After more than 150 years in practice, the “storied” international law firm, Coudert Brothers, began to wind down. When another large commercial firm offered to buy their New York practice, the Coudert partners engaged a reputable real estate appraisal firm to value the remaining eight years on their Manhattan office lease. The USPAP-certified appraisal came back at $18 million, and the Coudert partners ended up selling the lease for $16 million.
Two years later, Coudert went bankrupt, and the plan administrator sued the appraisal firm for malpractice. In support, the plaintiff hired a financial expert, a forensic accountant with no real estate certification, to refute the original appraisal and conduct her own valuation of the lease. The defendants moved to dismiss the expert’s calculations (and the case), saying not only did she fail to apply any appraisal standards in her critique of the original appraisal, but she failed to apply any commonly accepted standards to her own appraisal, which involved valuing the leasehold under a hypothetical sale or refinancing of the building, resulting in a range of value from $31 million to $39 million.
The dispositive question was whether the original appraisal firm exercised “due care” in its application of commonly accepted professional standards in the industry, in this case, USPAP, the court held. Yet, the plaintiff’s expert “totally failed to engage with those standards,” making her approach “particularly unreasonable” and unreliable, enough to support dismissal of all claims. Read the complete digest of Development Specialists, Inc. v. Weiser Realty Advisors LLC, 2012 U.S. Dist. LEXIS 8666 (Jan. 24, 2012), in the next Business Valuation Update; the court’s opinion will be posted soon at BVLaw.