In re Radiology Assoc., Inc.

Dr. Robert Kurtz (plaintiff) was an employee and shareholder in a business called Radiology. Radiology was established by Dr. Papastavros (defendant) to provide radiology services and equipment to his medical practice. Radiology was ultimately merged into a new company called New Radiology. Part of the merger was eliminating Dr. Kurtz’s interest in the business in exchange for the fair value of his shares. Once the parties disagreed on that valuation ($400 per share was offered), Dr. Kurtz filed suit against Dr. Papastavros and others for breach of contract and breach of fiduciary duty. The trial court found the defendants liable but had to engage in valuation of Dr. Kurtz’s Radiology shares on May 6, 1987, which required a valuation of the business as a whole. Dr. Kurtz used an expert, Anne Danyluk, who valued his shares at $2,300 per share. Danyluk used two metrics, a comparable company method and a discounted-cash-flow approach (also known as discounted-cash-flow analysis). That said, the two businesses Danyluk compared vastly differed from Radiology in purpose, business size, and geographic scope. On the discounted-cash-flow method, Danyluk used figures computed with input from Radiology but also tweaked revenue projections on her own from 5 percent to 7 percent. The defendants used an expert, Charles Stryker, who based his valuation on the Delaware Block Method. Stryker valued the stock at $457 per share. However, Stryker did not include any asset valuation for goodwill and relied heavily on market values, which were nothing more than prices set by Dr. Papastavros for the sale of stock or an offered sale of the company.