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Investment scams run across the board.  It does not matter if it is a stock, an oil and gas lease or a real estate investment fraud.  It’s all the same.  Steal the public’s money.

Recently we were hired by a highly successful California businessman who invested millions in First Texas Medical Partners, LLC, Giltex Global Holdings, LLC, and several individuals regarding a medical product manufacturing plant in Memphis, Tennessee.  The defendants’ representations to our client read like a Hollywood movie script.  “18% return on your investment … this is “a cutting edge wound-healing product” … “we already have the patents.”  Fraud.  Fraud.  Fraud.

Needless to say, despite many promises, this investor has not received a penny from his substantial investment.

He realized he was a victim of a massive scam.

He hired us.

We are going after the fraudsters.  We will not believe any of their promises.  As we say in Texas, “taking fast action is fine, but accuracy is final.”  That’s what we do.  Accuracy for our clients.

Additionally, we think it is important for investors to know – and as we have informed those who have contacted us – that there is a strong likelihood that their investment is an “investment contract” under the Texas Securities Act.  Effectively, this means that if a person contracts or engages in a transaction which involves: (1) an investment of money in; (2) a common enterprise and (3) with profits to come solely from the efforts of others it is an “investment contract.”  As a result, the person who offered to sell and sold the investment along with his employer must comply with several provisions of the Texas Securities Act.  For example, among other things, the seller and his employer (the broker-dealer) must have been timely registered with the Texas Securities Commission to legally make the offer and sale.  Most times they aren’t.

We are here to help.

 

Mark A. Alexander
5080 Spectrum, Suite 850E
Addison, Texas  75001
Ph: 972.364.9700
Fax: 972. 239.2244

E-Mail: mark@markalexanderlaw.com
www.commerciallitigationtexas.com
www.oilandgasfraudlawyer.com

 

Over the years, as Commercial Litigation attorneys, when we have represented plaintiffs in a breach of contract cases, most times we have been successful in having the court award our clients their reasonable attorney fees.  However, due to a new law, that has changed.  Now, not all successful plaintiffs can recover these fees against all business entities.

The legislature modified the law regarding who can be liable for payment of attorney fees.  As a result, judges, have determined that the new law does not allow a successful plaintiff to recover attorney’s fees against a limited liability partnership, a partnership or a limited liability company.  Such a plaintiff can still recovery his/her fees against corporations and individuals.

We strongly encourage our business clients to insist on a prevailing party provision for the recovery of attorney fees in their contracts.

At the onset of a Commercial litigation case, one of the initial steps is to determine if the contract has a provision for the recovery of attorney fees.  If so, we maintain the required file to support such a recovery.

All business litigation is difficult and stressful.  Therefore, try to ease the burden by having the appropriate attorney fee provision in your contracts should aid in you recovering reasonable attorney’s fees by court order.

Our Commercial Litigation attorneys are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

Clock

You may recall that over one year ago Ahmed Mohammed, who came to be known as “the clock boy” was engaged in a highly publicized dispute with Texas school administrators and law enforcement.   In fact, Ahmed gained international attention and even a visit to the White House after he took a clock that closely resembled a timed bomb to his Irving, Texas high school.  One of his teachers referred him to the school’s administrators.  Then the legal “fireworks” began.

A homemade clock made by Ahmed Mohamed. REUTERS/Irving Texas Police Department

 

Mohamed Mohamed, acting on behalf of his son, Ahmed, filed litigation in Dallas County, Texas against The Blaze, Glenn Beck, the Center for Security Policy (“CSP”), CSP member Jim Hanson, Fox Television, Fox correspondent Ben Ferguson, commentator Ben Shapiro, and Irving, Texas Mayor Beth Van Duyne. The plaintiff claimed he was libeled, asserting that: (1) Glenn Beck, Jim Hanson, and Mayor Van Duyne suggested on Mr. Beck’s show that the Mohamed family staged the incident for public relations purposes; (2) Fox 4 News correspondent Ben Ferguson suggested that the incident was planned by Mohamed Mohamed; and (3) Ben Shapiro told Fox News that he thought the incident was a hoax.

