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Court sets fair value of 50% interest in realty firm

In Connecticut, a real estate firm had a shareholder agreement that allowed for an independent appraisal if one of the owners wanted out.

Buccieri v. New Hope Realty, Inc.

This case arose out of a dispute between the surviving family and a trustee of the founders of New Hope Realty Inc. The parties could not agree on the management and operations of New Hope Realty. On July 7, 2020, a dissolution proceeding was commenced. The defendants elected to purchase the plaintiffs’ shares. Subsequently, the parties could not agree as to the fair value of the plaintiffs’ interest. The plaintiffs asked the court to determine the value. The court held hearings including testimony from expert witnesses from both parties and determined the fair value.

Court Determines Fair Value of 50% Interest in Real Estate Company—Parties Could Not Agree on Value

This case arose out of a dispute between the surviving family and a trustee of the founders of New Hope Realty Inc. The parties could not agree on the management and operations of New Hope Realty. On July 7, 2020, a dissolution proceeding was commenced. The defendants elected to purchase the plaintiffs’ shares. Subsequently, the parties could not agree as to the fair value of the plaintiffs’ interest. The plaintiffs asked the court to determine the value. The court held hearings including testimony from expert witnesses from both parties and determined the fair value.

Furrer v. Siegel & Rouhana, LLC

A name attorney in a Maryland law firm withdrew after having his license suspended. He sued the firm for compensation for his 26.5% interest in the firm. The firm countersued for damages related to his mistreatment of client accounts. The trial court determined a value of his interest and also determined damages that the attorney owed the firm for his mistreatment of client accounts. The appellate court affirmed the damages but remanded the valuation of the 26.5% interest.

Maryland Appellate Court Remands for Valuation of Withdrawing Member’s Interest in Law Firm and Affirms Damages Award

A name attorney in a Maryland law firm withdrew after having his license suspended. He sued the firm for compensation for his 26.5% interest in the firm. The firm countersued for damages related to his mistreatment of client accounts. The trial court determined a value of his interest and also determined damages that the attorney owed the firm for his mistreatment of client accounts. The appellate court affirmed the damages but remanded the valuation of the 26.5% interest.

Guttman v. Guttman

The one-third partner of a real estate partnership, Bruce Guttman (Bruce), sued for dissolution. The two majority partners initiated a statutory procedure to buy out Bruce. All three appraisals were very close to $38 million. Feeling the valuations to be too low, Bruce sought to withdraw his complaint without prejudice. The trial court, on a motion from the majority partners, vacated Bruce’s dismissal. The appellate court affirmed the trial court.

One-Third Partner Sued to Have Partnership Dissolved, Asked to Vacate His Dissolution Assertion

The one-third partner of a real estate partnership, Bruce Guttman (Bruce), sued for dissolution. The two majority partners initiated a statutory procedure to buy out Bruce. All three appraisals were very close to $38 million. Feeling the valuations to be too low, Bruce sought to withdraw his complaint without prejudice. The trial court, on a motion from the majority partners, vacated Bruce’s dismissal. The appellate court affirmed the trial court.

Recap of recent BV cases of note

A number of recent cases have emerged that contain various valuation issues.

Discounts inappropriate under controlling agreement, appeals court finds

In a buyout dispute involving a limited liability company, the Oregon Court of Appeals recently overturned a trial court’s decision to apply discounts when valuing the departing member’s minority interest.

Van Vleet comments on use of SEAM in Ryan case

BVWire recently reported on the Ryan Trust v. Ryan case, a buyout dispute in which the Nebraska Supreme Court affirmed the district court’s decision to credit the valuation testimony of the expert for the late majority shareholder.

In buyout dispute, ‘downward bias’ sinks expert’s fair value determination

In a bitter buyout dispute involving a successful private family business and featuring two veteran appraisers, the Nebraska Supreme Court recently affirmed the district court’s decision to unreservedly credit the valuation testimony of the expert for the late majority shareholder.

