Finkel v. Palm Park, Inc.

Finkel v. Palm Park, Inc., 2020 NCBC 84.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
COUNTY OF WAKE SUPERIOR COURT DIVISION
17 CVS 14515

DAVID FINKEL; HD FUNDING,
INC., and HORIZON FUNDING,
LLC,

Plaintiffs,

v.
ORDER AND OPINION ON
VALUATION OF THE OAKS AT
PALM PARK, INC.; NATHAN
NORTHGATE, LLC
BYELICK; MARGARET
BYELICK; OAK CREST
PROPERTY MANAGEMENT,
INC.; and THE OAKS AT
NORTHGATE, LLC,

Defendants.

THIS MATTER comes before the Court following an evidentiary hearing

regarding the valuation of The Oaks at Northgate, LLC (“TONG”) pursuant to

N.C.G.S. § 57D-6-03(d) following an evidentiary hearing held on September 14 and

15, 2020 (“the Hearing”).

THE COURT, having considered the evidence presented at the hearing and

the evidence presented at trial, the briefs filed by Plaintiffs and Defendants, the

arguments of counsel at the hearing, the applicable law, and other appropriate

matters of record, FINDS and CONCLUDES, as set forth below.

Fox Rothschild, LLP, by Mark A. Finkelstein, Esq. and Stephen W.
Petersen, Esq. for Plaintiffs David Finkel, HD Funding Inc., and
Horizon Funding, LLC.

J.C. White Law Group, PPLC, by James C. White, Esq., and Shilanka
I. Ware, Esq. for Defendants Palm Park, Inc., Nathan Byelick, Margaret
Byelick, Oak Crest Property Management, Inc., and The Oaks At
Northgate, LLC.

McGuire, Judge.

I. BACKGROUND

1. This dispute arises out of disagreements between the two members of

TONG, Horizon Funding, LLC (“Horizon”) and Oak Crest Property Management,

Inc. (“Oak Crest”), over the management of TONG (collectively, Horizon and Oak

Crest are “the Parties”). Plaintiff David Finkel (“Finkel”) owns Horizon, and

Defendants Nathan Byelick and Margaret Byelick (“Byelicks”) are the sole

shareholders of Oak Crest. Horizon owns a 37.5% interest in TONG, and Oak Crest

owns a 62.5% interest.

2. TONG’s sole asset is a 100% stock ownership in Palm Park, Inc. (“Palm

Park”). Palm Park owns three properties: a multi-tenant office building at 1135

Kildaire Farm Road, Cary; a multi-tenant office warehouse building at 3221 Durham

Drive, Raleigh; and a multi-tenant flex warehouse building at 527 E. Chatham

Street, Cary (collectively, the three properties owned by Palm Park are the

“Properties”). Palm Park does not manage the Properties, but rather contracts

management to a third-party commercial management firm, Colliers International

(“Colliers”).

3. This case was tried from January 13, 2020 through January 22, 2020

in the Superior Court of Wake County. Horizon’s claim for constructive fraud was

tried to the jury, and Horizon’s claim for judicial dissolution of TONG was tried to

the Court. On January 22, 2020, the jury returned its verdict on the issues of
liability and damages, finding that the Byelicks breached fiduciary duties to Horizon

by: (a) allowing Palm Park to pay for personal expenses for the Byelicks, their family

members, or the Byelicks’ separately-owned companies; and (b) allowing Palm Park

to enter into lease agreements and amendments with companies owned by the

Byelicks. The jury awarded Horizon $41,784.25 in damages.

4. On February 11, 2020, the Court entered its Final Judgment on the

jury’s verdict. (ECF No. 149.) The Court, in its discretion, also entered judgment

for Horizon on its claim for judicial dissolution of TONG pursuant to N.C.G.S. § 57D-

6-02(2)(ii). Further, the Court found that given the evidence presented at trial,

TONG’s liquidation was necessary to protect the rights and interests of Horizon as

a member of TONG and concluded that TONG should be dissolved as a matter of

law. (Id. at p. 3.)

5. On April 24, 2020, the Court issued an Amended Final Judgment

allowing Oak Crest to elect whether to purchase Horizon’s ownership interest in

TONG pursuant to N.C.G.S. § 57D-6-03(d), which provides, “[i]n any proceeding

brought by a member under clause (ii) of [N.C.]G.S. 57D-6-02(2) in which the court

determines that dissolution is necessary, the court will not order dissolution if after

the court’s decision the LLC or one or more other members elect to purchase the

ownership interest of the complaining member at its fair value in accordance with

any procedures the court may provide.” (Am. Final Judgment, ECF No. 157, at pp.

7–8.) Oak Crest subsequently elected to purchase Horizon’s membership interest.
6. On May 5, 2020, the Court issued an Order Appointing Receiver,

appointing a receiver solely for the purpose of managing the operations and business

of TONG until the sale of Horizon’s membership interest to Oak Crest is completed.

7. The Court held a conference with counsel during which they requested

retention of Frank D. Leatherman, Jr. (“Leatherman”), MAI, CCIM, an experienced

Wake County real estate appraiser, to appraise the Properties. Leatherman had

performed multiple appraisals of the Properties over the years for different business

purposes. The Parties stipulated to an effective appraisal date of February 11, 2020.

8. On June 18, 2020, Leatherman issued his initial appraisal reports for

each of the Properties (“June 18 Reports”). Defendants found certain calculation

errors in the June 18 Reports and brought those errors to the attention of the

receiver. 1 The receiver asked Leatherman to review the June 18 Reports and correct

the errors. On July 9, 2020, Leatherman issued revised appraisal reports correcting

the errors identified by Defendants (“July 9 Reports”). The corrected calculations

decreased the appraised values of the Properties. However, without discussion or

explanation, Leatherman made several adjustments to the inflation and

capitalization rate assumptions he used in the June 18 Reports. The unexplained

adjustments resulted in the final appraised values of the Properties remaining

essentially unchanged from the June 18 Reports.

9. The Court set, and subsequently extended, deadlines for the Parties to

submit briefs on the appropriate methodology for determining the fair value of

1The Court’s understanding is that the errors in the June 18 Reports were caused by
Leatherman’s use of an outdated software in determining discounted cash flow rates.
Horizon’s interest in TONG. (Orders on Briefing, ECF Nos. 162 and 167.) On July

17, 2020, Horizon filed its Memorandum in Support of the Proper Methodology for a

Fair Valuation of TONG, LLC (ECF No. 173), and the Affidavits of Jay Taylor

(“Taylor”) (ECF No. 174), and David Finkel (ECF No. 175). On July 17, 2020, Oak

Crest filed its Memorandum of Law Regarding Valuation of [TONG, LLC] (ECF No.

176), and nine supporting exhibits (ECF No. 176.1–9.)

10. On July 31, 2020, Horizon filed a Fair Valuation Response Brief (ECF

No. 177) and the Affidavit of Jeanne M. Foley (ECF No. 178). On July 31, 2020, Oak

Crest filed its Response to Plaintiffs’ Valuation Brief. (ECF No. 179.)

11. On September 11, 2020, Horizon and Oak Crest filed a set of Stipulated

Facts for Valuation Hearing. (Stipulations, ECF No. 183.)

