Phone: 412-471-9000

Posts tagged "Pennsylvania"

You are Here: Home » Archives for January 31st, 2009

Basics of Pennsylvania Divorce: Kulko

by bvertz on Jan 31, 2009 • Comments Closed • , ,

 Pennsylvania has jurisdiction over its own citizens as well as those who have signficant contacts with our state. The law that extends Pennsylvania’s jurisdiction over non-citizens who have significant contacts is known as the “long-arm” statute (as in “long arm of the law”).

Long-arm jurisdiction over non-residents in divorce actions is limited, as in all actions, by the due process requirements of the Fourteenth Amendment of the U.S. Constitution, which requires that the forum state have personal jurisdiction over the defendant. The residence of a plaintiff in this state is not, by itself, sufficient to constitute “significant contacts” to a defendant who has never resided here under the standards enunciated by the U.S. Supreme Court in International Shoe Co. v. Washington, 326 U.S. 310 (1945). See Kulko v. Superior Court, 436 U.S. 84 (1978).

In Kulko, the husband and wife resided throughout their marriage in New York, although they were married in California during a brief stopover while the husband was en route to overseas military duty. The parties’ children were born in New York, and husband returned to New York after his tour of duty. Upon separation, the wife moved to California, where the parties’ two children eventually joined her. The wife obtained a divorce decree in Haiti and then filed an action in California to register and modify the Haitian divorce decree. Husband contested the California action for lack of personal jurisdiction. The California Supreme Court held that there were sufficient contacts, under the standards enunciated in International Shoe Co. v. Washington, 326 U.S. 310 (1945), to confer personal jurisdiction over the defendant. Specifically, the California Supreme Court looked to the parties’ marriage in California and the husband’s consent to sending the children to live with their mother in California.

On appeal, the U.S. Supreme Court reversed, finding there was no personal jurisdiction over the defendant in California. The Supreme Court held:

            The Due Process Clause of the Fourteenth Amendment operates as a limitation on the jurisdiction of state courts to enter judgments affecting rights or interests of nonresident defendants. See Shaffer v. Heitner, 433 U.S. 186, 198-200, 97 S.Ct. 2569, 2577, 53 L.Ed.2d 683 (1977). It has long been the rule that a valid judgment imposing a personal obligation or duty in favor of the plaintiff may be entered only by a court having jurisdiction over the person of the defendant. Pennoyer v. Neff, 95 U.S. 714, 732-733, 24 L.Ed. 565, 572 (1878); International Shoe Co. v. Washington, 326 U.S., at 316, 66 S.Ct., at 158. The existence of personal jurisdiction, in turn, depends upon the presence of reasonable notice to the defendant that an action has been brought. Mullane v. Central Hanover Trust Co., 339 U.S. 306, 313-314, 70 S.Ct. 652, 656-657, 94 L.Ed. 865 (1950), and a sufficient connection between the defendant and the forum State to make it fair to require defense of the action in the forum. Milliken v. Meyer, 311 U.S. 457, 463-464, 61 S.Ct. 339, 342-343, 85 L.Ed. 278 (1940). . .

            The parties are in agreement that the constitutional standard for determining whether the State may enter a binding judgment against appellant here is that set forth in this Court’s opinion in International Shoe Co. v. Washington, supra: that a defendant “have certain minimum contacts with [the forum State] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial **1697 justice.’ ” 326 U.S., at 316, 66 S.Ct., at 158, quoting Milliken v. Meyer, supra, 311 U.S., at 463, 61 S.Ct., at 342. While the interests of the forum State and of the plaintiff in proceeding with the cause in the plaintiff’s forum of choice are, of course, to be considered, see McGee v. International Life Insurance Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957), an essential criterion in all cases is whether the “quality and nature” of the defendant’s activity is such that it is “reasonable” and “fair” to require him to conduct his defense in that State. International Shoe Co. v. Washington, supra, 326 U.S., at 316-317, 319, 66 S.Ct., at 158, 159. Accord, Shaffer v. Heitner, supra, 433 U.S., at 207-212, 97 S.Ct., at 2581-2584; Perkins v. Benguet Mining Co., 342 U.S. 437, 445, 72 S.Ct. 413, 418, 96 L.Ed. 485 (1952).

            Like any standard that requires a determination of “reasonableness,” the “minimum contacts” test of International Shoe is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite “affiliating circumstances” are present. Hanson v. Denckla, 357 U.S. 235, 246, 78 S.Ct. 1228, 1235, 2 L.Ed.2d 1283 (1958). We recognize that this determination is one in which few answers will be written “in black and white. The greys are dominant and even among them the shades are innumerable.” Estin v. Estin, 334 U.S. 541, 545, 68 S.Ct. 1213, 1216, 92 L.Ed. 1561 (1948). But we believe that the California Supreme Court’s application of the minimum-contacts test in this case represents an unwarranted extension of International Shoe and would, if sustained, sanction a result that is neither fair, just, nor reasonable.

