accounting Shareholders’ agreement’s inclusion of mandatory adjustments to valuation of employee share redemption price did not preclude application of accounting industry standard adjustments and discounts.

  1. Allen Hornberger appealed from the judgment entered in favor of appellee Dave Gutelius Excavating. Inc. Appellee was a closely-held corporation operating an excavation construction business. Appellant worked as a land surveyor for appellee. In 2006, appellant purchased 10 shares of common stock of appellee pursuant to a stock purchase agreement. Appellant also entered a shareholders’ agreement with appellee and other shareholders, which granted appellee the right to redeem appellant’s shares if he ceased being an employee. The agreement provided that redeemed shares would be calculated according to the company’s adjusted net book value.

Appellant resigned in November 2011; after obtaining a valuation from Bradley Kellett, an independent CPA, appellee sought to redeem appellant’s shares for $42,800. Kellett’s valuation letter stated that the valuation included both a minority ownership discount and lack of marketability discount. Appellee filed an action for specific performance, and the trial court issued an injunction requiring appellant to surrender his shares and appellee to pay the $42,800. Both parties complied with the injunction.

Thereafter, appellant filed the present action, arguing that appellee had improperly discounted the value of appellant’s shares in violation of the agreement. Appellant asserted that his shares should have been valued at $64,360, and sought the difference between that amount and what appellee paid him. Appellee introduced an expert report from Kellett, in which he explained that, as appellant owned approximately one percent of appellee and the shareholders’ agreement appeared to be intended to keep the value of shares low, he applied minority ownership and lack of marketability discounts to the adjusted net book value of appellant’s shares.

At trial, appellant presented the testimony of CPA Brian Elasser, who disagreed with Kellett’s application of minority ownership and lack of marketability discounts. Elasser opined that the shareholders responded that the mandatory adjustments were non-exclusive and thus adjusted net book value included the accounting industry standard discounts. The court agreed with appellee and affirmed. The court noted that all experts agreed that including of minority ownership and lack of marketability discounts was standard accounting practice for closely-held corporations. However, the court ruled that the list of mandatory adjustments did not application of standard adjustments of discounts.


Reference: Homberger v. Dave Gutelius Excavating, Inc., PICS Case No. 18-0021 (Pa. Super. Dec. 15, 2017), Digest of Recent Opinions, Pennsylvania Law Weekly, 41 PLW 60, January 16, 2018


Kindly visit our Business & Commercial Litigation and Business Planning/Business Law websites or contact one of our Business & Commercial Litigation Attorneys, Philadelphia or Business Law Attorneys, Philadelphia for more information on this topic.