Opinion ID: 2582249
Heading Depth: 1
Heading Rank: 5

Heading: Calculation of the buyout price

Text: [¶ 10] The district court was charged with calculating the amount owed to Randall Warnick pursuant to the applicable provisions of RUPA, Wyo. Stat. Ann. § 17-21-603(a) (LexisNexis 2003) and Wyo. Stat. Ann. § 17-21-701. Warnick I, ¶ 24. That amount, or the buyout price, is the amount that would have been paid to the dissociating partner following a settlement of partnership accounts upon the winding up of the partnership, if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the business as a going concern without the dissociating partner. Wyo. Stat. Ann. § 17-21-701(b) and § 17-21-808(b) (LexisNexis 2003); 59A Am.Jur.2d Partnership § 538 (2003). [P]artnership assets must first be applied to discharge partnership liabilities to creditors, including partners who are creditors. Warnick I, ¶ 24; Wyo. Stat. Ann. § 17-21-808(b). The interplay between RUPA § 701(b) and § 808(b) requires that obligations to known creditors must be deducted before a partner distribution can be determined. [T]hus, the buyout price is the net of all known liabilities. John W. Larson, Florida's New Partnership Law: The Revised Uniform Partnership Act and Limited Liability Partnerships, 23 Fla. St. U.L.Rev. 201, 234 (1995). Stated another way, [i]n computing the buyout price, the amount the dissociating partner receives is reduced by his or her share of partnership liabilities. Donald J. Weidner and John W. Larson, The Revised Uniform Partnership Act: The Reporters' Overview, 49 Bus. Law. 1, 12 (1993). [¶ 11] The purpose of the remand was for the district court to consider liabilitiespartner advances, which had previously been omitted from its calculation. Warnick I, ¶ 24. Warnick Ranches makes no argument that costs associated with a hypothetical sale of ranch assets should be considered a partnership liability. Its argument focuses solely upon the valuation of the partnership's assets under Wyo. Stat. Ann. § 17-21-701(b). Accordingly, our review is similarly limited, and we need not consider costs of sale as a liability, affecting the amount that would have been distributable to Randall Warnick under Wyo. Stat. Ann. § 17-21-808(b) [3] or the settlement of partnership accounts. [¶ 12] At this juncture, Warnick Ranches claims that the district court erred in the first step of its calculation of the buyout price by overvaluing the ranch assets. The asserted error is the district court's failure to deduct estimated sales expenses of $50,000 from the value of the partnership assets. As the basis for its argument, Warnick Ranches states that the appraiser was prepared to testify about the liquidation value of the ranch assets. A common understanding of liquidation is [t]he act or process of converting assets into cash. Black's Law Dictionary 950 (8th ed.2004). Warnick Ranches appears to assume that the liquidation value of the ranch is the amount of cash that would remain following a sale. This assumption is not supported by the pertinent statutory language and the circumstances of this case. [¶ 13] Critical to our determination in this case is the recognition that the assets of this partnership were not, in fact, liquidated. Instead, the record reflects that the assets were retained by Warnick Ranches. Randall Warnick's dissociation from the partnership did not require the winding up of the partnership. Warnick I, ¶ 20. We acknowledge that when a business is not actually dissolving, valuation may be difficult and will have to be based to some extent on estimates and appraisals. Lieberman v. Wyoming.com LLC, 2004 WY 1, ¶ 27, 82 P.3d 274, 284 (Wyo.2004) (Lehman, J., dissenting, with whom Kite, J., joins). However, the district court held its hearing several years after the date of valuation, and there was no question that the partnership's ranching operations had continued following Randall Warnick's departure. There was no evidence of any actual, intended, or pending sale before the district court at the time of dissociation, and, therefore, asset liquidation was only hypothetical. Accordingly, the deduction urged by Warnick Ranches is for hypothetical costs. See Taffi v. United States (In re Taffi), 68 F.3d 306, 309 (9th Cir.1995) (costs of sale are hypothetical where the property is not actually being sold). As we will explain, because of the hypothetical nature of the urged $50,000 deduction, we find that the district court's calculation was not erroneous. [¶ 14] If, in applying Wyo. Stat. Ann. § 17-21-701(b), we were to interpret the term liquidation value in isolation, we might envision an amount representing the net proceeds resulting from a distress sale. [4] However, that interpretation is precluded by the language contained in the statute. The full text of Wyo. Stat. Ann. § 17-21-701(b) provides: The buyout price of a dissociated partner's interest is the amount that would have been distributable to the dissociating partner under W.S. XX-XX-XXX(b) if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date. In either case, the sale price of the partnership assets shall be determined on the basis of the amount that would be paid by a willing buyer to a willing seller, neither being under any compulsion to buy or sell, and with knowledge of all relevant facts. Interest shall be paid from the date of dissociation to the date of payment. [5] In analyzing this provision, we must consider all of the language contained therein: We are guided by the full text of the statute, paying attention to its internal structure and the functional relation between the parts and the whole. Each word of a statute is to be afforded meaning, with none rendered superfluous. Further, the meaning afforded to a word should be that word's standard popular meaning unless another meaning is clearly intended. If the meaning of a word is unclear, it should be afforded the meaning that best