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

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