Three recent court decisions from three different states — New York, Pennsylvania, and Alabama — add to the rogue’s gallery of valuation cases stemming from poorly conceived and/or poorly implemented buy-sell agreements among shareholders or LLC members.

Each one, in its own way, teaches a valuable lesson for lawyers charged with drafting such agreements, and also highlights the wisdom of consulting with appraisal experts at the time of drafting.

New York: The Nimkoff Case

The Nimkoff case is an old friend of this blog, and I do mean old. I first wrote about the case in its infancy, in 2010 (read here). Eight years later, following discovery and a dozen or so motions, the case has yet to be tried.

Nimkoff is a fight over the value of a 3.6% membership interest in a single-asset realty holding LLC owned by a group of medical doctors. The plaintiff is the wife-executrix of one of the doctors, whose death in 2004 triggered the LLC’s obligation to purchase the deceased member’s interest for a “Stated Value” in accordance with the operating agreement which also required that the Stated Value be updated annually. Continue Reading Lessons From a Trio of Dysfunctional Buy-Sell Agreements

Over the years I’ve litigated and observed countless cases of alleged oppression of minority shareholders by the majority. Oppression can take endlessly different forms, some more crude than others in their execution, some more draconian than others in their effect.

If there was an award for the crudest and most draconian case of shareholder oppression, Matter of Twin Bay Village, Inc., 2017 NY Slip Op 06024 [3d Dept Aug. 3, 2017], decided earlier this month by an upstate appellate panel, would be a serious contender.

The case involves a bitter dispute between two branches of the Chomiak family over a lakefront resort called Twin Bay Village located on beautiful Lake George in upstate New York. In 1957, the husband-and-wife founders, Stephan and Eleonora Chomiak, opened the summer resort on land they owned. They and their two sons, Leo and Vladimir, together ran the business until 1970 when they transferred ownership of the land and business to newly-formed Twin Bay Village, Inc. owned 26% by each parent and 24% by each son. Continue Reading And the Award For Most Oppressive Conduct By a Majority Shareholder Goes to . . .

The Quick Roll Leaf Manufacturing Co., founded in 1929 in upstate New York, bills itself as one of the world’s leading manufacturers of hot stamping foils and films made from gold, silver and other materials used for book binding, furniture, credit cards, and other applications. It now has the additional distinction of falling prey to an internecine court battle among its second-generation owners, resulting in the fracture of its partnership structure and a long, hard-fought contest over the valuation of the departing partners’ interests.

The silver lining — pun intended — is that the rest of us business divorce voyeurs now have the benefit of a recent appellate decision that clarifies the standard applicable under Section 69 of New York’s Partnership Law in determining the value of the interest of a partner who wrongfully dissolved the partnership, the business of which is continued by a non-breaching partner. The decision in Quick v. Quick, 2012 NY Slip Op 07284 (2d Dept Nov. 7, 2012), also addresses several other issues of interest to valuation professionals.

Background

Beginning in 1966, the three sons of Quick Roll’s founder, Edward Quick, Sr., operated the firm as a general partnership. Charles Quick was responsible for the back office and financial records. Edward Quick, Jr. and John Quick took care of the machinery and manufacturing operations.

Continue Reading Appellate Court Resolves Disputes Over Valuation and Capital Accounts in Partnership Dissolution Case