Drafting a Better and More Effective Right of First Refusal

A national analysis and survey of right of first refusal litigation over the past 11 years provides a detailed explanation for these disputes. Litigation has ensued mainly as a result of faulty draftsmanship and disagreement over the meaning of the clause in particular contracts. A survey of all 50 states and the District of Columbia revealed only nine states without published decisions stemming from litigation over a right of first refusal ('ROFR') (Idaho, Kentucky, Maine, Nevada, New Jersey, North Carolina, Oklahoma, South Dakota, and Vermont). Other states, including Connecticut, Missouri, Montana, and Ohio recorded at least five decisions involving the ROFR, according to a Lexis/Nexis search. Texas and Virginia produced six decisions, and Florida reported eight decisions of record during the past 11 years. Michigan, Tennessee, and Wisconsin reported at least nine decisions, while Minnesota had 11; Georgia had 17, and Massachusetts published 18 decisions involving the ROFR. New York, by far, has the most published decisions involving the ROFR. Since 2001 alone, 31 New York judicial decisions have been published involving a right of first refusal; twenty-five of them arose from the inability of the parties to agree on the implementation of the provision and/or the failure of the provision to provide adequate guidance. This includes 24 cases decided on appeal.

An overwhelming majority of our nation's decisions resulted from faulty draftsmanship and/or disputes about the meaning of the ROFR clause in a particular agreement.