jaime-dalmeidaForensics means different things to different people in different contexts. But what does it mean in the context of valuing equity interests in closely held business entities?

You’ll learn the answer – and a lot more – in the latest episode of the Business Divorce Roundtable podcast in which I interview Jaime d’Almeida, a Managing Director at industry leader Duff & Phelps in its Disputes & Investigations practice.

To hear the interview, click on the link at the bottom of this post.

Jaime’s valuation and forensic credentials include Senior Appraiser of the American Society of Appraisers and Certified Fraud Examiner. Based in Boston, Jaime has over 20 years of experience in economic and valuation analysis and consulting, and has provided both deposition and trial testimony on valuation and damages issues. Jaime also is a contributing author of Litigating the Business Divorce, the recently published, must-have treatise that I wrote about here.

My interview of Jaime covers a lot of interesting ground, including:

  • defining forensic analysis in valuation
  • the goal of forensic analysis in a valuation engagement
  • forensics methodology
  • the lawyer’s role in the forensic process
  • when to engage the analyst
  • the interplay of forensics and the different valuation approaches
  • forensics and valuation date
  • the types of company records typically sought by the forensic analyst

If you enjoy the podcast, and if you haven’t done so already, check out prior episodes of the Business Divorce Roundtable featuring interviews with leading experts in the field of business divorce and valuation. Please also consider subscribing to the podcast on iTunes, SoundCloud, or your other favorite podcatcher.

No U TurnFranklin C. McRoberts, counsel in the Uniondale office of Farrell Fritz and a member of the firm’s Business Divorce Group, prepared this article.


Article 11 of the Business Corporation Law governs dissolution of closely held New York business corporations. Article 11 has existed, more or less in its current form, for decades. Some of its provisions have been heavily litigated, including Sections 1104 and 1104-a governing judicial dissolution for deadlock and oppression, and Section 1118 governing buyout of a minority’s interest in an oppression proceeding. Other provisions have received surprisingly little attention.

In Morizio v Roeder, 2017 NY Slip Op 50248(U) [Sup Ct Albany County Feb. 17, 2017], Albany County Commercial Division Justice Richard M. Platkin addressed one of these latter, relatively-overlooked sections.

Section 1116 of the Business Corporation Law governs the circumstances in which a party who sues for dissolution may later change his or her mind and withdraw the claim for dissolution. The key language of the statute provides that a petitioner who wishes to withdraw his or her claim must “establish” to the court “that the cause for dissolution did not exist or no longer exists.”

What does that mean? Only a few courts have considered the issue, including a decision last year by Justice Timothy Driscoll in the Cardino case. As it turns out, a leading case to consider the legal standard to withdraw a dissolution claim was an earlier decision in the Morizio litigation. Continue Reading Withdraw a Dissolution Claim? Not So Fast

USA

It’s true that the statutory and common-law rules at play in business divorce cases can vary widely from state to state. But it’s also true that court decisions in one state can influence courts in other states, and can provide business divorce lawyers with fresh ideas and novel arguments. I like to think of it as legal cross-pollination.

For many years, one of the nation’s leading authorities on business organization law, Professor Elizabeth Miller at Baylor Law School, has been collecting, curating, and publishing detailed synopses of cases from around the country involving LLCs and other unincorporated business entities, with a large complement of dissolution, breach of fiduciary duty, and other cases featuring disputes among business co-owners. It’s a terrific resource for keeping up with nationwide case law developments. Some of Professor Miller’s summaries can be found online, but the best way for lawyers to gain access to them on a regular basis is to join the LLCs, Partnerships and Unincorporated Entities Committee of the ABA’s Business Law Section. That’s the same committee that sponsors the incomparable LLC Institute every year.

Professor Miller’s most recent sampling of (non-Delaware) partnership and LLC cases was presented at a session of the 2017 Spring Meeting of the Business Law Section in New Orleans. I’ve selected from it and further distilled in the following summaries a quintet of business divorce cases from a quintet of states other than New York. Continue Reading Business Divorce Nation: Five States, Five Cases

jurisdiction1I can count on one hand the number of federal court cases I’ve featured on this blog since I started it almost 10 years ago — and that’s no coincidence.

Federal courts are courts of limited jurisdiction, requiring either the presence of a claim arising under federal law — so-called federal question jurisdiction — or the opposing litigants are citizens of different states — so-called diversity jurisdiction.

Federal question jurisdiction rarely exists in business divorce cases involving the internal affairs of closely held business entities which are the peculiar province of state law. Federal courts are especially loathe to decide judicial dissolution cases, to the point where they routinely exercise their discretionary power to abstain from exercising jurisdiction even in dissolution cases where diversity exists (read here).

