COURT OF CHANCERY 

OF THE

SAM GLASSCOCK III 

VICE CHANCELLOR

STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE

34 THE CIRCLE

GEORGETOWN, DELAWARE 19947

Date Submitted: September 20, 2017 

Date Decided: December 21, 2017 

Richard E. Berl, Jr., Esquire 

Berl & Feinberg, LLP 

Dartmouth Business Center―Suite 3 

34382 Carpenter’s Way 

Lewes, DE 19958 

James D. Griffin, Esquire 

Parkowski, Guerke & Swayze, P.A. 

19354C Miller Road 

Rehoboth Beach, DE 19971 

Re: Kristen C. Wright v. Clinton A. Phillips, Civil Action No. 11536-

VCG 

Dear Counsel: 

This matter involves litigants, formerly husband and wife, who together own 

a recycling and shredding business, pursued via three business entities. Each party 

owns a 50% interest in each entity. The matter initially raised numerous legal and 

equitable issues, but the parties—wisely, in my opinion—decided to settle the matter 

via one co-owner buying out the other. Accordingly, this matter is before me on the 

sole issue of a determination of the value of the half interest in the three companies 

that one party will buy from the other. After a trial and post-trial briefing, I find the 

combined pre-adjustment value of the entities is $1,767,465, with a pre-adjustment 

half interest value of $883,733. This amount must be adjusted in accordance with 

this Letter Opinion. 
2 

I. BACKGROUND 

The parties each own 50% of DataGuard, Inc. (“DG Shredding”), DataGuard 

Recycling, Inc. (“DG Recycling”), and CK Aurora Business Ventures, LLC 

(“Aurora”).1 DG Shredding primarily shreds waste materials and DG Recycling 

(together with DG Shredding, the “DG Companies”) recycles certain discarded 

materials.2 Aurora’s “sole function is to own real estate located at 9174 Redden 

Road, Bridgeville, DE 19933 [(the ‘Aurora Property’ or the ‘Property’)], and to lease 

the Aurora Property to the two DataGuard businesses.”3 The Property is encumbered 

by a mortgage, which amounted to $855,635 as of May 24, 2017.4 Both of the DG 

Companies operate out of the Aurora Property and share some resources, including 

personnel and equipment.5

The Petitioner and the Respondent divorced in 2013 and jointly ran the 

businesses until they reached an impasse in 2015.6 The businesses have done well, 

and the Petitioner and the Respondent were together paid a total of $300,000 in 

2016.7 The Petitioner initially filed a complaint alleging breaches of fiduciary duty 

 

1

 Pre-Trial Stipulation and Order (“PTS”) 1. 

2

Id. at 1, 5 (noting that DG Shredding and DG Recycling are both Delaware subchapter S 

corporations). 

3

Id. at 2. 

4

Id. 

5

Id. 

6

Id. at 3. 

7

 Trial Tr. 148–49, May 24, 2017. The record states that this was taken in “salary” and as “Officers’ 

Compensation” but does not describe if the parties received any member draws, dividends or 

otherwise, or detail from which entity the particular §payments came. These issues are not 

pertinent to my decision here, except, as noted, to the issue of “synergies.” 
3 

by the Respondent and seeking his exclusion from the affairs of the business.8 The 

parties each filed Motions for Order of Sale.9 Ultimately, the parties agreed that the 

Respondent would purchase the Petitioner’s 50% interest in each of the jointly 

owned businesses.10 

The parties disagree on the value of the DG Companies.11 The Petitioner 

retained Charles Sterner to value the businesses.12 Sterner is a Certified Public 

Accountant (“CPA”) and certified by the National Association of Certified 

Valuation Analysts (“NACVA”).13 Sterner completed his first report in May 2016 

for the period ending December 2014.14 He created an updated report in April 2017, 

but noted that he lacked certain pertinent information.15 Sterner initially concluded 

that the combined value of the DG Business was $1,671,675 but revised his April 

2017 estimate to $1,359,000.16 The Respondent retained Dale Mitchell as his expert 

witness. Mitchell is a former CPA but allowed his certification to lapse.17 He is a 

Certified Valuation Analyst.18 Mitchell used Sterner’s income figures and 

 

8

Id. 

9

Id. at 3–4. 

