781.708.4445

info@levinedisputeresolution.com

Divorce Mediation Blog

Applying Marketability Discount for the Wrong Reason: Wasniewski v. Walsh

Wednesday, April 12, 2017

Over the last year, BV Wire, an excellent publication of Business Valuation Resources, LLC, has been chronicling the New Jersey trial of Wasniewski v. Walsh, in which three Superior Court judges addressed a shareholder withdrawal case, with serial appeals and remands.

The issue presented is if the trial judge acted properly in applying a 15% discount for lack of marketability (“DLOM”) in setting the buyout of the withdrawing 50% shareholder, not because the interest difficult to sell, but rather to redress the plaintiff’s oppression of the shareholder-defendant.

(New Jersey law apparently permits the application of a DLOM in fair value determination in “extraordinary” circumstances).

Since BV Wire first reported the case, various experts have weighed in with critical thinking, including one who observed that:

    If trial courts determine marketability discounts as bad behavior discounts, there is really no way that business appraisers can provide meaningful information to the court. If the court’s concern is one “of the equities” in a matter rather than in determining the fair value…, then there is little that appraisers can do to help.

    (BVWire Issue #161-2, February 10, 2016, quoting a blog post by Chris Mercer at http://chrismercer.net/bad-behavior-marketability-discount-new-jersey/; italics ours.)

BVWire recently reported a New Jersey lawyer’s support of the Mercer view, noting that:

    …the use of the DLOM as a legal penalty voids a long-thought-out valuation measure of its meaning and separates it from its economic basis. The DLOM application should not become contingent on the character of the parties but be based instead on the actual value factors of marketability.

    (BVWire Issue #174-2, March 8, 2017, summarizing Michelle Patterson; italics ours).

While we prefer the conclusion that this trial court’s use of a DLOM was driven by “bad behavior” rather than “character”, there is no question that it was a sanction, and as such it is troubling.

As former trial lawyers, a retired trial judge and a frequent family law arbitrator and special master addressing business issues, we are always alert to the need to recognize (and avoid) implicit bias in fact-finding. Instead, this case seems to validate explicit bias.

Business valuation is meant to be an objective economic exercise. Bad behavior is a fact. Redressing inequity, when relevant, should find its voice in remedy, rather than fact-finding.

It seems to us that Wasniewski v. Walsh encourages a toxic mix.



Get e-mail notifications of new blog posts! Enter email address below.:



Delivered by FeedBurner

other articles


recent posts


tags

conciliation divorce agreement facilitated negotiations mediator Massachusetts lawyers high-risk methodology Divorce LDRC divorce arbitration arbitrator family law arbitrator Massachusetts Alimony Reform Act Self-adjusting alimony orders Obamacare divorce mediation self-adjusting alimony Baseball Players Levine Dispute Resolution Center Boston rehabilitative alimony alimony dispute resolution fraud lawyer health coverage Massachusetts Lawyers Weekly Divorce Agreements Major League Baseball Arbitration medical benefits support orders traditional negotiations arbitration divorce arbitrator MLB labor agreement Chouteau Levine divorce lawyers Act Reforming Alimony in the Commonwealth Levine Dispute Resolutions divorced alimony law IRC §2704 Baseball Uniform Arbitration Act Baseball Arbitration COLA med-arb family law arbitrators divorce judgment Twinkies divorce mediators health insurance child support alimony statute divorce mediations litigation arbitrators mediation Cohabitation divorce and family law Matrimonial Arbitration Massachusetts Same Sex Marriage Massachusetts alimony and child support family law mediation General term alimony lawyer-attended mediation divorce arbitrators disputes private dispute resolution DOMA divorce process Levine Dispute Resolution family support Levine Dispute Resolution Center LLC Alimony Reform Act family and probate law disputes separation mediations Massachusetts alimony Child Support Guidelines divorce litigation divorce mediator alimony reform legislation The Seven Sins of Alimony annulment pre-ARA alimony Massachusetts divorce mediators Family Law Arbitration lawyers family law med/arb divorce and family law mediators how baseball arbitration works alimony orders Defense of Marriage Act family mediation SJC special master mediators resolve disputes