II. THE HEARING

12. On September 14 and 15, 2020, the Court held the Hearing. At the

Hearing, Horizon presented the testimony of Leatherman, Taylor, who was qualified

as an expert in commercial real estate brokerage, and Finkel. Oak Crest presented

testimony from Jerry L. Wilcoxon (“Wilcoxon”), CPA/ABV, CVA, an expert in

business valuation.

13. In addition, the Court admitted numerous exhibits offered by the

Parties designated as Plaintiffs’ Valuation Hearing Exhibits (“PVH Ex.”) and

Defendants’ Valuation Hearing Exhibits (“DVH Ex.”).

14. The parties also stipulated to certain financial data regarding TONG

and Palm Park necessary to conduct the valuation of TONG as follows:
DESCRIPTION OF ASSET OR LIABILITY AMOUNT AS
OF FEBRUARY
2020
Current Cash Assets of Palm Park $ 298,360.00
Indemnity advance by Palm Park, Inc. to Byelicks 231,428.32
Principal Balance Loan A: 1135 Kildaire Farm Rd. 1,816,890.15
Principal Balance Loan B: 1135 Kildaire Farm Rd. 391,209.71
Principal Balance Loan C: 3221 Durham Drive 657,541.20
Palm Park Current Liabilities other than 144,146.83
loans listed elsewhere on this chart
Cannon Family Charitable Remainder UniTrust
loan principal balance - does not account for 470,224.54
defeasance or profit sharing
Cannon Family Trust Note principal balance – 649,815.54
does not account for defeasance or profit sharing
TONG Current Assets 30,000.00
TONG Current Liabilities other than loans 0

A. Horizon’s Position

15. Horizon contends that TONG is effectively a real estate holding

company. Horizon argues that TONG is not an operating entity, and that it exists

solely for the purpose of owning 100% of the stock of Palm Park, which exists solely

to own and collect rents from tenants of the Properties.

16. Horizon argues that TONG should be valued using a “net asset”

approach under which the fair value of TONG is calculated by taking the aggregate

appraised values of the Properties, as determined by Leatherman, adding to that

figure Palm Park’s and TONG’s other assets, and subtracting Palm Park’s and

TONG’s debts/liabilities. At the hearing, Taylor testified that according to his

experience as a broker for numerous commercial real estate transactions, including

transactions like the sale of limited liability companies that were real estate holding

companies, Horizon’s proposed net asset approach is an accepted method of valuing
commercial property. Finkel also testified that per his experience as a real estate

investor, the net asset approach is commonly used to determine the value of

commercial properties.

B. Oak Crest’s Position

17. Oak Crest agrees that the net asset approach is the proper method for

determining the fair value of TONG, but contends that Palm Park is a real estate

holding company and TONG is an investment holding company. 2 Therefore, Oak

Crest argues that the fair value of TONG should be determined based on the fair

market value of Horizon’s interest in TONG using an “orderly liquidation” 3 premise

based on a hypothetical unforced liquidation of TONG’s assets.

18. The Parties agree that no marketability or lack of control discounts

should be applied in determining the fair value of TONG.

C. Leatherman’s Reports and Horizon’s Proposed Valuation

19. As noted above, Leatherman issued the June 18 Reports (DVH Ex. 13,

3221 Durham Drive; DVH Ex. 15, 1135 Kildaire Farm Road; DVH Ex. 17, 527 E.

Chatham Street) and revised July 9 Reports (PVH Ex. 14, 3221 Durham Drive; PVH

Ex. 15, 1135 Kildaire Farm Road; PVH Ex. 16, 527 E. Chatham Street). In the June

18 Reports, Leatherman considered three approaches in determining the value of

2 Oak Crest does not contend that TONG is an operating company.

3 “Orderly Liquidation Value is defined as: ‘[A]n opinion of gross amount, expressed in terms

of money, that typically could be realized from a liquidation sale, given a reasonable period
of time to find a purchaser (or purchasers), with the seller being compelled to sell with a
sense of immediacy on an as-is, where-is basis, as of a specific date.’” In re Motors
Liquidation Co., 576 B.R. 325, 437(S.D.N.Y. 2017).
the Properties: a cost approach based on the amounts actually paid by Palm Park for

the Properties; a sales comparison approach using sales of comparable properties in

the relevant market; and an income capitalization approach based on an analysis of

the current and/or future income generating potential of the Properties.

20. Leatherman also visited and inspected the Properties and conducted a

thorough analysis of information relevant to appraising the Properties including

market conditions and the condition of, and improvements made to, the Properties.

21. In applying the sales comparison approach, Leatherman used six

relatively recent sales of similar commercial properties to determine an adjusted

sales price per square foot for each of the Properties.

22. In applying the income capitalization approach, Leatherman

considered different methods of determining the capitalized value of the Properties

and ultimately performed a discounted cash flow analysis and a direct capitalization

analysis, applying assumptions regarding the appropriate direct capitalization rate,

terminal capitalization rate, rent inflation rate, and expense inflation rate.

Leatherman ultimately concluded that the discounted cash flow analysis, rather

than direct capitalization analysis, was the better method of valuing the Properties.

In addition, although Leatherman did not use the sales comparison values to

determine the appraised value of the Properties, he concluded that the sales

comparison approach “supported” the discounted cash flow analysis. (DVH Exs. 13,

pp. 92–94; DVH Ex. 15, pp. 86–88; DVH Ex. 17, at pp. 99–101.) The valuation
determinations that Leatherman reached in his June 18 Reports are summarized as

follows:

3221 Durham 527 E. 1135 Kildaire
Dr. Chatham St. Farm Rd.
Sales Comparison $3,430,000 $875,000 $7,390,000
Approach
Income Capitalization $3,385,000 $825,000 $7,405,000
Approach (discounted
cash flow)
Direct Capitalization $2,875,000 $820,000 $4,740,000
Approach
Final Value $3,385,000 $825,000 $7,405,000
Conclusion

23. The final aggregate appraised value of the Properties as determined by

Leatherman in the June 18 Reports was $11,615,000.00.

24. Leatherman subsequently issued the July 9 Reports to correct certain

errors in the June 18 Reports. Although there was no change in the values using

the Sales Comparison approach, the corrections resulted in a significant decrease in

the appraised values as determined using the discounted cash flow analysis: 4

Corrected Income Capitalization Calculations
3221 Durham 527 E. Chatham 1135 Kildaire
Dr. St. Farm Rd.
Sales Comparison $3,430,000 $875,000 $7,390,000
Approach
Income Capitalization $2,973,000 $677,000 $5,866,000
Approach (discounted
cash flow)

25. If no other changes were made to the assumptions or methodology used

in the Leatherman June 18 Reports and each of the Properties were valued using

4 These figures are drawn from Wilcoxon’s Valuation Report (DVH Ex. 36, at p. 21), but are

not disputed by Horizon.
the discounted cash flow value, the corrections would result in an aggregate

appraisal value for the Properties of $9,516,000.00.

26. However, the July 9 Reports left the appraised values of the Properties

virtually unchanged from the June 18 Reports as follows:

3221 Durham 527 E. 1135 Kildaire
Dr. Chatham St. Farm Rd.
Cost Approach N/A N/A N/A
Sales Comparison $3,430,000 $ 875,000 $7,390,000
Approach
Income Capitalization $3,440,000 $825,000 $7,340,000
Approach (discounted
cash flow)
Final Value Conclusion $3,435,000 $825,000 $7,365,000

27. The final aggregate appraised value of the Properties in the July 9

Reports is $11,625,000.00, an increase in the aggregate appraised value of

$10,000.00 from the aggregate appraisal value of the Properties in the June 18

Reports.