Our business trial lawyers reviewed Mr. Mohamed’s lawsuit.  From the onset, they thought it was without merit, if not frivolous.  We know that not everything one says enjoys protection from the First Amendment, as some statements are genuinely defamatory, and outside legal protection.  Our business litigation attorneys have counseled our clients on this very issue.  Texas has a law, referred to as the “anti-SLAPP” statute (Strategic Lawsuit Against Public Participation).  This law allows for a defendant in a defamation lawsuit to ask the court to dismiss a plaintiff’s lawsuit if it is based on any type of communication, in any medium, that is related to a “matter of public concern” or pertains to any governmental proceeding or between individuals “who join to collectively express, promote … or defend common interests.”  In other words, protected speech.

When our commercial litigators reviewed Mr. Mohamed’s lawsuit it was apparent that the lawsuit failed to state precisely which of the defendants’ statements were false, and no doubt must defend the defendants’ motion to dismiss, and request for attorney fees under Texas’ anti-SLAPP law.  In fact, if any of our business trial lawyers represented any of the defendants in this case, one of our first acts would be to file a motion to dismiss under that law.

Once litigation started, the defendants’ trial attorneys pounced.  There is too much information to detail all the legal arguments made by the attorneys in the case.  Suffice it to state that the defendants asked the court to dismiss the lawsuit and award them attorney fees since: (1) their speech was protected as that being of their opinions, commentaries and not defamatory statements of fact; (2) some of them were merely reporting on school district proceedings; (3) their statements were substantially aided by the very language in Mr. Mohamed’s lawsuit; and (4) the lawsuit was a classic case for “anti-SLAPP” law and should be dismissed.  After reviewing the case and the controlling law the trial judge dismissed the lawsuit and awarded the defendants nearly $100,000.00 in attorney fees for having to defend this case.

To avoid costly business litigation, it’s critical to understand the protections and limitations of the First Amendment, especially in today’s climate of non-stop, global communication.  The potential for widespread damages is instantaneous.

Our business attorneys are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

 

The Texas Supreme Court is considering a significant fraudulent transfer case starting from the well-publicized, Allen Stanford’s Ponzi scheme. This commercial litigation case goes back to 2009.

Because of Mr. Stanford’s $7 billion Ponzi scheme, a Texas Court has appointed a receiver for Mr. Stanford and his related entities. What is interesting is that the receiver sued the Golf Channel, and others, claiming almost $6 million Mr.  Stanford paid for advertising was a fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“the Act).

One of the most important issues in the Stanford case is whether the Golf Channel’s commercial litigators could prove an affirmative defense.  In other words, that its advertising services were something of “reasonably equivalent value” in return for the transfer.  The Fifth Circuit’s (an appellate court) first opinion said, “no.”  Value is measured from these creditors’ perspective, not the general marketplace, under the court’s original reasoning. And so, while advertising “may have been quite valuable to the creditors of a legitimate business,” it had “no value to the creditors of a Ponzi scheme.”

Due to the Texas trial lawyer arguments, later the Fifth Circuit took a second look and set aside its original opinion. Then the court agreed that “precisely where the Act draws the line between the various interested parties is the difficult question that Texas courts have yet to answer.”  On that basis, the Fifth Circuit sent this question to the Texas Supreme Court, asking what showing of value is sufficient to prove an affirmative defense to a fraudulent transfer claim.

The court’s ruling is expected to clarify the contours of defenses available to innocent trade creditors who deal with businesses that were engaged in fraudulent conduct.

Our business litigators have been involved in several cases dealing with this Act.  Given the circumstances the Act can be used as a powerful tool in commercial litigation.

Please contact us if you have any questions in this area or any questions regarding commercial litigation.  After all, we are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

 

In the past several years the business-friendly state of Texas has experienced enormous growth with companies from all over the U.S. deciding to relocate to the “Lone Star State.”  Understandably, these companies are concerned with, among other things, being aware of some of the employment issues in Texas.  Several of those companies have contacted us to address those issues.  Below are some of our more significant responses:

-The Texas Labor Code contains many of the statutes governing the employment relationship.  One portion of the Code prohibits discrimination in employment; another governs payment of wages; and another prohibits retaliation against an employee who files a good faith workers’ compensation claim.

-For the most part there are no certain rules regarding the difference between an employee and a contractor.

