This appeal in a California court involved a dispute over an appraisal of the plaintiffs’ 15% interest in a grocery store the defendant operated. The plaintiffs alleged that the award of the superior court was obtained by fraud and that the arbitrator prejudiced their rights.
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Courts Reject Tax Affecting and Use of Discounts in Connecticut Buyout Dispute
Trial court’s fair value determination in buyout dispute involving family business withstands appeal, including decision not to tax affect or apply majority and minority discounts; appellate court finds there is no controlling state law on the issues and upholds trial court’s findings on facts.
In a Divorce Case, the California Court of Appeal Rejects Discount for Taxes Not Immediate and Specific But Allows a DLOM
In this divorce case, on appeal, the California appellate court rejected a discount for taxes not immediate and specific and allowed a DLOM regarding the value of the wife’s one-half interest in the jointly owned business. The court also determined that “the [trial] court impliedly made the factual findings necessary to support its ruling regarding Cynthia’s breach of fiduciary duty claim.” Finally, the appeals court determined that the trial court had the authority to set its own terms for payment of the equalization amount to the wife.
Delaware Chancery Court Cites Differences in Cash-Flow Assumptions as Cause for Large Discrepancy in Value
In this appraisal action to determine fair value, petitioner Ramcell Inc. exercised its appraisal rights in asking for a statutory appraisal of the value of its 155 shares of Jackson Cellular Telephone Co. Inc. The respondent, Alltel Corp. (dba Verizon Wireless), had converted the 155 shares at a value of $2,963 per share. “Respondent’s expert opines that Jackson’s per-share value was $5,690.92 at the time of the merger. Petitioner’s expert has offered two appraisal ranges, opining that, at the high end, Jackson’s per-share value was $36,016 on the merger date.” Both parties agreed that the DCF method should be the sole method for determining the value. The Delaware Chancery Court, using that method, determined the fair value of each share at $11,464.57. The court noted that the disparity in the parties’ valuations was due to disagreements as to the inputs to the DCF model and how they should be calculated.
Mississippi High Court Clarifies Best Practice for Lost Profits Calculation
In usurped-corporate-opportunity case, high court upholds trial court’s lost profits calculation based on actual numbers of company benefitting from wrongdoing, although best way is to project future profits or consider past profits of damaged business.
Company Did Not Breach Its Redemption Agreement Because of Diligence of Directors
The defendant did not breach its redemption agreement because a committee of directors, “properly engaged in the judgment-laden task of determining the amount of funds that the company could use for redemptions … [and] determined that using a greater amount of cash to redeem more shares threatened the company's ability to continue as a going concern.” As a result, interest on the asserted obligation back to 2013 was not allowed at 13%, the amount per the agreement.
Tennessee Appeals Court Clarifies Use of Discounts and Tax Affecting in Court-Ordered LLC Buyout
In LLC member buyout dispute, the Court of Appeals finds the term “fair value” does not contemplate the use of shareholder-level discounts. However, tax affecting is relevant evidence when determining the going-concern value of subject S corp. Trial court must consider evidence on tax affecting.
In Mandatory Buyback, Indiana Appeals Court Disallows Use of Discounts
In dispute about valuation of terminated shareholder’s minority interest, appeals court finds the trial court erred when it allowed discounts for lack of control and marketability; under controlling case law, discounts are inappropriate where the buyback is mandatory and to the controlling party.
Minnesota Appellate Court Upholds Prejudicial Conduct to Oppressed Shareholder and Affirms Disallowance of Marketability Discount
In this shareholder oppression suit appeal, the Minnesota appellate court upheld the prejudicial conduct to an oppressed shareholder and affirmed the disallowance of a marketability discount. Further, the appellate court affirmed the trial court’s order for dissolution when the appellants failed to exercise the option to pay court-ordered stock-buyout amounts.
Court Limits Lost Profits to Contractual Notice of Termination Period
The Illinois Court of Appeals reversed the lower court's award of lost profits in this breach of employment contract case.
Financial Expert Testimony Persuades Court to Order Inspection of Company Records
In a family dispute featuring related closely held companies and claims of breach of fiduciary duty and mismanagement, court, based on financial testimony from plaintiffs’ expert, orders inspection of defendant company’s records, including general ledger, fee agreements, and executive compensation.
In Wrongful Dissolution, New York’s High Court Approves FMV Valuation
In wrongful partnership dissolution, New York high court finds, under applicable statute, exiting partner’s interest may be valued under FMV standard of value; where exiting partner’s interest is minority interest, DLOM and minority discount may apply.
