## Facts

- Bradley C. Mart and Leland Severson each owned 50% of Bay World Trading Ltd., a closely held corporation.
- Mart executed written consent to wind up and dissolve the corporation and delivered it to Severson.
- Severson opposed dissolution and threatened litigation, asserting Mart intended to start a competing business and had breached fiduciary duties.
- Mart petitioned for court supervision of the winding up; Severson invoked Cal. Corp. Code § 2000 to avoid dissolution by purchasing Mart’s shares for cash at “fair value.”
- The superior court appointed three disinterested appraisers under § 2000.
- The appraisers valued Bay World at $5.6 million using a going-concern approach based on customer relationships, brand, and earnings history and projections, without discounting for Severson’s threatened lawsuit or possible future competition.
- Over Severson’s objection, the appraisers supplemented their report and reaffirmed the going-concern methodology.
- The trial court stated it would approve the going-concern valuation only if Mart executed an “effective” noncompetition agreement; it rejected Mart’s proposed covenants as too narrow.
- The trial court ordered a new appraisal on a piecemeal liquidation basis; the appraisers revised the value to $1.48 million.
- The court confirmed the $1.48 million value and set the buyout price at $740,000 plus interest; Mart appealed.

## Issues

1. Whether “fair value” under Cal. Corp. Code § 2000 permits a trial court to condition acceptance of a going-concern valuation on the selling shareholder’s execution of an actual “effective” noncompetition agreement.
2. Whether, when appraisers unanimously find substantial going-concern value, the trial court may reject that valuation and require a piecemeal liquidation valuation absent a statute-based justification.
3. Whether the trial court improperly interfered with the § 2000 appraisal process by directing valuation methodology rather than reviewing the appraisers’ work for conformity with the statutory standard.

## Decision

- The Court of Appeal reversed the superior court’s order fixing “fair value” at $1.48 million and setting the buyout price at $740,000 plus interest.
- The court held the superior court erred as a matter of law in its determination of “fair value” under § 2000.
- The court ruled § 2000 does not authorize conditioning a going-concern valuation on an actual noncompete agreement imposed on the selling shareholder.
- The court ruled the superior court lacked authority to discard the appraisers’ unanimous going-concern valuation and substitute a piecemeal liquidation valuation on the stated rationale.
- The matter was remanded for further proceedings consistent with the appellate decision.

## Legal Principles

- Under Cal. Corp. Code § 2000, “fair value” is the liquidation value as of the valuation date, while taking into account the possibility of sale of the entire business as a going concern in liquidation.
- Appraisers may use a hypothetical sale model to capture going-concern value, including reasonable market-typical assumptions such as a noncompetition covenant, without requiring an actual covenant to be executed as a condition of valuation.
- A court’s role in a § 2000 proceeding is to confirm that the appraisers applied the statutory “fair value” standard; it may not substitute its own valuation theory or compel a different methodology without an adequate statutory basis.
- The existence and terms of any actual noncompetition agreement are matters for negotiation after valuation; § 2000 does not authorize the court to impose such terms as a prerequisite to recognizing going-concern value.

## Conclusion

The Court of Appeal reversed because § 2000 required meaningful consideration of Bay World’s going-concern value as determined by the appointed appraisers, and the trial court exceeded its authority by tying that valuation to an imposed noncompete and by forcing a piecemeal liquidation valuation inconsistent with the statutory fair-value standard.


Mart v. Severson, 95 Cal. App. 4th 521, 115 Cal. Rptr. 2d 717 (Ct. App. 2002)