Valuation

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In a case decided Tuesday by the Business Court, the parties were at loggerheads over how the assets of a partnership were to be valued upon the dissolution of the partnership or the withdrawal of a partner.  Judge Jolly granted the motion for summary judgment by EHP Land Company, the withdrawing partner of HPB Enterprises, which was the developer of a resort community on 750 acres of land in Perquimans County.  EHP Land Co., Inc. v. Bosher.

The partnership agreement said that EHP was entitled to the book value of its…

Continue Reading Business Court Interprets “Cookie-cutter” Partnership Agreement

Valuing a closely held business is often a debate over hypothetical dollars, particularly when the company’s sole asset is unproven technology.  The Business Court confronted such a situation recently in Vernon v. Cuomo.

The company in question developed a new technology with potential widespread medical application:  silicone-free syringes, which would enable syringes (especially of high-priced medicines) to be pre-filled without risk of contamination.  The potential of the technology, however, was not enough to keep the company together.  Two shareholders asserted dilution and self-dealing claims against the other shareholders.  After a bench…

Continue Reading Minimizing Windfall: Dissolution Valuation by Royalty

The Court allowed a motion to bifurcate in this shareholder dispute.  Shortly before trial, the Court agreed to try first Plaintiffs’ claims for reasonable expectations, mismanagement, and breach of fiduciary duty; and after determination of those issues to try, if necessary, the issues of valuation and dissolution.  The Order allowing bifurcation was entered with the consent of the parties.

Full Opinion

Motion to BifurcateContinue Reading Vernon v. Cuomo, July 9, 2008 (Tennille)(unpublished)

The Court ruled, on summary judgment, that the word "value" in a Trust Agreement meant "’fair market value’ of the shares of the railroad company which was the subject of the case as value would be viewed by the Trust, as prospective seller, and the Blue family [those entitled to buy them per the Trust Agreement], as prospective purchasers."  The term "value" did not mean the fair market value of the shares if they had been offered to the general public.

The Court rejected, at least at the summary judgment stage…

Continue Reading In The Matter of The Ruth Cook Blue Living Trust, May 20, 2008 (Jolly)(unpublished)

Defendant, a terminated employee, owned one third of the outstanding stock of Classic Coffee Concepts. The issue was the price to be paid for the stock, which the corporation was obligated to repurchase under a Stockholders Agreement. The Agreement said that the price would be determined by looking to the fair market value of the stock as determined by an independent appraisal of the Employee Stock Ownership Plan. But no ESOP had ever been established.

A variety of conflicting appraisals were presented to the Court at trial.  Defendant would have…

Continue Reading Classic Coffee Concepts, Inc. v. Anderson, 2008 NCBC 1 (N.C. Super. Ct. Jan. 31, 2008)(Diaz)

The issue here was whether the parties had reached an agreement by which defendant was to pay fees to plaintiff for managing an advertising program. Plaintiff alleged that the agreement was "non-cancellable" for a term of one year. The Court found that the correspondence relied upon by plaintiff did not establish a binding contract. Although the parties had agreed on the price to be paid for each advertisement, they had not agreed on the number of advertisements that would be posted by the plaintiff, or when or where they would…

Continue Reading Media Network, Inc. v. Mullen Advertising, Inc., 2007 NCBC 1 (N.C. Super. Ct. Jan. 19, 2007)(Diaz)

The plaintiffs in this case sought the dissolution of a closely held corporation pursuant to N.C.G.S. §55-14-30(2)(ii) on the ground that the business of the corporation was being conducted to the unfair advantage of the majority shareholder. The Court found that dissolution was appropriate because the reasonable expectations of the majority shareholders were not being met.

Since the dissolution statute gives the corporation the opportunity to avoid dissolution by paying the oppressed shareholders the "fair value" of their shares, the Court moved on to a discussion of that concept. As…

Continue Reading Garlock v. Hilliard, 2001 NCBC 10 (N.C. Super. Ct. Nov. 14, 2001)(Tennille)

Plaintiffs had established their right to involuntary dissolution of the closely held corporation in which they were shareholders because their reasonable expectations had not been met, and the business of the corporation was being conducted to the unfair advantage of the minority.

The corporation was entitled to avoid dissolution by paying the oppressed shareholder the "fair value" of his shares. Fair market value is not the same as "fair value," but is a determinant in that consideration.

Discounts for lack of control and lack of marketability do not apply when…

Continue Reading Royals v. Piedmont Electric Repair Co., 1999 NCBC 1 (N.C. Super. Ct. Mar. 9, 1999)(Tennille), aff’d, 137 N.C.App. 700, 529 S.E.2d 515, cert. denied, 352 N.C. 357, 544 S.E.2d 548 (2000)