## Facts

- Matthew G. Norton Company (MGN), a closely held Washington holding company, and Northwest Building Corporation (NWBC) held the Norton Clapp family’s real estate and investment assets.
- In 1999, MGN and NWBC approved a reorganization in which NWBC would merge into MGN (or an MGN subsidiary) and minority shareholders would be cashed out.
- Under Washington’s Business Corporation Act (RCW 23B.13), dissenting shareholders in certain transactions may demand payment of the “fair value” of their shares.
- MGN retained Arthur Andersen to value MGN and NWBC and to set fair value for dissenters.
- Because the shares were not publicly traded and were subject to transfer restrictions, Arthur Andersen applied lack-of-marketability discounts (35% for MGN; 40% for NWBC).
- Based on the discounted valuations, MGN paid Stephen G. Clapp about $3.51 million and Theodore H. Smyth (as trustee) about $208,050 for their shares.
- The dissenters claimed fair value should not include such discounting and asserted substantially higher values for their holdings.
- MGN filed a statutory petition for judicial determination of fair value under RCW 23B.13.300.

## Issues

1. Whether “fair value” under RCW 23B.13 permits use of a lack-of-marketability discount and an embedded corporate-level capital-gains tax discount in an appraisal proceeding.
2. Whether such discounts must be categorically disallowed as a matter of law, either as shareholder-level adjustments or as enterprise-level valuation adjustments.

## Decision

- The Court of Appeals reversed the trial court to the extent it adopted a bright-line rule that lack-of-marketability and embedded capital-gains tax discounts are never permissible in appraisal proceedings, even at the corporate (enterprise) level.
- The court affirmed the trial court’s denial of summary judgment to MGN on its claim that it was entitled to apply these discounts as a matter of law.
- The court affirmed that fair value must be determined without shareholder-level discounting (including minority-type discounting), absent extraordinary circumstances.
- The case was remanded for a fact-intensive valuation: determine each company’s going-concern value as of the merger date after receiving expert testimony on appropriate appraisal methods.

## Legal Principles

- “Fair value” in a dissenters’ rights appraisal is the dissenting owner’s pro rata share of the corporation’s value as a going concern, determined as of the valuation date, without shareholder-level discounts.
- Shareholder-level discounts are generally inconsistent with fair value because they risk shifting proportionate enterprise value from dissenters to the controlling shareholders in a cash-out transaction.
- Valuation methodology in appraisal proceedings is not governed by categorical prohibitions; whether enterprise-level adjustments (including marketability-related considerations or embedded tax effects) are appropriate depends on the facts and the appraisal theory supported by expert evidence.
- Summary judgment is generally unsuitable for resolving contested appraisal methodology where the valuation turns on company-specific facts, expert analysis, and the economic reality of the business on the valuation date.

## Conclusion

The court required a going-concern, pro rata fair-value appraisal without shareholder-level discounts, rejected a categorical ban on enterprise-level marketability and embedded-tax adjustments, and remanded for expert-driven fact-finding to determine fair value under RCW 23B.13.


Matthew G. Norton Co. v. Smyth, 112 Wash. App. 865, 51 P.3d 159 (Wash. Ct. App. 2002)