Physician Shareholder Asserts Transaction Bonuses Breach Board’s Fiduciary Duties—Appeals Court Finds Them Just and Reasonable
A physician shareholder claimed that the fair market value of his one share (of 75 total shares) was undervalued when the physician practice was merged and sold to NAMM California, a company that develops and manages physician provider networks. NAMM paid $18 million in the merger, and over $12 million of that amount was paid to individual physician shareholders in the form of “transaction bonuses.” The remaining almost $6 million was paid pro rata to the shareholders. The plaintiff appealed the judgment of the California trial court, but the appellate court deemed the transaction bonuses as “just and reasonable” and affirmed the trial court.
Court Favors Fair Value Analysis Based on Historical Data and Case Facts
In fair value dispute, court credits defense expert analysis based on capitalized economic income method and working with company’s historical earnings and growth rates; analysis properly accounts for particular facts of the case, including expiration of lucrative client contract.
Arkansas Court Clarifies What Sort of Businesses Can Have Personal Goodwill
Arkansas Court of Appeals rejects claim by owner of nonprofessional business that any value in business represents personal goodwill attributable to him; court says concept of personal goodwill has not been extended to nonprofessional business “such as the one involved here.”
New Jersey Court Finds Defendant’s Actions Justify DLOM in Forced Buyout
In New Jersey fair value determination, following precedent, court finds defendant’s conduct justifies use of a marketability discount because he was oppressing shareholder who created “extraordinary circumstances” necessitating forced buyout; court rejec ...
U.S. District Court (New York) Denies Motion to Exclude Expert Witness
The primary focus of this case was cross-motions for summary judgment on issues dealing with fiduciary duty and implied covenant of good faith and fair dealing. A final issue, of importance to valuation experts, was a motion to exclude the testimony of the plaintiff’s valuation expert, which the court denied.
Court Adopts DLOM-Free Valuation of Realty Holding Company
In determining the fair value of petitioner’s interest in two family businesses that hold real estate, New York court (Second Department) adopts expert’s decision not to apply marketability discount, noting valuation “already relies upon market exposure.”
In Big Buyout Ruling, Minnesota Court Rejects DLOM in Calculating Fair Value
In a forced buyout, court says experts were too partisan to their clients, compromising value analysis; court performs its own valuation using DCF to determine fair value of grocery business and rejects DLOM because no unfair transfer of wealth occurs.
Court Chooses DCF to Determine Fair Value in ‘Straightforward’ Appraisal Case
Delaware Court of Chancery finds DCF analysis is the best way to achieve fair value in a statutory appraisal case arising out of a contested merger; court’s analysis leans heavily on company expert’s analysis regarding contested inputs, including projections, beta, and terminal value.
Michigan Court Explains How to Handle Retained Earnings in Divorce Cases
In deciding whether, in divorce, retained earnings in a closely held company that is separate property are includible in marital estate, appeals court creates presumption against inclusion and requires trial court to perform totality of circumstances review.
Delaware Block Method No Longer Mandatory in Tennessee Fair Value Proceedings
Court overrules precedent requiring exclusive use of Delaware block method to determine fair value in dissenting shareholder cases; trial courts may use other, more “modern” methods, including forward-looking DCF analysis, state high court says and remands for reevaluation of earlier ruling.
Maryland Court of Appeals Reverses Dismissal of an Oppression Claim—Finds There Could Be Disguised Dividend Issue
The plantiff pleaded a statutory claim for shareholder oppression. In October 2018, Mekhaya was fired from his position at Eastland, where his salary of $400,000 per year included an implied dividend. The implied dividend was also included in the salaries of the other shareholders, all relatives of Mekhaya. The defendants filed a motion to dismiss, which the district court granted. The plaintiff appealed. He noted that, after his removal, they paid themselves excessively high salaries and refused to pay him dividends, thus frustrating his expectations as a shareholder. The Appellate Court of Maryland disagreed with the decision of the trial court.
Court Discredits Valuation Based on Unrealistic Projections and Incorrect Comparables
In buyout dispute, court rejects departing shareholder’s valuation based on income and market approach, where DCF model relied on company projections used for a bank loan that were never realized and, based on evidence, were “not accurate”; court says market approach used “incorrect comparables.”
Court Affirms Acceptance of the Wife’s Gross Sales Valuation Method for the Marital Business, Remands for Double Counting of Business Assets
In this Pennsylvania divorce matter, the appellate court accepted the wife’s valuation of the marital business using the “gross sales approach,” despite the husband’s objection that she was not qualified to determine the value. The trial court master recommended the wife’s value be accepted. However, the appellate court finds that the trial court double counted four business assets and remanded for a redetermination of the marital estate.
Court Treats Outpatient Surgery Center as Extension of Physician’s Practice
Court says deducting personal goodwill from valuation of physician’s interest in outpatient surgical center is appropriate even if physician was not an employee of center; entity’s income and total value depended on its physician members’ patient base.