10 Id. at 1–2. 

11 Id. at 4. 

12 Id. at 77. 

13 Pet’r’s Opening Br. 12. 

14 Pet’r Ex. 3. 

15 Trial Tr. 97, 109. 

16 Id. at 98, 124. 

17 Id. at 227. 

18 Id. at 174, 177, 181–82. Mitchell does have business experience; he owned a large record 

management business in the Seattle, Washington area for twenty years. 
4 

assumptions in his calculations.19 Mitchell created an updated report after receiving 

new information from Sterner’s April 2017 report.20 Mitchell valued the DG 

Companies at $1,155,000.21 

Sterner and Mitchell have a number of discrete disagreements on how to value 

the entities. The experts contest the applicability of marketability and brokerage 

discounts, the role of certain synergies, and the proper valuation of Aurora.22 Sterner 

accounted for the subchapter S corporation status of the DG Companies by applying 

an individual tax rate of 14.5% instead of a C corporation rate of 31%, resulting in a 

$204,000 valuation increase; Mitchell disagrees with this analysis.23 

The gap between the experts’ valuation of Aurora—the sole asset of which is 

the Aurora Property—is wide. The parties purchased the Aurora Property in 2009 

for $1,080,000.24 Community Bank retained Sue Parsons at the Trice Group to 

perform a real estate appraisal of the Aurora Propety in 2015 (the “Trice Report”).25 

Parsons has more than thirty years’ experience in property appraisal and holds the 

highest level of real estate appraisal certification.26 Parsons’ analysis included both 

 

19 Id. at 183, 234. 

20 Id. at 184. 

21 Id. at 202–03. 

22 Pet’r’s Opening Br. 16; Resp’t’s Answering Br. 16–17. 

23 Id. at 203 (“So the difference between the 1,600,000 or 1,360,000 and . . . 1,155,000 is about 

205,000 . . . [or] the difference using a different tax rate.”). 

24 Trial Tr. 31. 

25 Id. at 8. 

26 Id. at 6. 
5 

a comparable sales method and an income approach.27 Parsons also assumed an 

ongoing maintenance cost of $12,000 per year in repair expenses.28 She valued the 

Aurora Property at $1,375,000 under a comparable sales valuation method, at 

$1,425,000 under an income generation valuation method, and averaged the two to 

conclude that the Property was worth $1,400,000 as of February 2015.29 

The Respondent retained Wesley Cox, a commercial real estate agent, to 

provide an estimate of the potential value of the Property.30 Cox collected a series 

of comparable properties and calculated an average listing price of approximately 

$1,200,000 to $1,250,000, with a predicted sale price of $1,100,000 for the Aurora 

Property.31 Cox did not use the income-generation valuation method, but conceded 

that such an approach could yield a higher estimated value for the Aurora Property.32 

The Respondent also retained Gary Neal, a general contractor who previously 

performed work on the Property, to provide estimates for Neal’s company to repair 

or replace particular items identified by the Respondent.33 The total repairs came to 

$92,000, although Parsons disputes the necessity and relevance of some of those 

repairs.34 My analysis of the parties’ disputes follows. 

 

27 Id. at 11. 

28 Id. at 47–48. 

29 Id. at 19–22. 

30 Id. at 276–77. 

31 Id. at 275, 291. 

32 Id. at 296–97. 

33 Id. at 244–45, 259. 

34 Id. at 39, 47. 
6 

II. ANALYSIS 

A court of equity has authority to order the sale of a deadlocked company in 

certain circumstances.35 Here, the parties have agreed to the sale of the Petitioner’s 

half interest in the entities to the Respondent. Before me is the issue of the value of 

that interest. I start by analyzing the value of the entities as going concerns. Because 

Petitioner, via agreement, has agreed to give up, and the Respondent has agreed to 

purchase, an interest in a going concern (the business or businesses represented by 

the three entities), a fair value analysis by analogy to a Section 262 appraisal 

valuation is appropriate here. This requires me to determine the fair value of the 

three entities as going concerns as of the time of the transfer, using recognized 

valuation techniques.36 The basic approach of the experts is to add the value of the 

Aurora Property to a valuation of the DG Companies based on an income approach 

analysis. I accept this methodology and address below only the parties’ disputes as 

to valuation. I depart from appraisal action standards where, and to the extent that, 

equity here requires. 

A. The Corporate Tax Status 

The Petitioner argues that the DG Companies’ status as S corporations adds 

value beyond that of a Delaware C corporation. The Respondent disputes that the 

 

35 See, e.g., In re TransPerfect Glob., Inc., 2017 WL 3499921, at *1 (Del. Ch. Aug. 4, 2017). 

36 See, e.g., In re of SWS Grp., Inc., 2017 WL 2334852, at *1 (Del. Ch. May 30, 2017). 
7 

S-corporation status adds value cognizable here.37 The Petitioner points to thenVice Chancellor Strine’s explanation of the value of subchapter S status to justify 

the addition of 4.08% to the capitalization rate in Sterner’s reports. In Kessler, this 

Court stated that: 

Assessing corporate taxes to the shareholder at a personal 

level does not affect the primary tax benefit associated 

with an S Corporation, which is the avoidance of a 

dividend tax in addition to a tax on corporate earnings. 

