The lawsuit that could pave the way for a Denver Broncos sale

It came from a lawyer representing ROFR Holdings Ltd., an appropriately named Canadian holding company, who had a surprising claim about a potential sale of the Broncos.

“Our client,” the letter said, “is the holder of any and all pre-emptive rights.”

That claim is now the subject of a lawsuit filed by the Broncos against ROFR Holdings in an unusual confrontation involving the estates of two of the team’s deceased owners and a mysterious lender: Pat Bowlen, who bought the franchise in 1984; Edgar Kaiser, who sold the Bowlen team; and an Arizona-based businessman named Scott Schirmer, who along with Kaiser’s property owns the unit known as ROFR Holdings.

The lawsuit, in Denver County District Court, seeks a declaratory judgment that the pre-emption right invoked by ROFR Holdings is no longer valid. The right was once owned by Kaiser as part of the team’s sale from Kaiser to Bowlen 37 years ago. ROFR Holdings says it owns the pre-emptive rights after Kaiser placed the rights in the company before his death.

The lawsuit, which relies on a 1984 agreement between two people who have since died, has huge consequences for one of the NFL’s most valuable franchises.

Before he died in 2019, Pat Bowlen placed the Broncos in a trust.


Photo:

Ed Andrieski / Associated Press

The future of Broncos’ ownership has been unclear for the past few years. During that time, the team was hit by an intra-family feud between various Bowlen relatives over who should succeed Pat Bowlen and take over the club. Before he died in 2019, Bowlen placed the team in a trust, and the trustees have the task of deciding which of his children should become the controlling owner – or whether the franchise should be sold if they believe it is in the family’s best interest.

People familiar with the matter expect one of two outcomes. One is that the team is being sold. The second is that Brittany Bowlen, one of Pat’s children and the team’s senior vice president of strategy, will be installed as controlling owner in a scenario that would still require some family solution and likely acquisitions of certain beneficiaries. Broncos CEO Joe Ellis, one of the trustees, has said he intends to have a decision in early 2022.

This is where ROFR Holdings’ claim complicates matters. If a valid pre-emptive right exists, it is likely to detract from the selling price. Such rights typically allow a party to match any external bid. Parties interested in buying the Broncos – a process that can claim millions of dollars in fees for lawyers and bankers just to participate in the bidding on an asset that will cost billions – could be deterred by the idea that a successful auction bids could be matched.

Brittany Bowlen, one of Pat’s children, is the team’s senior vice president of strategy.


Photo:

Jack Dempsey / Associated Press

That’s why the Broncos are eager to dispel ROFR Holding’s claims, which stem from a little-known chapter in the history of the team’s ownership struggles.

Kaiser, a wealthy American-Canadian, bought the franchise in 1981, but he did not hold on to it for long. Three years later, he sold the Broncos to Pat Bowlen, another businessman with Canadian roots.

When Bowlen made the first deal with Kaiser in 1984, it gave Kaiser the right to match external offers to the club if Bowlen were to sell it, under certain conditions. The team went on to win three Super Bowls during the Bowl’s tenure, the first two of which were in the 1990s and led by John Elway.

Oddly enough, the quarterback became part of an earlier round of lawsuits over Kaiser’s rights.

As Elway approached retirement, he was such a cornerstone of the franchise that Bowlen offered sell him 10% of the team with the option to buy 10% more. Kaiser sued, claiming that it should have triggered his right of first refusal.

After Kaiser initially won, an appellate court sided with Bowlen. Separately, Kaiser also sued over sales within the team that involved Bowlen and his siblings, where Bowlen also won. Elway did not follow up on the purchase of the bet.

That barrage of lawsuits had an unforeseen consequence: Kaiser, to help fund the lawsuit, took out a loan from an Arizona businessman named Scott Schirmer through a company he established called Twelve LLC. As part of this event, Kaiser placed its pre-emptive rights on the Broncos inside ROFR Holdings – and gave Schirmer’s Twelve LLC a stake in it.

