Actives International, LLC. v. Reitz
On June 16, 2006, The Honorable Peter E. Doyne, P.J.S.C., wrote an interesting and important decision that relates to minority oppression litigation. In Actives International, LLC, et. al. v. Reitz, et. al. the Court addressed the valuation date when dealing with a closely held company. Valuation is one of the most important issues in a minority oppression suit.
The valuation date is important when valuing a business because the value of a closely held company could change over the course of time. In this case, the company’s value decreased over time because it lost a number of significant accounts. In my vast experience representing individuals and businesses in minority oppression claims, I have seen companies become more and less profitable over time. I have seen companies both secure and lose business. If those changes are significant it could effect the value of the company.
Actives International filed a five count complaint with the Superior Court of New Jersey, Chancery Division, Bergen County on July 7, 2005. Shortly after the litigation was filed, the parties’ lawyers agreed in writing to use December 31, 2005, as the valuation date. New Jersey law presumes that the valuation date to be used in a minority oppression claim is the date when the complaint was filed. That presumption may be overcome upon the showing of certain equitable factors. In this case, Actives International lost two significant customers after the filing of the complaint, July 7, 2005. The loss of those two significant customers could reduce the value of the closely held company. Nevertheless, Judge Doyne agreed to enforce the attorneys’ agreement. The Court’s enforcement of the latter valuation date was based upon the failure of the defendants to demonstrate that the plaintiffs’ improper actions caused an artificially low valuation date to be utilized.
This case is instructive to both attorneys (representing clients) and persons involved in minority oppression suits. First and foremost, before a valuation date (other than the date the complaint is filed) is agreed on, you should consider what may happen to the company. You should consider the possibility of obtaining and losing business. Moreover, you should consider the effect of those possible business fluctuations on the ultimate value of the company. In addition, you should also consider the financial future of the company if you are considering commencing minority oppression litigation. Again, Courts will presume that the date the complaint is filed is the applicable date for valuation purposes. If you are aware of the direction of the company it may be prudent to either commence litigation immediately or wait.