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Management forecasts receive close scrutiny from courts

In assessing the soundness of valuations, courts in a variety of cases have been paying close attention to the management projections appraisers have used or decided not to use in performing their value analyses. If courts are scrutinizing projections for reliability and plausibility, experts hoping to prevail in the litigation context must do so as well.

Management projections take center stage in bankruptcy case

In a complex bankruptcy case involving players in the petrochemical industry, the court trained its eyes on the management projections underlying a merger that led to the formation of a company that went bankrupt only a year after the close of the transaction.

Chancery’s fusion valuation triggers remand and some words of wisdom by Del. Supreme Court

The Delaware Supreme Court recently overturned a 2016 ruling by the Delaware Court of Chancery that arrived at fair value by weighting the results of three valuation techniques equally. The high court's Chief Justice Strine, who once headed the Chancery, found this approach was problematic and used the decision to provide valuation advice to his successor, Chancellor Bouchard, who had overseen the appraisal proceeding.

NJ court’s goodwill ruling comes in for harsh criticism from appellate panel

The flashpoint in a protracted New Jersey divorce proceeding was the valuation of the owner spouse's equity partner interest in a large law firm. A critical issue was whether the value of the interest should include an additional amount stemming from the firm's enterprise goodwill. The trial court's decision elicited stinging criticism from the appellate court.

WA court’s goodwill analysis looks a lot like appreciation analysis

A recent Washington state divorce case included a noteworthy discussion of goodwill where the owner spouse’s business arguably was separate property. Divorce experts will notice that the court’s goodwill analysis has much in common with an appreciation analysis.

‘Fanciful’ projections make DCF unreliable valuation tool in Delaware appraisal case

Management projections are the sine qua non of a discounted cash flow analysis, and, in a recent statutory appraisal action involving the pet product giant PetSmart, the Delaware Court of Chancery found they did not cut the mustard. The court called the projections, “at best, fanciful,” and concluded the most accurate measure of fair value was the merger consideration.

Trial court leans on peer review service for Daubert determination

When, in a Mississippi accounting malpractice case, the trial court used an outside "technical advisor" to determine the admissibility of the parties’ proposed expert testimony, the Daubert hearing assumed a whole other dimension. It was no longer simply a battle between the opposing experts, but an occasion for outside experts to judge the work of the parties’ experts.

Court adheres to earlier ESOP liability and damages rulings

In a controversial ESOP case that turned on the trustee’s oversight of the pretransaction valuation work, the defendant trustee recently filed a motion for reconsideration. It argued the court had committed errors related to its liability and damages findings. Although the court owned up to some mistakes, including a misunderstanding of the concept of beta, it ultimately stuck to its earlier decision.

New Tennessee law streamlines DLOM use in divorce valuation

When and whether to apply a discount for marketability in divorce valuations has been an open question in Tennessee, owing to some confusing court rulings. However, a recent amendment to the Tennessee Code seeks to provide clarity to valuators handling divorce cases in this jurisdiction.

Court rejects experts' fair value determinations in Minnesota buyout case

The plaintiff is the “prevailing party,” a Minnesota district court recently decided, allowing the minority owner of a well-known family business to sell her share for over $40 million. The valuation trial featured high-caliber experts who disagreed about every input and assumption underlying their discounted cash flow analyses.

Expert notes are subject to discovery, 11th Circuit says

We recently reported on a case in which annotated expert draft reports were subject to discovery notwithstanding Federal Rule of Civil Procedure 26(b)(4). Valuation professionals who frequently work on federal cases also need to know that Rule 26 does not protect expert notes and nonattorney communication, as an important 11th Circuit ruling explains.

Activist Tax Court takes on double inclusion problem in estate and gift tax case

In an estate and gift tax case, the U.S. Tax Court recently sided with the Internal Revenue Service when the court found the value of assets transferred from the decedent to a family limited partnership was includible in the value of the decedent’s gross estate. The real surprise lay in the court's decision to propose a new way of calculating the includible amount.

Tax Court's Koons decision withstands appeal: DLOM ruling anchors valuation

The 11th Circuit recently affirmed a four-year-old Tax Court valuation of a revocable trust’s interest in a limited partnership. The linchpin in the valuation was the marketability discount.

Active-passive categorization skews appreciation analysis, court finds

Valuators may think they know all there’s to know about quantifying the appreciation of nonmarital property by using the active versus passive framework. Think again. A recent Florida divorce case illustrates that the premature categorization of assets may lead to an improper valuation.

Marked-up draft expert reports may be discoverable

Federal discovery rule 26 expressly protects draft expert reports from discovery. But experts testifying in federal court know that this protection is by no means absolute. Questions as to the scope of protection persist, and a recent discovery ruling in a patent infringement case makes clear that concern over the strength of protection is warranted.

Another ESOP trustee in trouble over valuation

For the second time in March 2017, a court found an ESOP trustee liable for causing the plan to overpay. The most recent decision chronicles in exhaustive detail how the trustee failed the plan in terms of ensuring that no more than fair market value would be paid for the seller’s shares.

ESOP trustee’s failure to vet valuation causes significant overpayment

Inadequate trustee performance was at the center of a recent case, featuring a nontraditional ESOP structure. The court found that, if the trustee had engaged with the underlying valuation, it would have discovered numerous weaknesses and prevented the ESOP from overpaying for the company stock.

Ambiguous expert report prompts order to revalue minority interest

A recent Wisconsin case illustrates that a shareholder agreement in place is no guarantee for a smooth buyout of the minority shareholder. The case also includes a caution to experts to strive for clarity in their expert reports.

Missouri says yes to Daubert

Missouri's governor recently signed into law a bill in favor of adopting the Daubert standard applicable to the admissibility of expert testimony. The move by the governor apparently is the first in several major tort reform measures he hopes to accomplish during his term.

Merger valuation disclosures were adequate. Chancery applies business judgment rule to breach of fiduciary duty action

The business judgment rule has featured prominently in a number of recent breach of fiduciary duty cases in front of the Delaware Court of Chancery. Under the rule, the court must not interfere in a transaction if a majority of the minority shareholders approved the deal and the vote was “uncoerced and fully informed.”

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