Case Law Update

Conservation Easements, Attempts to Dissolve a NY LLC, and Valuation of Law Practice

The U.S. Tax Court has issued a limited number of valuation cases this past summer. In this article, one U.S. Tax Court case presented is Harbor Loft Associates v. Commissioner. The case underscores that lessees cannot claim a charitable deduction for a conservation easement. The second case discussed is Matter of Goyal v. Vintage India NYC, LLC, which serves to reiterate the importance of executing an operating agreement and shows how difficult it is to unwind and dissolve an LLC in New York State and jurisdictions that have legislation. Finally, Fredericks Peebles & Morgan, LLP v. Assam, is a Nebraska Supreme Court decision where the Court was called to opine on whether the trial court erred reaching its conclusion of value; the trial court weighed the opinion of four different people, including the departing law partner who was involved in valuations.

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The U.S. Tax Court has issued a limited number of valuation cases this past summer. In this article, one U.S. Tax Court case presented is Harbor Loft Associates v. Commissioner. The case underscores that lessees cannot claim a charitable deduction for a conservation easement. The second case discussed is Matter of Goyal v. Vintage India NYC, LLC, which serves to reiterate the importance of executing an operating agreement and shows how difficult it is to unwind and dissolve an LLC in New York State and jurisdictions that have legislation. Finally, Fredericks Peebles & Morgan, LLP v. Assam, is a Nebraska Supreme Court decision where the Court was called to opine on whether the trial court erred reaching its conclusion of value; the trial court weighed the opinion of four different people, including the departing law partner who was involved in valuations.

Harbor Loft Associates v. Commissioner, 151 T.C. No. 3 (August 27, 2018)

Issue: Whether a long-term lessee can claim a charitable deduction for a conservation easement?

Held: No. Harbor Loft Associates (H), as a long-term lessee of the two buildings, did not hold a fee interest in the property subject to the facade easement and could not contribute a conservation easement under I.R.C. sec. 170(h).

Facts: Economic Development Corp. (E), a nonprofit development corporation, is the fee simple owner of two buildings listed on the National Register of Historic Places. H, a partnership, is a long-term lessee of those buildings. In 2009, H and E joined together in transferring a facade easement to a qualified organization under I.R.C. sec. 170(h)(3). H claimed a charitable contribution deduction of $4,457,515 for 2009.

The Court observed that:

Under the terms of the lease, Harbor Lofts took on many of the rights and obligations often associated with property ownership. It is required to pay all insurance and utility costs and can use the buildings “for multi-family residential uses and such uses as may be incidental there to, and for no other purpose or purposes whatsoever without the prior written consent of” the Economic Development Corp. Harbor Lofts has a right of first refusal to purchase the buildings and is entitled to a portion of the proceeds if the land is taken under eminent domain.

The lease [further] requires Harbor Lofts to keep and maintain the buildings at its own expense and allows it “to construct on any part or all of the Leased Premises such as improvements, alterations and additions…as the Lessee may from time to time desire, provided that such do not materially impair the structural integrity of the buildings.” Its right to alter the buildings is not unfettered. Alterations over $100,000 must be approved by the Economic Development Corp. although approval may not unreasonably be withheld.

In a notice of final partnership administrative adjustment issued with respect to H, the Commissioner disallowed H’s claimed charitable contribution deduction for the donation of the facade easement. The Commissioner also determined that an accuracy-related penalty under I.R.C. sec. 6662(a) applies. H’s tax matters partner filed a petition in this Court challenging the Commissioner’s determinations and filed a motion for partial summary judgment under Rule 121. The Commissioner filed a cross-motion for partial summary judgment on the same issue.

The Commissioner argued that H, as the long-term lessee of the two buildings, was not entitled to a charitable contribution deduction under I.R.C. sec. 170(f)(3)(B)(iii) and (h) because H did not hold a fee interest in the buildings and cannot meet the perpetuity requirements of I.R.C. sec. 170(h)(2)(C) and (5)(A) and sec. 1.170A-14, Income Tax Regulations. H argued that fee ownership of real property was not expressly required by I.R.C. sec. 170(h) and that the contribution was similar to a facade easement granted by tenants in common. Alternatively, H argued that it is the equitable owner of the buildings for tax purposes and therefore was eligible for deductions relating to the buildings.

 

Matter of Goyal v. Vintage India NYC, LLC (2018 NY Slip Opinion 31926 (U)) (August 7, 2018)

Issue: Whether Paresh Goyal (Goyal or Petitioner) has standing to seek dissolution of the LLC, absent an operating agreement? Whether Goyal has standing to file a petition to dissolve the LLC under this case?

