This Business Court case concerns the valuation of shares of the Aberdeen and Rockfish Railroad Company, a North Carolina short-line railroad. Judge Jolly granted in part, and denied in part, the Defendants’ Motion for Summary Judgment, on May 20, 2008, in In The Matter Of The Ruth Cook Blue Living Trust.
The shares at issue were held by a Trust. The Trust Agreement provided that upon the death of the settlor (Mrs. Blue), the shares were to be offered to the members of her family "at the value established by the accounting firm engaged by the Railroad as of December 31 of the year preceding my death."
The Trustees (the Plaintiffs) and the family members entitled to buy the shares (the Defendants) were at odds about their value. The Court ruled, on summary judgment, that the word "value" meant "’fair market value’ of the Railroad shares as the same would be viewed by the Trust, as prospective seller, and the Blue family, as prospective purchasers." The term "value" did not mean the fair market value of the shares if they had been offered to the general public.
The Defendants argued that a valuation report done by the Railroad’s accounting firm shortly before Mrs. Blue’s set the value for the shares. The Court noted, however, that this report had been prepared "for the limited purpose of determining the fair market value between a willing buyer and a willing seller in the general marketplace of a minority interest of a share of the Railroad’s common stock for gift and estate tax purposes." The Court found that there were material issues of fact whether this valuation, which incorporated a significant discount for the lack of marketability of the shares, reflected the intent of Mrs. Blue. (There were similar issues raised by the Classic Coffee Concepts case earlier this year.)
The Court granted summary judgment, however, on the issue of whether the accounting firm issuing the report was in fact the proper firm to perform the valuation. It found that it was. Then, the Court rejected an argument by the Plaintiffs that they were entitled to challenge the methodology of the accounting firm. It held "the court notes that since Ruth Cook Blue is deemed to have embraced the expertise of [the accounting firm] by virtue of paragraph 8.01 of the Trust Agreement, it is likely that criticism of [the accounting firm’s] valuation methodology would be of limited probative value, if it would be admissible at all."
The Court also allowed an amendment to the Complaint which, if not allowed, might have been determinative of the valuation issue.
In the original verified Complaint, the Plaintiffs had alleged that the valuation report provided by the Railroad’s accounting firm was determinative of the price at which the stock was to be offered. After that filing, the Plaintiffs had a change of heart about the binding nature of the accounting firm’s report, and sought to amend their Complaint to withdraw their allegation that the report was determinative. The Defendants opposed the amendment, arguing that the allegations of the verified Complaint constituted binding judicial admissions.
The Court recognized that the proposed new allegations were "substantively different" from those in the original Complaint, but allowed the amendment. It held that the duty of construing the relevant provisions of the Trust Agreement was its domain, and stated "variations existing between the Petition and the Amended Petition regarding the Trustee’s contended construction of the Trust Agreement are not of material consequence in this setting."
Plaintiffs’ Brief In Opposition To Defendants’ Motion For Summary Judgment
Plaintiffs’ Reply Brief In Support Of Their Motion To Amend