In Finch v. Campbell, two valuation reports were prepared for a law firm. The conclusions differed significantly. Instead of seeking an explanation for the discrepancy, the court simply rejected the plaintiff’s appraisal evidence. An appellate court affirmed the circuit court’s “equitable discretion” to exclude the expert’s opinion. Here are the details.
Marital dissolution, partnership dissolution
Two attorneys dissolved their law firm, effective August 1, 2012. They didn’t have a written partnership agreement but equally shared the partnership’s expenses and profits. The partnership operated on a cash basis. Prior to dissolving the partnership, the defendant locked the plaintiff out of the firm’s office space, leaving him with only a laptop computer.
The partnership continued to exist after its effective date, as operations wound down, bills were paid, invoices were sent to clients and receivables were collected. After the dissolution, the defendant opened a new law firm.
Both parties filed claims against each other: The plaintiff felt he had been improperly excluded from the law firm and its profits. The defendant counterclaimed that the plaintiff had failed to record or bill time for legal services rendered for several clients to lower his income for his marriage dissolution proceedings. The defendant argued that the plaintiff’s underbilling put his personal interests above those of the partnership.
In December 2014, the plaintiff’s business valuation expert testified that the partnership’s “liquidity value” was approximately $412,000 as of July 2012. However, the same expert, in 2012, had valued the partnership for the plaintiff’s marital dissolution case at roughly $1,000 — and the family court accepted that valuation when divvying up his marital estate.
The Circuit Court of Jackson County, Missouri, disregarded the testimony of the plaintiff’s valuation expert. Instead, the court relied on a forensic accounting analysis conducted by an unbiased, court-appointed CPA to identify unrecorded receivables and unbilled work-in-progress. Based on that analysis, the court valued the plaintiff’s interest in the partnership at approximately $61,000.
Both parties appealed the decision. But the Western District of Missouri Court of Appeals upheld the circuit court’s value of the partnership interest, along with its decision to reject the appraisal evidence provided by the plaintiff’s expert. The appellate court cited previous Missouri case law, which concluded, “[P]arties are not allowed to take clearly inconsistent positions in differing lawsuits.”
There may be valid reasons for a discrepancy between two opinions. To avoid looking like a “hired gun,” an expert’s report should identify prior business valuations and explain any differences between the conclusions. Likewise, clients should always disclose all prior valuations to their experts to prevent them from being blindsided in court.
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