Hornberger, D. v. Dave Gutelius Excavating, Inc.
176 A.3d 939
| Pa. Super. Ct. | 2017Background
- Hornberger purchased 10 shares of stock in closely held Dave Gutelius Excavating, Inc. (DGE) and signed a shareholders’ agreement (2006) that lets DGE’s CPA determine the “Adjusted Net Book Value” for share redemptions upon a shareholder’s termination.
- Paragraph 5 defined "Adjusted Net Book Value" as value as of the end of the prior month “as determined by [DGE’s] independent certified public accountants, subject to the following provisions” and then listed three specific adjustments (no goodwill, accounts payable/receivable handling, and real/tangible property at fair market value).
- Hornberger voluntarily quit in 2011; DGE’s CPA (Kellett) valued his 10 shares at $42,800 after applying a 30% minority discount and a 5% lack-of-marketability discount.
- Hornberger sued, claiming the Agreement limited allowable adjustments to the three listed items and therefore his shares should be valued at $64,360 (difference $21,560).
- At trial both sides offered CPA experts: Hornberger’s expert conceded discounts would be applied absent the Agreement’s specific wording; DGE’s expert explained adjusted net book value commonly includes such discounts for closely held entities.
- The trial court found the Agreement did not prohibit additional, customary valuation adjustments and entered judgment for DGE; the Superior Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether paragraph 5 permits the CPA to apply minority and lack-of-marketability discounts when computing "Adjusted Net Book Value" | Hornberger: the only permissible adjustments are the three expressly listed in ¶5; other discounts are precluded | DGE: ¶5 entrusts valuation to its CPA and the listed adjustments are not exclusive; customary valuation discounts may be applied | Court: Held DGE; ¶5 allows CPAs to use professional judgment and industry-standard adjustments, including minority and marketability discounts |
Key Cases Cited
- Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462 (Pa. 2006) (contract interpretation seeks parties’ intent; clear terms control)
- Osborne v. Carmichaels Mining Mach. Repair, Inc., 628 A.2d 874 (Pa. Super. 1993) (share valuation governed by agreement language)
- Stephan v. Waldron Elec. Heating & Cooling LLC, 100 A.3d 660 (Pa. Super. 2014) (standard of review for non-jury verdicts; contract interpretation is plenary)