Posted: Thursday, April 19, 2012 1:00 PM
Minority faction pushed for dissolution, buyout
A family feud over a California nursery may have implications for how such cases are handled in bankruptcy court.
The 9th U.S. Circuit Court of Appeals has been asked to weigh in on the dispute over the Orange County Nursery, which has been in legal turmoil for years.
Ownership of the company has been split into a majority faction that runs the operation and a minority faction that has tried to dissolve it in the past and now seeks a buyout.
How the minority faction is treated under the bankruptcy process is now the central issue before the federal appeals court, which recently heard oral arguments in the case.
"It involves fundamental questions of who is a creditor in bankruptcy and what is a claim," said Elissa Miller, attorney for the majority faction, during the hearing.
The company, which produces bare root and containerized trees, is run by descendants of Margarito Veyna, who bought the company in the 1930s.
In 2009, a California state court ordered the majority to buy out the minority's stake in the company for more than $5 million or face dissolution.
Shortly before the deadline for that payment, the majority sought Chapter 11 bankruptcy protection for the nursery.
Last year, a federal judge ruled that the minority faction had a right to payment as if they were creditors in the bankruptcy process.
The majority has appealed that decision, arguing the minority should be considered to have an equity interest in the company.
Because the California court order gave the majority a choice -- face dissolution or pay $5 million -- it didn't actually provide the minority with an enforceable claim, said Miller, the majority's attorney.
"There is no duty to pay. It's not an obligation," she said. "To have a claim, you have to have a right to payment."
Under the company's bankruptcy plan, the minority faction would still receive its share of the nursery's liquidation value if it's not treated as a creditor, Miller said.
"It gives the debtor a chance to continue to operate," she said. "It gives them the opportunity to buy out the minority."
Ali Mojdehi, an attorney for the minority, said the minority would essentially get nothing under the bankruptcy plan if its treated as having an equity interest instead of a claim.
By filing for bankruptcy, the majority faction has been able to retain control over the company, Mojdehi said.
The fact that Orange County Nursery did not dissolve means that the minority has an enforceable right to payment, he said. "The broad definition of claim gets triggered when there is not a dissolution."