Opinion ID: 1584853
Heading Depth: 2
Heading Rank: 1

Heading: Valuation of Alpha

Text: Each party had an expert testify regarding the value of Connie's stock in Alpha [2] Shannon Shaw, C.P.A. for Connie and accredited senior appraiser Wayne Brown for Jody. Both concluded the appropriate method for valuing the stock was the asset approach. Both assessed Alpha's worth as a going concern, meaning the business would stay in operation as opposed to being ordered to dissolve and liquidate. The district court found Brown's testimony much more credible than Shaw's. The district court adopted Brown's opinion of the value of Alpha's tangible assets, which was $10,169,171. Connie does not dispute this valuation. However, she argues the district court's valuation of Alpha's intangible assets (i.e. trademarks and other intellectual property rights) is speculative and beyond the evidence of the record. Alpha owns approximately one hundred trademarks, most of which were acquired when Alpha purchased the assets of Empire of Carolina, Inc. at a bankruptcy court auction. At trial, Connie's expert, Shaw, testified these trademarks had no value. Jody's expert, Brown, on the other hand, testified these trademarks had significant value and the district court agreed. Prior to trial, Alpha sold one trademark, Buddy L, for $7.7 million and another trademark, Yo-Yo Balls, for $475,000. The district court relied on rough justice to determine the value of Alpha's intangible assets. Brown was unable to offer a firm opinion on the value of Alpha's intangible assets because he had not received financial documentation to review. Using the Buddy L sale as a guide, Brown estimated the remaining trademarks were worth between $20 million and $30 million. Jody offered a similar estimate. The district court determined the value of Alpha's trademarks and other intangibles to be $5 million. [3] The district court combined the value it assigned to Alpha's tangible assets with the value it assigned to Alpha's intangible assets in order to determine Connie's stock was worth $15,169,171. The district court was placed in the unenviable position of determining Alpha's value. We have previously said, the market value for the stock in a closely held corporation can rarely be ascertained. In re Marriage of Moffatt, 279 N.W.2d at 19. Because of the difficulty surrounding valuation, appellate courts give much leeway to the trial court. In re Marriage of Steele, 502 N.W.2d 18, 21 (Iowa Ct.App.1993) (citing In re Marriage of Dennis, 467 N.W.2d 806, 808 (Iowa Ct. App.1991)). A trial court's valuation will not be disturbed when it is within the range of evidence. See In re Marriage of Wiedemann, 402 N.W.2d 744, 748 (Iowa 1987). Moreover, appellate courts defer to a trial court's valuations when accompanied by supporting credibility findings or corroborating evidence. In re Marriage of Vieth, 591 N.W.2d 639, 640 (Iowa Ct.App. 1999). Based on the testimony at trial, it appears Alpha's intangible assets have at least some value. Connie testified these assets are crucial to the future success of the company. She conceded the intangible assets Alpha acquired from Empire will probably add value to Alpha in the future. Although Alpha owns many trademarks, the testimony at trial focused on the value of Grand Champions and Big Wheels. Since 2003, Alpha has been marketing toys under both names. Additionally, Alpha is developing new product lines under those names. Moreover, the company is pursuing litigation in an effort to protect both brands. One lawsuit concerns trademark and trade dress infringement of Grand Champions. The other alleges a company stole some of the Big Wheels tooling prior to Alpha acquiring Empire's assets. This evidence supports Jody's contention the intangible assets have value because Alpha would not expend significant resources if these brands are worthless. However, the record lacks sufficient evidence concerning a specific dollar amount to attach to these assets. Jody acknowledges [t]he inadequacy of the record with respect to the value of Alpha's intangible assets. Connie's expert testified the intangible assets had no value. Jody's expert stated the intangibles had value but could only offer a haphazard guess on valuation based on the fact Alpha sold other trademarks for considerable money. Eric Deininger, a business consultant for Alpha, testified he would not recommend Alpha sell Grand Champions for $5 million. When pressed, he explained: I believe [Grand Champions] has potential. If we can build back the customer base that it once had, it has potential to be earning very solid revenues. Based on this testimony, it is fair to say Deininger believes Grand Champions may in the future be worth in excess of $ 5 million if Alpha successfully revitalizes the brand. The deficiency here is he was never asked the essential questionwhat is Grand Champions worth now? He simply opined Grand Champions may be valuable to Alpha in the future. He was never asked to give his opinion of the present fair market value and we cannot infer such information. Without more, Deininger's testimony is not enough to determine the fair market value of Grand Champions at the time of trial. Similarly, Jody's testimony is insufficient to uphold the district court's $5 million valuation of Alpha's intangible assets. Although not an owner of Alpha, Jody is certainly qualified as an expert in the toy business. For his testimony to be considered sufficient evidence, it must be more than mere conjecture. Jody made a conclusory statement Alpha's intangible assets are worth between $25 million and $30 million. He testified he was offered $4.5 million for Grand Champions while still working for Alpha. He also claimed another toy company offered Alpha $5 million for Grand Champions trademark and $2 million for Alpha's Grand Champions inventory. However, he made no attempt to substantiate these claims or use this information in determining today's fair market value. Jody says with pride there is always money in confusion. While Jody's fast moving, unorthodox style may suit him well in the business world, the courtroom is no place to make money in confusion. This anecdotal evidence is simply an insufficient basis upon which to determine fair market value. Alpha's intangible assetsparticularly Grand Champions and Big Wheelslikely have present value and consequently add to the value of Connie's stock. Unfortunately, there is a lack of proof in this case. There is not adequate evidence in the record to measure the fair market value of Alpha's intangible assets. The district court erred by speculating as to the value of these assets. Accordingly, we reduce the value of Connie's Alpha stock to $10,169,171. After taking into account this reduction, Connie owes Jody $4,280,650 in order to equalize the property division. Because this amount is considerably less than the amount awarded by the district court, Connie should be given less time to pay Jody. We believe six years is fair and equitable to both parties. We therefore order Connie to pay Jody a minimum of $725,000 principal plus interest per year commencing on May 1, 2006 until the $4,280,650 judgment is paid. She shall be given credit for any amounts previously paid.