After Bowlen won in those lawsuits, the lawsuit between the two ended on the right of first refusal. Kaiser died in 2012. The bowl placed the team in a trust and died later in 2019.

But ROFR Holdings says the rights Kaiser once owned are still alive. In 2020, amid rumors of the franchise’s potential sale, a lawyer for the holding company claimed them in a short three-point letter delivered to the Broncos facility – triggering this latest bout of lawsuits.

The two sides do not dispute the general facts of the case. They diverge in the interpretation of the decades-old contract. The Broncos say the rights were not legally transferred under the terms of the agreement. ROFR Holdings says they were.

Former Broncos owner Edgar Kaiser sold the team to Pat Bowlen in 1984.


Photo:

Denver Post / Getty Images

Lawyers for the Broncos argued in court that the court is invalid for several reasons. They said the language of the contract and other evidence show that it was a personal contract between Kaiser and Bowlen that ended when they both died. They also said that ROFR was invalidly transferred to the holding company under the terms of the Kaiser-Bowlen agreement.

“The Denver Broncos are a unique multi-billion dollar asset, and the transaction costs in the event that all or part of the stake is put up for sale are significant,” said Dan Reilly, an attorney who has represented the Broncos for more than two decades. “The evidence shows that Edgar Kaiser and Pat Bowlen agreed to limitations on Kaiser’s ability to transfer his pre-emptive right and specifically included termination provisions, which were triggered after his death, resulting in termination of his right.”

James Kilroy, the lawyer representing ROFR Holdings, said his client’s rights remain valid because the language of the contract allows them to be transferred.

“We return to the express language of the contract and believe that the parties intended the ROFR right and obligation to be transferable,” Kilroy said.

“It was smart of the current owners to try to resolve this through this declaratory judgment instead of cavalierly going forward and letting the chips lie where they fall,” said Andrew Schwartz, a professor at the University of Colorado School of Law.

A clause from an amended version of the original sales agreement between Kaiser and Bowlen, is central to the Broncos’ efforts to kiboshe the claim that the court is still valid – and also why the defendants believe the arrangement is kosher.

A section in this amendment states that ROFR “may not be transferred or transferred by Kaiser.” It adds that Kaiser may transfer it to a “Subsidiary of Kaiser”, but ROFR terminates “by the transfer of it by such Subsidiary or by such Subsidiary ceases to be a Subsidiary.”

Broncos’ attorneys said it violated the arrangement for a number of reasons, including that it was not validly transferred, and that even if it was, the language explicitly states that it should personally belong to Kaiser, which is no longer the case after his death and introduction. of Schirmer’s interest through Twelve, LLC.

The Broncos also quarreled over the parties ‘original intent, which they said was to prevent the Bowl from buying and quickly return the team back in the’ 80s. And in the midst of their testimony, they turned to an unlikely source: the late Edgar Kaiser.

One of the pieces of evidence was a video decision of Kaiser taken from the previous trial in which he was asked about the language of that clause. According to testimony from Reilly, who also represented the Broncos in the previous lawsuit between those parties, Kaiser states in the video that he understood that it meant he could transfer the right to a subsidiary of his. “But that if it did not become a subsidiary of mine, then it says that the right ceased,” Kaiser said in that deposit.

Kilroy, the attorney for ROFR Holdings, said the change does not apply to a sale of the Broncos franchise.

“The intent of the parties is clear in the contract itself, which is unequivocal in our view,” said Kilroy, the attorney representing ROFR Holdings. “Any external evidence of the intent of the parties is immaterial. What matters is what the contract says.”

A solution to the case is expected around or shortly after the New Year – just around when a decision on a potential Broncos sale is expected.

Pat Surtain II of Denver Broncos carries the ball into the goal zone for a touchdown.


Photo:

Justin Edmonds / Getty Images

Write to Andrew Beaton at andrew.beaton@wsj.com

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