EXCERPT

Business Valuation Case Law Yearbook

2021 Edition

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Copyright © 2021 by Business Valuation Resources, LLC (BVR). All rights reserved. Printed in the United States of America.

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Information contained in this book has been obtained by Business Valuation Resources from sources believed to be reliable. However, neither Business Valuation Resources nor its authors guarantee the accuracy or completeness of any information published herein and neither Business Valuation Resources nor its authors shall be responsible for any errors, omissions, or damages arising out of use of this information. This work is published with the understanding that Business Valuation Resources and its authors are supplying information but are not attempting to render business valuation or other professional services. If such services are required, the assistance of an appropriate professional should be sought.

Editor: Sylvia GoldenManaging Editor: Monique Nijhout-RoweSenior Copy Editor: David SolomonChair and CEO: David Foster President: Lucretia LyonsChief Revenue Officer: Lisa McInturff

Print ISBN: 978-1-62150-214-2PDF ISBN: 978-1-62150-215-9EPUB ISBN: 978-1-62150-216-6

ISSN: 2689-971X (Print)ISSN: 2689-9728 (Online)

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Table of Contents

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

COURT CASE SUMMARY TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

COURT CASE DIGESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Acosta v. Reliance Trust Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Anderson v. A & R Spraying & Trucking, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Bates v. Bates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Bayou Place Limited Partnership v. Alleppo’s Grill, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Helen Ziegler Benjamin v. Island Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Binghamton Precast & Supply Corp. v Liberty Mutual Fire Insurance Co. . . . . . . . . . . . . . . . . . . . . .30Biton v. Kreinis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33In re Body Transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37Boesch v. Holeman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42Clark v. Clark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45R.D. Clark & Sons, Inc. v. Clark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51Cline v. Sunoco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56Coster v. UIP Companies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59Diesel Barbershop, LLC v. State Farm Lloyds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66Edelson v. Cheung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69In re Emerge Energy Services LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73Eurochem North America Corp. v. Ganske . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81Fir Tree Value Master Fund v. Jarden Corp. (Jarden III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84Flynn v. Maschmeyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88Geiger v. Creative Impact Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93Gemini Ins. Co. v. Potts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99Grieve v. Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104In re Happy Child World, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109Hartman v. BigInch Fabricators & Construction Holding Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .114Henley Mining v. Parton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117Horne-Ballard v. Ballard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120IceMOS Tech. Corp. v. Omron Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123J&M Industries, Inc. v. Raven Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128Kim v. Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132Kruse v. Synapse Wireless, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134Linde v. Linde . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140Magarik v Kraus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145In re Manhattan By Sail, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149Manichaean Capital, LLC v. SourceHOV Holdings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153McLelland v. Paxton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .160Nelson v. Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .167NetOne, Inc. v. Panache Destination Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173Office of Chief Counsel Internal Revenue Service Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . .175Official Committee of Unsecured Creditors v. Calpers Corp. Partners, LLC . . . . . . . . . . . . . . . . . . .179Optical Works & Logistics, LLC v. Sentinel Ins. Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .185

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In re Panera Bread Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187Papin v. Papin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194Pawelko v. Hasbro, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200Perser v. Perser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .203Pizzella v. Reliance Trust Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .205Pizzella v. Vinoskey (II) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .207Raley v. Brinkman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210Reynolds American Inc. v. Third Motion Equities Master Fund Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .214Robinson v. Langenbach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .223Rochkind v. Stevenson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .226Rose’s 1, LLC v. Erie Ins. Exch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .230Scalia v. Farmers National Bank of Danville & Weddle Bros. Const. Co. . . . . . . . . . . . . . . . . . . . . . .232Stowe v. Stowe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .235Estate of Streightoff v. Commissioner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .240Sultan v. Malik . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245Sunoco Partnership Mktg. & Terminals L.P. v. U.S. Venture, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .249Turek Enterprises, Inc. v. State Farm Mutual Automobile Insurance Co. . . . . . . . . . . . . . . . . . . . . . .253Wright v. Old Gringo, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .256

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Introduction

Dear Reader,

In 2020, the COVID-19 pandemic wreaked havoc on economies around the world. Mandatory shutdowns and other restrictions upended expectations for entire industries and individual businesses. On the upside, uncertainty surrounding business activity has put into relief the need for qualified business valuators. Moreover, BVLaw, which tracks court decisions focusing on business valuation and damages issues, has found that litigation did not slow down in 2020. In fact, in certain areas, including in the economic damages area, there may be additional op-portunities for financial experts as COVID-19-related lawsuits wind their way through adjudica-tion in state and federal courts.

Every year BVLaw codifies its reporting on case law in a yearbook. The resulting compendium is a resource for financial experts, as well as attorneys, who want a quick and easy way to stay on top of legal developments in their practice area. BVLaw’s monthly digests analyze court rulings by focusing on the role and presentation of financial evidence in court and on expert admissibility issues.

As the newest BVLaw compendium shows, financial evidence was at the center of many different civil suits, including shareholder and business partner disputes, federal tax disputes, bankruptcy, economic damages suits, divorce proceedings, ESOP cases, and Daubert disputes.

Here is a snapshot of what the Business Valuation Case Law Yearbook, 2021 edition, offers.