This benefit can be captured fully while employing an 

economically rational approach to valuing an S 

corporation that is net of personal taxes.38 

To illustrate this principle, then-Vice Chancellor Strine created a chart to show that 

the amount of after-tax dollars returned to stockholders was greater under an S 

corporation than a C corporation in those circumstances.39 

 I find that the DG Companies’ status as S corporations has a discrete value 

applicable here. Accordingly, I find that the amount attributable to the DG 

Companies’ status as S corporations―$204,000―should be included in the DG 

Companies’ valuation. 

B. The Sterner Reports 

The Respondent and his expert disagree with the Sterner valuation of the DG 

Companies in three particulars: (i) the addition of $40,000 in Sterner’s revised 

 

37 Pet’r’s Opening Br. 10–11; Resp’t’s Answering Br. 13–15. 

38 Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 328–29 (Del. Ch. 2006). 

39 Id. at 329 (highlighting that, with a hypothetical $100 investment return, stockholders would 

receive $51 post-tax dollars from a C corporation and $60 post-tax dollars from an S corporation). 
8 

report; (ii) Sterner’s failure to apply marketability and brokerage commission 

discounts; and (iii) Sterner’s addition of certain “synergies” of the transaction to 

overall value. 

First, the Respondent argues that Sterner added $40,000 to his revised report 

with respect to one of the entities due to a transcription error in calculating the 

figures.40 The Petitioner argues that any error is harmless because it is offset by a 

devaluation of the other entity; essentially, any error is a wash and does not change 

the cumulative value of the two DG Companies.41 Because my examination of the 

record confirms that any error is indeed a wash, no adjustment for the transcription 

error is warranted here. 

Second, Mitchell applied a 20% marketability discount, including a 10% 

brokerage commission, because doing otherwise would “result in the Petitioner 

receiving the full benefit for the value of her shares but would result in passing her 

50% share of those unrecognized costs on to the Respondent, who will pay 100% of 

those costs when he sells the entities to a third party.”42 Mitchell testified that the 

costs must someday be incurred and that those costs should be shared equally 

between the parties at the current time.43 The Petitioner contends that, because this 

 

40 Resp’t’s Answering Br. 17. 

41 Pet’r’s’ Reply Br. 7–8. 

42 Resp’t’s Answering Br. 19. 

43 Trial Tr. 214–15. 
9 

transaction is between a known buyer and seller, I should not consider the transaction 

costs of an uncertain future transaction.44 

I find that a lack of marketability is part of the operative reality of the entity, 

half of which is being purchased by the Respondent and sold by the Petitioner here.45 

While this court-enforced sale does not involve marketing the businesses, a lack of 

marketability is inherent in the property the Petitioner owns, and not accounting for 

such would result in a windfall here. I therefore include a 10% marketability 

discount. However, I reject the additional 10% discount that Mitchell ascribes to a 

brokerage commission and other costs as too speculative to be justified. 

Finally, the experts agreed that the DG Companies could realize additional 

value through “synergies” found in the combined entity.46 Most significantly, 

Sterner includes the value he opines will be attributable to the absence of his client 

from the business in his overall valuation.47 The Respondent, however, argues that 

increasing the valuation to represent certain synergies arising from the sale is 

inappropriate because the DG Companies already share a single facility and other 

 

44 Pet’r’s Reply Br. 4. 

45 Nonetheless, I reject the trial testimony that Bridgeville, home to the businesses here, is a 

“remote” small town. It may be remote to Washington, Baltimore, and Philadelphia, as those 

metropolises are remote to it; it is convenient, however, to Greenwood, Cannon, and Federalsburg, 

among many others. It is the former home of a renowned Vice Chancellor in this Court, now sadly 

removed to New Castle County. And as those unfortunate enough to live elsewhere learn when 

they visit, if they lived in Bridgeville, “[they] would be home now.” 

46 Trial Tr. 147–48, 237–38. 

47 Id. at 95–96, 237–38. 
10 

costs, and thus will not recognize any true increase in value from the consolidation 

of ownership.48 

There is a certain irony in the Petitioner’s insistence that her removal from the 

businesses she helped to build should increase their value, in an amount of which 

she is entitled to half. In my view, addition to the value of these businesses of any 

savings from the discharge of the Petitioner is too speculative to include here. This 

is true particularly in light of the state of the record, which provides the amount the 

parties are “paid” as “Officer Compensation,” but little detail about how the 

Petitioner’s compensation is determined, the exact nature of the compensation, or 

what she was “paid” for. The Sterner valuation, therefore, must be adjusted to deduct 

from income the amount attributed to the removal of the Petitioner as a principal of 

the companies. 