-Employment contracts do not have to be in writing.  Texas has a strong policy in favor of employment-at-will. This means that, without a written contract, either party in an employment relationship may terminate the relationship for any reason or no reason at all, and with or without advance notice.  Thus, Texas employers may develop and change personnel policies, reassign employees, and change such things as work locations, schedules, job titles, job descriptions, pay, and other aspects of jobs at will.

-Arbitration agreements are important and enforceable.  We counsel companies on the precise wording they need to comply with arbitration…if they want to.

-Restrictive covenants/covenants not to compete.  Our firm has litigated numerous cases on this covenant. The express wording is critical as a Texas statute and case laws govern if this covenant is enforceable to protect the company/employer or not.

Although Texas is a business-friendly state, we suggest companies take timely action to comply with Texas law to hopefully stay out of court.

Please contact us if you have any questions.  We are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

 

In May of 2016, the Texas Supreme Court issued an important decision interpreting the Texas Uniform Trade Secrets Act when it held that a trial court may exclude a party’s corporate representative from preliminary injunction proceedings where the opposing party’s trade secrets will be discussed. The Supreme Court also held that, where one party contends that a document contains its trade secrets, the trial court must examine the document in camera before ordering production to the opposing side.

The Court’s ruling came about due to two competing businesses, when a former employee of one company (“M-1”) left to join a competing entity (“NOV”).  M-1 accused its former employee of breaching his non-compete agreement, asserted that he would inevitably disclose their trade secrets, and demanded that he stop working for NOV. The former employee filed a declaratory judgment suit, and the former employer counterclaimed for, among other things, breach of the non-compete agreement and misappropriation of trade secrets.  also asserted third-party claims against NOV, including one for a temporary injunction.[1]

At the temporary injunction hearing, M-I sought to establish its trade secrets through the oral testimony of one of its current employees, the business manager of its screens division. But before it did so, M-I requested that everyone except the parties’ counsel, their experts, and M-I’s former employee be excluded from the courtroom. In particular, M-I sought to prohibit NOV’s corporate representative from hearing this testimony. The trial court refused M-I’s request on the ground that it would amount to a “total violation of due process.” The trial court instead said that it would order NOV’s representative “not to disclose or use any trade secrets he heard.” Unsatisfied with this result, and unwilling to disclose its trade secrets to NOV’s representative, M-I sought relief in the court of appeals and then the Texas Supreme Court.

The Texas Supreme Court held that the trial court was required to balance the parties’ interests, considering “the degree of competitive harm” M-I would have suffered if its trade secrets had been shared with NOV’s representative. This determination should include examining “the relative value” of the alleged secrets, as well as whether the representative was a “competitive decision-maker.” The trial court also should weigh the degree to which NOV’s defense would be impaired if its representative were excluded from parts of the temporary injunction hearing. Having failed to conduct this balancing analysis and, instead, finding that NOV’s representative had an absolute due process right to hear M-I’s testimony about its trade secrets, the trial court abused its discretion.

The Supreme Court further stated that the exclusion of NOV’s representative would not be inconsistent with Texas law.  In particular, the Supreme Court held that the Texas Uniform Trade Secrets Act “requires trial courts to take reasonable measures to protect trade secrets” including, among other things, “holding in camera hearings.” The Supreme Court agreed with M-I’s position, finding that “the Act granted the trial court discretion to exclude [NOV’s representative] from portions of the temporary injunction hearing involving alleged trade secret information about which he was potentially unaware.”

The Supreme Court also held that the trial court had abused its discretion by failing to perform an in camera review of M-I’s affidavit before ordering that the affidavit be produced.

This case is significant for businesses. The opinion reaffirms the importance of maintaining the confidentiality of trade secrets, even from competitors in litigation, by using the protections afforded by the Texas Uniform Trade Secrets Act. These protections include the ability to clear the courtroom of even a competitor’s representative during proceedings, and to obtain in camera reviews of evidence, documents, and testimony before disclosing trade secret information in open court or to a competitor.  An opposing party’s corporate representative will often be a key player, knowledgeable of the competitor’s business, or otherwise able to make at least some use of the opposing party’s trade secrets. The same qualities that make the defendant’s representative well suited to represent that corporation may also warrant limiting or eliminating that person’s additional or continued access to a plaintiff’s trade secrets in litigation. The opinion also clarifies that due process and public access provisions of federal and state law must be balanced against protection from public disclosure and misappropriation of trade secret information, particularly to competitors.

