One of the highlights of the BVR webinar schedule is the regular update on valuation-related court cases. This is a panel discussion with attorney Andrew Z. Soshnick (Faegre Drinker Biddle & Reath LLP) and veteran valuation experts Jim Aerding (Alerding Consulting LLC) and Jim Ewart (James D. Ewart LLC). During the most recent installment, they gave their insights on the following cases (the quotes are from the panel members):

• In re Marriage of Bainbridge, an Iowa case in which the wife engaged a valuation analyst to value the husband’s construction company, but the husband did not engage an expert (the court found the wife’s expert more persuasive). There were other issues in the case, including an “interesting definition of intrinsic value” and the choice of valuation date (“the availability of data may drive the valuation date”).
• Griggs v. Griggs, a Vermont divorce case in which the wife’s expert told the court that valuation professionals tend to leave Paycheck Protection Program (PPP) income in cash flows because the intent of the PPP program was to replace lost income and encourage employers to keep employees on the payroll. This was the “first case where the PPP proceeds were included in cash flows and capitalized in the capitalization of earnings method.” The court sided with the wife’s expert.
• Kwak v. Bozarth, another divorce case (this one in Massachusetts) where one side engaged a valuation expert, but the other side did not (“Judges like to have something to hang their hat on.”) A key issue was personal goodwill, and the MUM method was used.
• Lamm v. Preston, a complex divorce case in Idaho that included several valuation issues, one of which was the personal-versus-enterprise-goodwill question. The state’s Supreme Court upheld the lower court’s ruling that a material amount of value of an entity that was formed as a result of a buyout transaction was personal goodwill and, thus, excluded from the marital estate. The entity was deemed a startup even though it was the result of the transaction. The husband, who was an owner of the firm that was bought, had a share of this new entity, with which he also had an employment contract and a noncompete agreement. “Be careful of agreeing to a sale during the pendency of a case, no matter the exigent circumstances; details of the transaction matter.”
• Rothwell v. Rothwell, a Utah divorce case in which the estimate of personal goodwill was based on an understanding of how the company acquired contracts. But, at trial, the “husband’s testimony was challenged based on testimony of the controller, president, and vice president regarding the husband’s role in securing new contracts.” The court reduced the amount of personal goodwill by half, and it was affirmed on appeal.
• Dentists Ins. Co. v. Yousefian, a damages case in federal court in Washington in which the plaintiff’s expert claimed to have waived work product protection due to certain disclosures to the defendant’s expert. “Both counsel and experts should be on guard for this issue and have a good communication between each other on what can and cannot be disclosed and to whom.”
• EllDan Corp. v. Steele (In re EllDan Corp.), a bankruptcy case in Minnesota involving a hair care franchise in which the court ruled that, post-termination, noncompete covenants were enforceable. The plaintiffs breached the covenants and were ordered to close certain locations.

The panel noted that there is a proposal in Washington to ban noncompete agreements. “This could have an impact on many valuations.”

Complete analyses and full court opinions on all these cases are on the BVLaw platform. Also, a recording of the BVLaw Case Update webinar will soon be available if you click here (free to BVR Training Passport holders).