“On the surface, Armstrong is really an unremarkable ruling on the standard of review applicable to decisions of [ESOP] trustees,” writes Michael Molder, JD, CPA, CFE (Margolis & Co., P.C.) after reading the abstract of Armstrong v LaSalle National Ass’n from last week’s BVWire. “The substance of the decision is that trustees must necessarily use their judgment in balancing the competing interests of stakeholders in the trust, and courts should defer to the reasonable exercise of that judgment.” As the record didn't explain the valuation method used in the case—including the application (or failure to apply) marketability discounts, the Court’s discussion of DLOM was “dicta” (non-binding), and may have been a chance for Judge Posner, an extremely sophisticated jurist, to vaunt his economic expertise.
“The greater concern…for the valuation professional is what plaintiff’s attorneys can do with the actual holding,” Molder says. “Armstrong actually imposes an obligation on the trustee, and indirectly on the valuation professional, to consider matters clearly outside the scope of the traditional business valuation” and the traditional definition of fair market value. For example, following Posner’s logic, “does the appraiser now have to consider a whole host of outside factors, such as the projected retirement dates of employees?”
Yesterday’s teleconference on ESOP Valuation considered such questions and more; copies of the transcript and CD are available here.
Please let us know
if you have any comments about this article or enhancements you would like to see.