Tennessee Court 'Moonshines' on Fair Value

Boesch v. Holeman, 2022 Tenn. App. LEXIS 335 (August 26, 2022)

This case1 revolved around the value to be paid for a one-third interest in a partnership for a business that produces and sells flavored “moonshine” liquor. On a second go around for the Tennessee appellate court, the decision of the trial court as to the value of the plaintiff’s one-third interest in the partnership was affirmed. The trial court, on a first remand, adjusted its original value to eliminate the discount for lack of control (DLOC) but allowed the discount for lack of marketability (DLOM) to remain. 

The appellate court noted appropriately that a DLOM was allowable in determining the price to be paid for the plaintiff’s interest in a Tennessee partnership. However, while not 100% clear, it appeared that the trial court on the remand allowed a marketability discount based on the value of a one-third interest in a private business (as the expert stated in submitting her report) rather than on a DLOM on the  entire business as a going concern (which the appellate court stated in the first remand). If the DLOM were based on valuing a one-third interest, then the DLOM allowed was likely larger than was justified or supportable.

The trial court, affirmed by the appellate court, selected the value the defendants’ expert ($35,000) submitted, which was significantly lower than the value the plaintiff’s expert ($258,000) submitted. Apparently, the plaintiff’s expert used an asset approach and valued the formulas as stand-alone assets while the defendants’ expert valued the business as an entity on a going-concern basis using the income approach.

Finally, it was important to note that the defendants’ expert submitted her report as a “calculation of value.” This is another case where the courts have allowed a calculated value to stand as an appropriate determination of value for litigation purposes. I have written and presented many times as to the use of calculations of value and their appropriateness (or not) in litigation. The courts will do what the courts wish to do. It is up to the attorneys with the assistance of the valuation expert to challenge the use of calculations where appropriate.

The case digest along with the full court opinion, is available in the BVLaw database. 

1 Boesch v. Holeman, 2022 Tenn. App. LEXIS 335 (August 26, 2022).