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Casey v. Amboy Bancorporation

A-4590-01T5, A-4849-01T5 and A-4850-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

CORPORATIONS; VALUATION—If a court requires a supplemental report from a corporation valuation expert, the parties have the right to depose the expert on what then constitutes a new opinion.

This case involved a challenge, by selling shareholders, of a corporation’s calculation of the “fair value” of the stock being sold back to the corporation pursuant to a reorganization and cash-out merger plan. A banking corporation wanted to elect to be treated as a Sub-chapter S corporation under the Internal Revenue Code. In order to accomplish its objective it had to reduce the number of its shareholders from above four hundred to seventy five or less. As part of its merger plan, all shareholders holding less than 15,000 shares were required to sell their shares back at a certain price. A dissenting shareholder filed suit challenging the price, and a class action suit was initiated on behalf of all stockholders holding less than 15,000 shares. During trial, the lower court appointed an expert to value the corporation as a going concern, without marketability or minority interest discounts, and without a control premium. On appeal, the Appellate Division affirmed the lower court’s determination that the expert did not need to include marketability or minority interest discounts in reaching the fair value, but disagreed with the lower court’s conclusion that a control premium could not be considered. The Appellate Division also instructed the lower court, on remand, to consider acquisition valuations. The lower court instructed the expert to provide a supplemental report that factored in the additional considerations directed by the Appellate Division. After remand, the lower court refused to permit the shareholders to depose the expert again to inquire as to the basis for the supplemental report. It did not deem the supplemental report to be additional evidence and therefore it concluded that the shareholders were not entitled to depose the expert. The Appellate Division reversed, finding that the expert’s supplemental report constituted new evidence because it was a new opinion by the expert as to the fair value of the shares. The shareholders were entitled to depose the expert concerning the basis for his new opinion.

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