ESOP valuations may be at a turning point
At last week’s inaugural ESOP Virtual Conference hosted by the American Society of Appraisers, the landmark Bowers case was discussed, which could represent a turning point for ESOP valuations.
Appeals court affirms modified liquidation value in shareholder dispute
In a Michigan shareholder deadlock case, a special master recommended that a sale of shares from one shareholder to the other would yield more value than if the company were dissolved.
Sipko v. Koger, Inc.
The Supreme Court of New Jersey, in its second attempt to resolve this long-running shareholder dispute, a “thoroughly chewed apple”, and buyout, reversed the appellate court and remanded the case to the trial court for reinstatement of its valuation of the shareholder’s interest in two businesses and also agreed with the trial court that no marketability discount should be allowed to reduce the amount to be awarded to the plaintiff. The defendants chose not to call their own expert to provide an opinion of the fair value of the shareholder’s interests.
The Supreme Court of New Jersey Accepts Trial Court’s Value of Companies and Denies a Marketability Discount in a Contentious Buyout Dispute
The Supreme Court of New Jersey, in its second attempt to resolve this long-running shareholder dispute, a “thoroughly chewed apple”, and buyout, reversed the appellate court and remanded the case to the trial court for reinstatement of its valuation of the shareholder’s interest in two businesses and also agreed with the trial court that no marketability discount should be allowed to reduce the amount to be awarded to the plaintiff. The defendants chose not to call their own expert to provide an opinion of the fair value of the shareholder’s interests.
Husband shuns BV expert, loses case
In a Pennsylvania divorce case involving a restaurant, neither the husband nor the wife submitted formal business appraisals.
No deduction for tax in shareholder buyout
In a North Dakota partnership dissolution case, the defendants argued on appeal that the district court erred in its valuation.
BV News and Trends May 2022
A monthly roundup of key developments of interest to business valuation experts.
ASA debuts virtual ESOP conference June 21
The American Society of Appraisers has added a new specialized event to its conference schedule: the 2022 ASA ESOP Virtual Conference on June 21.
Pitsch v. Pitsch Holding Co.
In this shareholder deadlock litigation, the appellate court affirmed the decision of the trial court that the solution to the deadlock was to order a buyout of the plaintiffs’ stock by the defendants as opposed to a dissolution of the company. The appellate court also affirmed the use of a modified-liquidation value as providing a value that maximized the value to the individual shareholders.
Michigan Appeals Court Affirms Modified-Liquidation Value in a Shareholder Deadlock Litigation
In this shareholder deadlock litigation, the appellate court affirmed the decision of the trial court that the solution to the deadlock was to order a buyout of the plaintiffs’ stock by the defendants as opposed to a dissolution of the company. The appellate court also affirmed the use of a modified-liquidation value as providing a value that maximized the value to the individual shareholders.
Sullivan v. Loden
In this malpractice case against an estate attorney, the attorney was denied a summary judgment. The primary issue related to the attorney’s valuation of stock of a family business that was gifted to two of the four children of the decedent. While an “equalization payment” was made to each of the two remaining children, one of these two sued the attorney for both breach of fiduciary duty and for undervaluing the stock gifted, resulting in an underpaid equalization payment.
Estate Attorney Is Denied a Summary Judgment for Alleged Incorrect Valuation of Gifts of Stock—Malpractice Case Proceeds
In this malpractice case against an estate attorney, the attorney was denied a summary judgment. The primary issue related to the attorney’s valuation of stock of a family business that was gifted to two of the four children of the decedent. While an “equalization payment” was made to each of the two remaining children, one of these two sued the attorney for both breach of fiduciary duty and for undervaluing the stock gifted, resulting in an underpaid equalization payment.
Snyder v. Snyder
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 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.
BV News and Trends March 2022
A monthly roundup of key developments of interest to business valuation experts.
DOL proposes change to ESOP prohibited transaction exemption requirements
ESOP appraisers should take note of a proposed rule to amend the Department of Labor (DOL) prohibited transaction exemption procedure, reports the American Society of Appraisers (ASA).
