The Minnesota appeals court recently upheld the district court’s buyout order and fair value determination related to a well-known local grocery store chain, Lunds & Byerlys. This latest ruling should put a lid on the decades-long fight among the grandchildren of the business’s founder, Russell T. Lund Sr.
As we reported here in 2017, this interfamily dispute centered on three business entities. The plaintiff is Kim Lund, one of the founder’s four grandchildren, who indirectly owned a 25% interest in the entities. For decades, she was in discussions with her brother, Tres, who has been running the businesses, and other executives about an “exit strategy.” When her efforts to structure a separation of the assets went nowhere, she sued Tres and the companies. In October 2016, the district court granted her buyout motion.
The valuation trial on the fair value of Kim’s interests featured veteran appraisers, but the district court decided neither expert’s valuation was wholly credible. The court approved of the use of the discounted cash flow analysis to value the grocery-related businesses. But it said the experts’ disagreements over every input and assumption showed “their valuations are tailored to suit the party who is paying them.” The value gap was significant. Kim’s expert valued the plaintiff’s interests at about $80 million, whereas the defendants’ expert found they were worth about $21.3 million.
Performing its own DCF, the court concluded the fair value was $45.2 million. The ruling betrayed the judge’s familiarity with appraisal jurisprudence but also begged the question of whether a value gap automatically means bias and advocacy on the expert’s part. (For more on this point, check out Peter Mahler’s astute commentary on this case.)
Both parties appealed aspects of the findings. The defendants unsuccessfully argued the district court abused its discretion in allowing the buyout and in determining fair value. The Court of Appeals disagreed. It explained that, under the applicable statutory provisions, the district court has the authority to grant equitable relief, including a buyout, if those in control of a company have acted “in a manner unfairly prejudicial” toward another shareholder or member. This was the situation here where the defendants consistently frustrated Kim’s reasonable expectations of liquidity and financial independence.
As to the fair value determination, the district court “filed a lengthy order containing numerous undisputed factual findings, credibility determinations, and thorough critiques of the valuation methodologies and opinions offered by the parties’ experts,” the Court of Appeals said. It noted the district court’s valuation “falls squarely” between the experts’ value conclusions and commended the district court for making “painstaking efforts” to achieve a fair and equitable ruling.
A digest of Lund v. Lund (Lund II), 2019 Minn. App. LEXIS 16; 2019 WL 178461, and the appeals court’s opinion will be available soon at BVLaw. A digest of Lund v. Lund, 27-CV-14-20058 (J. Bernhardson) (District Court, 4th Judicial District, Hennepin County, Minnesota) (June 2, 2017) is already available to BVLaw subscribers.