Held: Goya’s motion to dissolve the LLC is denied. Notwithstanding that there is no operating agreement, Goya has standing.

Facts: This is an active case in New York.

Goyal and Lynn Keller are both alleged to be 50% owners of Vintage India. The firm has no operating agreement. It operates a clothing/accessories store with an Indian theme at 132 Lexington Avenue, in Manhattan. Goyal and Keller decided to work together in November 2014.

Keller, the silent partner, put up $200,000 by obtaining a line of credit from Morgan Stanley. Goyal was to provide knowledge and experience from working in the clothing business. Vintage India leased on a retail property. Goyal borrowed money from his wife, Roehl Goyal (Roehl) and purchased inventory worth $23,000. The store opened in December 2014.

Goyal managed the store and hired six employees. Roehl and Keller also worked in the store part time. Vintage India repaid the line of credit set up by Keller. Goyal was not paid for his time in the store.

In January 2016, after about $25–30,000 had been paid back on the line of credit, Goyal and Keller decided to take out another loan, and subsequently others, from On Deck Capital (On Deck). On Deck is now suing Goyal for default on a $25,000 loan.

In February 2017, Keller confronted Goyal in the presence of her muscular friend and threatened to “harm Petitioner and [get him] and his family deported from the country if he did not give her [his] percentage of the business” (Amended Verified Petition,~ 24). It is not clear if he signed. Goyal’ s counsel, Howard Shragain, then received notice of a meeting.

On or about March 1, 2017, Goyal found large withdrawals from Vintage India’s account in Keller’s name, despite the company being in arrears to its landlord. On March 21, 2017, Keller purported to hold a members’ meeting in which she ousted Goyal as a member of Vintage India.

Goyal has been cut out of the company and no longer has access to information about the store’s operations, business, or finances. He believes Keller is looting the company.

In this petition Goyal seeks:

1. Dissolution pursuant to LLC law section 702 and winding up of the company;
2. A temporary receivership to oversee the assets of Vintage India;
3. Access to financial records; and
4. An injunction preventing Keller from transacting business for Vintage India.

Vintage India and Keller in turn moved to dismiss Goyal’s Petition. The court wrote:

Vintage India argues the Petitioner has failed to state a claim because he is not a member of Vintage India NYC, LLC. Goyal was, according to respondent, “removed for cause” at the March 2017 meeting (Memo at 3, see Keller Aff, NYSCEF Doc. No. 16, at 5–7). Keller claims Goyal was removed as a member and expelled from the LLC, and that his interest in Vintage India, which was unvested at that time, was revoked at that meeting. Vintage India cites a handful of cases as part of this section of its memo but fails to explain how the cases support its position. The Annotations to the Limited Liability Company Law, however, state that “neither the LLC nor the other members have the statutory right to expel a member from the LLC…The right to expel a member must be expressly set forth in the operating agreement” (NY Limit Liab Co Ch. 34, Refs & Annos, 6.12.2 Expulsion, see also Man Choi Chiu v Chiu, 71 AD3d 646, 647 [2d Dept 2010] [“Although Limited Liability Company Law § 701 mentions expulsion of members, there is no statutory provision authorizing the courts to impose such a remedy. Rather, the reference to expulsion of members contemplates the inclusion of such a provision in an operating agreement”] Man Choi Chiu v Chiu, 71AD3d646, 647 [2d Dept 2010]). Further, while the Limited Liability Company Law provides that a manager of an LLC may be removed, that requires a majority vote, which Keller lacks as Goyal owns half of the interest in Vintage India (see LLCL § 414).

Respondent provides no law to support its argument that Goyal’ s shares had not vested (Memo at 8). While there is a dispute as to whether Goyal paid money into the LLC and the amount, it is undisputed that he put in “sweat equity” and held a 50% interest in the firm. At most, there is a dispute as to whether his shares had vested. The defense that Goyal’s interest is unvested is unexplained and is unsupported by citation to either caselaw or statute.

Accordingly, the claim that Goyal lacks standing is REJECTED.

Comment: This case involves New York law. State remedies vary. Therefore, readers are reminded to consult legal counsel to determine whether their state has a similar statute. Regardless of what state remedy exists, this case underscores the importance of having an operating agreement and anticipating a potential business divorce.

 

Fredericks Peebles & Morgan, LLP v. Assam, 300 Neb, 670 (August 3, 2018)

Issues: Whether the trial court erred finding that Assam’s interest in the law partnership was valued at $590,000?

