We've written about accountant liability. We've written about bookkeeper liability. A carefully crafted complaint can state viable claims for either. But business appraiser liability? Until a couple of weeks ago, one might have snickered at the idea. But creative business divorce lawyers being who they are, perhaps it was inevitable.
Apparently for the first time in New York, a recent case before Westchester County Commercial Division Justice Linda S. Jamieson raised the novel issue of whether a business valuation firm hired by a limited liability company to value a minority owner's equity interest for a mandatory buyout under the operating agreement can face liability to the minority owner for alleged participation with the majority owners in a "scheme" to "artificially depress" the value of the minority's interest for an unfairly low buyout.
Sometimes a loss can be a win. Such was the case for the aggrieved minority member in Segal v Rethink Capital Partners, Inc. (2025 NY Slip Op 50566(U) [Sup Ct, Westchester County Apr. 10, 2025]), a decision ostensibly ending the litigation, but leaving many unresolved questions in its wake.
Segal and the Investment Advisory Firm
Rethink Capital Partners, LLC f/k/a Seavest Investment Group, LLC ("Rethink") is a Delaware-incorporated investment advisory firm to private funds specializing in healthcare real estate and venture capital with over $2.5 billion in assets under management. Richard Segal ("Segal") was Rethink's founder, Chairman, Co-Chief Executive Officer, and holder of a 40.9091% Class A membership interest.
The Operating Agreement's Valuation Provision
Section 10.6 (c) of Rethink's Amended and Restated Operating Agreement (the "Operating Agreement") contained a mandatory buy-sell provision triggered upon a member's "incapacity or disability," "voluntary retirement or withdrawal," or "removal."
The buy-sell provision mandated the following procedures:
The purchase price . . . of an affected Class A Membership Interest to be purchased and sold pursuant to this Section 10.6 . . . shall be . . . fair value . . . as determined by an independent valuation expert who is experienced in valuing companies such as the Company who is mutually agreed upon by the Manager and the selling Class A Member. Such valuation expert shall be directed by the Manager and the selling Class A Member to promptly prepare a written report of his determination (the 'Valuation Report'). In the event that the Manager and the selling Class A Member cannot agree upon a valuation expert meeting the above criteria within thirty (30) days following the Purchase Event, each of the Manager and the selling Class A Member shall promptly select a valuation expert who meets the above criteria, and such valuation experts shall jointly select a third valuation expert who meets the above criteria, and such third valuation expert (and only such third valuation expert) shall be directed by the Manager and the selling Class Member to prepare the Valuation Report. . . .
(emphasis added).
The Dispute and the Separation Agreement
Health problems, including a heart transplant, ultimately led to Segal's reluctant departure from Rethink in his late sixties. According to his complaint, Segal's co-members claimed he "resigned" as Co-CEO of the firm, and "hoped that because of his health and age he would simply acquiesce." "When that didn't work," Segal alleged, "they claimed that a 'harassment' claim had been filed against him." According to the complaint, Gibson, Dunn & Crutcher LLP investigated and concluded that the claim was unfounded. But ultimately, according to the complaint, Segal's co-members "used this false allegation to pressure [Segal] to agree to resign, which he did to avoid unnecessary and costly litigation and because he was willing to resign if his interest would be fairly valued in the near future." Meanwhile, Segal maintained that he was a "victim" of "age discrimination."
In a Separation and Release Agreement (the "Separation Agreement") (sadly not part of the NYSCEF docket), Segal resigned from his management positions, but for a time retained the title of "Executive Director." Pursuant to the Separation Agreement, Segal withdrew as a Class A member of Rethink, and Rethink was required to purchase his membership interest.
Under the Separation Agreement, according to Segal, Rethink could buy half of his equity in 2022 for a price of $4,500,000.00 (a total valuation of $9,000,000), or buy all of his equity in 2024 in accordance with the valuation procedures of Section 10.6 of the Operating Agreement. Rethink opted for the latter.
Rethink's Engagement of Andersen and the Valuation Report
To value the interest, Rethink engaged Andersen Tax, LLC ("Andersen") to prepare a valuation report of the "fair market value" of Segal's 40.9091% Class A membership interest with a valuation date of April 15, 2024. In the engagement letter, the sole "Client" was Rethink.
In October 2024, Andersen generated a valuation report, of which there was just a snippet on the NYSCEF docket, valuing Segal's interest at $4,740,000.00, a figure that Segal bitterly noted in his complaint was "nearly the same price" at which his former co-members "valued half of [his] membership interest in April 2022 when the Separation Agreement was executed."
Segal's Claims Against Andersen
Just a few weeks later, Segal sued, alleging that his former co-members conspired with Andersen to depress the value of his interest. Segal wrote that the valuation firm under Section 10.6 of the Operating Agreement was required to be "independent," but what Andersen performed "was anything but an honest, fair, or independent valuation."
Segal alleged that his former co-members "excluded Plaintiff — the person with the most experience and knowledge about the Company — from the entire appraisal process," and "secretly created and gave Andersen all of the inputs for the valuation, including the cash flows for Andersen's discounted cash flow 'analysis' and the comparable companies for Andersen's market 'analysis.'" "By controlling the appraisal process," Segal wrote, his former co-members "tainted" Andersen's "independence" and "unethically influenced" it to "lower the valuation" of his nterest by "understating revenue, overstating expenses, omitting key financial information, and presenting the company as a third-rate business."
Segal alleged causes of action against Andersen for (i) aiding and abetting breach of fiduciary duty, (ii) civil conspiracy, (iii) breach of contract, and (iv) declaratory judgment. Segal alleged several additional claims against his former company and co-members.
