## Facts

- Minority shareholders held interests in nine closely held, family-owned New York corporations, each owning a single income-producing New York City real estate parcel.
- In 1986, each corporation approved transferring its property to a newly formed partnership; the minority shareholders dissented and timely elected appraisal rights under New York Business Corporation Law (BCL) § 623.
- After the corporations did not purchase the dissenters’ shares, the dissenters commenced a BCL § 623(h) proceeding for judicial determination of “fair value.”
- The proceeding was tried in two phases: (1) determining net asset values (by court determination for one leasehold and stipulations for the rest), and (2) determining the proper share-valuation methodology.
- Petitioners’ proportionate share of the stipulated aggregate net asset values was $15,200,833 under a pure pro rata approach.
- Petitioners’ expert used a pro rata application of ownership percentages to aggregate net asset values; the trial court rejected this as treating shareholders like direct co-owners of real estate rather than holders of illiquid close-corporation stock.
- The corporations’ expert used a net-asset-based method that incorporated both a minority discount (lack of control) and a marketability discount (illiquidity).
- The trial court adopted a net-asset-based methodology but eliminated any minority discount and reduced the marketability discount to prevent it from functioning as an indirect minority discount.
- The Appellate Division affirmed, and the corporations appealed, arguing minority discounts should apply in determining “fair value.”

## Issues

1. In a BCL § 623 appraisal, may “fair value” be reduced by a minority discount based on lack of control?
2. May a marketability discount be applied, and if so, to what extent may it reflect illiquidity without indirectly penalizing dissenters for minority status?
3. Did the trial court act consistently with BCL § 623 in valuing the shares using net asset value while barring minority discounts and limiting marketability discounts?

## Decision

- The Court of Appeals affirmed.
- It held that minority discounts are not permitted when determining “fair value” under BCL § 623.
- It held that marketability discounts may not be used to accomplish indirectly what minority discounts would do directly.
- It approved the trial court’s approach adopting a net-asset-based valuation while removing minority-discount effects and constraining any marketability adjustment.

## Legal Principles

- “Fair value” under BCL § 623 is determined from the perspective of the corporation as a whole, not from attributes of the specific block of shares held by the dissenter.
- A dissenting shareholder’s recovery should reflect a proportionate interest in the value of the enterprise, not a discounted minority-block price.
- Minority discounts are impermissible in statutory appraisal because they would shift value associated with control to the majority and invite freeze-out behavior through depressed valuations.
- Marketability discounts, if used, must be carefully justified and cannot serve as a proxy for minority discounts.
- Appraisal valuation involves fact-intensive judgments; trial courts have discretion to select among expert methodologies so long as the result satisfies the statutory “fair value” standard.

## Conclusion

The court held that “fair value” in a BCL § 623 appraisal cannot be reduced by a minority discount and that any marketability discount must not operate as a substitute minority discount; the affirmed valuation method treated dissenters as entitled to their pro rata share of the corporations’ value as a whole.


Friedman v. Beway Realty Corp., 661 N.E.2d 972 (N.Y. 1995)