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Delprete v. Falciglia

2006 WL 724538 (N.J. Super. Ch. Div. 2006) (Unpublished)

CORPORATIONS; SHAREHOLDERS; VALUATION—A shareholder who is impermissibly ousted is entitled to “fair value,” not merely the lower amount that “fair market value” would bring.

In a dispute between shareholders of a closely-held corporation, the Court determined that one of the shareholders was entitled to 30% of company’s value as of the date he was ousted from the company. The two shareholders agreed to the appointment of an appraiser to determine the value of that 30% interest. While the matter was pending, the trial judge retired and another judge took over. The remaining shareholder sought clarification of the prior judge’s order and argued that “fair value” as opposed to “fair market value” was the appropriate method of valuation. The “fair value” of the company was significantly higher than the “fair market value.” The “fair value” standard relies on the value of the company if sold to a third-party. The new judge found that the prior judge intended to use “fair value” to calculate the value of the ousted shareholder’s interest. The Court noted that “fair market value,” which is used to determine equitable distribution in divorce cases, was inappropriate in this matter. It noted that the prior judge determined that the remaining shareholder breached his agreement with the ousted shareholder and found that using the “fair market value” standard of valuing the business, as opposed to the higher “fair value” standard, would permit the remaining shareholder to profit from his wrongdoing.

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