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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.

 

Massachusetts Alimony: Watching the Pot - Part 2 A Mediator’s Perspective

Wednesday, April 17, 2013

In the last entry we reflected on divorce lawyers’ impatient wait for “clarification” of the complex Massachusetts alimony “reform” statute from the Supreme Judicial Court and Appeals Court. They hope that with appellate “guidance”, they may be better able to prepare their clients for what may happen in court in what are otherwise unclear scenarios. Ambiguity causes anxiety in lawyers and their clients alike. Given the number of cases in the appellate “pipeline” a year out, 2013 is the year when interpretive case law will begin to trickle, or perhaps, flood out of the appellate courts in downtown Boston. This flow may be edifying or confusing, consistent or scattered, but to lawyers, it is essential.

In the meantime, for facilitative divorce mediators, appellate silence is a form of opportunity. Clients frequently turn to mediators and ask: what would happen in court? Three possible answers are:

  1. I know, but I’d rather that the two of you try to figure this out for yourselves.
  2. I don’t know because the case law is confusing and inconsistent.
  3. The statute leaves it up to you to decide what makes sense for you and your family.

The first answer, while true to principles of facilitative mediation, is often frustrating for clients. It can also pose a struggle for the mediator who is trying to foster discussion rather than shut it down, especially in a way that might suggest potential bias; yet the knowledge of appellate interpretation may be important to the parties’ understanding. The second answer is negative, may discourage the spouses and undermine confidence in the knowledge of the mediator.

Answer number 3 is positive and puts the focus back on the parties themselves. Where the legislature left discretion, the parties are left to exercise it by consensus, untrammeled by the imperfect analogies of different appellate panels in other peoples’ scenarios where too few facts are known. Instead of shutting down discussion and limiting options, the clients are free to explore and agree; and so long as they find the “range of reason”, a judge should approve their work.

Take an example. The parties have a long-term marriage but an alimony payor who is close to the federally defined retirement age. The strong language of the alimony statute suggests that alimony should terminate when that age is reached, regardless of other circumstances or equities. But, the statute then provides a “deviation” opportunity: to set a different alimony termination structure for “good cause shown”. What then is good cause?

For the moment, mediators can encourage a wide open conversation on “what is good cause to you?”, free of the knowledge that hypothetical cause a, b or c may have already been ruled “in” or “out”, by one appellate court or another. When the clients can freely list all the factors that seem relevant to them, they can then move on to evaluate them, weigh them, discard them or trade them. The result is an exchange of ideas that can result in an individually tailored suit of good cause: the parties’ own, and not someone else’s or something off the rack.

Once the appellate courts begin to speak, we as mediators will be charged with the knowledge and tasked with deciding in each case what to or not to disclose of the emerging clarity or confusion that the cases bring. From that perspective, we might say “take your time”.

The viewpoint of a family law arbitrator is quite different. We will discuss that in our next entry.


 



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