Case Law—State: Ohio Rules on Experts, and Delaware on Share Value

Cases in Ohio, Delaware Assess Acquisition Share Value, Family Business

In Iacampo v. Oliver Iacampo, the Ohio Court of Appeals rules on the appropriate use of experts in valuing a family business, the nature of passive income, and financial help from the wife’s parents. In Delaware,  Gaerreald v. Just Care, Inc. turns on proper methods for determining share value, the value of an expert opinion, and deference to management projections. 

Iacampo v. Oliver Iacampo

2012 Ohio App. LEXIS 1574

April 23, 2012

Judge Trapp

Court of Appeals of Ohio

Summary:

Appellant husband filed for divorce from appellee wife in the Geauga County Court of Common Pleas (Ohio) on the ground of irreconcilable differences. The trial court overruled the majority of the husband’s objections to a magistrate’s decisions regarding the division and distribution of property and spousal and child support awards.

The husband appealed.  The husband challenged the rulings by the magistrate and the trial judge. On appeal, the court found that (1) there was no abuse of discretion in allowing the wife’s expert to testify about the cause of the growth of the wife’s family company, including whether the wife played an active part; (2) there was sufficient evidence to determine the passive nature of the appreciation of the wife’s shares of her family’s company; (3) funds from the wife’s parents, which were deposited into various investment accounts were traceable, and therefore, separate property, under R.C. 3105.171(A)(6)(b); (4) there was no abuse of discretion in assigning the marital debt to the wife and allowing her to use it as a set off against her marital assets; (5) there was an abuse of discretion regarding the division of the parties’ personal property; (6) the magistrate properly exercised her discretion under R.C. 3105.18 in determining that an award of spousal support was inappropriate and unreasonable; (7) a deviation from the child support guideline was not warranted under R.C. 3119.22; and (8) there was no abuse of discretion in the denial of attorney fees under R.C. 3105.73(A). 

The judgment was affirmed in part as to the denial of spousal support, the award of child support, and the denial of attorney’s fees; and the judgment was reversed in apart as to the distribution of the parties’ marital and personal property, and the matter was remanded for further proceedings.

Gaerreald v. Just Care, Inc.

2012 Del. Ch. LEXIS 91

April 30, 2012

Judge Parsons  

Court of Chancery of Delaware

Summary:

Petitioners, former shareholders and managers of respondent company, sought appraisal of their shares, under Del. Code Ann. tit. 8, § 262, following an all-cash acquisition of the company.  The shareholders attacked the credibility of the company and its officers and directors as to the sale process.

The attack was of little consequence because (1) the only litigable issue was the shareholders’ share value on the merger date, and (2) the company did not use the sale price as the company’s value but presented an expert valuation. Two officers’ management projections were not entitled to normal deference because (1) the company did not normally prepare such projections, and (2) they risked losing their positions if a certain bid succeeded.

A contemplated expansion into another state was excluded in valuing the company because it was too speculative, as it was unknown if the state would pursue it. Another expansion was included to some extent because it was an extension of the company’s existing business at its current location, where it previously expanded.

A capital structure of 95% common stock and 5% debt was used because this was most consistent with the company’s theoretical capital structure as a going concern. A liquidity effect was included in calculating the cost of capital because it related to the company’s intrinsic value as a going concern, but the court specifically discussed the inapplicability of the application of a discount for lack of marketability in this or similar cases.

Peter H. Agrapides, MBA, AVA, is a Principal at Western Valuation Advisors, which has offices in Salt Lake City, Utah, and Las Vegas, Nevada. Mr. Agrapides’ practice focuses primarily on valuations for gift and estate tax reporting. He has experience valuing companies in a diverse array of industries. These engagements have ranged from small family owned businesses to companies over $1billion.