Statutory appraisal and court-ordered buyout cases were predominant in our reporting. One of the most important decisions came from the Delaware Court of Chancery in Manichaean Capital, a case that had a number of unusual aspects. They included a decision by the com-pany’s expert to use a novel approach to estimating beta for his discounted cash flow model. The expert acknowledged there was no support for this methodology “in the academic litera-ture.” Not amused, the court cautioned it was ill advised to use the courtroom as a laboratory for testing new methods. For one, doing so raised serious admissibility issues, the court said. The approach did not survive judicial scrutiny.

Also of note was a statutory appraisal action that arose in North Carolina. In Reynolds American, the court said that its decision was guided by Delaware appraisal jurisprudence and, drawing

Business Valuation Case Law Yearbook, 2021 Edition

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on recent Delaware case law, decided the sales process surrounding the contested merger was fair and fair value was no greater than the deal price. Importantly, the court contradicted itself when it said the statute required the use of the value at the closing of the merger but awarded the dissenting shareholders the price on the date the deal was announced, six months before the deal closed. An appeal on the valuation date issue and other issues is pending.

Buyout disputes typically centered on the use of discounts in determining the value of the departing business partner’s ownership interest. Of particular note, however, was a case out of Indiana, Hartman v. BigInch Fabricators, in which the parties had a shareholder agreement but ended up litigating the meaning of a key term. The agreement required the determina-tion of the “appraised market value” of the ownership interest, without defining that term. The company was successful in trial court when it claimed the term meant fair market value and allowed for the use of discounts. But the departing shareholder prevailed in the end when the appeals court found, under case law, discounts “have no application in compelled transactions to a controlling party.” This case illustrates the importance of drafting meaningful shareholder agreements, in consultation with business valuation experts.

Two other buyout cases are notable because courts took a different approach to the issue of tax affecting. In a Connecticut case, R.D. Clark & Sons v. Clark, the trial court rejected tax affecting when calculating fair value and the appellate court upheld the ruling. It noted that tax affecting still was “the subject of considerable debate, and there is no Connecticut law that mandates a specific approach to tax affecting.” Practitioners should keep in mind that the trial court’s rul-ing came years before the pro-tax-affecting 2019 decisions in Kress and Estate of Aaron Jones.

In contrast, in Raley v. Brinkman, a Tennessee appeals court found that tax affecting was “rel-evant” evidence when determining the going-concern value of the subject company and, on remand, ordered the trial court to consider evidence on this issue, including expert testimony. The two conflicting state court rulings drive home the importance, for attorneys and appraisers, of knowing the law in the state in which they practice.

Divorce remained a dynamic area of law. Two cases, in particular, stood out. In Clark v. Clark, a majority of judges on the South Carolina Supreme Court rejected a bright-line rule as to the use of discounts when valuing a spouse’s minority interest in a family business. The high court’s majority said the trial court must be given flexibility in valuing marital assets and arriving at an equitable distribution. Further, the majority emphasized that the applicable standard of value was fair market value. A spirited dissent pointed out that discounts were not justifiable in this case (or any case), where the minority interest holder was ordered to transfer her interest to the spouse who owned the majority interest and who had no intention of selling it.

An Alabama ruling dealt with a different, equally divisive, issue, the validity of calculations of value in litigation. A few years ago, in Rohling v. Rohling, the Court of Appeals held that a trial court did not err when it admitted a qualified expert’s estimate of the value of the owner spouse’s business based on a calculation engagement. The court then acknowledged that a calculation of value was a less rigorous value determination than an opinion of value resulting

Introduction

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from a valuation engagement. Recently, in Horne-Ballard v. Ballard, the appeals court had an opportunity to overturn Rohling but declined. As a result, in this jurisdiction, calculations of value are admissible for the purpose of valuing a marital asset in the context of divorce.

Although there was no groundbreaking ESOP decision this year, this area of law remains very active, as the yearbook entries show. The Business Valuation Case Law Yearbook, 2021 edition, also includes case law analysis of bankruptcy cases, federal tax disputes, and Daubert challenges. Moreover, this compendium includes the first crop of court rulings on businesses’ COVID-19-related claims. Many of the rulings favor insurers. It’s reasonable to assume that there will be more COVID-19 lawsuits in the future. Stay tuned.

In the meantime, I hope the Business Valuation Case Law Yearbook, 2021 edition, will become an invaluable addition to your BV research library.

Sincerely,

Sylvia Golden, Esq. Executive Legal Editor

Business Valuation Update Yearbook 2020 $249 Print / $329 Print & PDF While ideas and methods continually evolve in the business valuation profession, 2020 marked a

year of challenges unlike any other.

Always a highly-anticipated annual publication, the Business Valuation Update Yearbook 2021 covers the year’s most groundbreaking and thought-provoking advancements on valuation methodologies in the face of a global pandemic. It also captures:

• Captures changes in regulations and professional standards

• Key takeaways from the best virtual conferences

• Tactical practice-building ideas• And much more!

Business Valuation Case Law Yearbook 2020$249 Print / $329 Print & PDF Practitioners have come to rely on the annual Business Valuation Case Law Yearbook – and certainly the 2021

edition will prove even more vital than ever. The legal coverage and in-depth analysis from the BVR legal team deliver lessons learned to help appraisers reach better and more defensible valuation conclusions. The Yearbook covers key court decisions involving business valuation during 2020. The type of case law includes:

• Damages• Marital disputes• Breach of contracts• Dissenting shareholder disputes• Federal taxation• Intellectual property• And much more!

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YEARBOOKSAll of the year’s most important developments are reflected in two new resources.