2020 Top Business Valuation and Damages Cases


Complicated as the year 2020 was, it was not boring. The past year offered a wealth of lawsuits dealing with business valuation and economic damages issues. The list below shows our Top 10. Some of the cases are notable for addressing novel issues of law, others for adding nuance to the analysis. 

  1. Manichaean Capital, LLC v. SourceHOV Holdings, Inc., 2020 Del. Ch. LEXIS 38, 2020 WL 496606 (Jan. 30, 2020) 

    This statutory appraisal action had a number of unusual aspects, foremost the decision by the company’s expert to introduce a novel way of estimating beta, which he acknowledged had no support “in the academic literature.” Observing that it was unwise to use the courtroom as a laboratory, the court said the testimony raised serious admissibility issues and ruled the approach did not “survive judicial scrutiny.”

  2. Reynolds American Inc. v. Third Motion Equities Master Fund Ltd., 2020 NCBC 35 (April 27, 2020)

    This statutory appraisal action arose in North Carolina, but the court said it was guided by Delaware appraisal jurisprudence. Examining the contested merger under Delaware case law, the court found the sales process was fair and the fair value was no greater than the deal price. Importantly, the court contradicted itself when it said the statute required the use of the value at the closing of the merger but awarded the price on the date the deal was announced, six months before the deal closed. Stay tuned.

  3. Hartman v. BigInch Fabricators & Construction Holding Co., Inc., 2020 Ind. App. LEXIS 183 (May 5, 2020)

    This case shows that a shareholder agreement can lead to litigation rather than facilitate a potential buyout. Here, the company argued that the agreement’s term “appraised market value” meant fair market value and allowed discounts for lack of control and marketability when calculating the value of the departing shareholder’s minority interest. The trial court agreed with the company, but the appeals court ruled for the departing shareholder, finding prior case law was clear that discounts “have no application in compelled transactions to a controlling party.”

  4. R.D. Clark & Sons, Inc. v. Clark194 Conn. App. 690 (Dec. 10, 2019)         

    Discounts and the use of tax affecting were key issues in a Connecticut buyout case involving a family-owned S corporation. Although both experts tax affected the company’s earnings when calculating fair value, the trial court declined to do so. It also did not reject discounts. Upholding the trial court’s rulings, the appellate court said tax affecting remained “the subject of considerable debate, and there is no Connecticut law that mandates a specific approach to tax affecting.” Note that the trial court’s ruling occurred years before the pro-tax-affecting 2019 Kress and Estate of Aaron Jones decisions.

  5. Raley v. Brinkman, 2020 Tenn. App. LEXIS 341 (July 30, 2020)

    Discounts and tax affecting also were contentious issues in this Tennessee buyout dispute involving an LLC that was organized as an S corp. While the state’s appeals court agreed with the trial court that the term “fair value” does not contemplate the use of shareholder-level discounts, it overturned the trial court on tax affecting. The appeals court said tax affecting was “relevant” evidence when determining the going-concern value of the subject company and, on remand, ordered the trial court to consider evidence on this issue, including expert testimony.

  6. Clark v. Clark, 2020 S.C. LEXIS 69 (May 13, 2020)

    In a key decision on the use of discounts when valuing a spouse’s minority interest in a family business, a majority of the South Carolina Supreme Court rejected a bright-line rule. It noted the importance of giving the family court flexibility in apportioning marital assets. The majority also emphasized that fair market value was the applicable standard in the state. A dissenting judge observed that, here, a minority interest, by order of the court, was transferred to the spouse who owned the entire remaining interest and who had no intent of selling the business.  

  7. In re Emerge Energy Services LP, 2019 Bankr. LEXIS 3717 (Dec. 5, 2019)

    Ruling on the confirmation of the debtor’s reorganization plan, the Bankruptcy Court found both parties’ financial experts used the same valuation methods, discounted cash flow and comparable company analyses (CCA). However, one expert’s CCA was more credible than the other’s analysis, the court found, emphasizing the importance of selecting appropriate comparable companies “because the comparable companies within the set and their financial data serve as a proxy for the subject company’s market and industry volatility and related future cash flow generating ability.” 

  8. Official Committee of Unsecured Creditors v. Calpers Corp. Partners, LLC, 2020 U.S. Dist. LEXIS 125769 (July 17, 2020) 

    In a bankruptcy dispute that turned on solvency, both parties tried to exclude the opposing financial expert’s testimony under Rule 702 and Daubert. The court rejected the plaintiff’s claim that the defense expert “blindly relied” on management projections for his capital adequacy and balance sheet tests, noting deposition testimony demonstrated he had assessed the reasonableness of the projections. The court also found the plaintiff’s expert did not use hindsight when he concluded the debtor was insolvent on the dates of two contested funds transfers. The court admitted both opinions, saying their strength is to be determined by the jury. 

  9. Nelson v. CommissionerT.C. Memo 2020-81 (Feb. 20, 2020)

    In this gift tax case, the taxpayers, through a limited liability company, held a stake in a successful family business that owned several operating subsidiaries. The donor transferred limited partner interests into a trust. Based on the language in the transfer instruments, the Tax Court first found the donor transferred percentages rather than fixed dollar amounts. As for the use of a discount for lack of control when determining the fair market value of certain subsidiaries, the court found, when transferred minority interests include elements of control, the minority discount should be reduced, not simply eliminated.

  10. Grieve v. CommissionerT.C. Memo 2020-28 (March 2, 2020)
    In another gift tax dispute, the Tax Court rejected the IRS expert’s valuation of noncontrolling, nonmarketable interests in two LLCs based on his novel valuation theory and method. The sole aim seemed to be to reduce the opposing experts’ minority and marketability discount rates. The expert’s proposed approach lacked support in the facts, case law, or among peers, the Tax Court found.

Digests of the cases and the courts’ opinions are available to subscribers of BVLaw.


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