28. Leatherman arrived at the final valuations of the Properties in the July

9 Reports by adjusting several assumptions that he used in the June 18 Reports. In

the Leatherman July 9 Reports: a) Leatherman increased his rent inflation

assumptions from 3.0% to 4.0% and decreased the expense inflation rates from 2.3%

to 2.0%; and b) for the 1135 Kildaire Farm Road property, Leatherman decreased

the direct capitalization rate from 8.0% to 7.0%, decreased the terminal

capitalization rate from 8.5% to 7.5%, and decreased the discount rate from 9.0% to

8.5%. Although the July 9 Reports were issued just three weeks after the June 18

Reports, Leatherman provided no explanation for these changes. At the hearing,
Leatherman was questioned about the changes in the assumptions between the two

sets of reports. His only explanation was that at the time he issued the July 9

Reports, he had concluded that the commercial rental market in February 2020 was

better than he had previously believed, and that this led him to change certain

assumptions. He did not explain the basis for this changed conclusion.

29. In addition, instead of using only the discounted cash flow value as he

had done in the June 18 Reports, in the July 9 Reports, Leatherman used an average

of the values reached through the sales comparison approach and discounted cash

flow analysis for the 1135 Kildaire Farm Road and 3221 Durham Drive properties.

In the July 9 Reports Leatherman did not explain why he changed the calculation

method other than noting that “the Sales Comparison Approach directly supports

the Income Capitalization Approach.” (PVH Ex. 14, at p. 93; PVH Ex. 16, at p. 100.)

30. Horizon argues that the fair value of TONG should be determined by a

simple net asset calculation, adding the appraised values of the Properties to Palm

Park’s and TONG’s other stipulated assets, and subtracting Palm Park’s and

TONG’s stipulated liabilities. (ECF No. 177, at pp. 16–17.) However, Horizon

contends the Court should value the Properties using the aggregated appraisal

values in the Leatherman July 9 Reports as determined by the sales comparison

approach only, and not the discounted cash flow analysis values, resulting in an

aggregated value of $11,695,000.00. (Id.) Horizon argues that the Court should add

Palm Park’s stipulated Current Cash Assets to the aggregated appraisal value of the

Properties, but with an adjustment decreasing the cash assets from $298,360 to
$274,964.04. (Id.; explaining reason for adjustment).) Horizon also adds a receivable

for an indemnity advance made by Palm Park to the Byelicks in the amount of

$231,428.32. 5 (Id.) Horizon does not seek to add to TONG’s assets a $30,000.00

entry in the stipulated assets and liabilities listed only as “TONG Current Assets.”

Horizon contends TONG’s assets should thus be valued at $12,201,374.36. (Id. at p.

16.)

31. TONG’s total stipulated liabilities are $4,129,827.97. (Id. at p. 17; ECF

No. 183.) Horizon contends that the net asset value of TONG, subtracting TONG’s

liabilities from its assets, is $8,071,546.69. Accordingly, Horizon argues that the

value of its 37.5% membership share in TONG is $3,026,830.01. (Id. at p. 17.)

D. Wilcoxon’s Report and Oak Crest’s Valuation

32. Wilcoxon prepared a “Valuation Analysis of TONG as of February 11,

2020” (dated September 15, 2020). (“Wilcoxon’s Valuation Report,” DVH Ex. 36.)

Wilcoxon described his assignment as “determin[ing] the Fair Market Value of a

37.5% Membership Interest in [TONG] on a control, marketable basis as of February

11, 2020.” (Id. at p. 6.)

33. Wilcoxon considered three potential approaches to valuing TONG and

Horizon’s membership interest: an income approach, a market approach, and a net

asset approach. (Id. at pp. 4 and 13–14.) Wilcoxon chose to use a net asset approach,

concluding that a “common application of the asset accumulation method is in the

5 This amount represents the attorneys’ fees and costs advanced to the Byelicks for defense

of this lawsuit pursuant to Palm Park’s bylaws. Defendants stipulated that the advances
are owed back to Palm Park.
valuation of ‘holding Company’ type entities, whose sole function is investing in other

businesses or in marketable securities.” (Id. at p. 14.)

34. As a starting point for determining the values of the Properties,

Wilcoxon corrected Leatherman’s errors in calculating the values of the Properties

under the discounted cash flow approach and the direct capitalization approach in

the June 18 Reports, but applied the rent inflation, expense, direct capitalization

rate, and terminal capitalization rate assumptions used in Leatherman’s June 18

Reports, and not the modified assumptions used in Leatherman’s July 9 Reports.

(Id. at pp. 21 and 24–25.) The corrections result in the following corrected values:

Corrected Income Capitalization Calculations using
Leatherman’s June 18 Report Assumptions
3221 Durham 527 E. 1135 Kildaire
Dr. Chatham St. Farm Rd.
Sales Comparison $3,430,000 $875,000 $7,390,000
Approach
Corrected Income $2,973,000 $677,000 $5,866,000
Capitalization
Approach (discounted
cash flow)
Corrected Direct $2,875,000 $820,000 $4,740,000
Capitalization
Approach

(Id.)
35. Based on a comparison of the corrected capitalization figures, Wilcoxon

concluded that Leatherman’s direct capitalization values, as determined in the July

9 Reports, were a more “consistent” and “reliable” value determination than the

discounted cash flow values. (Id. at p. 25.) Based on this conclusion, Wilcoxon

arrived at final values for the Properties by using the direct capitalization and sales

comparison values appearing in Leatherman’s July 9 Reports, and by averaging the
direct capitalization approach and sales approach values to reach a final value for

the 1135 Kildaire Farm Road property and the 3221 Durham Drive properties, and

using the value determined by the direct capitalization approach to reach a final

value for the 527 E. Chatham Street property as follows:

Wilcoxon’s Final Accepted Values per Appraisal Report
dated July 9, 2020
3221 Durham 527 E. 1135 Kildaire
Dr. Chatham St. Farm Rd.
Sales Comparison $3,430,000 $875,000 $7,390,000
Approach
Direct Capitalization $2,875,000 $820,000 $5,480,000
Approach
Final Value $3,152,500 $820,000 $6,435,000
Conclusion

(Id. at p. 26.) Wilcoxon’s aggregate appraised value for the Properties is

$10,407,500.00. (Id. at 27.)

36. Using his corrected values for the Properties, Wilcoxon then created a

hypothetical “orderly liquidation” of Palm Park. First, Wilcoxon deducted from the

aggregate appraised value a hypothetical 6% “costs of sale” for legal and broker fees

that the Parties would pay to sell the Properties ($624,450.00). (Id. at p. 27.)

Wilcoxon also deducted the federal and state capital gains taxes that would be

payable by Palm Park as a C-corporation on the hypothetical sale of the Properties

($1,944,970.00). (Id.) Deducting the sales costs and capital gains taxes, Wilcoxon

arrived at a “Net Realizable Value” for the Properties of $7,838,080.00. (Id. at p. 27.)

