Owens v. Owens - 2021 - Business Valuation of Veterinary Clinic - Trial Value Upheld

JOHN WILLIAM OWENS v. MEREDITH ELIZABETH OWENS
Appeal from the Chancery Court for Meigs County
No. D-1746 Casey Mark Stokes, Judge
IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE
No. E2020-01470-COA-R3-CV
August 19, 2021 Session

Robert Vance testified as a business valuation analyst in this bench trial.

At issue was the value of Taylor Animal Hospital (“TAH”). Vance valued TAH in total as of June 30, 2019, at $1,281,502. Applying discounts for lack of marketability (10%) and lack of control (20%), Husband’s 45% interest was valued at $415,000.Mr. Vance supplemented his report as of December 31, 2019, valuing TAH in total at $1,431,720 and Husband’s 45% interest at $464,000. Vance testified that despite the fact that as an LLC, TAH is a pass-through entity where the owners pay their proportion of the taxes and no tax is paid at the entity level, he applied a “tax effect.” He deducted 6.5% excise tax for the State of Tennessee and the 21% federal tax rate on corporations so that approximately $100,000 was deducted from the cash flow of the business to account for taxes.

Vance observed that when he considered the market approach to business valuation, he arrived at $1,281,502, relatively near the value assigned by Dr. Richard Alan Goebel, Wife’s valuation expert, of $1,200,000. Mr. Vance contended that it is Dr. Goebel’s improper refusal to apply a discount for lack of marketability and a discount for lack of control that causes the primary difference between the experts.

Dr. Goebel noted that his analysis was similar to Mr. Vance’s on certain items, but that he differed with Mr. Vance on tax-effecting and the discounts for lack of control and lack of marketability. Dr. Goebel’s position is that most veterinary practices are passthrough entities, as is TAH, and there is no tax at the business entity level. He further found no reason for the subsequent-event adjustment for the pandemic because companion animal veterinary practices tend to be recession resistant. He determined Husband’s 45% interest’s value to be $1,200,000.

Husband acknowledged that companies had made offers to buy the practice. One purchase offer was for $4.2 million; another was for about $3.3 million.

The trial court announced its opinion from the bench on August 14, 2020. Upon finding that one expert determined the value of TAH to be $464,000 and the other expert found the value to be $1,200,000, the trial court concluded that Husband’s 45% interest in the practice “was in the middle” with a value of $850,000.

Wife asserts that the trial court’s announcement from the bench at the conclusion of trial that one party’s expert found the value of TAH to be $464,000, that the other party’s expert found the value to be $1,200,000, and that the trial court decided that Husband’s interest in the practice “was in the middle” with a value of $850,000, is not a finding of fact that should be accorded any presumption. She contends that the trial court provided no clue as to what elements of Mr. Vance’s testimony it found to be convincing or what parts of Dr. Goebel’s testimony were persuasive. Because the value the trial court placed on Husband’s interest is within the range of values presented by competent evidence, the appellate court declined to second-guess the trial court’s decision on this issue.