Opinion ID: 2831421
Heading Depth: 4
Heading Rank: 2

Heading: The Sebastian Site

Text: McKinney acknowledged that sales of comparable properties are useful only if they result from an arm’s-length transaction, and she did not dispute that the Sebastian sale was a “sweetheart deal” intended to compensate Sebastian for early retirement. The evidence on this issue was uncontroverted. Instead, she argued that the sale could constitute an arm’s length transaction even 17 though it was a sweetheart deal. She testified, “If it was a sweetheart deal on the part of both parties, it was arm’s length.” We disagree. Generally, an arm’s-length transaction is one between two unrelated parties with generally equal bargaining power, each acting in its own interest. See BLACK’S LAW DICTIONARY 103 (10th ed. 2014) (defining “arm’s-length” as “[o]f, relating to, or involving dealings between two parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power; not involving a confidential relationship”); see also TEX. TAX CODE ANN. § 171.1012(m) (“In this section, ‘arm’s length’ means the standard of conduct under which entities that are not related parties and that have substantially equal bargaining power, each acting in its own interest, would negotiate or carry out a particular transaction.”); TEX. OCC. CODE ANN. § 2307.001(1) (“‘Arm’s length transaction’ means the standard of conduct under which two parties having substantially equal bargaining power, each acting in its own interest, would negotiate or carry out a particular transaction.”). Sebastian and International Paper were not entirely unrelated, as they shared an employeremployee (and later, independent contractor) relationship. While an employer and its employee can engage in arm’s-length transactions, there is no evidence that occurred here. To the contrary, the only evidence here is that the two parties were not acting solely in their own interests, but instead mutually intended the transaction to be more beneficial to Sebastian. This kind of “sweetheart deal” is not an arm’s-length transaction. See Cherokee Water Co. v. Gregg Cnty. Appraisal Dist., 801 S.W.2d 872, 874 (Tex. 1990) (“It is uncontroverted that these are not arm’s- length transactions and they have been characterized by the district as ‘sweetheart deals.’”); see also 389 S.W.3d at 604 (Boyce, J., dissenting) (“This testimony demonstrates that McKinney’s opinion is unreliable because she used a sales price produced by a ‘sweetheart deal’ involving the 18 Sebastian site to bolster her inclusion of the Sheridan Superfund site as a comparable sale.”). Thus, the Sebastian site’s 1997 sales price did not, alone, constitute evidence of its fair market value at the time of the sale. As a result, the fact that the Sebastian site sold for 72% less than the price paid for two comparable properties does not tend to prove that it suffered a diminution in market value.