            In reaching its result, the California Supreme Court did not rely on appellant’s glancing presence in the State some 13 *93 years before the events that led to this controversy, nor could it have. Appellant has been in California on only two occasions, once in 1959 for a three-day military stopover on his way to Korea, see supra, at 1694, and again in 1960 for a 24-hour stopover on his return from Korean service. To hold such temporary visits to a State a basis for the assertion of in personam jurisdiction over unrelated actions arising in the future would make a mockery of the limitations on state jurisdiction imposed by the Fourteenth Amendment. Nor did the California court rely on the fact that appellant was actually married in California on one of his two brief visits. We agree that where two New York domiciliaries, for reasons of convenience, marry in the State of California and thereafter spend their entire married life in New York, the fact of their California marriage by itself cannot support a California court’s exercise of jurisdiction over a spouse who remains a New York resident in an action relating to child support.

            Finally, in holding that personal jurisdiction existed, the court below carefully disclaimed reliance on the fact that appellant had agreed at the time of separation to allow his children to live with their mother three months a year and that he had sent them to California each year pursuant to this agreement. As was noted below, 19 Cal.3d, at 523-524, 138 Cal.Rptr., at 590, 564 P.2d, at 357, to find personal jurisdiction in a State on this basis, merely because the mother was residing there, would discourage parents from entering into reasonable visitation agreements. Moreover, it could arbitrarily subject one parent to suit in any State of the Union where the other parent chose to spend time while having custody of their offspring pursuant to a separation agreement.

Kulko, at 92-93.

 

The Kulko decision has been adopted and applied by our courts in Pennsylvania. See, e.g., Wagner v. Wagner, 564 Pa. 448, 768 A.2d 1112 (2001); Scoggins v. Scoggins, 555 A.2d 1314 (Pa.Super. 1989). Pennsylvania’s jurisdiction is limited by the same principles and considerations as described in Kulko.

Shadle – NAV Accepted by Divorce Court

by bvertz on Oct 2, 2008 • Comments Closed • , , , ,

In Shadle v. Shadle (108 PDDRR 102), a Bucks County divorce decision, the main issue was the valuation of an HVAC contracting business owned by the husband. The contracting business generated revenues from two primary sources: prepaid service contracts, and residential repair and replacement of HVAC systems. The company employed seven technicians, including the parties’ two adult sons. An ancillary issue was whether the husband had made an enforceable agreement with his sons to transfer the business to them upon his retirement.

On the latter issue, the trial court found no consideration for the promise made by husband to transfer the business to his sons. The trial court noted that each son had received adequate compensation for his services in the course of employment. The suggestion that the sons may have sacrificed other career opportunities in exchange for the promise was deemed speculative.

On the issue of valuation, there was a battle of experts. Wife’s expert considered three valuation approaches and concluded that the value of the business was $200,000. (The opinion does not reveal which approach(es) yielded this result.) The net asset approach, which is utilized when “liquidation is contemplated in the not-too-distant future,” as Wife’s expert explained, would yield a value of $130,000.

The testimony of Husband’s expert is not discussed at all in the opinion.

The trial court found that the fair market value of the HVAC business was equal to the NAV of $130,000, reasoning that “Husband will likely transfer the business to his sons rather than an independent buyer at some point in the future.” The trial court thus demonstrated a misunderstanding of valuation concepts, overlooking the fact that all parties contemplated an ongoing concern, not liquidation. It will be interesting to see whether the Superior Court of Pennsylvania reverses this erroneous decision, and whether, on remand, the issue of personal goodwill is raised.

Fundamentals of BV in PA: Glosser Bros. II

by bvertz on Jul 14, 2008 • Comments Closed • , ,

This post is the second in a series dedicated to historical legal precedents on business valuation in Pennsylvania. The factual background for this case, Glosser Bros., is discussed in my post last week. This is part II:

In addition to their argument that trial court should have considered actual stock transactions, the appellants in Glosser Bros. also complained about the expert testimony given by the dissenters’ accountant, who calculated the company’s net asset value. In particular, the Company argued that the trial court should have excluded the expert’s testimony to the extent that he had relied upon an equipment appraisal prepared by an appraiser (at the Company’s request) who did not testify at trial. The Company also complained that the plaintiffs’ accountant was not qualified to determine the value of leases held by the Company.

The dissenting shareholders argued that their expert’s testimony about the equipment appraisal was admissible, despite being hearsay, because it had been relied upon by the Company in its proxy statement for the merger and considered by management in adopting a certain tax treatment of the transaction. As such, they argued, it was an adoptive admission of the Company. Furthermore, the dissenters argued, it was the type of evidence on which business valuation professionals generally rely in the practice of their profession, and thus admissible under Pa.R.E. 703.

The trial court, apparently, had repeated the refrain frequently heard by lawyers who object to the admission of evidence: that the evidence would be admitted and the court would decide what weight to assign to it. The Superior Court generally approved this ruling, noting that in non-jury trials, it might be desirable for the trial court to have as much evidence before it as possible.

