Court Refuses to Reconsider Valuation of Closely Held Company Stock

Court Refuses to Reconsider Valuation of Closely Held Company Stock

News story posted in U.S. Court of Claims on 7 March 2003| comments
audience: National Publication | last updated: 18 May 2011


In Jeffrey Okerlund, et al. v. United States, the Court of Federal Claims has refused to reconsider the court's earlier opinion valuing stock in a closely held business for gift and income tax purposes.

Jeffrey Okerlund, et al. v. United States; No. 99-133T; No. 99-134T (14 Feb 2003)

Reference: Jeffrey L. Okerlund, et ux., et al. v. United States, 53 Fed. Cl. 341 (Fed. Cl. 2002)

Full Text:

In the United States Court of Federal Claims

(Filed: February 14, 2003)


[1] Pending before the court is plaintiffs' motion under Rules 52(b) and 59 of the United States Court of Federal Claims ("RCFC") for amended findings of fact, and conclusions of law, or, in the alternative, for a new trial [hereinafter referred to as "Motion for Reconsideration"]. Plaintiffs challenge the court's valuation of stock in a closely-held business, Schwan's Sales Enterprises, or "SSE," for gift and income tax purposes. The plaintiffs assert that the court's opinion is based on several "manifest errors" which require correction. For the reasons that follow, plaintiffs' Motion for Reconsideration, filed December 3, 2002, is DENIED.


1. Standard of Review

[2] Under RCFC 52(b) and 59, the court may reconsider and amend its findings in appropriate circumstances. In order to obtain relief, a party must show a manifest error of law, or mistake of fact. The motion is not intended "to give an unhappy litigant an additional chance to sway the court." Bishop v. United States, 26 Cl. Ct. 281, 286 (1992) (quoting Circle K Corp. v. United States. 23 Cl. Ct. 659, 664 (1991)). As the Bishop court explained, ordinarily "[t]he movant must show either that an intervening change in controlling law has occurred, evidence not previously available has become available, or that the motion is necessary to prevent manifest injustice." Id. (citing Weyerhauser Corp. v. Koppers Co., 771 F. Supp. 1406, 1419 (D. Md. 1991)).

2. Plaintiffs' Arguments Were All Previously Considered and Properly Rejected

[3] Plaintiffs base their motion for reconsideration on three grounds. Each of these grounds will be examined in turn. First, plaintiffs argue that the court should not have accepted Dr. Spiro's, the government expert's, opinion because his valuation was not based on reasonable assumptions. In particular, plaintiffs argue that his expert opinion was deficient for failing to take into account the actual results of SSE's earnings for 1993 and 1994. SSE's earnings slipped significantly in 1993 and 1994 following certain unforeseeable events. According to the plaintiffs, the court failed to test the "reasonableness of the assumptions" used by the government's expert by failing to consider SSE's earnings in 1993 and 1994. While the plaintiffs apparently agree that Dr. Spiro did not err in failing to consider post-valuation date earnings based on unforseen events in making his valuation, they argue that those same unforseen post-valuation events should have been used to test the reasonableness of his assumptions. The government argues, and the court agrees, that the court did, in fact, consider and reject the plaintiffs' argument. The opinion states that "[p]laintiff's [sic] reliance on SSE's actual financial results for 1993 and 1994 to cast doubt on defendant's appraisal must be . . . rejected." Okerlund v. United States, 53 Fed, Cl. 341, 355 n.22 (2002). This language reflects the fact that the court understood plaintiffs' argument. The opinion makes it clear that the plaintiffs believed that the 1993 and 1994 earnings should be used to test the reasonableness of Dr. Spiro's assumptions, but that the court found that Dr. Spiro correctly decided not to use the 1993 and 1994 earnings to alter his assumptions for 1992. In such circumstances, this objection to the opinion does not provide a basis for amending the conclusions of law or for a new trial.

[4] Second, plaintiffs assert that a new trial is needed because the court failed to analyze the assumptions used by Dr. Spiro in his "Discounted Cash Flow" ("DCF") Approach to value. In particular, plaintiffs assert that the court failed to appreciate that Dr. Spiro used different risk factors under his DCF Approach than he did in his Market Approach to value. The opinion states that "[f]or the reasons discussed below, the Court found the indications of value derived by the government's expert using the market and income approaches more credible than the values derived by plaintiff's [sic] expert." Okerlund, 53 Fed. Cl. at 347. Following this statement, the opinion discusses the Market Approach and includes a detailed examination of Dr. Spiro's analysis of relevant valuation factors. With respect to Dr. Spiro's assumptions under the DCF method, the opinion states: "[f]or the reasons discussed above with respect to the selection of market pricing multiples, the Court finds that the risks attributed by Dr. Pratt to SSE are overstated in comparison with Dr. Spiro's analysis of the enterprise risks facing SSE." Id. at 351. Plaintiffs argue that Dr. Spiro did not use the same risk factors in his DCF analysis and his Market analysis, and, therefore, the court failed to properly evaluate the assumptions that Dr. Spiro used for his DCF analysis. The plaintiffs' contention that the court failed to understand what assumptions were used by Dr. Spiro for his DCF approach is unsupported. The court plainly found Dr. Spiro's risk analysis was more credible than Dr. Pratt's analysis. The fact that the opinion does not include a specific evaluation of Dr. Spiro's assumptions does not mean that the court misunderstood the expert's analysis. It is clear that after hearing the testimony, the court found that Dr. Pratt's analysis was not as reliable as Dr. Spiro's. The court was not required to provide more analysis than was provided to support this conclusion. See 9A Wright & Miller, Fed. Prac. & Proc. Civ. ยง 2579 (2d ed. 2002) ("[I]t is not necessary for the court to make findings asserting a negative of each issue raised, but is sufficient if special affirmative facts found by the court, construed as a whole, negative each rejected contention."). The plaintiffs' objections in this regard do not provide a basis for amending the court's findings or for a new trial.

[5] Finally, plaintiffs argue that the court erred by not treating Marvin Schwan's estate plan redemption agreement as an enterprise risk for the 1992 valuation, while it did for the 1994 valuation. Contrary to plaintiffs' argument, however, the court did in fact take the redemption agreement into account as a risk with respect to the 1992 valuation. The court expressly stated that the fact that the redemption agreement had not been triggered meant it was a potential deterrent to investment and therefore warranted a 40% discount for lack of marketability in 1992, as compared to a 45% discount in 1994, after the agreement was triggered. See Okerlund at 355. The fact that the court disagreed with plaintiffs' approach to the significance of the redemption agreement does not mean that the court failed to consider the agreement. This objection to the court's decision also fails to provide a basis for amended findings of fact or conclusions of law or a new trial.


[6] Based on the foregoing, plaintiffs' motion, filed on December 3, 2002, for amended findings of fact, and conclusions of law, or, in the alternative, for a new trial is DENIED.



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