As a result of this decision, we always are well-prepared to protect our client’s trade secrets.

We are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

 

[1].  A declaratory judgment lawsuit is a judgment of a court which determines the rights of parties without ordering anything be done or awarding damages.

Evidently some lawyers and litigants don’t understand what it means to be “on the record” during a deposition. Either that or they don’t mind being caught saying or doing something untoward, ridiculous or downright horrible.

Every year stories surface of lawyers and witnesses lobbing insults—or nearby objects—at each other during depositions when things get contentious. Although 2016 was an outline in many ways, it followed suit when it came to lawyers and litigants behaving badly.

The following low-lights stand out:

A NUTTY CLAIM

Seeking sanctions demonstrates a certain amount of animosity toward an opponent. Trying to get your opponent arrested takes it to a whole different level.

The Florida Bar this year filed a complaint against Bernardo Roman III for allegedly making a false 911 call in an attempt to get his opposing counsel in a legal malpractice case locked up. Roman accused Paul Calli of Calli Law in Miami of deliberately shoving pistachios in the face of his assistant—who has a nut allergy—during a deposition.

According to the bar, Roman’s assistant was actually forced to leave the deposition to seek care for an allergic reaction after the nuts were left out in a conference room by a judge. More than an hour after she left, Roman called police claiming Calli had pushed the pistachios in his assistant’s face and placed them in her lunch. The bar claims that Calli would have been arrested if not for the intervention of two judges.

Roman allegedly fired his assistant after she refused to back up his story.

KEEP YOUR COOL

Coffee can provide a pick-me-up during a long, grueling deposition.

But picking up coffee and throwing it at opposing counsel mid-deposition probably takes the whole pick-me-up thing a little too literally.

That’s what allegedly happened this summer in a case involving San Francisco-based startup Loop AI Labs Inc. and Italian tech company Almawave SRL, according to court filings and a transcript.

Thomas Wallerstein, who represents Almawave, accused opposing counsel Valeria Calafiore Healy of Healy LLC of cursing at him and hurling her coffee toward him after a heated exchange at a deposition in Boston. Healy, who had earlier begun videotaping the deposition with her cell phone, claimed that Wallerstein was harassing her witness.

In her reply to Wallerstein’s motion for sanctions, she also pointed out one key fact that he had omitted from his motion for sanctions: She was drinking iced coffee rather than the hot stuff.

WHO’S SORRY NOW?

After Peter Bertling of Bertling & Clausen in Santa Barbara, California, told opposing counsel that it wasn’t “becoming of a woman” to raise her voice at him during a contentious expert deposition in a wrongful-death suit, he failed to take a judge’s hint that he should say “I’m sorry.”

In the sanctions proceedings that followed, Bertling wrote that he would apologize to opposing counsel “if I offended her by referring to her as a ‘woman’ instead of as an ‘attorney.’” That didn’t sit well with then-U.S. Magistrate Judge Paul Grewal of the Northern District of California. After Bertling failed to apologize in court papers and at a follow-up hearing, Grewal wrote that Bertling had only offered “a halfhearted politician’s apology” and ordered him to donate $250 to the Women Lawyers Association of Los Angeles Foundation.

“A sexist remark is not just a professional discourtesy, although that in itself is regrettable and all too common,” wrote Grewal, who has since left the bench for an in-house position at Facebook Inc. “The bigger issue is that comments like Bertling’s reflect and reinforce the male-dominated attitude of our profession.”

LEADING QUESTIONS … AND ANSWERS

When coaching a witness, it’s probably best to stop short of hand signals.

Plaintiffs commercial litigation lawyers in a fraudulent-conveyance lawsuit in federal court in Dallas accused their opposing counsel of mouthing words to a witness during a deposition to influence testimony and using hand signals to signal when to stop answering. The defense lawyers, Gregory Shamoun and Stephen Khoury, also allegedly told their client to leave the room mid-question.

Shamoun and Khoury called the allegations against them “baseless” and “smear tactics” by the plaintiffs. But a federal magistrate judge partially granted a motion for sanctions against them, and ordered their client to sit for another deposition. The judge also awarded the plaintiff’s request to be reimbursed for lawyer time and travel to the earlier deposition.