The Superior Court first rejected the Company’s argument that the dissenters’ expert was not qualified to appraise the leases. Observing that the accountant had been qualified as an expert on the issue of stock valuation, the Superior Court cited Pennsyvlania’s liberal standard for qualification of an expert. The Court also noted that the Company itself had used the same methods for its own purposes. Therefore, the Superior Court refused to disqualify the dissenters’ expert on this issue.

As for the equipment appraisal on which the business valuator relied, the Superior Court agreed that it would be hearsay evidence if offered to prove the truth of the matters that it contained. The Superior Court held that the Company’s use and reliance on the equipment appraiser’s opinion did not amount to an adoptive admission. Yet, the Superior Court did not overrule the trial court’s decision to admit the testimony of the plaintiff’s valuation expert, including the portions of his testimony that relied upon the hearsay equipment appraisal.

Reviewing the development of evidentiary procedure, the Superior Court noted that the expert testimony exception to the hearsay rule had been extended beyond medical experts, to experts in other fields. See, e.g., Pittsburgh Outdoor Advertising Corp. Appeal, 440 Pa. 321, 272 A.2d 163 (1970); Steinhauer v. Wilson, 485 A.2d 477 (Pa.Super.1984). Yet, the Superior Court in Glosser Bros. placed significant weight on the fact that the equipment appraisal had been prepared for the Company itself and was not the only equipment appraisal that the plaintiff’s valuation expert had considered. The testifying expert had exercised his own independent judgment by giving greater weight to the out-of-court equipment appraisal than to another appraisal prepared by an expert who testified at trial. Finding that the equipment appraisal carried its own “circumstantial guarantee of trustworthiness,” the Superior Court refused to exclude the testimony of the plaintiff’s business valuation who relied on the hearsay evidence.

Fundamentals of BV in PA: Glosser Bros.

by bvertz on Jul 7, 2008 • Comments Closed • , ,

This post is the first of series aimed at reviewing the historical legal decisions concerning business valuation in Pennsylvania. Since these are state court cases, most arise from shareholder disputes, divorces, and condemnation cases. Some are stale, some vital, and some questionable, but all are worth reviewing. The first installment, concerning Glosser Bros., will be presented in two parts:

One of the leading cases on business valuation in Pennsylvania is In re Glosser Bros., Inc., 555 A.2d 129 (Pa.Super.1989), a dissenting shareholder action arising from the management-led buyout of a regional chain of discount department stores, outlet stores and grocery stores. Three of the company’s shareholders filed suit against the acquirer, claiming that the share price paid by acquirer was too low and seeking an appraisal of the stock. The standard of value in such cases is “fair value” as provided by Section 515 of the Pennsylvania Business Corporation Law of 1988.

Glosser Brothers was a publicly-traded stock listed on the American Stock Exchange. In the months immediately preceding the merger, the shares traded around $14 per share. The stock had never traded for more than $19 per share. The company that acquired Glosser Brothers in 1985 paid $20 per share.

The Cambria County trial court did not appoint an appraiser, but took expert testimony about the methods of determining fair value, including net asset value and investment value. The trial court found the stock was worth $31 per share, which was determined by assigning 65% weight to the company’s net asset value and 35% weight to its investment value. The company appealed on several grounds, including the trial court’s refusal to consider its market share price.

The Superior Court agreed that it was an error to disregard the price at which the stock traded on the American Stock Exchange. The Court cited back to O’Connor Appeal, 452 Pa. 287, 304 A.2d 694 (1973), which required the courts in shareholder appraisal actions to consider actual market value as well as net asset value and investment value. The Court also held that the traditional “Delaware block” method of valuation (in which the court would only consider the three traditional methods of valuation, assigning a percentage weight to each) would yield to a broader consideration of generally accepted valuation techniques. (Business valuation was, at that time, a new and developing science.)

The Superior Court held that market value, while relevant, was not controlling. While it might be deemed extremely reliable in cases where there were many transactions providing extensive data, it might be less reliable in cases where the transactions were few and data scarse. Still, the Court held that market value should be totally disregarded only in cases where there was competent and substantial evidence to support the conclusion that the value at which the stock is trading is not at all reliable in gauging its intrinsic going concern value. For instance, where a high percentage of shares is held by an individual or small group, or thinly traded, the market value might be deemed unreliable.

The Superior Court in Glosser Bros. held that the trial court should not have totally disregarded the market trading price. By its ruling, the Superior Court attempted to pull away from the holding of O’Connor, in which the Supreme Court held: “[Shares of] a closely-held family corporation having unlisted stock and … no public market … [are] sold too infrequently for market value to play any part in [valuation].” In Glosser Bros., the Superior Court remanded to the trial court to consider market value among other valuation methods.

In Part II, which will be posted next week, we will discuss the other issue raised by Glosser Bros.: the expert’s ability to give opinions based upon hearsay evidence of the type ordinarily relied upon in the practice of business valuation.