Court Opinion

ID: 9857174
Source: CourtListenerOpinion
Date Created: 2023-09-24 13:53:09.032766+00
Date Added: 2024-06-11T09:38:05.458625
License: Public Domain

Wendell L. GRIFFEN, Judge, concurring in part; dissenting in part. I concur with the majority regarding the chancellor’s interpretation of the property settlement agreement. However, I respectfully dissent from the decision to affirm the valuation of the real estate partnership. The chancellor assessed the value of John Crismon’s partnership interest in a real-estate partnership at $365,000 and awarded Suzanne Crismon half of that amount, or $182,500. Appellant contends that the chancellor erred by assessing the “fair market” value of the partnership interest. The property settlement agreement incorporated into the parties’ divorce decree provided that John Crismon would transfer to Suzanne Crismon his interest in the Crismon Garland real estate partnership, but that if Larry Garland (John Crismon’s partner) refused to accept Suzanne Crismon as a partner either party (appellant or appellee) could petition the court to determine the value of the partnership and that John Crismon would pay Suzanne Cris-mon one half of the value of his interest in the partnership, plus one half of his Levi Straus pension. Because the property settlement agreement called for the court to determine the value of the partnership, I agree with appellant that it was error for the chancellor to use a “fair market value” assessment that included a “marketability discount” that decreased the valuation based on assumed costs of marketing the partnership despite undisputed proof that no sale of the partnership was contemplated. Of course, the controlling legal authority is Arkansas Code Annotated section 9-12-315 (Repl. 1998) which provides that when a divorce decree is entered, all marital property shall be distributed one-half to each party unless the court finds such division to be inequitable. A chancellor’s finding, regarding the valuation of a business will not be overturned unless it is clearly erroneous. Nicholson v. Nicholson, 11 Ark. App. 299, 669 S.W.2d 514 (1984). The majority affirms by reasoning that Arkansas Code Annotated section 9-12-315 (Repl. 1998), obligated the chancellor to assess the partnership by using a “fair market value” approach as contrasted with a “fair value” determination. Black’s Law Dictionary, 597 (6th ed. 1990) defines fair market value as “the amount of money which [a] purchaser who is willing but not obligated to buy would pay [an] owner who is willing but not obligated to sell, taking into consideration all uses to which the land is adapted and might in reason be applied.” (citing Arkansas State Highway Comm’n v. DeLaughter, 250 Ark. 990, 1000, 468 S.W.2d 242, 247 (1971)). On the other hand, the concept of “fair value” in the context of a dissenting stockholder facing a merger of a corporation seems more applicable to the situation in this case. Under that standard, “fair value” is determined by ascertaining all assets and liabilities of the business and the intrinsic value of its stock rather than merely appraising its market value. See American Gen. Corp. v. Camp, 190 A. 225 (Md. 1937). I believe that the “fair value” approach is more equitable than a “fair market” approach to valuation of the real estate partnership in this instance because of the circumstances surrounding the property and the reasons for appraising its value. The partnership owns two parcels of real property with improvements consisting of a convenience store and Texaco service station located at the southwest corner of Dixon Road and Highway 65 in Little Rock, and an Exxon service station located at the southeast corner of Dixon Road and Highway 65. The businesses lease the improvements from the partnerships, and are now owned by Garland. Appellee filed discovery responses which valued his half interest in the two Dixon Road properties at $600,000, less his share of debt valued at $138,000, for a net equity of $462,000. Discovery documents revealed that Larry Garland stated the value of the partnership holdings as $1,650,000 in a 1997 personal financial statement, with a net equity of $829,000 for a 50% partnership interest. In 1992, appellee prepared a personal financial statement which valued the properties at $1,250,000, with his 50% net equity valued at approximately $320,000. Another personal financial statement prepared by appellee valued the properties at $1,250,000 in 1993, with his 50% net equity valued at $355,000. After the divorce proceedings began, appellee submitted another personal financial statement to his bank and valued his 50% interest at $700,000, less debt equaling $18,000, for a net equity of $682,000. Although there was no evidence that the property was to be sold or that a sale was contemplated, the chancellor relied upon expert testimony which set the value of the property based on the $350,000 “fair market value,” ascribed by Larry Garland at the hearing and the application of a “marketability discount” factor advanced by appellee’s expert witness. That valuation ignores, however, the obvious joint interest shared by Garland and appellee in setting the value low. Garland had already refused to accept appellant as a partner, thereby clearly signaling his preference to remain in the partnership with appellee. The property settlement agreement did not call for the partnership to be sold, but for its value to be determined by the chancellor and for appellee to pay appellant an amount equal to half his partnership interest. By “low balling” the value of appellee’s partnership interest through use of the “fair market value” method and marketability discount in the face of undisputed proof that there was no intention to sell the properties, Garland and appellee essentially collaborated to deny appellant the “fair value” of her half of appellee’s interest. Had the partnership agreement called for appellee to sell his interest and then give appellant half the sale price, the “fair market value” approach and marketability discount would be appropriate. I agree with appellant that whether the chancellor should have applied a marketability discount in valuing the appellee’s 50% interest in the partnership based on the notion of assessing its value by using the fair market value approach is a question of law which the chancellor applied incorrectly. The property settlement agreement did not provide for the partnership to be sold in the event Garland refused to accept appellant as his partner. Therefore, I see no reason for using a valuation approach that assumes that the partnership would be sold. Thus, I would reverse and remand with instructions that the partnership’s value be assessed without use of the marketability discount employed by the chancellor when she used the “fair market value” standard. As an alternative to affirming the result below, we should at least modify it by correcting the chancellor’s error as we did in Jones v. Jones, 29 Ark. 133, 777 S.W.2d 873 (1989). There we held that the chancellor erred in reducing the valuation of a husband’s accounting firm by 32% based on the alleged accounts the firm would lose upon the sale of his one-third interest due to divorce when there was no evidence that he was selling his interest or contemplating doing so. We should at least follow the same approach here and delete the reduction for the marketability discount where the effect is the same as we rejected in Jones, namely to reduce appellant’s marital share. Following our approach in Jones would result in a property distribution that is consistent with the facts, one that is equitable, and one which lacks the unseemly appearance that appellant’s rights under Ark. Code ann. § 9-12-315 are being denied so that appellee and his crony can profit. Concurring in part; dissenting in part.