Inevitably there are some small number of diversity suits filed in federal court asserting state-law claims other than dissolution between business co-owners. Even in these cases, however, there is a potential trap for the unwary plaintiff if the subject business entity is a limited liability company, as nicely illustrated by a Manhattan federal judge’s decision last month in Sullivan v Ruvoldt, Opinion and Order, 16 Civ. 583 [SDNY Mar. 24, 2017]. Continue Reading Beware Diversity Trap in Federal Court Business Divorce Cases Involving LLCs

Brothers1Like most civil cases, the vast majority of business divorce disputes get resolved before trial, which is disappointing for us voyeurs since only at trial with live witnesses undergoing cross examination does one get the full flavor of the case’s factual intricacies, credibility issues, and the emotional undercurrents.

Even rarer are written post-trial decisions by judges with detailed findings of fact and conclusions of law, which is why I was so pleased recently to come across a trio of expansive post-trial decisions by Queens County Justice Timothy J. Dufficy in three business divorce cases involving family-owned businesses.

One of them, Shih v Kim, was featured in last week’s post on this blog, in which a romantically-involved couple started a business while engaged and continued as business partners even after the engagement broke off — until the defendant went rogue by diverting cash to himself and diverting business to a competing company.

The two other cases form interesting bookends, metaphorically speaking. Both involve businesses run by brothers. Both involve challenges to the documented ownership of the business. In one case, Justice Dufficy rejected a bid to establish an undocumented, de facto partnership interest and dismissed the case. In the other, Justice Dufficy upheld the documented, 50/50 ownership of an LLC, granted dissolution, and appointed a receiver. Let’s take a closer look. Continue Reading A Pair of Unbrotherly Business Altercations Go to Trial

HeartFranklin C. McRoberts, counsel in the Uniondale office of Farrell Fritz and a member of the firm’s Business Divorce Group, prepared this article.


When a romantic affair evolves into a business relationship, the eventual falling out can be especially messy. Even more so if the former lovers try to keep the business going after the romance ends. That is a theme from a recent post-trial decision by Queens County Justice Timothy J. Dufficy in Shih v Kim, 2017 NY Slip Op 50281(U) [Sup Ct Queens County Mar. 2, 2017].

Among other interesting issues in Shih was whether a capital investment in a business can be considerd a “gift made in contemplation of marriage” under Section 80-b of the New York Civil Rights Law, a statute which requires return of an engagement or wedding gift — often a ring — to the giver if the marriage does not occur. Let’s see how Judge Dufficy ruled on that and the other legal issues in the case. Continue Reading When Love and Business Fails

crazyWhenever I contemplate New York’s unusual case law on the discount for lack of marketability (DLOM) in statutory fair value buy-out proceedings, I cast my eyes westward, to the far banks of the Hudson River, and take comfort in the fact it could be worse — I could be in New Jersey.

A “business appraiser’s nightmare” is how Chris Mercer described New Jersey’s “bad behavior discount” in his commentary on the Wisniewski v Walsh case decided a little over a year ago by a New Jersey appellate court, in which it affirmed the trial court’s application of a 25% DLOM seemingly plucked out of thin air, and notwithstanding what the trial court itself admitted were “strong indicators of liquidity,” for the stated purpose of penalizing the selling shareholder for his oppressive behavior toward the other shareholders — behavior that in no way harmed the corporation’s business or affected its marketability!

Now comes another New Jersey trial court decision in another fair value buy-out case, and guess what? The court applied the same 25% DLOM without any discussion of the factors supporting its application or quantification other than the court’s finding that the selling shareholder was guilty of oppressive conduct against the purchasing shareholder.

In Parker v Parker, 2016 N.J. Super. Unpub. LEXIS 2720 [Dec. 22, 2016], two brothers, Richard and Steven Parker, took over from their parents and for the next 25 years operated as 50/50 owners a wholesale flower business and a separately incorporated wholesale plant business which eventually became a garden center. Richard ran the flower business and Steven the garden business as separate fiefdoms with minimal overlap. Continue Reading Has New Jersey Gone Off Its DLOM Rocker?

RosenbloomAMediation continues to grow in popularity as a means of resolving legal disputes in lockstep with the rising costs and delays attendant to litigation and arbitration. Mediation allows the parties to air their grievances face-to-face in a confidential setting and, with the help of a skilled mediator and a willingness to compromise on both sides, to arrive faster and more economically at a resolution of their own design rather than having one imposed on them by a judge or arbitrator.