Wilcoxon then conducted a net asset calculation for Palm Park and determined that
the fair market value of TONG’s 100% stock interest in Palm Park was

$5,151,867.00. 6 (Id. at p. 28.)

37. Wilcoxon next calculated the fair market value of the members equity

in TONG by performing a net asset analysis. (Id. at p. 29.) Wilcoxon added to

TONG’s assets $30,000.00 for “TONG Current Assets” listed in the stipulation, then

deducted the stipulated amounts due from TONG under promissory notes payable

to the Cannon Family Trusts (“CFT”) and the Cannon Family Charitable Remainder

Unitrust (“CFCRU”). (Id.) Wilcoxon also deducted from the net asset value of TONG

an amount of $184,551.00 for capital gains taxes that TONG allegedly would owe

upon the liquidation of its investment in Palm Park. (Id. at pp. 28 and 30.) However,

at the hearing, Wilcoxon admitted that the deduction of capital gains taxes was an

error since TONG is an S-corporation that does not owe entity-level taxes.

Nevertheless, with an erroneous deduction for capital gains taxes, Wilcoxon

determined that the fair market value of the members’ equity in TONG as of

February 11, 2020 was $3,877,725.00. (Id.)

38. Finally, Wilcoxon concluded that the hypothetical liquidation of Palm

Park would trigger TONG’s obligation to pay $798,539.00 to the CFCRU under a

Profit Participation Plan between TONG and CFCRU (the “Participation Plan,” PHV

Ex. 10). (Id. at pp. 29–30, and 32.) The Participation Plan provides for TONG to

make a payment of 15% of “the total Outstanding Equity in TONG” to the trust in

6 In his report, Wilcoxon also labels the $5,151,867.00 figure as the “Total Shareholder
Equity” in Palm Park and as the “Total Liquidation Value of Palm Park Investment.” (Id.
at 28, 29.)
the event of a “Liquidating Event.” (PHV Ex. 10, at p. 1.) A “Liquidating Event” is

defined as (1) any sale of a voting control interest in TONG resulting in a change of

control of TONG or (2) any sale of all or substantially all of the assets of TONG

resulting in a dividend or distribution to the equity holders of TONG. (Id.)

Deducting the CFCRU payment, Wilcoxon determined that the fair market value of

the members’ equity in TONG was $3,079,000.00 (rounded), and that Horizon’s

37.5% membership interest should be valued at $1,154,625.00. (Id. at p. 32.)

39. With this understanding of the positions of, and evidence presented by,

Horizon and Oak Crest, the Court now turns to its determination of the fair value of

Horizon’s membership interest in TONG.

III. LEGAL STANDARDS AND ANALYSIS

40. Under N.S.G.S. § 57D-6-03(d) of the North Carolina Limited Liability

Company Act, this Court is tasked with determining the fair value of Horizon’s

membership interest in TONG. Section 57D-6-03(d) provides as follows:

In any proceeding brought by a member under clause (ii)
of G.S. 57D-6-02(2) in which the court determines that
dissolution is necessary, the court will not order
dissolution if after the court's decision the LLC or one or
more other members elect to purchase the ownership
interest of the complaining member at its fair value in
accordance with any procedures the court may provide.

41. There exists no case authority on the standards for applying this

statute. However, interpreting the nearly identical language in section 55-14-31(d)

of the North Carolina Business Corporation Act 7, this Court held that “[t]he term

7 Section 55-14-31(d) provides:
‘fair value’ is not defined” in that statute “nor does the statute provide any specific

guidance with respect to the factors to be used in determining fair value.” Royals v.

Piedmont Elec. Repair Co., 1999 NCBC LEXIS 1, at *52 (N.C. Super. Ct. Mar. 3,

1999), aff’d 137 N.C. App. 700, 529 S.E.2d 515 (2000). The language of the statute

simply requires that fair value be “determined in accordance with such procedures

as the court may provide.” N.C.G.S. § 55-14-31(d); Vernon v. Cuomo, 2010 NCBC

LEXIS 7, at *7 (N.C. Super. Ct. Mar. 15, 1999).

42. This Court also has recognized that:

The Legislature wisely provided for flexibility in
determining fair value. Recognizing that every situation
will be different, the Legislature did not limit fair value to
market value and did not place any limiting parameters
on the factors to be considered in determining fair value.
It recognized that the value of ownership in a small,
closely held company could differ markedly from market
value. In taking away the court's ability to provide
equitable relief, it did not intend for the court to ignore
equitable considerations in setting fair value. The
statutory scheme protects both minority and majority
shareholders by providing that the minority can be forced
to sell at a fair price considering all the circumstances and
the majority can elect to pay that price or dissolve the
company.

Garlock v. Southeastern Gas & Power, Inc., 2001 NCBC LEXIS 9, at *36-37 (N.C.

Super. Ct. Nov. 14, 2001). In addition, “the procedure for determining fair value was

In any proceeding brought by a shareholder under G.S. 55-14-
30(2)(ii) in which the court determines that dissolution would
be appropriate, the court shall not order dissolution if, after
such determination, the corporation elects to purchase the
shares of the complaining shareholder at their fair value, as
determined in accordance with such procedures as the court
may provide.
left to the Court's discretion. The broader definition and flexibility in procedure

recognize that the circumstances surrounding the provision of equitable relief in the

form of dissolution can vary widely. Business conditions can vary depending on the

nature of the business.” Royals, 1999 NCBC LEXIS 1, at *35.

43. In deciding the fair value of the stock shares at issue in Royals, the

Court considered the following factors: (a) the market value of the business,

including any independent appraiser's valuation report, (b) whether there should be

discounts for lack of control and marketability, (c) the objections to the valuation

raised by the parties, and (d) other factors affecting fair value determination,

including equitable considerations, changes in condition from the date of the

valuation, and practical considerations. 1999 NCBC LEXIS 1, at *34–45; see also

Garlock, 2001 NCBC LEXIS 9, at *36–37 (using Royals factors to determine fair

value). The Court will consider these factors in determining the fair value of

Horizon’s membership interest in TONG.

44. Preliminarily, the Court notes that the Parties contend that an asset-

based approach should be used to determine the fair value of Horizon’s interest in

TONG. The Parties agree that Palm Park is a real estate holding company. They

also agree that TONG is a holding company, although Horizon argues that TONG is

a real estate holding company and Oak Crest argues TONG is an investment holding

company. It is undisputed that TONG has no employees and no business operations,

and that it exists solely to own Palm Park. See Estate of Levenson v. Commissioner,

282 F.2d 581, 586 (3rd Cir. 1960) (highlighting that “primary consideration is
generally given to earnings in valuing operating companies while the greatest

weight is given to the consideration of assets in valuing securities underlying the

holding type of company”); Griffin Mgmt. Corp. v. Carolina Power & Light Co., 2009

NCBC LEXIS 28, at *5 (N.C. Super. Nov. 12, 2009) (identifying entity as “passive

holding company” where it “does not conduct business as an operating entity” and

“the sole responsibility of its officers is to manage the company’s ownership interests

in its subsidiary entities”). Furthermore, neither TONG nor Palm Park employees

manage the Properties. Instead, Palm Park has contracted the management to

Colliers. No evidence presented at trial or at the Hearing established that TONG or

Palm Park is actively engaged in seeking new real estate investment opportunities

or has done so in many years. See Estate of Ford, 66 T.C.M. (CCH) 1507 (T.C. 1993),

aff’d, 53 F.3d 924 (8th Cir. 1995) (“Where a corporation’s assets consist of real estate,

earnings are considered important where the corporation actively engages in a real

estate management business. Where a corporation simply holds assets for

investment and does not have active business operations, we have approved use of

net asset value as a basis for valuing stock.” (citations omitted)).

