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Matthew G. Norton Company v. Smyth

51 P.3d 159 (2002)

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Matthew G. Norton Company v. Smyth

Washington Court of Appeals
51 P.3d 159 (2002)

  • Written by Rose VanHofwegen, JD

Facts

After merging with Northwest Building Corporation (NWBC), Matthew G. Norton Company (MGN) (plaintiff) sued to determine the fair value of shares held by dissenting shareholders Theodore Smyth and Stephen Clapp (defendants). Before the merger, MGN owned almost all NWBC’s shares, while Smyth owned the tiny remainder. Clapp owned about 3 percent of MGN. MGN hired accounting firm Arthur Andersen to value both companies and determine the fair value of their shares. Because both MGN and NWBC shareholders were severely restricted in their ability to transfer or sell shares, Arthur Andersen discounted the value of MGN’s shares by 35 percent and NWBC’s by 40 percent. The stated purpose of the discounts was to reflect that all the shares in the companies lacked marketability and not the dissenting shareholders’ minority status. In accordance with Arthur Andersen’s calculations, MGN paid Clapp $3,509,146 for his shares in MGN, and Smyth $208,050 for his shares in MWBC. Clapp and Smyth disagreed with the discounts, claiming their shares were worth $6,858,928 and $458,864, respectively. MGN sued for a valuation, and Clapp and Smyth requested summary judgment. The trial court ruled MGN could not apply lack-of-marketability discounts as a matter of law. MGN appealed.

Rule of Law

Issue

Holding and Reasoning (Kennedy, J.)

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