Held: Trial court affirmed.

Facts: Assam withdrew from Fredericks Peebles & Assam (FPM), a limited liability partnership. FPM specialized in handling legal issues impacting Native American tribes and, prior to Assam’s departure, had five partners.

In late 2014, FPM filed a declaratory judgment action to determine the value of Assam’s interest. Assam filed an answer and counterclaim for an accounting and fair valuation of his interest in FPM, based on the Partnership Agreement. Assam sought a money judgment and attorney fees. FPM filed an amended complaint which asserted claims for breach of contract, breach of fiduciary duty, fraud, constructive fraud, rescission, disgorgement, and an accounting. Assam filed an answer which denied such claims and stated affirmative defenses.

The valuation of partnership interest was prominent in the case.

The court heard valuation testimony from several expert witnesses. FPM called William Brennan, a management consultant for the legal profession. Assam called Chad Flanagan and Jay Fullerton, of Eide Bailly. In addition, Assam called Matthew Stadler as an expert witness. Assam himself also opined as to valuation.

The background of the experts showcases the weight the court accorded here to those specializing in an industry.

Brennan’s Opinion: Expert for FPL

Brennan has worked for over a decade as a principal with a law firm management consulting group. He testified that in the past 25 years, he has consulted with over 500 firms of all types and sizes. Prior to becoming a management consultant, Brennan worked as an accountant and auditor. Brennan’s work experience includes serving as chief financial officer and executive director for two law firms, one of which had 250 attorneys.

As a consultant, Brennan developed a specialty in law firm mergers and acquisitions, which included performing firm valuations. Over his career, he had performed about 25 firm valuations. He previously testified in court seven times as an expert in law firm valuation. He is published in the area of valuation and is a frequent speaker on the issue of law firm financial management.

Brennan spent over 100 hours on his valuation of FPM and drafted a 48-page report. Brennan’s report demonstrated several different business valuation approaches for comparison. Brennan testified that although Market-based, Asset-based, and Income-based Approaches are each generally accepted, the Income approach is best for valuing law firms. Brennan stated the Market-based Approach is not useful for valuing law firms because such businesses are privately owned and therefore a firm’s private transaction data is not publicly available to be used to compare value with other businesses in the market. As for an Asset-based Approach, Brennan testified firm assets must be adjusted down to their cash value in order to determine the asset’s “net realizable value.” Without this adjustment, assets such as encumbered assets and uncollectible accounts receivable would be overvalued.

Brennan testified that the Income Approach has several subsets, including the discounted cashflow approach and the “capitalization of economic income” approach. Brennan’s methodology focused on future cashflows and relied on five years of historical income statements which were adjusted to normalize the income stream by removing nonrecurring expenses and adding liabilities not present on income tax forms. Brennan’s analysis considered economic environment risks, government regulation risks, and risks specific to FPM such as sustainability, infrastructure, and technological and data security risks. Brennan employed the Ibbotson Build-Up Method to determine an appropriate discount rate which considered a risk-free rate, an equity premium, systemic environmental risk unique to the legal industry, and specific risks unique to FPM such as aging partners generating the majority of the client revenue and lower-than-average collection rates, coupled with an inability to pursue legal action against nonpaying clients. Brennan also emphasized that certain factors limit the control and marketability of a law firm, including that only attorneys can own law firms, that lawyers cannot ethically restrict their ability to serve clients through the use of noncompete agreements, and that most firms have partnership agreements which control compensation and/or admission into the firm. In considering all of these factors, Brennan applied a 60-percent discount to Assam’s partnership interest. Brennan’s ultimate opinion was a valuation of $590,000.

Flanagan and Fullerton’s Opinion on Value: Expert for Assam

Flanagan, the director of Eide Bailly’s business valuation department, and Fullerton, a senior official in Eide Bailly’s business valuation department, coauthored two reports regarding the value of Assam’s interest. Their reports complied with industry standards outlined by the “Statements on Standards for Valuation Services” and the National Association of Certified Valuators and Analysts. The first report was a calculation engagement in 2014, and the second report was a more detailed valuation engagement in 2016. Between Flanagan and Fullerton, approximately 50 hours were spent compiling the second report.

Flanagan is a certified public accountant who is a member of the American Institute of Certified Public Accountants. Flanagan also holds the designation of being accredited in business valuation. Fullerton holds a juris doctorate degree, a master’s degree in business administration, and a bachelor of science degree in economics with a minor in accounting.