45. The Parties also contend that IRS Revenue Ruling 59-60 provides the

appropriate guidance for determining the market value of TONG. Revenue Ruling

59-50 provides, in pertinent part, as follows:

The value of the stock of a closely held investment or real
estate holding company, whether or not family owned, is
closely related to the value of the assets underlying the
stock. For companies of this type the appraiser should
determine the fair market values of the assets of the
company. Operating expenses of such a company and the
cost of liquidating it, if any, merit consideration when
appraising the relative values of the stock and the
underlying assets. The market values of the underlying
assets give due weight to potential earnings and dividends
of the particular items of property underlying the stock,
capitalized at rates deemed proper by the investing public
at the date of appraisal. A current appraisal by the
investing public should be superior to the retrospective
opinion of an individual. For these reasons, adjusted net
worth should be accorded greater weight in valuing the
stock of a closely held investment or real estate holding
company, whether or not family owned, than any of the
other customary yardsticks of appraisal, such as earnings
and dividend paying capacity.

Rev. Rul. 59-60, 1959-1 C.B. 237 (1959) (emphasis added) (hereinafter “Rev. Rul. 59-

60”).

46. Though it was developed for gift and estate tax valuations, “Revenue

Ruling 59-60 still remains the focal point for the proper method of valuing closely-

held securities.” Estate of Jelke v. Comm'r, 507 F.3d 1317, 1321 (11th Cir. 2007); see

also J & M Distrib., Inc. v. Hearth & Home Techs., Inc., No. 13-CV-72 SRN/TNL,

2015 U.S. Dist. LEXIS 2314, at *10 (D. Minn. Jan. 9, 2015) (“It appears, however,

that Revenue Ruling 59–60’s general guidelines for evaluating closely-held

corporations have been used in a variety of contexts—not merely in the estate and

gift tax context.”).

47. For the same reasons as discussed in the above-cited cases, the Court

concludes that an asset-based approach, and particularly the net asset approach

proposed by the Parties, is the proper method for determining the fair market value

of TONG. Accordingly, the Court will now review the net asset approaches applied

by the respective Parties to the valuation of Horizon’s interest in TONG, including
Oak Crest’s objections to the Leatherman reports and Horizon’s objections to

Wilcoxon’s report, the applicability of market discounts, and other appropriate

considerations, including the equities.

A. Market value and objections to valuation raised by the Parties

48. Fair market value (or “market value”) is defined as “the price at which

the property would change hands between a willing buyer and a willing seller when

the former is not under any compulsion to buy and the latter is not under any

compulsion to sell, both parties having reasonable knowledge of relevant facts.” Rev.

Rul. 59-60; Dep't of Transp. v. Adams Outdoor Advert. of Charlotte Ltd. P'ship, 370

N.C. 101, 107, 804 S.E.2d 486, 493 (2017) (defining fair market value as "the price

to which a willing buyer and a willing seller would agree.”). “Market value is not the

sole determinant of fair value but is a factor to be given heavy weight. It is the

starting point for any valuation.” Royals, 1999 NCBC LEXIS 1, at *35. “Depending

on the circumstances, ‘fair value’ of a minority interest could be greater than ‘market

value’ or could be less. Each situation represents a unique set of facts for valuation

purposes.” Royals, 1999 NCBC LEXIS 1, at *41.

49. In this case, the Court is presented with expert evidence regarding (a)

the appraised values of the Properties as provided in the June 18 Reports and July

9 Reports prepared by Leatherman, the Parties’ joint expert appraiser, and (b) the

fair market value of Horizon’s membership interest in TONG as provided by

Defendants’ expert in the Wilcoxon Valuation Report. However, while the June 18

and July 9 Reports are important evidence to be considered, Wilcoxon’s Valuation
Report is the only expert evidence in the record regarding the fair market value of

Horizon’s interest in TONG, the factor this Court considers under the Royals

approach to deciding fair value. Nevertheless, since the June 18 Reports and July 9

Reports are a significant component of Wilcoxon’s valuation of Horizon’s interest in

TONG, the Court will first consider the appraised values of the Properties provided

by Leatherman’s reports, and then the fair market value of Horizon’s interest in

TONG provided in the Wilcoxon Valuation Report.

50. Oak Crest objects to the appraised valuations in the July 9 Reports

based on Leatherman’s unexplained changes to several critical capitalization and

inflation assumptions used in the June 18 Reports. If Leatherman had simply

corrected the errors in the June 18 Reports and used the same capitalization and

inflation rate assumptions, the aggregate appraised values of Properties would

decrease from $11,615,000.00 to $9,516,000.00. However, taking what appears to be

a “results oriented” approach in order to reach the same appraised value conclusions

as in the June 18 Reports, in the July 9 Reports Leatherman changed certain

assumptions underlying his calculations. He also determined the values for the 1135

Kildaire Farm Road and the 3221 Durham Drive properties by averaging the sales

comparison and discounted cash flow values instead of using only the discounted

cash flow value as he had done in the June 18 Reports. With these changes in

assumptions and methodology, the aggregate appraised value of the Properties in

the July 9 Reports is $11,625,000.00, or within 1% of Leatherman’s original
valuation. In the July 9 Reports, he provides no explanation or support for the

changes in his underlying assumptions or methodology.

51. Like Oak Crest, the Court finds the valuations provided by the July 9

Reports suspect. The nearly identical aggregate appraised value for the Properties

in the July 9 Reports, despite correcting for significant errors in the June 18 Reports,

leads the Court to conclude that, for some reason, Leatherman was attempting to

justify the values reached in the June 18 Reports. However, he did so without

providing a sound basis for the changes in his assumptions and methodology. The

Court concludes, in its discretion, that it cannot rely solely on the appraisal

contained in the July 9 Reports in determining the fair market value of the

Properties.

52. Nevertheless, there is no dispute that Leatherman is a highly

experienced and respected appraiser and his overall appraisal methodology and data

sources are accepted and relied upon by professionals in performing commercial real

estate appraisals. Therefore, certain information contained in the two Leatherman

reports can be salvaged and used in assisting the Court to reach a conclusion on the

market value of the Properties. For example, Wilcoxon does not take issue with the

valuations reached by Leatherman using the sales comparison approach, nor with

the corrected calculations of Leatherman’s discounted cash flow or direct

capitalization values (before Leatherman’s changes to his assumptions in the July 9

Reports). To the contrary, in the Wilcoxon Valuation Report, Wilcoxon uses

Leatherman’s corrected appraised values and his averaging methodology
(substituting the direct capitalization values for the discounted cash flow values) for

the 1135 Kildaire Farm Road and 3221 Durham Drive properties, and uses

Leatherman’s direct capitalization value for the 527 E. Chatham Street property.

Wilcoxon’s methodology results in his determination that the aggregate appraised

value of the Properties should be $10,407,500.00, approximately the mid-way point

between Leatherman’s aggregate appraised valuation of the Properties in the June

18 Reports and the corrected aggregate valuations applying Leatherman’s original

inflation and capitalization rate assumptions. 8

53. Therefore, the Court finds that the appraised value of the Properties

for purposes of determining the fair market value of Horizon’s membership interest

in TONG is $10,407,500.00.