Maybe try Morse code next time.

GET ON WITH IT, ALREADY

And finally, a cautionary tale for lawyers who think that delay is just another word for depose.

When tobacco defense attorney Luis Suarez of Boies, Schiller & Flexner took more than five hours to depose a smoker’s oncologist in a wrongful-death case in Florida, a state court judge said it was the “type of practice that gives the entire bar a black eye.”

Ouch.

Plaintiffs had complained that Suarez, representing Philip Morris USA Inc., had spent two hours asking about treatment the plaintiff received before the doctor ever saw the patient and asked four times if the doctor understood that he was under oath. Brevard County Circuit Judge Charles Roberts actually gave defendants two additional hours to depose the doctor, but ruled that the tobacco defendants had to pay for the additional time themselves.

“The word needs to go out to the entire bar that these things cannot be countenanced by the court and they make us all look bad,” said Roberts at a hearing in October.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

 

Our legal system gives us the right to resolve disputes in civil courts.  Citizens and businesses count on this right to address alleged wrongdoings.  However, along with this right most times plaintiffs have had to wait more than one year to achieve resolution of the dispute.  Request for production; interrogatories, depositions, motions, etc.…. time consuming for all….and costly.  This memo should be welcome news.

Recently the Texas Supreme Court amended a few rules of civil procedure with the goal of reducing the time and the costs associated with litigation. These amendments are important to the citizens and the business community for two reasons: (1) they simplify important steps of the litigation process when a plaintiff is seeking $100,000 or less in damages; and (2) they discourage the filing of frivolous or baseless causes of action.  The overall the goal of the amendments is to try to cause people to closely evaluate their options prior to filing a lawsuit.  The Court realized citizens are fed up with fraudulent or baseless lawsuits.

One of the new rules, titled “Expedited Actions,” was added by the Court to govern all suits in which monetary relief of $100,000 or less is sought by the plaintiff. The new expedited action rule does not apply to a claim under the Family Code, the Property Code, the Tax Code, or a healthcare liability claim.  Under another new rule, discovery is significantly restricted.  Discovery is the process used to obtain information from an opponent before trial.  Also, the amendments make it possible for an expedited action to be filed and tried in less than a year by ordering that a court set an expedited action for trial within 90 days after the discovery process ends. And once trial begins, each side will be limited to five hours to try its case.  Based on our experience we are confident that these new rules will make it more cost-effective for the citizens to litigate cases.

In addition, the Court created a procedure called, the “Dismissal of Baseless Causes of Action.”  This new rule is important as it allows a party to ask a court to dismiss a cause of action on the grounds that it has no basis in law or fact.  This rule is intended to prevent a plaintiff from alleging an arguably baseless lawsuit and hoping a court will allow it to continue to waste time and have the opponent incur unnecessary legal fees.  If a claim is dismissed as baseless, the losing party must pay the prevailing party for the costs and attorney’s fees it incurred in defending the frivolous cause of action.

As a law firm which represents individuals and companies, we commend the Court for the wisdom of these amendments which should benefit all citizens.

This information is not intended to address every aspect of the new court rules.  If you have questions about these new rules or business litigation, please contact:

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

As business attorneys we have been presented with many commercial disputes where one company claims it is owed money from another, yet there is no written contract to support the claim. Generally, this does not mean there is no claim to pursue. Oral contracts can be enforceable in Texas.

When prospective clients present us with a claim for an alleged breach of an oral contract, we discuss the elements of a valid contract with our prospective client. We ask: (1) was an offer (the promise to do something) made; (2) was the offer accepted; and (3) was consideration (for example, services) exchanged for the promise?

Next we consider the parties and the acts and circumstances surrounding the communications. These are important factors as courts focus on them.

If we are confident that;

  1. There is a valid contract,
  2. the plaintiff-company has performed its obligation,
  3. the defendant breached its obligation and
  4. the plaintiffs sustained damages from the breach, we advise the company that it has a claim.

Case in point. In October of 2015 we represented an investment company in an oil and gas fraud case. Even though there was not one single piece of paper in that commercial transaction to support our client’s claim, the jury awarded our client several hundred thousands of dollars in damages.

Clearly, oral contracts can be enforceable. However, Texas law requires that certain promises/agreements must be in writing to be enforceable, for example matters dealing with real estate, certain sales commissions, and a promise to pay the debt of another.

