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BVLaw Review: The Top Valuation Cases of 2021

May 31, 2022

In this month’s highlighted case study, the BVLaw Review’s list of Top Valuation Cases of 2021 provides a good reminder of the far-reaching scope of valuation services. This list contains summaries of noteworthy valuation-related cases in multiple areas of law, including marital, tax, calculation of value, ESOP, shareholder dissent, judicial dissolution, and securities litigation.

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King v. King, 2021 Fla. App. LEXIS 3170, 2021 WL 822476 (March 4, 2021)

A divorce expert’s failure to link the facts related to a successful insurance company to his personal goodwill analysis was one of the reasons a Florida appeals court recently overturned the trial court’s valuation findings, which, the reviewing court said, were not based on competent, substantial evidence.

Maginnis v. Maginnis, 2021 Ky. App. Unpub. LEXIS 378; 2021 WL 2483877 (June 18, 2021)

In an unpublished opinion, the Kentucky Appellate Court remanded the decision as to the value of the husband’s business for, among other things, the family court’s failure to consider an apportionment of goodwill between enterprise and personal goodwill. It also remanded for a reconsideration of the maintenance award to the wife since that award is based in part on the value of the business and the income of the husband.

Kakollu v. Vadmaludi, 2021 Ind. App. LEXIS 232; 2021 WL 3137204 (July 26, 2021)

An Indiana appellate court upheld the lower court’s decision not to allow a discount for lack of marketability (DLOM) on a 100% control interest in a business the husband owned. The business consisted of six dental practices, to which the husband applied a very high DLOM, primarily to reflect that most of the revenue was from Medicaid (according to him). The wife’s expert applied no DLOM to the valuation, and the trial court accepted it partly because the husband had shown no intention of selling the business. This is the first time the issue of intention to sell has arisen in Indiana in this context. The appellate court affirmed the decision of the trial court. There are some other interesting points in the details of the case.

Cela v. Cela, 2021 Tenn. App. LEXIS 304, 2021 WL 3240238 (July 30, 2021)

In Tennessee, personal goodwill is not a marital asset that can be divided between the divorcing parties. In a recent case, the wife owned a speech clinic operated as a sole member LLC. The wife’s expert valued the firm at $82,000 using the asset approach, reasoning that all goodwill was personal. The husband’s expert used the income approach and came up with a value of $790,000. The trial court sided with the husband’s expert but reduced the value by 14.3%, which was the percentage of revenue attributable to the wife. The husband appealed, raising several issues, but the state’s appellate court upheld the trial court’s decision.


Aspro, Inc. v. Comm’r, TC Memo 2021-8 (Jan. 21, 2021)

The U.S. Tax Court agreed with the Internal Revenue Service that management fees a corporation paid to its three shareholders over a three-year period were not deductible since none of the fees were paid “purely for services” and the petitioner failed to show the fees were “ordinary, necessary, and reasonable.” Rather, they represented disguised distributions, the court found.

Estate of Michael J. Jackson v. Commissioner, T.C. Memo 2021-48 (May 3, 2021)

In the protracted litigation between the estate of the late superstar Michael Jackson and the Internal Revenue Service, the U.S. Tax Court finally issued its opinion on the value of three contested assets. These were the value of Jackson’s image and likeness as well as Jackson’s ownership interest in two music entities. In a very detailed opinion that is chock full of valuation details, the court overall favored the valuations of the estate’s trial experts, particularly regarding the value of Jackson’s image and likeness. However, the court rejected tax affecting, which all the estate’s experts used in their analyses. Based on the facts of the case and Tax Court precedent, the court said the IRS’ opposition to tax affecting was more persuasive.

Calculation of Value

Larchick v. Pollock, 2021 Ariz. App. Unpub. LEXIS 895; 2021 WL 3929954 (Sept. 2, 2021)

A court in Arizona rejected the use of a calculation report, but an appellate court ruled it was wrong to do that and sent the case back to the lower court. The trial court excluded the evidence of a business valuation expert because he had submitted a calculation of value report and was then asked to testify to it. The expert self-admitted that he would not testify to a calculation of value and had explained in his engagement letter that, if he had to testify, a valuation engagement would be required. Despite the exclusion by the trial court and the self-admission of the inadequacy of a calculation of value for testimony purposes, the appellate court nevertheless ruled that a calculation of value is acceptable per se. The case has been remanded in part to determine whether the calculation of value met the requirements of Arizona Rule 702 for allowable evidence.


