(Photo by Allen Eyestone/USA Today Network)
By Daniel Wallach
The name of Bruce Beal has surfaced in recent weeks as the potential new majority owner of the Miami Dolphins if the current majority owner Stephen Ross is forced to sell his interest in the team. The NFL is believed to be investigating allegations made by former head coach Brian Flores that Ross offered him a $100,000-per-loss inducement to tank the 2019 season--Flores' first with the team--to ensure that the Dolphins received the number one overall draft pick in the 2020 NFL Draft, and, with it, the right to select LSU Quarterback Joe Burrow.
Beal, the current Vice-Chairman and Partner of the Dolphins, would presumably take over as the new owner should he choose to exercise a "right of first refusal" to buy out Ross's interest in the team. As reported by Jason La Canfora several years ago, that right of first refusal was granted to Beal in 2016 as part of an NFL-approved succession plan for Ross, who was 76 years old at the time. According to La Canfora's reporting, this succession plan gave Beal "the right of first option" to purchase the franchise if Ross dies or "decides to sell." This language--which is from La Canfora's article and not the legal document itself--suggests that Beal's right of first refusal would be triggered only by Ross's voluntary decision to sell his interest in the franchise.
ROFR's are triggered by voluntary sales, not forced sales
This is where Beal's path to potential majority ownership begins to fall apart. Under New York law--both Ross and Beal were full-time residents of New York in 2016--a right of first refusal "requires [an] owner, when and if he decides to sell, to offer the property first to the party holding the preemptive right so that he may meet a third-party offer or buy the property at some other price." Lin Broadcasting Corp. v. Metromedia Inc., 544 N.Y.S.2d 316, 317 (1989) (emphasis added). Rights of first refusal are construed narrowly under New York law; the owner's willingness to sell--as opposed to being compelled to do so by legal or judicial process--is an essential element that must be present for that right to be triggered.
As the New York Court of Appeals has declared time and again, the triggering event for the proper exercise of a right of first refusal is a "voluntary decision to sell" by the owner of the property at issue. Id. at 319 ("[A] right of first refusal contemplates a willing seller who desires to part with the property.") (emphasis added). By contrast, forced sales, such as an involuntary foreclosure or judicially compelled sale, generally do not trigger a right of first refusal. See Huntington Nat'l Bank v. Cornelius, 914 N.Y.S.2d 327, 330-31 (App. Div. 3d Dep't) (holding that since foreclosure is an involuntary process, the right of first refusal could not be invoked during foreclosure).
Forced sales under the NFL Constitution and Bylaws
If the Flores allegations turn out to be true, Ross would not be selling his interest in the team on a "voluntary" basis. Rather, he would be forced to sell under a league-mandated process governed by the NFL Constitution and Bylaws. Pursuant to the provisions of the Constitution and Bylaws, if an owner engages in "prohibited conduct"--which includes "offering , agreeing, conspiring, or attempting to influence the outcome of any game" (Section 9.1(C)(12))--and assuming that the maximum monetary fine of $500,000 would not be "adequate or sufficient, considering the gravity of the offense involved" (Section 8.13(B))--the Commissioner is empowered under Section 8.13(B)(2) to "refer the matter to the Executive Committee, with a recommendation" that the owner's interest in the team be "cancell[ed] or forfeit[ed]" and then "sold and disposed of" in accordance with the provisions of Section 3.8(B). (Note: the cancellation or forfeiture of an owner's interest for engaging in "prohibited conduct" or "conduct detrimental to the League or professional football" requires an affirmative vote of not less than three-fourths of the remaining owners).
The cancellation or forfeiture of Ross' ownership interest under these circumstances would constitute an "involuntary termination" (that's precisely how it's characterized in Section 3.8(B)). Equally important, any sale or disposition of his cancelled or forfeited interest would be conducted pursuant to a league-supervised process (which would include mandatory arbitration to determine the sale or disposition price in the event that Ross's stock ownership interest is not sold within 120 days and the price cannot otherwise be fixed by mutual agreement between Ross and Commissioner Goodell). This is much more akin to an involuntary foreclosure sale than it resembles the actions of a “willing seller” who “desires to part with the property" of his or her own accord. As such, it may lack the requisite "voluntariness" sufficient to properly trigger a right of first refusal under either New York or Florida law. See, e.g., Huntington Nat'l Bank , supra; Pecora v. Berlin, 62 So.3d 28 (Fla. 3d DCA 2011) (surviving partner's spouse's right of first refusal did not apply to court-supervised sale of partnership asset).
The ROFR is derivative of the owner's interest in the underlying asset
Another way to look at this is to view Beal's right of first refusal as coextensive with Ross's interest in the team. See USA Cable v. World Wrestling Fed'n Ent., Inc., 766 A.2d 462, 467 (Del. 2000) ("Under New York law, the right of first refusal is coextensive with the subject matter of the original contract.") (citing cases). In other words, if Ross's interest in the Dolphins franchise is cancelled or forfeited pursuant to the NFL Constitution and Bylaws, then so too is Beal's right of first refusal to buy that interest. How could Beal have a right to purchase an interest that has been cancelled? It would seem that Beal's right of first refusal would be extinguished in that situation.
Daniel Wallach is the co-founder of Conduct Detrimental. He is a nationally-recognized gaming and sports betting attorney. You can follow him on Twitter at @WALLACHLEGAL.