Court Opinion

ID: 5103654
Source: CourtListenerOpinion
Date Created: 2021-10-02 00:46:39.841437+00
Date Added: 2024-06-11T08:21:08.347475
License: Public Domain

Dissenting opinion by:
SANDEE BRYAN MARION, Justice,
joined by CATHERINE STONE, Justice.
I respectfully dissent and I would affirm the trial court’s judgment.1 I believe this court should answer the question presented at trial and on appeal: should the Finn decision or the Keith decision be followed when determining the value of a professional practice upon divorce? I agree with Annette Stewart’s concurring opinion in Finn and the court in Keith, and would hold that the value of R.V.K.’s interest should be based on the present value of the entities as ongoing businesses, which would include such factors as limitations associated with the buy/sell agreements and consideration of commercial goodwill.
Here, it was undisputed at trial that the Medical Practice Group and the Medical Equipment Business have commercial goodwill. The Medical Practice Group and the Medical Equipment Business are part of a complex group of interrelated entities that work together to provide radiology services in nineteen different locations in the Bexar County area. The Medical *622Practice Group employs thirty-nine physicians, with some, but not all being shareholders, and fifty-five non-physicians. The Medical Equipment Business owns an interest in a partnership, which in turn, owns approximately fifty percent in a limited partnership along with the Methodist Health Care System. The Medical Equipment Business holds and manages all the equipment, the facilities, lease agreements, and the technical services agreements for the Medical Practice Group. These businesses clearly have value separate and apart from the individual physician’s personal skills, ability, and reputation.
I agree with the majority’s statements that no triggering events occurred here, and that the asset subject to valuation is the parties’ stock in the businesses. However, I disagree with the majority’s and concurrence’s analysis of the evidence. The only issue on appeal is whether the formula in the buy/sell agreements controlled valuation of the parties’ interest in the Medical Practice Group and the Medical Equipment Business. R.V.K. has not challenged the legal or factual sufficiency of the evidence, and in fact, states in his reply brief, “Accordingly, the evidence is both legally and factually sufficient to establish a fair market value, absent the buy-sell agreement, in the amount of $464,000.” Because the sufficiency of the evidence has not been raised on appeal, I believe this court should not address whether the evidence was sufficient to support the trial court’s valuations.
Nor do I agree with the majority’s and concurrence’s finding fault with D.H.’s valuations. On appeal, R.V.K. did not challenge D.H.’s methodology except to argue that he did not rely on the limitations imposed by the buy/sell agreements. Nevertheless, because the majority and concurrence reach this issue, I write separately as well.
D.H., who is accredited in business valuation for the American Institute of CPAs, has valued numerous doctors’ practices, as well as other professional practices. In his formal written report, D.H. stated that the “focus of our evaluation was the determination of the fair market value of [R.V.K.⅛] ownership in the various entities.” In reaching his determination, D.H. stated as follows:
It is our understanding that in both the literature of business valuations and in case law, values computed in accordance with a buy-sell agreement may or may not represent the fair market value of an ownership in an entity. While values computed under a buy-sell agreement may have some instructive value, such computations are determinative only if the terms and conditions of the buy-sell agreement are being implemented with respect to the value. It is our understanding that [R.V.K.] is not selling his interest in these entities, and the buy-sell agreements are not being invoked since he is not parting with his interest. Accordingly, we have taken the computations under the buy-sell agreements as pieces of information to be evaluated with all of the other evidence in arriving at our opinion of the fair market value of the interest of [R.V.K.] in each of these entities. (Emphasis added.)
Further, D.H. testified that he applied an 8.3 percent marketability discount to arrive at fair market value. He stated, “I used an 8.3 percent discount which included a minor marketability discount and the fact that he hadn’t fulfilled all his retirement.” When R.V.K.’s counsel said he did not see anything in D.H.’s report that suggested a marketability discount, D.H. stated, “[The] Marketability discount in this case would be relatively small.... Some*623where in the range of 5 or 10 percent.... It’s 8.3 percent, Mr. Bashara.”
A marketability discount is one that is applied for the time value and difficulty of finding a market. If a property interest is particularly attractive and there is an active market of people who would be interested in it, then the discount decreases. D.H. concluded that the fair market value of R.V.K’s interest in the Medical Practice Group was $663,000, and the value of his interest in the Medical Equipment Business was $92,484. Thus, D.H. calculated the fair market value of the stock based on the value of the businesses as ongoing entities, taking into account the limitations imposed on the stock by the shareholder agreements and the lack of a market for the stock. I believe this was proper. Furthermore, D.H.’s testimony was the only evidence of fair market value. R.J.R. did not testify about fair market value; instead, he based his valuation on the amount that would be payable under the buy/sell agreements.
D.H. did not apply a minority discount to his valuation of the Medical Practice Group stock. A minority interest discount is one that is applied when the seller is a minority shareholder and has no controlling interest in the company. However, during cross-examination, D.H. admitted that he had recommended a twenty-five to thirty percent minority discount in a similar medical practice valuation case where the doctor owned an eight percent interest in the medical practice. As a result, the trial court properly applied a thirty percent minority discount and determined that the value of R.V.K’s stock in the Medical Practice Group was $464,000, rather than $663,000.00.
In one of his worksheets, D.H. calculated the value of the entire Medical Practice Group and stated “Enterprise value $16,481,077.” He did not define the term “enterprise value,” but he used it during his testimony to refer to the value of the Medical Practice Group as a whole. D.H. then calculated the value of the parties’ interest in the business. In my opinion, in order to determine the parties’ interest, D.H. properly determined the value of the entire business first.
While I agree with R.V.K. that a spouse who signs a contract should be bound by it absent a showing of fraudulent inducement, none of the triggering events specified in the agreements have occurred here. Unless a triggering event occurs, I believe a trial court should not be limited to the formula in the agreement when determining the value of an individual’s share upon divorce. I would conclude that the value of the parties’ interest should be based on the present value of each entity as a going business, taking into consideration the limitations imposed by the shareholder agreements and the commercial goodwill. In my opinion, that is what the trial court did in this case.
For these reasons, I would affirm the trial court’s judgment in all respects.

. I do concur with the majority regarding the sealing order.