Scalia v. Reliance Trust Co., 2021 U.S. Dist. LEXIS 38705 (March 2, 2021)

This ongoing case relates to a 2011 transaction in which the majority owner of the company sold his remaining stock to the company’s ESOP. The Department of Labor is the plaintiff, and many of its allegations against the seller, company directors, and the independent trustee have a familiar ring. The issue of control is featured in this case.

Great Am. Fid. Ins. Co. v. Stout Risius Ross, Inc., 2021 U.S. Dist. LEXIS 158553; 2021 WL 3772876 (Aug. 23, 2021)

A valuation firm can no longer force its professional liability insurer to defend a lawsuit challenging the firm’s ESOP valuation because the case’s surviving claim falls under a policy exclusion, a federal court ruled. While the policy covered valuation services, the policy also featured an exclusion for claims against the insured for securities violations. The insurer’s duty to defend the firm ended when the ESOP participants suing the firm filed an amended complaint that included only one claim for federal securities fraud. The policy featured an exclusion for claims against the insured for securities violations.

Walsh v. Bowers, 2021 U.S. Dist. LEXIS 177184 (Sept. 17, 2021)

A district court ruled “decisively” against the Department of Labor (DOL) in an ESOP valuation case, stressing that the DOL failed to follow standard valuation practices. The decision represents a serious rebuke of DOL arguments in valuation cases. The case involved the ESOP company Bowers + Kubota (an architecture and engineering firm). The DOL had alleged that the ESOP paid more than fair market value for stock of the sponsor company. Valuation experts have long maintained that the DOL has been playing by its own valuation rules—rules that are not consistent with accepted valuation standards.

Shareholder Dissent

Island Light & Power Co. v. Sara Golvinveaux McGinnes 2011 Trust, 2021 R.I. Super. LEXIS 48 (June 3, 2021)

In this case, the one-third shareholder dissented to a forced sale of the assets resulting in a liquidation of the company and of the shareholder trust’s stock. In a resulting bench trial, the court rejected the fair value determinations of the experts for both parties and adopted its own methodology (as is allowed by Rhode Island courts, including its Supreme Court) to determine the fair value of the one-third interest the trust held.

In re Appraisal of Regal Entertainment Group, 2021 Del. Ch. LEXIS 93; 2021 WL 1916364 (May 13, 2021)

In a statutory appraisal action, the Delaware Court of Chancery adopted the deal price minus synergies as the best indicator of fair value. The court found one further adjustment to account for the change in the target’s operative reality between the date of signing and closing of the merger also was necessary. This is one of those increasingly rare cases in which the petitioners, as shareholders of a public company, obtained a price that was slightly higher than the merger consideration.

Judicial Dissolution

Hartman v. BigInch Fabricators & Construction Holding Co., Inc. (Hartman II), 161 N.E.3d 1218 (Jan. 28, 2021)

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

Ryan Trust v. Ryan, 308 Neb. 851 (April 9, 2021)

The Nebraska Supreme Court recently became involved in the adjudication of a bitter intrafamily buyout dispute over the fair value of the founder and majority shareholder’s interest in the company. The trial court adopted, verbatim, the findings the majority shareholder (seller) proposed. Presented with valuation expert testimony from two veteran appraisers, the trial court found only the valuation analysis by the majority shareholder’s expert was credible. The court dismissed the company expert’s valuations as tainted by a “downward bias” that “renders his conclusion unreliable.” Industry expert testimony showed that other indicators the company proposed also were not reliable fair value estimates, the trial court found. The state’s high court upheld all of the trial court’s findings.

Guge v. Kassel Enters., 2021 Iowa Sup. LEXIS 81 (June 18, 2021)

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 the majority shareholder urged.

Securities Litigation

Strougo v. Tivity Health, Inc., 2021 U.S. Dist. LEXIS 141711, __ F.Supp.3d __, 2021 WL 3209567 (July 29, 2021)

Goodwill impairment does not appear often in litigation, but a court case in Tennessee will go forward after a judge ruled not to dismiss the plaintiff’s claims. The plaintiffs brought a class action suit on behalf of those who purchased stock in Tivity (the defendants), which acquired Nutrisystem in 2019, and one of the claims involves goodwill impairment. The plaintiffs allege that the defendants impaired goodwill by inflating its assets and carrying a goodwill value that exceeded its implied fair value. They further allege that the defendants knew of multiple triggering events for impairment of goodwill but failed to impair and write down both the goodwill and the Nutrisystem trade name. In their motion to dismiss, the defendants countered that the claim failed to allege a misstatement, but their arguments were “unpersuasive,” so the case will proceed, the court ruled.

Dan Rosio Partner, Valuation Services

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