A fairly routine ESOP case that is being litigated in the 4th Circuit has raised a novel legal issue in this jurisdiction as to the financial liability of co-fiduciaries and nonfiduciaries, including the ESOP appraiser.

The plaintiffs in the main case sued the defendant, Lubbock National Bank (Lubbock), over its role as trustee in a 2011 transaction. They claimed Lubbock breached its fiduciary duties under ERISA when it caused the plan to overpay for company stock. Lubbock engaged Stout Risius Ross (SRR), an experienced ESOP appraiser, to serve as independent financial advisor. Among other things, the plaintiffs claimed SRR, when valuing the company and providing a fairness opinion in connection with the transaction, relied on projections that had been manipulated to maximize the sale price. Lubbock, as trustee, knew or should have known that the projections that SRR used were unreliable and the sale price was unsupportable “given the unreliability of the financial projections.”

Trustee’s third-party complaint: In defending against the suit, Lubbock filed a counterclaim as well as a third-party complaint against SRR and the seller of the company shares. Lubbock sought indemnification, contribution, and/or apportionment in the event Lubbock were found liable in the main case. In response, SRR filed a motion to dismiss Lubbock’s claims. SRR claimed it was not a fiduciary under ERISA and ERISA did not provide a right to contribution against a nonfiduciary.

The court stayed discovery in the principal case pending a resolution of the third-party motions. (The seller also filed a motion to dismiss.) The question whether ERISA provides for a right of contribution or indemnity by a fiduciary against a co-fiduciary or nonfiduciary was a legal issue that had not yet been decided in the 4th Circuit, the court said.

It noted that ERISA does not have specific provisions that grant a right of indemnification or contribution among fiduciaries. The U.S. Supreme Court has not addressed this specific issue, and different circuits have split on it. Some circuits have rejected the idea of a right of contribution, whereas others have found that, since ERISA has a foundation in trust law, which allows for a cause of action for contribution and indemnification, courts should be able to allow for a claim of contribution. District courts in the 4th Circuit also have come to a different conclusion on this issue, the court noted.

The court adopted the position of courts “holding ERISA provides for a right of indemnification or contribution among fiduciaries.” At the same time, the court found “the significant weight of authority” has rejected claims for contribution or indemnity against nonfiduciaries. The court pointed out that other courts have observed that “extending the threat of liability over the heads of those who only lend professional services to a plan without exercising any control over … plan assets will deter such individuals from helping fiduciaries navigate the intricate financial and legal thicket of ERISA.” It was undisputed that SRR was not a fiduciary, the court said. Accordingly, it granted SRR’s motion and dismissed the trustee’s claim for contribution against SRR.

A digest of Remy v. Lubbock Nat’l Bank, 2019 U.S. Dist. LEXIS 133421 (Aug. 8, 2019), and the court’s opinion, will be available soon at BVLaw.

AICPA guidance cautions on cannabis valuations

The American Institute of CPAs details the risks and opportunities for CPAs working in the cannabis industry in the latest “FVS Eye on Fraud” report. Along with these opportunities come serious downsides, as marijuana remains illegal at the federal level. The report offers a review of many of the State Boards of Accountancy positions on working in the cannabis industry and highlights some of the issues and challenges facing both the cannabis industry and CPAs supporting it. It also has some cautions about valuing a cannabis business, saying that apparently many of these firms are using the fair value accounting model, incorrectly assuming that the cannabis industry is akin to the agricultural industry. “Consequently, valuing the marijuana plants using this method does not take into consideration any other factors that could affect the ultimate sale of the product, such as economic factors, weather conditions, insects or other pathogens,” the report says. “In turn, this could lead to large writeoffs and disgruntled investors.”

Extra: For business appraisers who are valuing firms in the cannabis industry, The State of Legal Cannabis Markets, 7th edition, is available from ArcView, and there is a discount for BVR customers. If you use the discount code “BVR100,” you will receive a $100 discount. BVR also has two other resources: The Cannabis Industry Appraisal and Accounting Guide and What It’s Worth: Value and Business Challenges in the Budding Cannabis Industry.

Put your storytelling to work when recruiting BV talent

Appraisers know the importance of telling a good story when valuing a business. Use that same skill to help you recruit BV talent. “No one ever took an offer because they liked the sound of a job description,” according to John Borrowman (Borrowman Baker LLC), a recruiter who has worked exclusively in the BV profession for over 20 years. Expand on the generic job description to include something that tells the story of your practice, the role the new hire will play, and target it to the person you have in mind, not the masses, advises Borrowman. For example, communicate a unique sense of what it’s like to work at your practice. If there’s a history of moving up in the ranks, you could say: “Two of the firm’s managing directors started in this position.” As to the job role itself, you could clarify compensation drivers: “A key driver to incentive compensation will be staff productivity.” For example, if your employees work long hours because they like the intensity and monetary rewards, don’t be afraid to say that. There are other ways to improve your recruiting, such as interviewing more productively and testing candidates for a proper “fit” with your firm. Borrowman will talk about all of this during an free one-hour webinar, BV Hiring Made Smarter: Expert Tips to Land (and Keep) the Best Talent, on November 14 at 1 p.m. ET (10 a.m. PT).

