Court Opinion

ID: 9470615
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:11:16.398803+00
Date Added: 2024-06-11T17:38:55.849876
License: Public Domain

TERENCE T. EVANS, District Judge,
dissenting.
The government, having lost on all fronts below, argues on this appeal that the district court erred in giving two instructions offered by the appellee and in refusing to give two others that it itself offered. It also claims that the district court erred in awarding $39,851.72 in attorney’s fees to the appellee pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412.
The entire dispute in this case centers on one simple question: What was the value of the stock that Bernard L. Curry owned in B.L. Curry & Sons, Inc., when he died on October 20, 1977 at the age of 85? That Mr. Curry died over five years ago and the question remains unanswered does not speak well for the “system”. Because the mandate of this court directs a new trial, it almost certainly assures that the question will remain unanswered for a year or two more. Given the circumstances of this case, the nature of the errors found by the majority and the undesirable prospect of having to replay this entire production one more time, I dissent from the judgment of the court.
In a nutshell, Judge Wood’s opinion analyzes the four questioned instructions — two that were given and two that were rejected — and holds:
1. That the district court did not err in refusing to give the government’s requested instruction regarding liquidation value of the Curry stock.
2. That the district court did not err when it instructed the jury that the existence of a stock purchase restriction (a “right of first refusal”) could be considered in valuing the stock.
3. That the district court erred when it told the jury it should put a stronger emphasis on the company’s earning power and ability to pay dividends if it concluded that the business was prosperous and the chances of liquidating it remote.
4. That the district court erred when it refused to instruct the jury that Mr. Curry’s voting and non-voting stock were of equal worth because, at the time of his death, he had voting control of the company.
Thus, the majority has concluded that the district court was both right and wrong on the four questioned instructions. It properly refused one, properly gave one, improperly refused one and improperly gave one. As to the two it was wrong on, only one, the failure to give the equivalency instructions, is deemed to be prejudicial error requiring that the ease be retried.
*1434I have no quarrel with Judge Wood’s eloquent discussion of the four questioned instructions. I part company with him only on the mandate ordering a new trial. His decision, at page 14, notes that “Since the jury found, without the benefit of this instruction, a nearly $100 differential between the two classes of shares, the court’s failure to give the instruction was obviously prejudicial to the government’s interest and would alone warrant a new trial.” I agree that it was error to decline to give the requested equivalency instruction, but I believe the error can be corrected without ordering a new trial.
Abundant evidence in the record supports the estate’s contention that the voting stock had a value of $150 per share. Halsey Sandford, the estate’s primary valuation witness, testified that since there was no established market for the company’s stock (which was not publicly traded), he valued Curry’s stock on the basis of two primary factors, i.e. — the projected earning power of the company as a going concern, and the liquidated value of the company’s assets— with the emphasis given to the company’s potential earning power. Sandford testified that, based upon a comparison of the earnings history of B.L. Curry and Sons, Inc., with those of comparable, publicly traded companies, it was his opinion that the company’s stock would sell for approximately $125 per share if publicly traded. He then discounted that figure by 50 per.cent to reflect the lack of marketability of the company’s stock to arrive at an intrinsic value of $62.50 per share.
To the $62.50 per share intrinsic value, Sandford added a 60 percent control premium ($37.50 per share) to arrive at a per-share value for the voting stock of $100 based upon a “going business approach”. Next, Sandford analyzed the liquidation value of the voting stock. He testified that the net value of the assets of the company, after allowing for projected liquidation expenses, was $1,531,000 (or about $255 per share) on the date of Curry’s death. He further discounted this value by 25 percent to compensate for the risks involved in liquidation. Accordingly, he concluded that the liquidation value of the Curry voting stock was $191 per share. He then averaged the “going concern” and the “liquidation” values computed for the stock to arrive at a final value of $150 per share for Curry’s 800 shares of voting stock. I do not believe that the failure to give the requested equivalency instruction impacts on this portion of Sandford’s testimony. The only real question, one that I would answer “no”, is whether the failure to give the requested instruction caused the jury to value the nonvoting stock at too low a price.
The “nearly $100 differential” that Judge Wood mentions is, in my judgment, as logically traceable to the direct action of the government as it is to the failure to give the requested equivalency instruction. On the tax return filed for Curry’s estate, the executor valued the voting stock at $169.14 per share and the nonvoting stock at $18.79 per share. On audit, the IRS determined that the value of Curry’s voting stock was $440 per share and the value of his nonvoting stock was $300 per share. Why is it not logical to conclude that the cause of the “... nearly $100 differential” is here, in the government’s basket, rather than in the instructions? While it is interesting to note that the government’s position on audit (different values for voting and nonvoting shares) is not consistent with the argument it now makes, I pass the inconsistency but note that its position may have invited the result that the jury reached.
Rather than order a new trial here, I would find as a matter of law, i.e., Ahman-son, supra, and this court’s decision, that the value of Curry’s voting and nonvoting stock was the same. On the basis of this record, it is clear that the value of the nonvoting stock should have been found to be $150 per share, the same value found for the voting stock. Accordingly, I would remand the case to the district court with instructions to modify the judgment consistent with this opinion.
Were this approach to be followed, the estate would arguably, although it is a close question, still be the “prevailing party” in *1435the case. Thus, the propriety of the award of attorney’s fees would be ripe for review. Were I to review that issue I would assume that the estate was the prevailing party but I would find, as a matter of law, that the government’s position was “substantially justified”. Accordingly, I would reverse the award of attorney’s fees. I would maintain that position because the valuation of stock in a small, closely held corporation is not an issue that can be resolved with arithmetic precision. Many judgmental factors must be brought to bear on the question. It is a point, it goes without saying, upon which reasonable minds can disagree. The government is “substantially justified” in litigating such an issue in most any case including this one.