Court figures fair value of startup biotech for dissenters
In a dissenting shareholder case in a federal district court in Georgia, neither the Black-Scholes method nor the prior transactions method convinced a court of the value of a startup biotech company.
Lazar v. Mor
The plaintiffs in this business dispute submitted motions to amend their complaint, alleging that the defendants contributed only a fraction of their required capital contributions. The result was, per the plaintiffs, that the defendants were overpaid, and the plaintiffs were shorted millions in distributions from the net proceeds of the sale of the properties.
Motion to Amend for Consideration of Variable Member Interests Granted
The plaintiffs in this business dispute submitted motions to amend their complaint, alleging that the defendants contributed only a fraction of their required capital contributions. The result was, per the plaintiffs, that the defendants were overpaid, and the plaintiffs were shorted millions in distributions from the net proceeds of the sale of the properties.
Julie A. Su v. Reliance Trust Co.
In this ESOP-related case, the court ruled that two experts of a former defendant can testify for the remaining defendants to the extent their testimony was not duplicative. The defendant’s motion to exclude testimony of the government’s (plaintiff’s) witness because the new FRE 702 rules were not followed was denied, as the court explained the new FRE 702 had not been violated.
U.S. District Court Allows Nonduplicative Testimony of Experts and Allows Testimony on Clarification of New FRE 702
In this ESOP-related case, the court ruled that two experts of a former defendant can testify for the remaining defendants to the extent their testimony was not duplicative. The defendant’s motion to exclude testimony of the government’s (plaintiff’s) witness because the new FRE 702 rules were not followed was denied, as the court explained the new FRE 702 had not been violated.
Abeome Corp., Inc. v. Stevens
The parties did not agree on a fair value of the shares in a dissenting shareholder suit. The court, using information in evidence, including expert witness testimony from both parties’ experts, determined the fair value.
U.S. District Court Determines Fair Value of Shares
The parties did not agree on a fair value of the shares in a dissenting shareholder suit. The court, using information in evidence, including expert witness testimony from both parties’ experts, determined the fair value.
Lone dissenter of medical merger challenges share valuation
In a California case, a physician was a nonexclusive provider to a physician network and was one of 75 shareholders.
Court has limited menu for steakhouse valuation
In a Michigan case, two 50% owners of a Ponderosa steakhouse were locked in a battle over the Old West-themed eatery, with both owners engaging in oppressive conduct against the other. They left it up to the court to decide their fate.
Chancery Court Determines Value of Shares by Applying Average of GPCM and DCF Methodologies
In a long and complex opinion, the Delaware Court of Chancery determined the value per share of stock in a former stockholder’s appraisal action. The per-share value was reached by ascribing equal weight to adjusted versions of the comparable companies analysis (GPCM) the stockholder advanced and the discounted cash flow analysis the company advanced. The other methodologies were rejected. The use of the GPCM represented the first use of that method in some years.
HBK Master Fund L.P. v. Pivotal Software, Inc.
In a long and complex opinion, the Delaware Court of Chancery determined the value per share of stock in a former stockholder’s appraisal action. The per-share value was reached by ascribing equal weight to adjusted versions of the comparable companies analysis (GPCM) the stockholder advanced and the discounted cash flow analysis the company advanced. The other methodologies were rejected. The use of the GPCM represented the first use of that method in some years.
Low buyback value stings departing owners
Shareholder-employees should take a lesson from a recent case and take a fresh look at their buyout agreements—especially the part about the redemption value.
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.
Ghaly v. Riverside Cmty. Healthplan Med. Grp.
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.
Bankruptcy Court Determines Fair Value Under Asset Approach With ‘Limited Evidence’ Available to It
This case involved a hotly contested battle over the fate of a Ponderosa restaurant in Michigan. The two owners, having had a falling out, pursued contentious litigation to wrest control of the restaurant from each other. Having no business valuation available to the court, the court was left with a real estate appraisal and limited evidence of assets and liabilities to determine the fair value of a 50% interest in the restaurant to be used in the buyout of one of the shareholders by the other shareholder.
Herremans v. Fedo (In re Herremans)
This case involved a hotly contested battle over the fate of a Ponderosa restaurant in Michigan. The two owners, having had a falling out, pursued contentious litigation to wrest control of the restaurant from each other. Having no business valuation available to the court, the court was left with a real estate appraisal and limited evidence of assets and liabilities to determine the fair value of a 50% interest in the restaurant to be used in the buyout of one of the shareholders by the other shareholder.
Laurilliard v. McNamee Lochner, P.C.
The plaintiffs, minority shareholder employees in a law firm, brought suit against their firm for breaching their employment contracts. The court determined that the plaintiffs were at-will employees and that there was no breach of their agreements when they were terminated. The court also determined that the under-market-value payment under their repurchase agreements was allowable since they were at-will employees.
New York Court Allows Enforcement of Under-Market-Value Buy-Sell and Approves At-Will Termination of Shareholder-Employees
The plaintiffs, minority shareholder employees in a law firm, brought suit against their firm for breaching their employment contracts. The court determined that the plaintiffs were at-will employees and that there was no breach of their agreements when they were terminated. The court also determined that the under-market-value payment under their repurchase agreements was allowable since they were at-will employees.
New case involves dispute over company-specific risk
In a Minnesota shareholder buyout matter, the two opposing valuation experts disagreed over the risk associated with customer concentration.
Judicial appraisal needs reform per new paper
A recent paper addresses the problem of the “wide discretion” judges have in fashioning appraisal awards to dissenting shareholders based on opinions of valuation experts that are miles apart.
Mekhaya v. Eastland Food Corp.
The plaintiff 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.
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.
In re Navidea Biopharmaceuticals Litig.
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
U.S. District Court Partially Excludes Witness in Securities Value Case and Allows Rebuttal Witness
A pharmaceuticals company sued its former CEO for, among other things, breach of contract and for a declaratory judgment establishing the contractual rights and obligations of the parties. This resulted in counterclaims by the former CEO, Michael Goldberg. Goldberg submitted for testimony of damages Terry Lee Orr, CPA. In this matter, the company sought to exclude Orr’s testimony and, absent his exclusion, to present their own expert, William F. Murray, CPA, as a rebuttal expert. Goldberg sought to exclude the testimony of Murray. The court excluded portions of Orr’s testimony and denied the exclusion of Murray as a rebuttal expert.
Prevailing expert comments on ‘moonshine’ case
In an earlier issue, we reported on an appellate court case involving the valuation of an owner’s one-third share in a Tennessee moonshine distillery (click here for the prior coverage).