NACVA adds 67 new CVAs

The National Association of Certified Valuators and Analysts (NACVA) added 67 members who have earned the CVA designation in the third quarter of 2019, according to an announcement. These members completed the training, exam, and credentialing process.

By popular demand, Mergerstat Review analysis feature returns

Based on feedback from users, a supplement to the 2019 Mergerstat Review has been created that contains analysis originally featured in all editions prior to 2018. The supplement allows you to choose either the Mergerstat Industries or FactSet Sectors to compare and perform your M&A analysis. Starting with the 2020 edition, the supplement will be included as a standard section going forward. This section will continue to provide users with the familiarity of doing their own analysis based on industry spotlights, multiples, premiums, and cross-border activity. The Mergerstat Review contains comprehensive rosters, data, and statistics on merger and acquisition (M&A) transactions that involve U.S. companies, including privately held, publicly traded, and cross-border transactions, and also lists unit divestitures, management buyouts, and certain asset sales.

New DealStats Hall of Fame members

DealStats now lists over 30,000 private-company and 4,000 public-company M&A transactions, thanks to business brokers and other intermediaries who contribute the data. Individuals who send in the most transactions are inducted into the DealStats Hall of Fame every quarter. For the third quarter of 2019, they are:

• David Buboltz, Link Business Raleigh (Cary, N.C.);

• Al Statz, Exit Strategies Group (Petaluma, Calif.); and

• Scott Balfour, Magnusson Balfour (Portland, Maine).

BVR wishes to thank these individuals and all of the other brokers who help maintain DealStats as the most reliable data source of its kind.

The eyes of the world have been on Hong Kong for very different reasons than business valuation. Nevertheless, efforts are underway to develop a sorely needed set of accepted technical and professional standards for valuation work there. Previous attempts to create a professional body for business valuation in Hong Kong have failed, resulting in a wide disparity in the quality of valuation work. The “Hong Kong Business Valuation Quality Initiative” is a proposed “standards and professionalism framework” to support improved business valuation practices in Hong Kong. The document contains 14 questions for feedback and comments that are due by November 15. Developed by the International Valuation Standards Council (IVSC) and partner organizations, the framework is the result of extensive engagement with stakeholders across the business valuation and related sectors in Hong Kong as well as regulators, professional bodies, and business chambers. The link above gives you access to the proposed standards and instructions on submitting comments.

BV movers ...

People: Zach C. Reichenbach, CFA, CPA/ABV/CFF, has joined the boutique valuation/litigation support firm Vallit Advisors as a director; he has specialized expertise in litigation, valuation, and bankruptcy and will be working primarily in the Mid-Atlantic region … Gregory Cook and Franco Silva of Prairie Capital Advisors Inc. have been promoted to director from vice president; both have been “Top 40 Under Forty” honorees by the National Association of Certified Valuators and Analysts (NACVA) … David Richards, CPA/ABV, has changed the name of his firm from Vanderwal, Spratto & Richards PC to Richards & McDougall PC to reflect his current partnership with Krista McDougall, CPA; the firm is in Manistee, Mich.

Firms: Mazars, the international accounting and advisory firm, has become a sponsor of the International Valuation Standards Council … Wojeski & Co. CPAs (Albany, N.Y.) has relocated to new offices within the city; the firm recently acquired DeChants, Fuglein & Johnson LLP, which brought the total staff count to 40 employees … Concord, N.H.-based Nathan Wechsler & Co. has announced a merger with Thomas S. Bates, CPA, PC of Keene, N.H. … Kruggel Lawton CPAs (South Bend, Ind.) has opened a full-service office in Goshen, Ind.; this location marks the fifth office for the firm … Grand Junction, Colo.-based Dalby Wendland & Co. has relocated its Montrose, Colo., office within the city; Ralph A. “Buck” Miller, CPA, CVA is the Montrose office principal … Skiles Loop Bremer & White CPAs celebrated 40 years of business with a ribbon-cutting at their new location in North Platte, Neb.; the firm has 23 employees in six locations throughout southwest Nebraska and northwest Kansas … Wouch Maloney CPAs and Business Advisors has opened a new office in Philadelphia; this is the firm’s third location; the others are in Horsham, Pa., and Bonita Springs, Fla.

Please send your professional and firm news to us at editor@bvresources.com.

Upcoming BVR training events

• The Fair Commission Model for Valuing Goodwill in Small Service Businesses (November 7), with Michael Sack Elmaleh (Epiphany Communications).
  
  Learn about an alternative appraisal methodology designed to be a more useful and economically realistic way to appraise goodwill small service businesses.
  
  

• FREE WEBINAR: BV Hiring Made Smarter: Expert Tips to Land (and Keep) the Best Talent (November 14), with John Borrowman (Borrowman Baker LLC).
  
  A veteran BV recruiting specialist will discuss how to tell a more attractive story about your practice and the position, interview more productively, and how to measure and test your candidates.