54. The Court next considers Wilcoxon’s Valuation Report. Wilcoxon

reached his determination of the fair market value of Horizon’s interest in TONG

using a net asset approach and premised on an orderly liquidation of TONG,

including the sale of the Properties by Palm Park. As part of valuing Horizon’s

interest using the orderly liquidation premise, Wilcoxon deducted from the net asset

value of TONG the capital gains taxes on the associated transactions, the costs of

sale for selling the Properties, and the profit participation payment by TONG.

55. Horizon objects to the use of the orderly liquidation premise. Horizon

argues that “the premise underlying Defendants’ entire methodology is that TONG,

Palm Park, and all assets are immediately liquidated, and all liabilities are

8 Leatherman June 18 Reports’ aggregate appraised value ($11,615,000.00) + corrected
aggregate appraised value ($9,516,000.00) ÷ 2 = $10,565,500.00.
accelerated to the present.” (ECF No. 177, at p. 2.) Horizon contends that under

N.C.G.S. § 57D-6-03(d), Oak Crest elected to purchase Horizon’s membership

interest instead of having TONG liquidated, and in order “to allow Defendants to

continue enjoying the long-term benefits of investment in” TONG and Palm Park “as

a going concern.” (Id. at p. 3.) Horizon argues that there is no evidence that Oak

Crest intends to liquidate TONG such that valuation based on a hypothetical

liquidation could be supported. Instead, such a liquidation is purely speculative and

hypothetical. (ECF No. 177, at pp. 5–7.) Therefore, Horizon argues, since there is

no evidence of an imminent or likely liquidation, it is improper to deduct the capital

gains taxes, costs of sale, and the profit participation payment in valuing Horizon’s

interest in TONG. (Id. at pp. 1–15.)

56. The Court must first consider the nature of Horizon’s objection, which

is not squarely aimed at Wilcoxon’s determination of the fair market value of

Horizon’s interest. Rather, Horizon objects to the Court giving Wilcoxon’s fair

market value conclusion any weight. In other words, Horizon’s argument is that the

Court should disregard Wilcoxon’s valuation in deciding the fair value of Horizon’s

interest in TONG. But the question at hand is simply whether Wilcoxon’s Valuation

Report is evidence of the fair market value of Horizon’s interest in TONG. On this

question, the Court concludes that Horizon’s position that Wilcoxon’s Valuation

Report should be disregarded is unpersuasive.

57. First, there is no dispute that the orderly liquidation premise is an

accepted method for determining the fair market value of holding companies. In
fact, Revenue Ruling 59-60, which both Parties rely on, expressly provides that when

deciding the market value of a holding company “the cost of liquidating it, if any,

merit consideration when appraising the relative values of the stock and the

underlying assets.” Rev. Rul. 59-60.

58. Second, fair market value is based on determining the price a

hypothetical willing buyer and seller would settle upon for the membership interest

at issue, and is not determined by deciding the price that would be arrived at by the

specific buyer and seller involved in the particular transaction under consideration.

Estate of Jameson v. Comm’r, 267 F.3d 366, 371-372 (5th Cir. 2001) (“The buyer and

seller are hypothetical, not actual persons, and each is a rational economic actor,

that is, each seeks to maximize his advantage in the context of the market that exists

at the date of valuation . . . Fair market value analysis depends [ ] on a hypothetical

rather than an actual buyer,” and cannot be determined based on assumption that

buyer would continue to operate the business rather than liquidate.) Under a net

asset valuation, the costs associated with liquidating the underlying assets would be

considered by a willing buyer and factored into the price the buyer pays for the asset.

Dunn v. Comm’r, 301 F.3d 339, 352-353 (5th Cir. 2002); see also Estate of Jelke v.

Comm'r, 507 F.3d 1317, 1324-1333 (11th Cir. 2007) (and cases cited therein). In

Dunn, the Court of Appeals reversed the U.S. Tax Court’s decision that the estate

tax value of a decedent’s interest in the stock of Dunn Equipment, Inc. (“Dunn

Equipment”) should be reduced by the capital gains taxes that would be generated
by the liquidation of Dunn Equipment because the Court concluded that there was

a low “likelihood of liquidation.” The Court held:

The Tax Court made a more significant mistake in the way
it factored the “likelihood of liquidation” into its
methodology, a quintessential mixing of apples and
oranges: considering the likelihood of a liquidation sale of
assets when calculating the asset-based value of the
Corporation. Under the factual totality of this case, the
hypothetical assumption that the assets will be sold is a
foregone conclusion -- a given -- for purposes of the asset-
based test. The process of determining the value of the
assets for this facet of the asset-based valuation
methodology must start with the basic assumption that all
assets will be sold, either by Dunn Equipment to the
willing buyer or by the willing buyer of the Decedent's block
of stock after he acquires her stock. By definition, the
asset-based value of a corporation is grounded in the fair
market value of its assets (a figure found by the Tax Court
and not contested by the estate), which in turn is
determined by applying the venerable willing buyer-
willing seller test. By its very definition, this contemplates
the consummation of the purchase and sale of the property,
i.e., the asset being valued. Otherwise the hypothetical
willing parties would be called something other than
"buyer" and "seller."

In other words, when one facet of the valuation process
requires a sub-determination based on the value of the
company's assets, that value must be tested in the same
willing buyer/willing seller crucible as is the stock itself,
which presupposes that the property being valued is in fact
bought and sold. It is axiomatic that an asset-based
valuation starts with the gross market (sales) value of the
underlying assets themselves, . . .

301 F.3d at 353.

59. Horizon’s argument that the Court should not consider Wilcoxon’s

valuation because there is no evidence that Oak Crest intends to liquidate TONG is

flawed for the same reasons summarized in Dunn ― a fair market valuation
presumes a hypothetical buyer who would take into account the costs of liquidation,

including capital gains taxes, in the price the buyer would pay for the assets. The

Court concludes that the likelihood of liquidation is not a proper consideration in

determining the fair market value of Horizon’s membership interest in TONG and

is not a basis for refusing to consider Wilcoxon’s Valuation Report.

60. Horizon argues that the fair value of TONG should be determined on a

“going concern” basis, in the same fashion as it would be determined for dissenting

shareholders exercising statutory appraisal rights. (ECF No. 177, at pp. 3–4.)