In his practice, Flanagan performs between 150 and 200 business valuations per year. Fullerton testified he had performed 300 business valuations in his career. Flanagan and Fullerton performed business valuations for various industries, including: wholesale, retail, manufacturing, insurance, real estate holding companies, restaurants, dental practices, construction, and farming operations. Flanagan had performed one law firm valuation, and Fullerton had not performed a law firm valuation prior to this case. Neither had ever performed financial consulting services for a law firm or had published any scholarly articles in the area of law firm valuation.

Eide Bailly’s opinion also employed a buildup rate which included industry risk and firm risk to reach a discount rate of four percent. The opinion also incorporated a 10 percent discount for lack of control as to nonoperating assets and a five percent discount for lack of marketability because the Partnership Agreement provides a market for the sale of those shares.

Flanagan admitted his valuation assumed that in a fair market value analysis, FPM should be understood as the specific hypothetical buyer of Assam’s interest. Fullerton admitted this assumption was part of Eide Bailly’s scope of engagement. In addition, Fullerton testified that Assam suggested to Eide Bailly that the reference to fair market value in the Partnership Agreement should equate to fair value. Fullerton further testified that fair value is essentially the same thing as fair market value without any discounts for lack of control or lack of marketability.

Prior to commencing the valuation engagement, Assam’s counsel sent a letter to Eide Bailly, dated April 28, 2016, which indicated:

The District of Columbia statutes permit a partnership agreement or a limited partnership agreement to specify buy-out terms. The [Partnership] Agreement in this case uses the phrase “fair market value”. However, the [Partnership] Agreement provides for a market within [FPM] and its Equity Partners. This means the transaction occurs at a fair price and on fair terms, not as if the sale were to a stranger. The internal market assures retention of client relationships, partnership identity, business continuity, and avoidance of startup costs and cash flow limitations. It is…Assam’s view that these circumstances require that “fair market value” be understood as the fair value of the partner interest in the context of the market created by the [Partnership] Agreement itself. This is, we think, the same as “fair value” in model corporate and business entity statutes.

In their reports, Flanagan and Fullerton used an Income Approach which utilized FPM’s average normalized annual pretax revenue over a four-year period. Eide Bailly also upwardly adjusted the value of the partnership due to it having a pass through entity tax status. Flanagan testified that pass through tax status is, in effect, a capitalization of taxes saved because FPM, as a limited liability partnership, is not subject to corporate taxation.

According to Flanagan’s testimony, Eide Bailly’s calculation engagement in 2014 concluded the value of Assam’s interest in FPM to be $3,420,000. Eide Bailly’s valuation engagement in 2016, using more recent revenue streams, concluded the value of Assam’s interest to be $3,120,000. Eide Bailly’s valuation accounted for FPM’s nonoperating assets, such as an interest in real estate and dormant accounts receivable.

Stadler’s Opinion on Value: Expert for Assam

Stadler was engaged by Assam to review and compare the fair market value opinions of Brennan, Eide Bailly, and Assam. Stadler is a certified public accountant who holds a juris doctorate and a master degree in professional accountancy. Stadler also has an accreditation in business valuation. Stadler has never worked in a law firm and has valued only one other law firm.

At Assam’s request, Stadler examined only Brennan’s valuation report, Eide Bailly’s calculation report, and Assam’s calculation report, and no other evidence. In doing so, Stadler did not develop an opinion as to value. Stadler identified deficiencies in each of the reports he reviewed. In the Eide Bailly report, Stadler opined that the failure to include 2010 data was a concern, that long-term growth rate was too high, and that the capitalization rate was too low. Regarding Brennan’s report, Stadler found fault in the capitalization rate as being too high and the discount for lack of control and lack of marketability as being too high. Ultimately, Stadler concluded that Brennan’s opinion was understated by $1,235,000 and that Eide Bailly’s opinion was overstated by $1,275,000. Stadler fundamentally disagreed with Assam’s approach and described Assam’s valuation as not being credible “in any respect” and “ridiculous.”

Assam’s Opinion of Value: Partner that Withdrew

Assam is a financial attorney whose practice included business valuation matters. Assam valued his interest in FPM at $4,877,850. Assam testified his valuation included his 23.25 percent share of the $10 million in written-off accounts receivable. Assam encouraged the court to reject his experts’ valuations and adopt his own.

