Business Valuation and the Discovery Process

By Terry Silver
Special to the Legal

Most of the business valuations I prepare are in the context of litigation. In anticipation of such a valuation, I will always prepare a document discovery request. Additionally, I will often need to prepare a supplemental document request list once I review the original submissions. While opposing counsel in most of my cases cooperate by providing the requested documents, some do not. Nevertheless, I am typically working, with counsel, under a court-imposed deadline for completion of the business valuation.

Fortunately, in the case of substantial noncompliance in the discovery process, in my experience, the court will extend relevant deadlines for expert report submissions. Problems can develop in the case of slow discovery compliance, but more so in the case of purposeful discovery evasion, such as: a cover letter from opposing counsel identifying certain documents as being provided when they were not; provision of a document that was not requested; or multiple submissions of the same documents. In these cases, the court must be convinced that appearance is not reality. Accordingly, it is imperative to prepare concise summaries of the documents requested, the documents that were actually provided (or not provided), and the reason the discovery response was inadequate. In my experience, the judge will respond favorably to the most concise presentation possible. I will usually prepare the above information in the form of a grid for presentation to the court.

In our less-than-perfect world, the business valuator may be expected to prepare the valuation without the benefit of adequate documentation. This is often because of the combination of an inadequate discovery response and a court-imposed deadline. In such a case, it may not be possible to prepare the business valuation. In other cases, the discovery documentation may be less than requested and desired, but still sufficient to prepare the valuation. In these instances, it will be necessary for the valuator and related counsel to make their client aware of these circumstances and the possible impact on the business valuation. The valuation report should also address the limitations imposed by the opposing party.

It is imperative to react quickly to the documentary responses from opposing counsel, but in the case of purposeful evasion, the valuator (through counsel) must act vigorously to make the court aware of what is actually happening. Simultaneously, the valuator should be working with the materials already provided to best calculate a tentative estimate of value, pending the receipt of the balance of the requested documents. Although the preparation of a business valuation should be an orderly process, due to non-cooperation in discovery, it may not be. The business valuator must make counsel, the client and the court aware of adverse conditions together with the resulting expert report limitations.

Terry Silver is a certified public accountant, certified valuation analyst and certified in financial forensics for Citrin Cooperman, an accounting, tax and business consulting firm in Philadelphia, where he is a partner with more than 33 years of experience as an accountant and auditor. He focuses his practice on business valuation and financial forensic services, expert testimony and matrimonial actions. He can be reached at tsilver@citrincooperman.com or 215-545-4800.

Comments

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