The case still sends chills through the BV Community. First, the In re Med Diversified bankruptcy court (E.D.N.Y.) disqualified one side’s expert for lack of appropriate valuation credentials. And then it struck the report of a highly-credentialed BV expert for its use of common benchmarking methodology, which the court found unreliable (see BVWire # 47-3 and #47-4). Analysts were worried they’d begin to see Med Diversified used to bolster more Daubert challenges—which at least in the bankruptcy arena, they have (see BVWire #51-1).
But now one decision appears to have backed off the draconian ruling: In In re Doctors Hospital of Hyde Park, Inc. (March 2, 2007), an Illinois bankruptcy court entertained a late (post-trial) objection to the very same expert whom the Med Diversified court disqualified for lack of BV credentials. In denying the motion, the Doctors Hospital court distinguished the context—rendering an insolvency opinion versus a valuation opinion, as well as the particular methods applied. The lateness of the motion was also a key factor (presumably, the Med Diversified case was reported after the trial in Doctors Hospital).
The Doctors Hospital case does emphasize the need for appropriate credentialing for BV experts rendering valuation opinions, but nowhere does it discredit the profession or the practitioner, concluding that, in this case, “the isolated Med Diversified decision…does not diminish the force of his opinions.”
The exhaustive opinion (60+ pages) also contains notable rulings on tax affecting for nonprofit S corporations, application of a company specific risk premium related to the troubled healthcare organization, and more. A complete case abstract will appear in the next Business Valuation Update™, and a copy of the full-text court opinion is now available to subscribers of BVLaw™ at BVLibary.com.