107 A.D.2d 97 | N.Y. App. Div. | 1985
OPINION OF THE COURT
I
This appeal, as in Matter of Blake v Blake Agency (107 AD2d 139), requires us to determine whether Special Term correctly valued a minority interest in the shares of closely held corporations where the minority shareholder has commenced a special proceeding pursuant to Business Corporation Law § 1104-a to dissolve the corporations and the corporations have avoided dissolution by electing to buy out the minority shareholder pursuant to Business Corporation Law § 1118. Specifically, we must determine whether Special Term was correct in its conclusion that the fair value of petitioner William R. Fleischer’s one-
II
Gift Pax is engaged in the business of distributing packages of various consumer products, with an emphasis on infant-care products. The distribution of samples of infant-care products accounts for approximately two thirds of its revenues and three fourths of its profits.
On March 28, 1980, petitioner William R. Fleischer, the owner of one third of the common stock of Gift Pax, filed a petition for dissolution of Gift Pax pursuant to Business Corporation Law § 1104-a. Petitioner contended, inter alia, that he was effectively “squeeze[d] * * * out” of the affairs of the corporation because of the misconduct of the other two shareholders of Gift Pax, Mitchell Barash and Harry Minkoff. On April 3, 1980, Gift Pax, Inc., adopted a corporate resolution electing to purchase petitioner’s one-third minority interest in the corporations pursuant to Business Corporation Law § 1118 (a). Subsequently, Special Term (Balletta, J.), by order dated July 24, 1980, inter alia, referred the matter to Robert S. Forman, Esq., to act as a referee to hear and report on the fair value of petitioner’s interest in Gift Pax as of March 27, 1980, the day prior to the filing of the petition, as required by the statute (Business Corporation Law § 1118 [b]).
After conducting lengthy valuation proceedings, at which experts for the parties and an expert retained by the referee testified, Referee Forman reported to the court that the “fair value” of petitioner’s shares in Gift Pax was $2,209,321. Upon a motion and cross motion to modify the referee’s report, and after oral argument before the court, Special Term (Balletta, J.), modified the referee’s report by reducing the referee’s reported figure of “fair value” to $1,656,991. This reduction occurred because the court applied a 25% lack of marketability or illiquidity discount to the value of petitioner’s shares. The court
Ill
Gift Pax contends on appeal that the court erred in failing to impose restrictive covenants on petitioner, enjoining him from competing with Gift Pax or soliciting its customers. Specifically, it argues that petitioner should not be permitted to ignore the approximately $400,000 of goodwill which it contends is a component part of the fair value of petitioner’s interest in the corporations. It contends that petitioner, having been paid a substantial amount for his interest in the goodwill of the business, should be compelled to leave the goodwill intact by way of a noncompetition requirement.
Petitioner contends on his cross appeal that the referee and Special Term erred by not applying the valuation methodology proposed by his expert (“discounted cash flow analysis” and evaluation on a “freely traded minority share basis”) at the valuation proceeding. He further contends that Special Term erred by (1) reducing the value of his shares by a 25% lack of marketability discount; (2) failing to add a 44.6% acquisition premium to the fair value of his shares; (3) failing to award a higher “market” rate of interest; and (4) failing to impose all of his costs, expenses and fees incurred in litigating the instant proceeding upon Gift Pax.
Addressing petitioner’s contentions first, it is clear that the method of valuation employed by the referee in formulating the value of petitioner’s shares, to wit, multiplying various components of Gift Pax’ income by an average price-earnings ratio of comparable publicly traded corporations, and adding to that figure sums based on the adjusted net assets and marketable securities portfolio of the corporations comported with acceptable methods of valuation of minority interests in closely held corporations. We therefore find no basis for disturbing the referee’s findings.
Finally, contrary to petitioner’s contention, Special Term properly exercised its discretion in awarding interest at the rate of 12% per annum, and in apportioning the costs and referee’s fees of the proceeding based on the percentages of stock owned by the respective parties. The determination of the rate of interest to be awarded and the apportionment of the costs of litigating such a proceeding is vested within the sound discretion of Special Term (see, Matter of Blake v Blake Agency, supra), and under the circumstances presented herein, Special Term did not abuse its discretion in reaching that determination.
Turning to Gift Pax’ contention that restrictive covenants should have been imposed on petitioner, we have concluded that Special Term was correct in refusing to impose such covenants. The “fair value” of petitioner’s interest in Gift Pax in this case was determined primarily by multiplying corporate income by an average price-earnings ratio of comparable publicly traded companies. Unlike Matter of Blake v Blake Agency (supra), there was no express or implied computation of the value of corporate goodwill or of petitioner’s share of said goodwill. Because goodwill was not a factor in the computation of the “fair value” of petitioner’s interest, we perceive no reason to impose a restrictive covenant on petitioner. We further note that there is no specific statutory authority to impose such a restrictive covenant, and there is also no prior written agreement amongst the parties with regard to a noncompetition pact.
Mollen, P. J., Titone and Weinstein, JJ., concur.
Order and judgment (one paper) of the Supreme Court, Nassau County, entered April 24, 1984, affirmed, insofar as appealed from, without costs or disbursements.
Stated portions of that order were affirmed by this court in Matter of Fleischer (Gift Pax) (79 AD2d 636).