Nebraska’s Supreme Court’s Opinion—Reconciling the Different Values Considered by the Trial Court

The evidence of fair market value included the opinions of Brennan, Assam, Flanagan, Fullerton, and Stadler. Each expert posited a different fair market value, and each based his opinion on different factors. Just as the trial court did, we too find that there is evidence in conflict on material issues of fact concerning the appropriate considerations in valuing Assam’s fair market value interest. As a result, under our de novo review, we consider and give weight to the fact that the trial court observed the witnesses and accepted one version of the facts over another.

In reaching his opinion that the fair market value of his ownership interest was $4,877,850, Assam used the Asset Approach, the Income Approach, and the Market Approach. Assam testified that in his practice, he routinely used business valuations to assist his clients in obtaining financing and would retain individuals to perform the business valuations. In determining how to prepare his valuation, Assam testified that he relied upon “some articles” that he read, including one by the American Bar Association and one from Inc. Magazine.

In preparing his valuation, Assam included in the Asset Approach real estate, automobiles, tenant improvements, equipment, and $10 million of old accounts receivable. For the Income Approach, he simply added 2013 income figures together with estimated 2014 income figures and divided the sum by two. For the Market Approach, he determined an average annual gross revenue (the amount determined in the Income Approach) and multiplied it by two. Ultimately, he determined amounts for each valuation method, added the values together, divided the total by three, and multiplied the amount by his partnership interest. Nothing in the record supports the valuation process used by Assam. In fact, Assam’s own expert, Stadler, testified that Assam’s valuation was “ridiculous.”

In regard to Eide Bailly’s opinion as to fair market value, both Flanagan and Fullerton testified that it was premised upon FPM’s being the hypothetical buyer. However, as mentioned above, fair market value is the price that a willing buyer would pay a willing seller. A willing buyer is presumed to be a hypothetical buyer whose only goal is to maximize his or her advantage. The willing buyer is considered from the viewpoint of an objective hypothetical buyer, rather than a subjective buyer. In using FPM as the willing buyer, Eide Bailly’s opinion failed to fully consider discounts for lack of control and lack of marketability.

In addition, Eide Bailly employed four years of income instead of five years of income. In doing so, Eide Bailly disregarded 2010 income based on the determination that 2010 income was lower than the other years and was non-representative of FPM’s regular annual income. However, both Brennan and Stadler testified that using the income figures over a five-year period was preferred over using income figures over a four-year period. Even Flanagan testified that, typically, they use a sample of five years of income. Additionally, Eide Bailly annualized 2014 income, because they did not have final figures for that year when preparing the report in May 2016. However, the record indicates that the 2014 income figures were finalized in March 2015.

Eide Bailly also adjusted the value of FPM due to having a “pass through entity tax status.” However, Flanagan testified that this pass through status had not been accepted by the U.S. Tax Court.

Further, though Flanagan and Fullerton are in the profession of preparing business valuations, neither had significant experience in valuating law firms. Prior to their engagement with Assam, Flanagan had performed only one law firm valuation and Fullerton had performed no law firm valuations.

Each of these decisions by Eide Bailly upwardly impacted its valuation. As a result, we agree with the district court that the valuation determined by Eide Bailly of $3,120,000 does not accurately reflect the value of FPM as of October 2, 2014. Albeit for different reasons, Assam also testified that Eide Bailly’s opinion should not be followed by the court.

Regarding Stadler’s testimony that Brennan’s opinion was understated by $1,235,000 and that Eide Bailly’s opinion was overstated by $1,275,000, Assam testified that the court should not adopt Stadler’s analysis. In addition, the record indicates that Stadler has limited experience in valuating law firms, Stadler testified that Brennan was more experienced in that field, and Stadler examined only the reports of the other experts and no other evidence. Further, Stadler used an industry risk premium for companies having much larger revenues than FPM; he used a lower specific company risk premium without reviewing the Partnership Agreement or any financial documents of FPM; and he used the pass through entity tax status, which has not been widely adopted by the U.S. Tax Court. All these decisions increased his “opinion” of FPM’s fair market value. Lastly, Stadler included approximately $2.5 million of goodwill, which, from the evidence, is attributable to personal goodwill of the remaining partners as opposed to goodwill of FPM, resulting in an overstating of the fair market value by $573,000. As a result, the Appellate Court agreed that Stadler’s determination of value was not accurate.