accomplishes the statute's purpose. Rodriguez v. Casey, 2002 WY 111, ¶ 10, 50 P.3d 323, 326-27 (Wyo.2002) (internal citations omitted). When read as a whole and in a manner consistent with its purpose, we find the statute does not support Warnick Ranches' proposed meaning of liquidation value. [¶ 15] Liquidation value is one of two identified methods for valuing the partnership assets. Application of the two methods to the same partnership may yield two distinct values. The Massachusetts Supreme Court compared the two methods, noting: The method of valuation of a partnership interest in a going concern necessarily differs from the valuation of the same interest at the point of liquidation. The liquidation value looks to the value of the partnership's assets less its liabilities and determines each partner's appropriate share. When valuing a going concern, however, the market value of the partnership interest itself is what is at stake, rather than the percentage of net assets it represents. Depending on circumstances, the market value of the partnership interest may be more or less than the value of the same percentage of net assets. Anastos v. Sable, 443 Mass. 146, 819 N.E.2d 587, 590-91 (2004). By providing two approaches, Wyo. Stat. Ann. § 17-21-701(b) contemplates variations that could result from differing appraisal techniques and varying business circumstances. [6] [¶ 16] Significantly, the buyout price under Wyo. Stat. Ann. § 17-21-701(b) involves use of the greater value resulting from the alternate valuation methods. Warnick Ranches' argument seems to assume that the district court's calculation incorporated the liquidation value of the partnership assets. We see room for disagreement based upon the record. [7] The district court did not specify which valuation method was selected, and it was therefore possible that the value used in the buyout price calculation represented the going concern value of the ranch. [8] Warnick Ranches makes no argument that costs of sale should also be deducted from the going concern value because, under its rationale, the $50,000 deduction is required only as part and parcel of liquidation value. Were we to conclude that the district court used a figure which represented the going concern value, our analysis could end here without further discussion of hypothetical costs of sale. [¶ 17] However, even if the district court valued the partnership assets using liquidation value, the deduction for costs associated with a hypothetical sale would not be warranted. Contrary to the interpretation asserted by Warnick Ranches, liquidation value is not the amount of the seller's residual cash following a sale. We find that the meaning of liquidation value in the statute is best understood by comparing it to the other method provided. When contrasted with going concern value it is clear that liquidation value simply means the sale of the separate assets rather than the value of the business as a whole. [¶ 18] Additionally, under either valuation method, Wyo. Stat. Ann. § 17-21-701(b) directs that the sale price be determined on the basis of the amount that would be paid by a willing buyer to a willing seller, neither being under any compulsion to buy or sell, and with knowledge of all relevant facts. The legislature chose to supplement the Uniform Laws version of this provision by adding this sentence, lending added significance to this language. [9] This willing buyer and willing seller language does not present a novel legal concept, as it sets forth precisely what has long been the legal definition or test of fair market value. Black's Law Dictionary 1587 (8th ed.2004). Fair market value is generally defined as the amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Lieberman, ¶ 28 n. 1 (citing Black's Law Dictionary 597 (6th ed.1990) and Wyo. Stat. Ann § 39-11-101(a)(vi) (Lexis-Nexis 2001) (defining fair market value as used for taxation purposes)). [¶ 19] Warnick Ranches does not provide any analysis concerning the fair market value language contained in Wyo. Stat. Ann. § 17-21-701(b) and does not explain how it can be reconciled with its urged meaning of liquidation value as involving a deduction for costs of sale. That reconciliation may be difficult. [10] Simply stated, a deduction from fair market value yields an amount which is, by definition, less than fair market value. Warnick Ranches cites no authority supporting its proposed deduction of hypothetical sales expenses and does not contend that the deduction is necessary to arrive at fair market value. Regardless, we have expressed disapproval of such a deduction, stating: [h]ypothetical costs have no relationship to an arms-length sale price which is the value to be established by recognized appraisal techniques when no sale occurs. Appeal of Monolith Portland Midwest Co., Inc., 574 P.2d 757, 761 (Wyo.1978). [11] [¶ 20] Considering the language of RUPA § 701(b) as a whole, we conclude that liquidation value does not have the meaning that Warnick Ranches desires, i.e. the amount a seller would net upon liquidation. Rather, liquidation value represents the sale price of the assets based upon fair market value. It is one thing to say that a business is worth little more than its hard assets. It is quite another . . . to deduct the substantial cost of a liquidation which all parties agree will not take place. Chatterton v. Business Valuation Research, 90 Wash.App. 150, 951 P.2d 353, 357 (1998). Where it is contemplated that a business will continue, it is not appropriate to assume an immediate liquidation with its attendant transactional costs and taxes. Id. We therefore hold that, under Wyo. Stat. Ann. § 17-21-701(b), purely hypothetical costs of sale are not a required deduction in valuing partnership assets. [12] We find no error in the district court rejecting the $50,000 deduction urged by Warnick Ranches in calculating the buyout price.