Harrison v. Envision Mgmt. Holding, Inc.
The U.S. District Court (Colorado) denied a motion to compel arbitration the defendants brought in a case the plaintiff participants brought (a purported class action) in an ESOP the defendant company, et al. established. “The Plaintiff argues that the Defendants’ actions related to the sale caused him and all other ESOP participants to suffer significant losses to their ESOP retirement savings.” The court denied the motion.
U.S. District Court Denies Motion of Defendants in an ESOP Case to Compel Plaintiff Into Arbitration
The U.S. District Court (Colorado) denied a motion to compel arbitration the defendants brought in a case the plaintiff participants brought (a purported class action) in an ESOP the defendant company, et al. established. “The Plaintiff argues that the Defendants’ actions related to the sale caused him and all other ESOP participants to suffer significant losses to their ESOP retirement savings.” The court denied the motion.
Stout Risius Ross, LLC v. Aspen Specialty Ins. Co.
Stout Risius Ross LLC asked for a declaratory judgment to require Aspen Specialty Insurance Co. to defend Stout Risius Ross in a lawsuit brought against it by its former client, Wilmington Trust, in an ESOP matter. Stout Risius Ross performed a valuation for an ESOP transaction that the court later criticized in that matter (Brundle). After being sued by Wilmington Trust, Stout Risius Ross filed a claim with Aspen, which was denied by Aspen, citing the “prior knowledge” clause. The court denied Stout Risius Ross’ motion for declaratory judgment and did not allow Stout Risius Ross to amend its motion.
U.S. District Court Dismisses Accounting Firm’s Plea to Require Insurance Company to Defend a Lawsuit Against It
Stout Risius Ross LLC asked for a declaratory judgment to require Aspen Specialty Insurance Co. to defend Stout Risius Ross in a lawsuit brought against it by its former client, Wilmington Trust, in an ESOP matter. Stout Risius Ross performed a valuation for an ESOP transaction that the court later criticized in that matter (Brundle). After being sued by Wilmington Trust, Stout Risius Ross filed a claim with Aspen, which was denied by Aspen, citing the “prior knowledge” clause. The court denied Stout Risius Ross’ motion for declaratory judgment and did not allow Stout Risius Ross to amend its motion.
Sproule v. Johnson
In this partnership dissolution case, the North Dakota Supreme Court affirmed the district court’s decision to use an appraisal of the Canadian entity as of 2019 instead of a value from an earlier agreement in principal. The later date was within the purview of the district court’s flexibility. Further, the Supreme Court affirmed the district court’s decision not to reduce the value of a partnership asset of stock in a Canadian corporation for taxes.
North Dakota Supreme Court Affirms Valuation Date, Affirms No Deduction for Taxes in Determining Stock Value
In this partnership dissolution case, the North Dakota Supreme Court affirmed the district court’s decision to use an appraisal of the Canadian entity as of 2019 instead of a value from an earlier agreement in principal. The later date was within the purview of the district court’s flexibility. Further, the Supreme Court affirmed the district court’s decision not to reduce the value of a partnership asset of stock in a Canadian corporation for taxes.
ESOP companies more optimistic about recovering
Valuation experts assessing how a subject company will recover from the pandemic will be interested in a new study.
BVRPro adds to its ASA BV Review archive
Subscribers to the BVResearch Pro platform can access issues of Business Valuation Review going back to 1982, and the Fall 2021 issue has just been added to the archive.
15 Cautionary Areas to Review in ESOP Valuations
Business valuation practitioners perform private-company equity appraisals for many applications including gift/estate tax planning, transaction opinions, and financial reporting; yet ESOP valuation assignments present complex challenges. Not only is the purpose of the appraisal unique, but the particular client, an ESOP trustee (acting as a fiduciary), also has many ESOP-specific disclosures and requirements. A well-developed ESOP valuation report may not simply achieve the appraisal prescription set forth in Revenue Ruling 59-60 or USPAP compliance. Join ...