Regarding Brennan’s opinion, the trial court noted his vast experience in valuating law firms, including working for a law firm management consulting group dealing with over 500 law firms, working as an accountant and auditor, and serving as chief financial officer and executive director for two law firms. At the time of trial, Brennan had also performed approximately 25 law firm valuations and had testified in court seven times as an expert in law firm valuation. Ultimately, the trial court expressly based its findings on a credibility determination which accepted Brennan’s version of the facts over Assam’s and Eide Bailly’s. The court found Brennan’s testimony credible and controlling, because he implemented an approach which valued Assam’s interest in the context of a market. The court therefore found the 60 percent discount for lack of control and marketability assigned by Brennan to be credible because of the limitations presented by Assam’s minority interest in a law firm with a specialized practice area and equity partnership makeup such as FPM. The court found that Assam and Eide Bailly sought to remove the need for a market from the fair market value analysis dictated by the Partnership Agreement and that, therefore, their small discounts for lack of control and marketability were not credible.

The record indicates that Brennan considered several different business valuation approaches for comparison, including Market-based, Asset-based, and Income-based Approaches. Brennan was able to articulate why the Income Approach was the most suitable valuation method. Brennan used income figures for five years as opposed to four years, and he did not apply the pass through entity tax status calculation. Brennan employed the Ibbotson Build-Up Method to determine an appropriate discount rate, and his analysis considered economic environment risks, government regulation risks, and risks specific to FPM such as sustainability, infrastructure, and technological and data security risks. Though Brennan’s capitalization and discount rates were significantly higher than those propounded by the other experts, Brennan was able to articulate why law firms should be valued differently from other professional services industries. We therefore agree with the district court that Brennan’s opinion of value as to FPM is the most appropriate value.

In regard to FPM’s decision to write off approximately $10 million in old accounts receivable, the trial court found that it was not done in bad faith or with an intent to harm Assam. Specifically, the court noted that the write-off equally affected all equity partners.

At trial, Peebles testified that the accounts receivable were “years old” and that the decision to write off the receivables was not made suddenly but was part of an ongoing analysis of compensation, partner continuity, personnel, and finances. He further testified that each of the partners was charged with the responsibility to review the accounts he was associated with and to decide as to collectability. Morgan testified that FPM’s collection rate was close to 70 percent. Assam testified that the aggregate of the accounts receivable was more than $15 million, of which $10.8 million was over 120 days old.

Assam also testified that he was not part of any decision to write off the accounts receivable. Brennan testified that the longer a receivable ages, the less likely it will be collected in full, and that as they continue to age, especially beyond a year, it is unlikely that a firm would collect any such receivable. Brennan also testified that the partners made a specific determination for each of the receivables to be written off, that some of the accounts were four to five years old, and that the partners determined that nothing more could be done to collect the accounts. As a result, Brennan opined that the uncollectable accounts receivable were appropriately written off because that was a correct reflection of the “net realizable value” of the assets. Even Eide Bailly’s valuation report indicated that nearly nine million dollars in accounts receivable was likely uncollectable.

Despite Assam’s testimony that the writing-off of accounts receivable was not discussed in 2014, he also testified that the subject of the write-off was on the agenda for the partners’ meeting prior to the night he sent his notice of withdrawal. In addition, most of FPM’s clients were Native American tribes and therefore entitled to sovereign immunity, preventing FPM from suing to collect on unpaid legal fees. As a result, we agree with the district court that the write-off of accounts receivable was not improper.

Finally, Assam contends that the trial court failed to apply any value for the assets of FPM, including the building and the vehicles. However, all the experts, with the exception of Assam, testified that the Asset Approach was not the best method to value FPM, due to the absence of significant capital. The Income Approach adopted by the trial court took into consideration FPM’s past and present revenue stream and determined an appropriate fair market value for it.

The Supreme Court of Nebraska concluded stating “[w]e agree with the trial court that Brennan’s testimony is persuasive and controlling. Based upon our de novo review, we find no merit to this assignment of error.”

Comment:

The above case was recently discussed in the September 2018 Around the Valuation World (AVW) webinar from the National Association of Certified Valuators and Analysts.

Roberto H Castro, JD, MST, MBA, CVA, CPVA, CMEA, BCMHV is an appraiser of closely held businesses, machinery and equipment and managing member of Central Washington Appraisal, Economics & Forensics, LLC. Mr. Castro is also an attorney with a focus on tax, wills and trusts, business law, and succession planning with offices in Wenatchee and Chelan, WA. He is also a technical editor for NACVA’s QuickRead and writes case law columns for The Value Examiner.

Mr. Castro can be contacted at (509) 679-3668 or by e-mail to either rcastro@cwa-appraisal.com or rcastro@rcastrolaw.com, rcastro@cwa-appraisal.com.