However, as explained in Paskill Corp. v. Alcoma Corp., 747 A.2d 549 (Del. 2000), a

case Horizon cites in support of its argument, Horizon’s position is inapposite to its

contention that a net asset valuation is the appropriate means of determining the

value of its interest in TONG. Id. at 554 (“[B]ecause ‘the value of dissenting stock is

to be fixed on a going concern basis, the taking of the net asset value as the appraisal

value of the stock is obviously precluded by the [going-concern] rule’” quoting Tri-

Continental Corp. v. Battye, 74 A.2d 71, 74 (Del. 1950) (“This is so because,

primarily, net asset value is a theoretical liquidating value to which the share would

be entitled upon the company going out of business. Its very nature indicates that

it is not the value of stock in a going concern.”)). 9

9 Reynolds Am. Inc. v. Third Motion Equities Master Fund Ltd., 2020 NCBC LEXIS 56, *173

(N.C. Super. Ct. April 27, 2020) (“Although Delaware's appraisal statute, . . ., is not identical
to [North Carolina’s appraisal statute], the two statutes each require a determination of ‘fair
value’ and are sufficiently similar that the Court finds decisions of the Delaware courts
under [the Delaware statute], although not binding, to be helpful guidance in interpreting
the North Carolina appraisal statute.”).
61. Horizon also argues the North Carolina courts, in the context of valuing

marital property, have held that considering tax consequences and other associated

costs of a sale is improper where there is no evidence that a sale of the asset is

imminent or inevitable. (See Id. at pp. 5–6 and 8–9 and cases cited therein.) The

Court concludes that the facts involved in the cases cited by Horizon are

distinguishable from the facts in this case, primarily on the grounds that the cases

involved courts’ determinations of the value of marital property under North

Carolina’s equitable distribution statute, and none of these cases addressed whether

deductions for liquidation costs and taxes were proper in making a fair market value

calculation.

62. Horizon also argues that Wilcoxon’s deduction of $723,359.00 from

TONG’s value to account for the profit participation payment to the CFCRU based

on the hypothetical sale of Palm Park is improper. (Id. at p. 10.) Horizon argues

that the sale of its minority interest in TONG back to Oak Crest results in neither a

sale of substantially all of TONG’s assets, nor a change in control of TONG, which

Oak Crest will continue to control. Again, Horizon argues that the payment based

on a hypothetical event should not be considered in determining the fair market

value of TONG. (Id.)

63. Finally, Horizon argues that it would be inequitable to permit

Defendants to engage in conduct causing the Court to order liquidation, then elect

not to liquidate TONG and instead purchase Horizon’s interest, while at the same
time reaping the advantages of having TONG valued based on a hypothetical orderly

liquidation. (Id., at pp. 7–9.)

64. The Court concludes that Horizon’s additional arguments suffer from

the same flaw as its argument that the Court should wholly disregard Wilcoxon’s

conclusion as to fair market value because it is based on an orderly liquidation

premise. The arguments do not challenge the valuation Wilcoxon reached using this

methodology, but rather are directed at the weight to be given his conclusions under

the specific facts present in this case. Again, the Court is not persuaded that

Wilcoxon’s Valuation Report is not competent evidence of the fair market value of

Horizon’s interest in TONG, and therefore should not be considered by this Court.

65. The Court has thoroughly reviewed Horizon’s objections to Wilcoxon’s

Valuation Report and finds and concludes that the report provides competent

evidence of the fair market value of Horizon’s membership interest in TONG that

should be considered under a Royals analysis. However, the Court also concludes

that it must make corrections to the value provided by the Wilcoxon’s Valuation

Report for (a) Wilcoxon’s admitted error in deducting $184,551.00 for capital gains

taxes that TONG would pay upon the liquidation of TONG, and (b) other

adjustments to his valuation of Horizon’s interest in TONG in the amount of

approximately $22,000.00 that Wilcoxon admitted were appropriate based on his

erroneous use of certain other amounts in his calculation. Accounting for these

adjustments, the Court finds that Wilcoxon’s Valuation Report should reflect a fair

market value of $1,245,732.62 for Horizon’s interest. The Court further recognizes
that, unlike in the Royals and Garlock cases, the evidence of fair market value was

provided by Oak Crest’s business valuation expert witness, and not by an

independent valuation expert. Therefore, the Court finds Wilcoxon to be less

credible and reliable, and have less weight, than it would an independent business

valuation expert, and will give appropriate consideration to that fact in reaching its

determination as to fair value.

66. The Court next turns to Horizon’s proposed non-expert calculation of

the fair value of Horizon’s membership interest. Horizon contends that TONG’s total

assets can be calculated by simply adding Palm Park’s stipulated cash assets (with

Horizon’s minor downward adjustment) and the receivable owed to Palm Park for

the advancements to the Byelicks to the appraised value of the Properties. Horizon

then subtracts Palm Park’s stipulated mortgage and other debts to arrive at Palm

Park’s net asset value. Since Horizon does not seek the unexplained stipulated

TONG asset worth $30,000.00, it contends that Palm Park’s net asset value equals

the total value of TONG’s assets. (ECF No. 177, at p. 16.)

67. Horizon next subtracts from TONG’s assets the stipulated balances

owed on the promissory note due to CFCRU and the promissory note due to the

Cannon Family Trust. Horizon does not subtract from TONG’s assets the amount

of the profit participation payment due to the CFCRU upon liquidation of TONG’s

assets. Horizon’s calculation results in TONG’s total net asset value being
$8,071,546.09. (Id. at p. 17.) Based on these calculations, Horizon contends that its

37.5% interest should be valued at $3,026,830.01. (Id.)10

68. The Court finds and concludes that Horizon’s proposed method for

calculating the value of Horizon’s interest in TONG is entitled to some, but relatively

little, weight in determining fair value in this case. Horizon does not argue that its

simple net asset calculation is a methodology accepted or used by business valuation

professionals in calculating fair market value. Instead, it contends that this is a

method that is sometimes used by commercial real estate brokers as a means of

determining value when advising clients regarding the sale or purchase of

commercial real estate. While the Court will give Horizon’s proposed value of its

interest in TONG appropriate consideration, it will proceed to determine fair value

using Wilcoxon’s fair market value conclusion as its starting point. Royals, 1999

NCBC LEXIS 1, at *35 (While “market value is not the sole determinant of fair value

. . . [it] is a factor to be given heavy weight. It is the starting point for any valuation.”).

69. The Court must now consider the remaining Royals factors and any

impact they may have on the fair value of Horizon’s membership interest in TONG.

B. Other factors affecting fair value determination, including equitable
considerations

10 The Court calculated the value of Horizon’s membership interest using Horizon’s
methodology but substituted the Court’s approved appraisal value of the Properties of
$10,407,500.00 instead of Horizon’s figure of $11,695,000.00. This calculation results in
Horizon’s 37.5% interest being valued at $2,501,623.53. The Court will use this adjusted
figure, and not the $3,026,830.01 proposed by Horizon, for purposes of considering Horizon’s
proposed fair valuation of its membership interest in TONG.
70. As a preliminary matter, the Court concludes that some of the factors

considered by the Court in Royals have no significant impact on the question of fair

value in this matter. First, the Parties agree that the Court should not apply

discounts for the lack of marketability or lack of control of Horizon’s membership

interest in TONG in determining fair value. The Court agrees. Since the Court has

found that dissolution of TONG is appropriate, “it would be inequitable to then value

the minority [membership interest] by giving them less than the full value they

would have if the company were sold and they received their pro rata share of the

total sales price. To do otherwise would provide a reward to majority [members] who

oppressed minority [members] or chose to run the company for their own benefit

without regard to the interests of minority [members].” Royals, 1999 NCBC LEXIS

1, at *38. The jury concluded that the Byelicks engaged in self-interested

transactions and violated fiduciary duties to Horizon, leading the Court to conclude

that dissolution of TONG was necessary in order to protect Horizon’s interest.

“North Carolina law does not favor application of discounts for lack of control or lack

of marketability under these circumstances.” Id. at *38. The Court concludes, in its

discretion, that the value of Horizon’s membership interest should not be adjusted

for lack of marketability or control.

