2019 Key Business Valuation and Damages Cases

At the end of every year, BVLaw takes stock of valuation and damages cases that have dominated the conversation among financial experts by making law or influencing in some other way attitudes on key valuation issues. Here is our selection of 2019 cases by Sylvia Golden, Esq., BVR’s executive legal editor.

Federal tax

  • Kress v. United States, 2019 U.S. Dist. LEXIS 49850; 2019 WL 1352944 (March 26, 2019)

In a momentous gift tax case that turned on the valuation of minority shares in an S corporation, the taxpayers’ and government’s experts applied a C corporation tax rate to the company’s earnings and a federal district court accepted the practice readily. But the court rejected the government expert’s S corp. adjustment. This case was a vindication for valuators who long have militated in favor of tax affecting when valuing pass-through entities

  • Estate of Aaron Jones v. Commissioner, T.C. Memo 2019-101 (Aug. 19, 2019)

    Following Kress, the U.S. Tax Court, in a gift tax case that involved the decedent’s two related pass-through entities (PTE), adopted all the taxpayer expert’s valuation decisions and conclusions, including tax affecting. The court indicated that the argument in favor of a zero-tax rate to value a PTE is a loser. Importantly, the court came to this conclusion without overturning Gross.

Employee stock ownership plan (ESOP)

  • Brundle v. Wilmington Trust N.A., 2019 U.S. App. LEXIS 8504 (Brundle III) (March 21, 2019)

In a much-anticipated ESOP decision, the 4th Circuit affirmed the district court’s liability and damages rulings against the trustee. The reviewing court said the trustee violated its Employee Retirement Income Security Act (ERISA) duties to the plan by failing to act “solely in the interest of the [plan] participants.” Also, the trustee had a duty to apply “a high level of scrutiny” to the financial expert’s valuation but did not “thoroughly probe[] the gaps and internal inconsistencies in [the appraiser’s] report.” The transaction did not meet the “adequate consideration” requirement, making the trustee liable for the amount the plan overpaid for company stock, i.e., nearly $29.8 million.

  • Pizzella v. Vinoskey, 2019 U.S. Dist. LEXIS 129579 (Aug. 2, 2019)

In a standard ESOP case in which the United States Department of Labor had claimed the trustee caused the ESOP plan to overpay for the company owner’s shares, a federal district court ruled for the government on liability and awarded $6.5 million in damages. Following the Brundle framework, the court found the trustee did not act “solely in the interests” of the plan participants and ultimately accepted an underlying valuation that was manipulated in favor of the owner/seller.

Statutory appraisal

  • In re Appraisal of Columbia Pipeline Grp., Inc., 2019 Del. Ch. LEXIS 303 (Aug. 12, 2019)

This statutory appraisal case came in the wake of some key rulings from the Delaware Supreme Court that have embraced the use of market evidence to establish fair value when dealing with a publicly traded company. The Court of Chancery (V.C. Laster) here found the unadjusted deal price was the best fair value indicator, focusing its analysis on the soundness of the sale process. Declining to give much attention to the petitioner expert’s discounted cash flow (DCF) analysis, the court said the DCF was only a “second-best method” under the circumstances.

  • In re Stillwater Mining Co. 2017 0385 JTL, 2019 Del. Ch. LEXIS 320 (Aug. 21, 2019)

This case is a companion to Columbia Pipeline, with Vice Chancellor Laster again relying on the deal price for fair value. In both cases, the subject was a publicly traded company and the sale process, although flawed, was sound enough when compared to the Supreme Court’s key cases. Columbia Pipeline and Stillwater exemplify the court’s preference for the transaction price rather than a DCF value when dealing with an arm’s-length transaction.

Economic damages

  • Mem’l Hermann Health Sys. v. Gomez, 2019 Tex. App. LEXIS 7199 (Aug. 15, 2019)

In a defamation and business disparagement case involving a cardiovascular surgeon and his solo practice, a Texas appeals court recently upheld the jury’s liability findings and damages awards. The plaintiff expert’s lost profits analysis focused on the number of surgeries the plaintiff performed and the nature of his practice before the wrongful conduct took place and after. The court found the expert considered, and convincingly ruled out, alternative reasons for a decline in business and presented to the jury a range of damages based on various scenarios and supported by evidence.


  • McLelland v. Paxton, 2019 Wash. App. LEXIS 2960 (Nov. 21, 2019)

In a complex dissolution case involving the litigants’ professional limited liability corporation (PLLC), the Washington Court of Appeals recently ruled “a professional business entity may enjoy goodwill.” It said this rule “best follows the phenomenon that some customers or clients chose to conduct business with the professional organization not only because of the individual skill of one professional inside the entity.” The court affirmed the trial court’s finding that the PLLC “experienced goodwill” in that it maintained three office locations, had a trade name, its own phone number, and a website. Further, the PLLC employed staff and possessed and maintained the patient files. And even though it was dissolved at the time of trial, the PLLC continued as a going concern throughout trial, until a final decision on the division of assets and liabilities, the appeals court said.

Be sure to check out the BVLaw platform, which includes nearly 4,000 full text cases and digests concerning important business valuation issues in the areas of divorce, estate and gift tax, lost profits, and much more. In addition, the Business Valuation Update (BVU), BVR’s monthly online and print newsletter on the profession, features monthly updates on recent noteworthy court cases.