Buccieri v. New Hope Realty, Inc.

This case arose out of a dispute between the surviving family and a trustee of the founders of New Hope Realty Inc. The parties could not agree on the management and operations of New Hope Realty. On July 7, 2020, a dissolution proceeding was commenced. The defendants elected to purchase the plaintiffs’ shares. Subsequently, the parties could not agree on the fair value of the plaintiffs’ interest. The plaintiffs asked the court to determine the value. The court held hearings, including testimony from both parties’ expert witnesses, and determined the fair value.

“[T]he court determines that the fair value of the Property is $5,340,000 and that

the fair value of the plaintiffs’ shares is $2,131,000.”

Background.

Louis Buccieri founded New Hope Realty in 1976. Louis and his wife, Joan, operated it. They had two children, Lynn and Lana. Upon their divorce, each owned 100 shares, or 50%, of New Hope Realty. They entered into a shareholders’ agreement with a cross-option to buy the remaining shareholder’s shares within 30 days’ notice. If the option was not exercised, the survivor “shall have a right of first refusal to purchase any shares offered for sale by the decedent’s estate or the heirs of the decedent.” The fair market value price was to be determined by the parties’ agreement. Lacking agreement, the value was to be determined by an independent appraiser. The cost was to be split by the parties. Louis died in 2018, leaving his shares in a marital trust with income to then-wife Brooke and the remainder to Lynn and Lana. Joan died in 2019, leaving her 100 shares to Lynn and Lana.

New Hope Realty owned a single piece of property in Stamford, Conn., with three commercial buildings in “fair condition.” The court noted that the definition of fair value would not allow discounts for lack of control or marketability. 

The parties’ expert testimony.

Real estate appraisers. The plaintiffs presented real estate appraiser Michael McGuire, MAI. His conclusion as to the value of the real estate was $6,400,000. He used both the income and sales comparison approaches. McGuire weighted both approaches equally. His value was noted as subject to change if any environmental issues were brought to his attention.

The defendants presented Patrick Wellspeak, MAI. Both appraisers conformed to USPAP. Wellspeak determined that the income capitalization method is the most appropriate method. The sales comparison method was given “secondary weight.” In applying his computations of the income method, he arrived at a value of $4,575,000. 

Plaintiffs’ evidence as to the value of the shares. Mr. Dennis Kremer, CPA/ABV, performed a valuation of 50% of the shares of New Hope Realty. He determined the net asset method as the appropriate method to determine the value, as most of the asset value was in real estate. Kremer used McGuire’s $6.4 million real estate value. As a result of adding the other assets and deducting liabilities, Kremer arrived at a value of $5.322 million, 50% of which is $2.6 million. 

Defendants’ expert’s evidence as to the value of the shares. The defendants presented John DelGrego, CPA/ABV, ASA. He testified that fair value was fair market value without discounts and fair market value was used in the shareholder agreement. DelGrego also used the asset approach. He used Wellspeak’s real estate value of $4.6 million and added the other assets, less liabilities. (Note: His assets less liabilities were different from the amounts Kremer used.) He found a net asset value of $3.5 million, 50% of which is $1.8 million. DelGrego then applied a lack of control (10%) discount and a lack of marketability (20%) discount for a fair market value of $1.3 million. The court did not further discuss the discounts as they were not allowed to determine fair value.

Discussion. 

Burden of proof. The question of who has the burden of proof in a situation like this was open in Connecticut. The court noted that “one Delaware court has noted that: ‘In a statutory appraisal proceeding, both sides have the burden of proving their respective valuation positions by a preponderance of the evidence… If neither party satisfies its burden, however, the court must then use its own independent judgment to determine fair value.’” (Dobler v. Montgomery Cellular Holding Co., Inc.)

The plaintiffs filed the application for the court to “evaluate” the shares, and thus, the court determined that the plaintiffs have the burden of proof.

The proper standard of value is fair value. The defendants argued the standard of value should be fair market value and that if the court determines fair value, DLOMs and DLOCs should apply. The court decided that the shareholders agreement provision for fair market value was not triggered in this case because no shares had been offered for sale, and the applicable statute directed the application of the fair value standard of value. The business statutes in Connecticut defined fair value and denoted it was determined without the application of a DLOM or a DLOC.

The defendants argued there was no market for the shares, and thus, a DLOM should be allowed. The court disagreed, noting that the defendants were a market and disallowed DLOM.

The court noted that a DLOC was not generally allowed in a statutory buyout because no third party was involved. “The purchase of plaintiffs’ fifty percent shares by the defendants confers complete control of the New Hope Realty Company. As a result, any minority discount is inappropriate here.” There were no extraordinary circumstances in this case that would dictate a DLOC, and the court did not apply one in this case.

Analysis of valuations.

Valuation of the property. The court discussed each real property valuation and made adjustments as deemed appropriate. It started with the premise that McGuire’s appraisal was too high. The court based its value on the direct capitalization method and arrived at a value of $5.34 million. 

Valuation of the subject shares. Both appraisers used a net asset approach. The court started with its property value of $5.34 million. The additional assets were added, and the liabilities were deducted to estimate the value of the shares at $2.131 million. The court again reviewed the defendants’ arguments for a DLOM. For the second time, it discussed the Devivo v. Devivo, which allowed a DLOM for extraordinary circumstances, and the R D Clark & Sons v. Clark case, which determined no exceptional circumstances. The court thus decided and emphasized again that, despite Devivo, no DLOM was allowed.

Conclusion.

“For the foregoing reasons and considerations, the court renders its opinion of value, as of July 6, 2020, of the fair value of the Property as $5,340,000 and the fair value of the plaintiffs’ shares in New Hope Realty, Inc. as $2,131,000.”