . . if our prior opinion determined, explicitly or by necessary implication, [the
relevant issue].”).
116
Cox II, 666 F.3d at 700-01.
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607.06401(7) by name, it explicitly resolved the matter of relative claim priority
when it directed that “[i]f on remand the district court finds a distribution to Cox
would violate [the insolvency test], [NJC’s] other creditors should receive
payment before any distribution is made to Cox.” 117 The district court fully heeded
this instruction and properly held that this court’s plain command foreclosed Cox’s
contrary argument.
III.
As a final matter, Cox mounts an equitable challenge to the district court’s
order directing NJC to pay PBGC’s claim in full. As Cox’s challenge pertains to
the district court’s distribution of assets in a receivership, we review for an abuse
of discretion. 118 We, like the magistrate judge and district court below, reject this
argument quickly. The magistrate judge issued a thorough report and
117
Id. at 699 (emphasis added). Cox avers that this statement is nonbinding dicta because
in sequence it appears at the beginning of the opinion and, as Cox argues, was not
necessary to the holding. We cannot agree. It is not the case that “[t]he remainder of the
opinion never addresse[d]” relative claim priority. See United States v. Seher,
562 F.3d
1344, 1361 (11th Cir. 2009). As stated, relative claim priority was among the issues
expressly designated for appeal. Moreover, the opinion contains numerous other
consistent statements that reinforce the statement cited here. Accord Cox
II, 666 F.3d at
707 (“If enforcing Cox's repurchase order would require a payment by [NJC] in violation
of the distributions-to-shareholders statute, the statute forbids the payment.”).
118
Godfrey v. BellSouth Telecomms., Inc., 89 F.3d 755, 757 (11th Cir. 1996).
39
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recommendation as to the value of PBGC’s claim. 119 This included an express
finding that PBGC’s proffered valuation was calculated in accordance with Title
IV of ERISA 120 and PBGC’s own regulations. 121 The district court adopted the
magistrate’s report and recommendation 122 and Cox does not now dispute its
validity. Rather, Cox asserts that we should overturn the district court’s order
because “it would have been equally permissible” for the district court to have
exercised its equitable discretion to reduce the amount awarded on PBGC’s claim
once valued. Even assuming, without deciding, that such an approach would have
been permissible, Cox does not persuade that the district court abused its wide
discretion in rejecting that approach in light of this court’s mandate in Cox II.123
IV.
119
Doc 791.
120
See 29 U.S.C. § 1301(a)(18).
121
See 29 C.F.R. § 4044.41-.75.
122
Doc. 794 (Order Adopting Magistrate’s Report and Recommendation).
123
Without citing authority from this Circuit, Cox persists that PBGC’s claims are
equitably moot because in order to obey the Cox II mandate on remand the district court
had to unwind its prior order directing distribution to Cox. We disagree. “Central to a
finding of mootness is a determination by an appellate court that it cannot grant effective
judicial relief.” In re Club Associates, 956 F.2d 1065, 1069 (11th Cir. 1992). Cox’s
argument is belied by the district court’s valid and effective order on remand, which
directed Cox to “pay $13,887,822.00 into the registry of [the] [c]ourt.”
40
Case: 14-14115 Date Filed: 07/22/2015 Page: 41 of 41
We AFFIRM the district court’s order and judgment. In doing so we remind
that finality and justness of result are not warring principles. There are limits to the
ability of able counsel to rescue a client from a soured investment. Today we reach
those limits.
41