71. The Parties presented no evidence and did not argue that there has

been a change of circumstances since February 11, 2020 that the Court must

consider in deciding the fair value of Horizon’s membership interest. To the

contrary, there is no evidence suggesting that Oak Crest and the Byelicks will not
operate TONG and Palm Park in the same manner as they have operated them over

the past several years once Oak Crest acquires Horizon’s membership interest in

TONG. The Court concludes, in its discretion, that the value of Horizon’s

membership interest should not be adjusted for changed circumstances.

72. The equities in this matter present the Court with something of a

conundrum. The jury found that the Byelicks engaged in breaches of fiduciary

duties, and the Court concluded those breaches frustrated Horizon’s expectations,

leading the Court to conclude that dissolution of TONG was necessary. Section 57D-

6-03(d) provides the company or other members the right to purchase the interest of

the complaining member instead of having the company dissolved. Oak Crest chose

to buy Horizon’s interest in TONG to avoid liquidation of TONG. Horizon argues,

under the facts present in this case and based on the structure of N.C.G.S. § 57D-6-

03(d), that it would be inequitable to permit Oak Crest to get the benefit of valuing

Horizon’s interest based on a hypothetical dissolution.

73. The Court already concluded that Horizon’s argument has no impact

on the weight to be given to Wilcoxon’s determination of the fair market value of

Horizon’s interest because fair market value assumes a hypothetical buyer and seller

and not the circumstances under which the actual buyer and seller involved in the

transaction find themselves. However, this does not necessarily mean that the Court

cannot consider the specific circumstances involved in this case in assessing the

equities. The discretion provided the Court by the statute leaves it with vast

authority to consider any factors it deems relevant to deciding the fair value of a
member’s interest in a limited liability company. “Each situation represents a

unique set of facts for valuation purposes. The equitable nature of relief requested

by the complaining shareholders requires flexibility, and the statute provides that

flexibility.” Royals, 1999 NCBC LEXIS 1, at *41; Garlock, 2001 NCBC LEXIS 9, at

*36 (“The Legislature wisely provided for flexibility in determining fair value . . . and

did not place any limiting parameters on the factors to be considered in determining

fair value.”). Therefore, the Court finds and concludes that it may consider the fact

that an actual dissolution will not occur in this case in applying its equitable

discretion to deciding the fair value of Horizon’s interest.

74. Finally, the Court considers the practical considerations that influence

the determination of fair value in this case. This Court has held that:

A fair price is not one which automatically results in
dissolution. The funds for purchasing the minority
shareholder’ interests must come from borrowed funds or
operation expenses. Each alternative affects the future
profitability of the company and its ability to function. If
the “market valuation” results in a price that makes
purchase impractical or impossible, the Court should take
that into consideration.

Garlock, 2001 NCBC Lexis 9, at *47 (quoting Royals, 1999 NCBC Lexis 1, at *44).

75. The Court notes that the evidence presented at the trial of this matter,

including extensive financial reporting regarding the Properties, emails and

communications over the last few years between the Parties as they attempted to

resolve their differences over operations of TONG and Palm Park, and the testimony

of individuals involved in the day-to-day operations of the Properties and Palm Park,

painted a picture of a company that faces significant challenges to attaining financial
success. While Plaintiffs undoubtedly would place blame for this solely at the feet

of Defendants’ management, the reality is more complicated. For example, the 1135

Kildaire Farm Road property has faced challenges over the past several years due to

the condition of the building and configuration of much of its available office space.

The building was constructed in 1988, and the evidence indicated that it needs some

maintenance, repairs, and upgrades to maximize its potential. Palm Park has had

difficulty attracting new tenants to the property in recent years, particularly with

regard to certain office space configured as shared office suites. The evidence at trial

was that the market for shared office suite space has declined significantly during

and since the Great Recession. Some of the office space in the building is currently

being rented at what Horizon contends is sub-market rent. While the building

generates a steady rental income, it is not currently generating any substantial

profits.

76. In addition, the 1135 Kildaire Farm Road and 3221 Durham Drive

properties are encumbered with substantial mortgage debt. It is questionable

whether, or under what conditions, Oak Crest or the Byelicks would be able to obtain

additional financing that will be needed to purchase Horizon’s interest. These are

factors that the Court should consider in determining the final fair value of that

interest. Garlock, 2001 NCBC Lexis 9, at *47–48 (finding potential problems with

obtaining bank financing to pay for purchase of minority shareholders’ interests and

company’s liquidation value relevant in determining fair value of shares).
77. In addition, the evidence at trial showed that Palm Park provides a

livelihood for the Byelicks and at least one or two other individuals. It would be a

sad end to the unfortunate story underlying this case if Oak Crest’s purchase of

Horizon’s membership interest jeopardized the continued existence of Palm Park.

78. Based on these considerations, as well as wishing to place the Parties

in the best position possible to be able to quickly close a purchase transaction, close

out this lawsuit, and proceed with their respective business lives, the Court, in its

discretion, concludes that the fair value of Horizon’s membership interest in TONG

is $1,650,000.00.

79. Therefore, having considered the appraisals provided in the June 18

Reports and July 9 Reports, the Wilcoxon’s Valuation Report, Horizon’s proposed

fair valuation adjusted to account for the appraised value of the Properties used by

the Court, the testimony and exhibits admitted at the Hearing and, as relevant, at

the trial, and the factors set forth above, the Court finds as a fact and concludes as

a matter of law that the fair value of Horizon’s membership interest for purposes of

the rights and remedies provided by N.C.G.S. § 57D-6-03(d), is $1,650,000.00.

80. The Court further concludes that under the statute and its inherent

equitable powers, it has authority to set the terms under which Horizon’s

membership interest is purchased. Royals, 1999 NCBC LEXIS 1, at *45; Garlock,

2001 NCBC LEXIS 9, at * 48–49. However, the Court prefers that the Parties agree

on the terms under which Horizon’s interest will be purchased, if that is possible,

before imposing terms on them. Accordingly, the Court, in its discretion, will provide
the Parties with up to thirty (30) days from the date of this Order to confer and

attempt to agree on the terms for the purchase of Horizon’s membership interest,

with consideration given to the terms set by the Court in Royals, including provisions

for a potential change in ownership or control of TONG or its assets. The terms of

such agreement shall be subject to approval by the Court. If the Parties are unable

to come to an agreement, the Court shall issue an order setting the terms for the

purchase of Horizon’s membership interest in TONG.

THEREFORE, it is ORDERED that:

1. The fair value of Horizon’s 37.5% membership interest in TONG is

$1,650,000.00.

2. The Parties shall, on or before thirty (30) days from the date of this Order,

confer and attempt to agree on the terms for the purchase of Horizon’s

membership interest, with consideration given to the terms set by the

Court in Royals, including provisions for a potential change in ownership

or control of TONG or its assets. On or before thirty (30) days from the

date of this Order, the Parties shall file with the Court a notice regarding

whether they have reached agreement on the terms for the purchase of

Horizon’s membership interest and, if so, setting forth the terms of the

agreement.

3. If the Parties are unable to come to an agreement, the Court shall issue an

order setting the terms for the purchase of Horizon’s membership interest

in TONG.
SO ORDERED, this the 18th day of November, 2020.

/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases