Background
Michael G. Prelec founded Deltona Transformer Corporation (DTC) in 1965 to develop the commercially successful Battery Tender® product line. His son, Michael Prelec, Sr., assumed control in 2004. In 2013, Deltran Operations USA, Inc. was formed as a DTC subsidiary with two classes of shares: Class A shares issued to family members (the father’s son, daughter, and two nephews) and a single Class B share held by DTC. The Class B share carried powerful voting rights, including veto power over major corporate matters, though it carried no dividend rights.
Family conflict over Deltran’s operation led DTC, the father, and the daughter to file suit seeking dissolution of Deltran and alleging various acts of malfeasance by the remaining shareholders (the son and nephews). In response, Deltran filed a notice of election to purchase the petitioners’ shares for fair value pursuant to Florida Statute § 607.1436(1), the buyout election statute designed to provide an alternative to corporate dissolution.
The trial court held it lacked power to entertain the petitioners’ motion to set aside the election, reasoning that the statute’s “irrevocable” language meant only the electing party could revoke the election. The court proceeded to hold evidentiary hearings and entered a valuation judgment to effectuate the buyout. DTC appealed.
The Court’s Holding
The Fifth District reversed and remanded, holding that the trial court erred in concluding it lacked power to consider whether equitable grounds justified setting aside or modifying the election. The court applied the plain language of § 607.1436(1), which states an election is “irrevocable unless the court determines that it is equitable to set aside or modify the election.” The word “unless” clearly indicates the irrevocable nature of an election is conditional, not absolute.
The court rejected the narrow interpretation that only electing parties can invoke the equitable exception. Instead, it held that the statute empowers trial courts to set aside or modify elections on equitable grounds regardless of whether raised by the electing party or the petitioning shareholder. This interpretation aligns with the statute’s underlying purpose: to reduce the risk that dissolution proceedings or buyout elections will be used strategically or inequitably. The court noted that if the Legislature intended to preclude equitable consideration of the petitioner’s interests, it could have said so explicitly, as it did in the neighboring statute § 607.1436(2), which explicitly limits equitable considerations in other contexts.
The court rejected reliance on the Utah Supreme Court’s contrary interpretation in Hills v. Nelson, finding that decision based on a shaky implication rather than clear statutory language. Instead, the court aligned with the reasoning of New Hampshire and Connecticut courts, which recognized that the “irrevocable” language binds both the petitioner to sell and the purchaser to buy unless equity requires otherwise.
Key Takeaways
- The buyout election statute’s “irrevocable” language does not create an absolute, unconditional right to purchase shares; courts retain discretionary power to set aside elections on equitable grounds.
- Both electing parties and petitioning shareholders can raise equitable grounds to set aside or modify an election—it is not a one-way street favoring the purchaser.
- Comparing § 607.1436(1) with the narrower language in § 607.1436(2) supports the inference that the Legislature intentionally allowed broader equitable discretion in the buyout context.
- The statute’s purpose is to promote fair resolution of shareholder disputes and prevent strategic use of dissolution proceedings, which supports equitable review at either party’s request.
Why It Matters
This is Florida’s first appellate decision interpreting whether buyout elections under § 607.1436(1) can be challenged on equitable grounds by petitioning shareholders. The ruling provides crucial protection for minority shareholders and corporate insiders in closely held corporation disputes by preventing the buyout election from becoming an absolute shield that corporations can deploy to force out complaining shareholders regardless of fairness. Events such as precipitous declines in business value, loss of key personnel, or defalcation of assets occurring between petition and election can now be considered by courts.
The decision aligns Florida law with the majority approach adopted by courts in New Hampshire and Connecticut, rejecting the narrower Utah interpretation. This provides petitioners with a meaningful remedy beyond accepting a forced buyout at a price fixed before changed circumstances and gives courts authority to ensure that neither party abuses the statutory process for strategic advantage. The ruling significantly enhances the ability of courts to police inequity in closely held corporation disputes while still respecting the Legislature’s intent to provide an alternative to complete corporate dissolution.