Supreme Court Restricts Discounts of Minority Interests
On January 21, 2009 the Louisiana Supreme Court issued an unanimous opinion in Cannon v. Bertrand, No. 2008-C-1073, 2009 WL 130341 (La.), reversing the Third Circuit Court of Appeal (981 So.2d 169 (La.App. 3 Cir. 4/16/08)) and providing that “discounts” of minority interests may be used only “sparingly” when warranted by particular facts.
The Third Circuit opinion had held that a 35% discount of a withdrawing minority partner's interest was authorized by the Louisiana Supreme Court's 1989 decision in Shopf v. Marina del Ray Partnership, 549 So.2d 833 (La. 1989). The Supreme Court's opinion in Cannon, however, distinguished its prior decision in Shopf, and stated “[B]ecause no minority discount was applied by the Shopf court, any mention of a minority discount by that court was mere dicta and cannot be relied upon as precedent.” The Cannon court further held that in Shopf “the court did not determine that fair market value was the only means of establishing ‘value' as per C.C. art. 2823.”
The Cannon opinion holds “Minority…and other discounts, such as for lack of marketability…must be used sparingly and only when the facts support their use.” Cannon also noted in a footnote “Nationally, the trend in law is away from applying such discounts”
The Cannon court held that a discount was “unwarranted” by the facts of the case and therefore that the district court abused its discretion. Because the two remaining partners would have an equal say and therefore not be subject to any lack of control, a minority discount could not apply. The Court also noted that, because the remaining partners had elected to continue the partnership, and so were required to pay the value of the withdrawing partners share, “neither is lack of marketability an issue.” Furthermore, any discount would penalize the withdrawing partner for exercising his legal right to withdraw and transfer a windfall profit to the remaining partners, which would be inequitable. Adopting as its own the market value of the underlying partnership assets found by the lower court, the Court increased the prior award from $228,447 to $347,894.84 to reflect Mr. Cannon's one third share “before discounting.”
Steven G. “Buzz” Durio, a founding partner of Durio, McGoffin, Stagg and Ackermann, served as trial and appellate counsel for the plaintiff, Kenneth John Cannon Jr.