## Facts

- Radiology Associates, Inc. (“Radiology”) was formed by Dr. Christos S. Papastavros to provide radiology services and equipment connected to his medical practice.
- Dr. Robert M. Kurtz was an employee of Radiology and a minority stockholder, owning 250 of 9,950 outstanding shares.
- On May 6, 1987, Radiology merged into a successor entity, Radiology Imaging Corporation (“New Radiology”).
- The merger eliminated Kurtz’s equity interest in exchange for cash representing the asserted fair value of his Radiology shares; $400 per share was offered.
- Kurtz sued Dr. Papastavros and related defendants for breach of contract and breach of fiduciary duty arising from the freeze-out merger and related-party transactions.
- In an earlier liability decision in the same action, the Court of Chancery rejected the contract theories but found defendants liable for fiduciary-duty breaches, including conduct surrounding the merger and certain self-interested loans, under the entire-fairness standard.
- By the time of this opinion, the parties had settled damages for some fiduciary breaches (including merger disclosure/due-care damages and certain other loans), leaving two matters for decision: (i) the fair value of Kurtz’s shares as of May 6, 1987, and (ii) damages tied to “Land-Ho” partnership loans found not entirely fair.
- Kurtz presented valuation testimony from Anne Danyluk, who valued the shares at about $2,300 per share using (a) a comparable-company approach and (b) a discounted cash flow (DCF) analysis; the court found her “comparables” were not meaningfully similar to Radiology and that she made unsupported upward changes to growth assumptions used in the DCF.
- Defendants presented valuation testimony from Charles Stryker, who used a Delaware Block-style analysis and arrived at about $457 per share; the court found flaws including omission of goodwill and heavy reliance on “market” figures derived from controller-influenced transactions rather than arm’s-length pricing.

## Issues

1. What was the fair value of Radiology as a going concern on May 6, 1987, and therefore the fair value of Kurtz’s 250 shares cashed out in the merger?
2. What damages should be awarded for the Land-Ho loans, given the prior determination that the transactions were not entirely fair to the minority stockholder?

## Decision

- The court determined the fair value of Radiology’s shares as of May 6, 1987 by evaluating the record and adjusting or discounting both experts’ work rather than adopting either valuation in full.
- The court rejected plaintiff’s comparable-company analysis as unreliable because the selected companies were not sufficiently similar to Radiology.
- The court discounted portions of plaintiff’s DCF analysis where inputs (including growth adjustments) lacked adequate support.
- The court rejected defendants’ valuation to the extent it failed to account for goodwill and relied on controller-set internal prices as “market” indicators.
- The court entered judgment awarding Kurtz the difference between the judicially determined fair value per share and the merger consideration, multiplied by his 250 shares.
- The court also awarded monetary damages for the Land-Ho loans, measured to compensate for the harm caused by the unfair related-party lending found in the earlier liability ruling.

## Legal Principles

- A controller-driven freeze-out merger is reviewed for entire fairness, requiring proof of fair dealing and fair price.
- In fixing “fair value” of cashed-out shares, the Court of Chancery is not bound to a single valuation model and may weigh competing methodologies to reach a value supported by the record.
- Comparable-company analysis carries little weight when the selected companies differ materially in line of business, scale, or operating footprint.
- DCF analysis is only as reliable as its inputs; unsupported adjustments to projections, growth, or discount assumptions may be rejected or given reduced weight.
- Fair value in a going-concern appraisal includes intangible value such as goodwill when supported by the business’s earnings power and circumstances.
- “Market” indications derived from controller-influenced sales, offers, or internal pricing are not the same as arm’s-length market evidence and may be discounted.
- For self-dealing transactions failing entire fairness, damages aim to make the injured party whole; uncertainty created by the fiduciary’s conduct is generally resolved against the fiduciary.

## Conclusion

In re Radiology Assoc., Inc. addresses remedies after a controller-led merger eliminated a minority physician’s stake: the Court of Chancery set a merger-date fair value by scrutinizing and adjusting competing valuation approaches (including DCF and Delaware Block-style evidence), required recognition of goodwill in valuing the going concern, discounted controller-set “market” prices, and awarded additional damages for unfair Land-Ho related-party loans.


In re Radiology Assoc., Inc., 611 A.2d 485 (1991)