How to deal with roadblocks during discovery

BVWireIssue #139-4
April 23, 2014

Experts working on a lawsuit often get entangled in discovery disputes that make the valuation assignment very tricky. How do you perform good work and survive with your reputation intact? Two recent divorce cases show what to do—and what not to do.

What worked: In the first case, the husband was totally uncooperative with the wife’s expert. He refused to provide documents about his business and did not allow the expert to visit the site or conduct management interviews. All the expert had was the company’s tax returns and financial statements. His report noted that, since he only had limited access to information, his analysis fell short of the applicable valuation standards, but the valuation was based on a “reasonable degree of accounting certainty.”

For the most part, the trial court adopted the expert’s opinion—and an appellate court agreed. The husband’s egregious conduct prevented the expert from doing his job, and he did the best he could with what he had available to him.      

A discussion of Chattree v. Chattree, 2014 Ohio App. LEXIS 479 (Feb. 13, 2014), and the court’s opinion appear in the May edition of Business Valuation Update and at BVLaw.

What didn’t work: The second case also features an uncooperative husband who wouldn’t provide all the information about his business. At trial, the wife’s expert testified to the value based on the formulas in the buyout agreements. At the same time, he said the buyout price did not “truly and accurately” state the value under the applicable fair market value standard. The expert did not discuss the use of any other valuation methods.

The trial court found his approach problematic: Why didn’t the expert discuss valuation methods that were preferable to the buyout provisions? It said to the wife: “If I had something else from your expert other than ‘I don’t know what the fair market value is,’ then you’d be in a better position, but that’s not what I got.” Consequently, the court did its own valuations based primarily on the buyout provisions. The wife appealed, to no avail. Despite the husband being uncooperative, the wife’s expert could have explored other valuation methods, such as looking at sales of comparable businesses, said the appellate court. He did not do the best job he could under the circumstances.

A discussion of Burstein v. Burstein, 2014 Ill. App. Unpub. LEXIS 245 (Feb. 13, 2014), will appear in the June edition of Business Valuation Update; the opinion will soon be available at BVLaw.

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