Iowa Supreme Court Allows Reduction in Value for Transaction Costs but Refuses to Allow a Reduction for Built-In Capital Gains Tax

This case was decided, on appeal, under the Iowa “election-to-purchase-in-lieu-of-dissolution statute.” The Iowa Supreme Court decided that, because the parties’ experts had “both included transaction costs in their valuations under a net asset approach, the district court’s failure to reduce the asset values to account for the costs to liquidate the corporation’s assets warranted reversal.” Additionally, since there was no evidence of an intention to liquidate the company or its assets, the court declined to adjust for the built-in gains tax consequences urged by the majority shareholder.

Guge v. Kassel Enters.

This case was decided, on appeal, under the Iowa “election-to-purchase-in-lieu-of-dissolution statute.” The court decided that, because the parties’ experts had “both included transaction costs in their valuations under a net asset approach, the district court’s failure to reduce the asset values to account for the costs to liquidate the corporation’s assets warranted reversal.” Additionally, since there was no evidence of an intention to liquidate the company or its assets, the court declined to adjust for the built-in gains tax consequences urged by the majority shareholder.

Ryan Trust v. Ryan

In family buyout dispute, state high court affirms trial court’s decision to adopt expert valuation testimony for selling majority shareholder, finding expert’s DCF inputs were reasonable as was selection of multiple of earnings in GPTC analysis; expert’s explanation for S corp premium was convincing.

State Supreme Court Affirms Adoption of Selling Shareholder’s Expert Value Findings

In family buyout dispute, state high court affirms trial court’s decision to adopt expert valuation testimony for selling majority shareholder, finding expert’s DCF inputs were reasonable as was selection of multiple of earnings in GPTC analysis; expert’s explanation for S corp premium was convincing.

Indiana Supreme Court Issues Key Ruling on Discounts in Compelled Buybacks

Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale. In a freshly minted decision, the Indiana Supreme Court reversed the Court of Appeals, finding there was no blanket rule disallowing discounts in a compelled buyback. This is especially true where the parties exercised a shareholder agreement whose terms suggested the use of fair market value.

LLC buyout at fair value poses ‘conundrum’ for the court

In allowing LLC members to buy out a departing member to avoid the dissolution of the company, a court had to determine the fair value of the departing member’s interest in a holding company.

Indiana Supreme Court issues key ruling on discounts in compelled buybacks

Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale.

Indiana Supreme Court Rejects Blanket Rule Against Discounts in Compulsory, Closed-Market Share Buyback

High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.

Hartman v. BigInch Fabricators & Construction Holding Co., Inc. (Hartman II)

High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.

Finkel v. Palm Park, Inc.

In LLC member dispute, court faces “conundrum” where fair value buyout seeks to avoid LLC’s dissolution and court leans on expert’s FMV valuation using net asset value approach premised on “orderly liquidation”; court notes FMV is based on hypothetical actors and transaction, not specific parties.

Court’s Fair Value Determination Leans Heavily on Expert’s Fair Market Valuation Premised on Liquidation

In LLC member dispute, court faces “conundrum” where fair value buyout seeks to avoid LLC’s dissolution and court leans on expert’s FMV valuation using net asset value approach premised on “orderly liquidation”; court notes FMV is based on hypothetical actors and transaction, not specific parties.

Key Tennessee appeals court ruling finds tax affecting ‘relevant’ to fair value buyout

In a Tennessee buyout dispute involving a limited liability corporation organized as an S corporation, the parties disagreed over whether it was appropriate to tax affect in calculating the fair value of the terminated member’s interest.

‘Overstated’ projections sink plaintiff’s fair value determination

Earlier this year, a New York trial court presiding over a buyout dispute featuring an online wholesaler of faucets, sinks, and fixtures rebuffed the departing shareholder’s valuation.

Partnership Statute Precludes Use of Minority Discount in Buying Out Dissociated Partner

In dispute over value of dissociated partner’s one-third interest in whiskey business, appeals court says trial court erred in adopting value determination that applied discount for lack of control; applicable partnership law requires value be based on sale of entire business as a going concern.

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