Be safe. Get it in writing. There are many simple, enforceable ways to codify an agreement. Got questions? We are here to help.

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com

For over 35 years Mr. Smith has owned and operated a profitable manufacturing company.  He wants to sell his company and retire in the sun.

For the past 10 years Mr. Bell has been a competitor of Mr. Smith and is very interested in purchasing his company.  Mr. Bell is no business novice so he knows that a competent business valuation of Mr. Smith’s company is the key to analyzing the price to pay for the company.

Our law firm has been involved in several transactions where the seller of a business over-stated the revenue, and/or under-stated the expenses of the company in an effort to secure the highest selling price.  Consequently, the business valuation was not an accurate picture of what was represented to the buyer, and a lawsuit was filed.  Prior due diligence could have prevented these legal entanglements.

Here are some suggestions our firm shares with clients to help them avoid paying too much for a business.

The value of a business interest is generally based on two things: (1) what the company owns, which is reflected on the balance sheet, and (2) what the company earns, which is reflected in the income statement.

Also the nature and history of the business being sold is important.  Here we counsel our clients to consider the:

  • Size and consistency of the growth rate
  • Stability of the business or lack thereof
  • Products, services and company assets
  • Record of sales
  • Management – especially recent changes
  • Diversity of operations

Another factor in the due diligence process is the general economic outlook and condition of the particular industry in which the business operates.  This directly affects how a business is valued.  Common questions to be considered include the following:

  • Is it a growth industry?
  • How competitive is this company in the industry?
  • What would be the economic effect of the loss of a key employee?

The book value of stock is another factor we tell our clients to note that when thinking about purchasing a company.  Generally, that value is:

  • Based on assets minus liabilities – to demonstrate its liquidity position.
  • Believed to be unreliable in valuing most businesses.

The earning capacity of the selling company is perhaps the most significant factor.

  • Earning capacity is average earnings over a five-year period multiplied by a capitalization rate
  • There is no standard table of capitalization rates
  • Capitalization rates are usually based on price-earnings ratios of similar, publicly-traded companies

Here, we suggest that our clients engage an expert to review all of this financial information.  We assist our clients in finding an expert who is a good fit for their needs.

Another primary factor in these transactions is the dividend paying capacity

  • This does not mean dividends actually paid, but the capacity to pay
  • The IRS recognizes the need to retain a reasonable portion of the profits for expansion needs

No doubt that the selling company’s goodwill and other intangibles have a value.  We factor that into the transaction, and inform our clients of the following:

  • Goodwill is based on earning capacity. It represents an excess of net earnings over and above a fair return on the net tangible assets of the business;
  • Other intangibles include the following;
    • Ownership of a trade or brand name
    • Prestige and renown of the business
    • Prolonged successful operation in a particular locality

Our firm thinks that comparables need to be examined.  For example:

  • Prior sales may be meaningful if they were arms-length transactions
  • Small isolated sales or distress sales are not significant
  • Valuation of a controlling interest may carry a premium value
  • Valuation of a minority interest should include a discount

How the selling business performs in comparison to its competitors is another consideration.  For example, the valuation may consider the market price of stocks of similar, publicly-traded corporations.

  • Companies must be sufficiently comparable
  • The comparative appraisal method examines price-earnings, price-book value, and price-dividend ratios of each corporation

Some factors will carry more weight than others.  There is no exact mathematical formula.

A study by Standard Research Consultants showed that in 74 tax cases the most frequently used factors were:

  • Sale price, in 33 cases
  • Book value, in 24 cases
  • Earning power, in 17 cases

Earnings will typically have more importance in companies selling products and services, whereas net worth will be more important in real estate holding companies.

Even if the relevant companies are not publicly traded, but are “closely-held” companies the valuation of the selling company is critical.

As this brief summary demonstrates, due diligence is a sophisticated process.  It requires experienced experts and, if done right, could spare you later a costly and time consuming lawsuit.   We’re here to help you make a successful business acquisition or take legal action if required.

 

Mark A. Alexander
5080 Spectrum Suite 850
Addison, Texas 75001
Ph: 972.364.9700.
Fax: 972.239.2244
E-Mail: mark@markalexanderlaw.com