The declaratory judgment claim, pled against all defendants, alleged the existence of a "bona fide, justiciable, and substantial controversy" concerning "the validity of the Valuation Report based on Defendants' improper efforts to artificially minimize the value of Plaintiff's membership interest in the Company," "Andersen's valuation of the Company is invalid because the valuation does not satisfy the requirements of the Operating Agreement," and the Court should issue a "judicial determination that the Valuation Report is invalid."
Andersen's Dismissal Motion
Andersen (but not the other defendants) moved to dismiss pre-answer. Andersen argued that:
- Segal could not state a viable claim for aiding and abetting because he lacked sufficient factual allegations that Andersen actually knew of, or substantially assisted, a breach of fidicuary duty;
- there is no viable independent cause of action civil conspiracy;
- Andersen's engagement letter expressly disclaimed the existence of any third-party beneficiaries, like Segal; and
- there was no "judiciable controversy" between Andersen and Segal, only between Segal and his former co-members, over "validity" of the appraisal report.
You can read all the dismissal motion briefs here, here, and, here.
The Dismissal Decision
Rethink and Segal's former co-members did not submit any papers on the dismissal motion. So it must have come as quite a shock to them when the Court granted Andersen's motion to dismiss the entire complaint, including causes of action against Segal's former co-members on which Andersen did not move, but in the decisional language itself, effectively granted Segal the exact declaratory judgment he requested.
The Court wrote:
None of the facts alleged by plaintiff suggests that the procedure [in Section 10.6 (c) for valuing Segal's interest] was followed. There is no allegation that Andersen was 'mutually agreed upon' by plaintiff and defendants. Nor is there any allegation that each side 'promptly select[ed] a valuation expert . . . and such valuation experts shall jointly select a third valuation expert' to be the only one to prepare the Valuation Report. Indeed, a review of the complaint shows that according to plaintiff, Andersen was hired solely by the Company, without any input from him whatever. That is the crux of his complaint.
Based upon these observations, held the Court, "It is clear from a review of the complaint that Andersen was not the valuation expert contemplated by section 10.6 (c) of the Operating Agreement."
The Court ruled:
(1) the Andersen valuation cannot be used to value plaintiff's interests; (2) the parties must refer to the Operating Agreement to obtain a new valuation that complies strictly with section 10.6 (c); and (3) this action must be dismissed, as it is based on a valuation that was not procedurally proper. This dismissal is without prejudice, so that plaintiff may assert his claims again, if he wishes, once a procedurally proper valuation is obtained.
Any Precedent for Claims Like This?
Is there precedent for a viable claim against a business valuation firm for allegedly conspiring with, or aiding and abetting, the business or its owners to misstate the value of an equity interest for a buyout?
The closest case I could locate – also cited in Segal's dismissal opposition brief – was Mesirov v Enbridge Energy Co., Inc. (C.A. No. 11314-VCS, Memorandum Opinion [Del Ch. Aug. 29, 2018]).
In Mesirov, the Delaware Chancery Court considered the potential liability of Simmons & Company International ("Simmons"), a financial advisory firm to a special committee formed to negotiate the sale of an oil pipeline asset to a related party. Simmons issued the special committee a fairness opinion. The plaintiff, suing derivatively on behalf of the purchaser, argued that Simmons' fairness opinion "knowingly" overstated the value of the pipeline asset, intentionally omitting data that would have shown the purchaser "was paying too much," and thereby "aided and abetted" the seller's breach of fiduciary duty.
In a lengthy decision, former Vice Chancellor Joseph R. Slights wrote, "This court most typically dismisses claims for aiding and abetting against financial advisors when the complaint fails to allege facts from which it may reasonably be inferred that directors were relying upon the financial advisor to provide information that the board did not already know or that the advisor knew the board was breaching its fiduciary duties."
"Even so," wrote the Court, "the burden is not insurmountable. Drawing all reasonable inferences in Plaintiff's favor, as I must, I am satisfied that Plaintiff has stated a viable claim for aiding and abetting a breach of fiduciary duty against Simmons."
One has to wonder whether, had Justice Jamieson reached the merits of the novel claims in Segal, they might have survived dismissal.
Post-Script: Much More Litigation to Come
Highly compensated Wall Streeters are not known to take "no" for an answer.
Sure enough, since Justice Jamieson's decision on April 10, there has been substantial litigation activity related to Segal's valuation dispute.
First, on April 14, Segal's former co-members filed a petition — also in Westchester County Supreme Court — to stay an arbitration Segal filed a few weeks earlier before AAA to value his former membership interest, dubiously declining to identify Segal's prior lawsuit originating in the same court as a "related case" presumably in hope of securing another Justice, an effort in which they succeeded — at least for the moment.
Second, on April 21, Segal's former co-members sent Justice Jamieson a letter writing that they believed the Court "labored under a factual misapprehension" when it issued its decision because Segal "did in fact consent" to Andersen's appointment as appraiser for his interest under Section 10.6 of the Operating Agreement, and "gave that consent by way of an email from his counsel.
Third, on April 25, Segal filed a motion in his now-dismissed lawsuit to "enforce" the Court's decision, or alternatively, for summary judgment, writing that his opponents "contend that this Court's Order did not require them to do anything, the Andersen valuation is still in force, the Order was based on a mistake, and they can ignore it without seeking any relief from the Court." Segal attached an email chain as evidence of his opponents' unwillingness to heed Justice Jamieson's order.
Seems the Segal drama is destined to continue for quite some time.
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