C. The Valuation of Aurora 

The parties dispute the valuation of the Aurora Property, and by extension, 

Aurora. Sterner used the Trice Report and the existing mortgage debt to value 

Aurora.49 The Petitioner argues that the Trice Report is the most credible valuation 

because it was performed by an independent appraiser hired by a bank, in contrast 

to a real estate agent hired directly by an interested party.50 The Petitioner also 

 

48 Resp’t’s Answering Br. 23. 

49 Trial Tr. 78. 

50 Pet’r’s Opening Br. 21–23. 
11 

argues that Parson’s use of an additional valuation method in creating the Trice 

Report, the income approach, increased the accuracy of the valuation.51 The 

Petitioner attacks the Respondent’s hiring of Neal (who opinioned on the cost to 

make certain repairs) as an “obvious . . . attempt by the Respondent to reduce the 

amount he will have to pay” by deducting substantial but spurious repair expenses 

to decrease the value of the property.52 

 The Respondent points out various minor errors made by Parsons during trial 

and disputes the useful economic life assigned to the Aurora Property, the difference 

between the list and sale price, the relative familiarity Parsons with the particular 

comparable properties, and the timeframe and choice of comparable properties used 

in the Trice Report.53 

 Despite the Respondent’s efforts, I find the Trice Report, performed by an 

appraiser and commissioned by a non-party, to be representative of the fair value of 

Aurora at the relevant time. I find that the addition of the income generation 

valuation method used in the Trice Report makes it more likely an accurate indicator 

of the value of the Aurora Property than the Cox estimate. Finally, I find the 

 

51 Id. at 21. 

52 Id.; Trial Tr. 40 (“I would think they would try to use [Neal’s estimate] as a negotiating tool on 

price.”). 

53 Resp’t’s Answering Br. 26–29, 31; Trial Tr. 42. 
12 

maintenance cost estimate in the Trice Report reasonable, and do not, therefore, 

discount the value for the repair costs testified to by Neal. 

III. CONCLUSION 

In summary, I apply a fair valuation analysis here by analogy to Section 262. 

I find that the tax status of the DG Companies is relevant to their valuation, giving 

them an underlying value of $1,359,000, consistent with the Sterner report but 

subject to the adjustments below. First, the Sterner valuation must be recalculated 

to remove from income the amount Sterner ascribed to savings from the discharge 

of the Petitioner, which I have found both inappropriate and speculative. Obviously, 

this will reduce the value of the DG Companies to some extent. Because the record 

is insufficient for me to do this adjustment, I leave this calculation to the parties. 

Next, I find a 10% marketability discount is appropriate. Applying the 10% 

marketability discount to the pre-adjustment amount described above, $1,359,000, 

results in a fair value of the DG Companies of $1,223,100 (less the other adjustment 

described). 

I note that the valuations employ a hodgepodge of valuation dates. Valuation 

should be done as of the transfer date, which I deem to be the date of this Letter 

Opinion (the “Transfer Date”). That will require the parties to reconcile the 

valuations, either by bringing them up to the Transfer Date or agreeing that for 

purposes of an order in this matter, the valuations shall be deemed unchanged. 
13 

To repeat, the DG Companies’ valuation amount of $1,223,100 is subject to 

the following adjustments in accordance with this Letter Opinion: (1) recalculation 

of value after deduction from income of the amount of assumed avoided payments 

to the Petitioner, included as “synergies”; and (2) any minor adjustments required to 

accord with the parties’ future agreement regarding alignment with the Transfer 

Date. 

Lastly, I find the Trice Report of $1,400,000 to be representative of the fair 

value of Aurora as of February 2015. Subtracting the mortgage amount of $855,635 

as of May 24, 2017, the net pre-adjustment value of Aurora is $544,365. This 

amount should also be adjusted to account for (1) any changes to the mortgage 

amount to accord with amount of the outstanding mortgage as of the Transfer Date; 

and (2) the parties’ future agreement regarding alignment with the Transfer Date. 

Taken together, the combined pre-adjustment value of the DG Companies and 

Aurora is $1,767,465, with a pre-adjustment half interest value of $883,733. 

 The parties should confer and submit an appropriate Form of Order based on 

this Letter Opinion. To the extent issues regarding the timing and method of 

payment remain, the parties should so inform me. 

 Sincerely, 

/s/ Sam Glasscock III 

Sam Glasscock III