An argument can be made that business divorce disputes are less amenable to mediation, not only because of the high emotions and sense of betrayal experienced by the co-owners, but also due to the loosely framed legal standards in the governing statutory and common law that give courts broad discretion in the exercise of their equitable powers. In other words, the bitterness and intrinsic uncertainty of business divorce litigation outcomes can foster a zero-sum approach on both sides that favors combat over conciliation.

On the other hand, if the relationship between feuding co-owners is terminally ill but the business nonetheless remains viable, chances are one side eventually is going to buy out the other, which is where, in my opinion, mediation can be most effective in bringing about a resolution by focusing on valuation of the equity interest of the selling business owner.

Which brings me to the topic at hand, my podcast interview of Arthur Rosenbloom (pictured above) for the Business Divorce Roundtable, a link to which appears at the bottom of this post.

Art is a veteran lawyer, mediator, and arbitrator who last year was appointed by the court to mediate a case in which I represented the majority owner in litigation that followed a cash-out merger of the minority owner who was contesting the value placed on his interest. What distinguished Art from other mediators was his in-depth knowledge of business valuation, much of it gained from his many years working as an investment banker. In the course of the mediation, Art employed his valuation expertise to critique each side’s valuation reports, and by doing so was instrumental in getting the parties to bridge the gap between their respective valuation positions.

In my interview with Art, he shares his insights on a number of issues vital to the mediation of business valuation disputes, including the different pathways to mediation, the optimal timing for mediation, the utilization of appraisal reports in mediation, the retention of a neutral appraiser to assist the mediation, the mediator’s role in critiquing the parties’ valuation positions, and how the mediator deals with the  intense emotions the parties often bring with them to the mediation.

After you listen to the podcast, I recommend you also read Art’s article, Mediating Valuation Disputes in Minority Oppression Litigation, published last year in the New York Law Journal.

 


shutterstock_581026324As promised in the postscript to last week’s post about the appellate ruling in the Gould case, affirming Justice Platkin’s order granting the oppressed minority shareholder’s dissolution petition involving a pair of construction firms, we now arrive at Justice Platkin’s subsequent determination of the fair value of the minority shareholder’s equity stake.

The decision raises several important issues of interest to business appraisers and business divorce counsel, including selection of tax rates, the appropriate look-back period in determining historical earnings, adjustments for non-arm’s length inter-company transactions, and use of the market approach.

Justice Platkin’s valuation ruling last month in Matter of Digeser v Flach [Gould Erectors & Rigging, Inc.], 2017 NY Slip Op 50220(U) [Sup Ct Albany County Jan. 31, 2017], is the culmination of an oppressed minority shareholder dissolution petition filed in April 2013. In his November 2015 post-trial decision, which I wrote about here, Justice Platkin found that Digeser, a minority shareholder in the two corporations, established grounds for dissolution based on oppression, but he left open the question of remedy. Continue Reading Business Appraisers Spar Over Tax Rates, Market Approach and Other Key Issues in Fair Value Buy-Out Case

OppressionFranklin C. McRoberts, counsel in the Uniondale office of Farrell Fritz and a member of the firm’s Business Divorce Group, prepared this article.


An earlier post on this blog, examining a post-trial decision in Matter of Digeser v Flach, 2015 NY Slip Op 51609(U) [Sup Ct Albany County Nov. 5, 2015], described the minority shareholder’s dissolution claim under Section 1104-a of the Business Corporation Law as a “classic case of minority shareholder oppression.” The Albany-based Appellate Division, Third Department, recently agreed with that assessment in affirming the lower court’s order finding sufficient grounds for dissolution.

The appellate panel’s unanimous decision in Matter of Gould Erectors & Rigging, Inc., 146 AD3d 1128, 2017 NY Slip Op 00228 [3d Dept Jan. 12, 2017], affirmed in every respect Albany County Commercial Division Justice Richard M. Platkin’s post-trial decision to dissolve two affiliated construction businesses. Here’s a quick recap of the case as it unfolded at the trial level.

Background

The story begins with two father-son pairs. The petitioner, Henry A. Digeser, is a 25% shareholder of two New York corporations, Gould Erectors & Rigging, Inc. (“Gould”) and Flach Crane & Rigging Co., Inc. (“Flach Crane”). The respondent, John C. Flach, owns the remaining 75%. Digeser’s father was a close friend and business colleague of Flach’s father, who founded the companies, and served on the businesses’ boards. Eventually, the younger Digeser got involved in the businesses and became an owner. Continue Reading An Oppression How-To: Revoke Employment, Profit Sharing and Control