Practitioners weigh in on ongoing DLOM debates

BVWireIssue #161-3
February 17, 2016

BVWire’s coverage of recent developments in DLOM has sparked some lively discussions. The dialog over discounts in fair value proceedings involving dissenting shareholder appraisals and oppressed minority shareholder buyouts has spilled over into social media.

Bad behavior in NJ: Last week’s BVWire continued its reporting on the recent DLOM decision in the Wisniewski v. Walsh case, in which the misbehavior of one of the parties was a factor. In his blog, Chris Mercer (Mercer Capital) calls the case a “business appraiser’s nightmare” and says the DLOM rulings in the case reflect the trial court's preoccupation with equities rather than the economics of the business in play.

On BVR’s LinkedIn group, one commenter, Rick Warner (Great Lakes Valuations), says: “I have no issue with the court's decision here. The appraisers did what they were required to do, i.e., opine on the economics; the court did what it was required to do and make its decision based on the ‘fairness’ of the facts and the case. As long as the court is concerned with the ‘equity’ of the decision, this is as it should be.” Another commenter agrees. “The general point is that in a New Jersey Court of Equity, they are going to look at what is equitable, and if a party doesn't have ‘clean hands,’ they may pay a price for it,” says Ray ("RJ") Dragon (Siena Valuation LLC). “This is solid legal theory, in which judges are the experts. As valuation experts, we need to consider applicable law.”

Another commenter is troubled by the entire matter: “It's no wonder business appraisers are accused of inconsistently applying BV principles when two prominent BV appraisers apply a DLOM ranging from 0% to 35%,” says Greg Tesone (Center Point Business Valuations LLC). “How can this be? Is it a marketable interest or not?”

What are your thoughts? Join the BVR LinkedIn group—the discussion is “Bad Behavior DLOM in New Jersey.”

Across the river: In New York, the state’s out-of-step position with respect to DLOM in fair value proceedings is the subject of an article in the January issue of Business Valuation Update: NY’s Unfair Application of Shareholder-Level Marketability Discounts,” (subscription required) by Gil Matthews (Sutter Securities). A blog post by attorney Peter Mahler (Farrell Fritz) in the New York Business Divorce blog questions Matthews’s views on corporate-level DLOMs.

William C. Quackenbush (Advent Valuation Advisors), former chair of the ASA's business valuation committee has written a follow-up article for the March issue of Business Valuation Update, in which he also talks about the “nearly schizophrenic trail of decisions over the past 20 years regarding DLOMs. I would argue that this case of schizophrenia is contagious with the court infected by BV testimony with the same symptoms. It is no wonder that Peter Mahler wishes that the BV community would speak with ‘one clear voice’ on the issue. Indeed, in this instance poor case law is often the result of bad or weak appraisal work creating poorly informed triers of fact.”

Stay tuned for further details as these events develop!

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