Blake v. Blake Agency, Inc.

Majority - Thompson, J.

No, the determination of "fair value" does not warrant a discount solely for the minority nature of the interest, but it does warrant a discount for lack of marketability; Yes, a minority shareholder is entitled to interest on the "fair value" of their shares; No, not all of a minority shareholder's expenses should be imposed on the corporation, but court costs and disbursements should be apportioned. The court determined that the referee's valuation of goodwill, applying a multiplier of one to gross commission revenue and deducting "Contingent Income," was justified due to the "soft" nature of the insurance industry. However, the referee erred by deducting all "Subproducer Revenue," as 50% of this revenue should be included in the valuation given the subproducers' consistent association with the agency. The court also found that William Blake’s annual compensation of approximately $84,000 was not excessive in light of his abilities and duties. Crucially, the court held that while a discount reflecting the lack of marketability of shares in a closely held corporation (reduced from 40% to 25% in this case) is appropriate, no discount should be applied simply because the interest to be valued represents a minority interest. This is because Business Corporation Law § 1104-a was enacted for the protection of minority shareholders, and allowing a minority discount would grant the corporation an unjustified "windfall" when it elects to purchase shares under Business Corporation Law § 1118. Regarding interest, the court found that Special Term erred in not awarding interest on the "fair value" of petitioner’s shares. Despite the absence of a specific provision in BCL §§ 1104-a and 1118 (unlike the appraisal rights statute, BCL § 623[h][6]), "justice requires" that interest be paid. The appropriate rate is the statutory rate of 9% per annum (CPLR 5004), running from the date immediately preceding the filing of the petition (August 3, 1981) until the date of payment, unless the petitioner acted in bad faith. Finally, the court declined to impose all of petitioner’s costs, expenses, and attorneys’ and experts’ fees on the corporation. Such awards are discretionary. Unlike appraisal proceedings under BCL § 623, which may be commenced by a single shareholder, BCL § 1104-a and § 1118 require 20% of shareholders, reducing the "chilling effect" of litigation costs on an individual. Therefore, court costs and disbursements (including the referee's fee of $10,000) are to be apportioned 1/4 against petitioner and 3/4 against the corporation, based on their respective share percentages. Each party is responsible for its own attorneys’ and experts’ fees. The court also affirmed the referee’s decision not to discount the net tangible assets, finding the corporation had sufficient working capital.