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In valuation disputes, the Discount for Lack of Marketability rarely behaves. Courts disagree about it, lawyers and experts litigate it to exhaustion, and business divorce cases often see seven-figure swings based on the court's selection of the DLOM percentage. The pages of this blog are filled with both cases (here, here) and commentary (here, here, here) on the DLOM debate.
With all that talk, litigators and valuation experts await any appellate-level ruling on the DLOM with the hope that it might clarify the fractured landscape.
The most recent DLOM decision from the First Department, however, Rosenblum v Treitler, 2025 NY Slip Op 05481 (1st Dept Oct. 7, 2025), threatens to complicate rather than clarify things. The First Department gives us competing cues—language suggesting that the DLOM is analyzed at the enterprise level, coupled with factors hinting at a member-level analysis. As a result, the DLOM debate rages on.
The Trial Court Adopts a 15% DLOM for Real Estate Holding LLCs
Catch up on the details of the dispute in the Rosenblum case in Becky Baek's post last summer about the trial court's decision.
For our purposes, it's enough to say that two factions of the Rosenblum family have been locked in bitter and protracted litigation over the family's substantial New York City real estate holdings.
This theatre of conflict focuses on two LLCs that own downtown real estate: 123 Realty LLC and Village Realty LLC (the "Companies"). Kenneth Rosenblum and the late Bernice Rosenblum (now her Estate) each owned 50% of the Companies.
Following a bench trial in 2020, Justice Crane held that Kenneth's voluntary withdrawal from the Companies triggered his right under LLC law 509 to receive "the fair value of his . . . membership interest in the limited liability compan[ies] as of the date of the withdrawal" (Rosenblum v Rosenblum, 2022 NY Slip Op. 30237[U], 3 [Sup Ct, NY County 2022]).
After a three-day valuation trial, Justice Crane found that the fair value of Kenneth's 50% interest in 132 Realty was $11.8 million; his interest in Village Realty was $10.7 million.
These figures included, over Kenneth's objection, a 15% DLOM, "primarily due to the protracted litigation between the parties (they have been fighting since 1996) and the lack of an operating agreement that has contributed to the protracted litigation."
Kenneth Appeals the DLOM Ruling
On appeal to the First Department, Kenneth argued that the trial court erred in applying the 15% DLOM, essentially for three reasons:
First, a DLOM is conceptually designed to capture the illiquidity of the closely held business; closely held businesses cannot be sold overnight like shares in a publicly held company, and the DLOM reflects the time (i.e., risk) and expense it would take to arrange such a sale.
While acknowledging that the Companies were closely held businesses that would take time to sell, Kenneth insisted that a DLOM should not apply because he had the right at any time to withdraw from the Companies and be paid "fair value." Thus, his interests in the LLCs could be "readily liquidated for cash."
Second, Kenneth argued that everything the Estate cited in support of the DLOM: protracted litigation between the parties, the lack of an operating agreement, and poor "corporate" governance were improper considerations. Citing the seminal case Matter of Friedman v Beway Realty Corp., Kenneth reminded the First Department that a DLOM must be considered at the enterprise level (87 NY2d 161, 165 [1995]). The DLOM applies to the whole company, not to fractional interests therein. So, reasoned Kenneth, a hypothetical buyer of the whole company would not care about the litigation, lack of an operating agreement, or bitter infighting between the selling members, since their purchase would resolve all of those issues.
Third, Kenneth insisted that the trial court was wrong to reject the view that the LLCs were mere "wrappers" for the real estate they owned. If a DLOM is designed to capture the added time and expense it would take to sell a closely held company, but that company exists only to hold real property, why would it take any longer or be any more expensive to sell the company than it would to sell the property itself?
The Estate Counters
The Estate insisted that a 15% DLOM was appropriate, countering each of Kenneth's arguments:
Despite his withdrawal rights, argued the Estate, Kenneth's interests in the Companies could not be readily liquidated for cash. This litigation is proof positive of that reality.
Most interestingly, the Estate argued that under Beway, the trial court could properly look to risks at the shareholder- (or, in this case, member)-level in determining the DLOM. Beway, says the Estate, calls for a two-step analysis: (i) determine the value of the LLC as a whole, then (ii) determine whether to apply a "discount for unmarketability of petitioner's shares." In step two, argued the Estate, the trial court could properly look to the infighting between the members and the lack of an operating agreement (factors affecting value at the member-level) in support of a DLOM.
From my perch as an outsider to the case but a close follower and frequent litigator of the DLOM issue, this argument really bucks conventional wisdom on the DLOM. While Beway admittedly has some internal inconsistencies (see here), the case squarely rejects application of a minority discount because that discount applies at the shareholder level. Why reject a minority discount for that reason, but then allow a DLOM to make the same mistake?
Lastly, argued the Estate, the "mere wrapper" theory has been rejected by several courts, including by Beway itself.
The First Department Holds Firm: a 15% DLOM Was Appropriate for the Real Estate Holding Companies
In its decision and order last month, the First Department affirmed the trial court's application of a 15% DLOM (Rosenblum v Treitler, 2025 NY Slip Op 05481 [1st Dept Oct. 7, 2025]).
The First Department specifically held that the trial court in its calculation of the appropriate DLOM was correct to consider "the protracted litigation between the parties, the lack of an operating agreement setting forth a process for withdrawal and the amount of time and money spent on 'an unwillingness to compromise,' all of which highlights the difficulties a third-party investor would risk in purchasing the LLCs and supports the DLOM applied."
A Debate Intensified
As I see it, the First Department's decision paves the path for more intense litigation over the DLOM in closely held business disputes.
On the one hand, it reinforces the generally-held view that the DLOM should apply at the entity—and not the shareholder or member—level. Note the language in this phrase: "all of which highlights the difficulties a third-party investor would risk in purchasing the LLCs." Risks to a purchaser of the LLCs, not of a membership interest therein.
On the other hand, it affirms the trial courts' consideration of factors that at least possibly suggest consideration at the member level. If a third-party arm's length buyer is purchasing the entire LLC, the existence of an operating agreement governing the relationship between the selling members (who, in the valuation context are all "hypothetical willing sellers") should be irrelevant to that buyer.
A Trip to Albany?
As of this writing, Kenneth's motion for leave to appeal to the Court of Appeals remains pending. With Beway now a quarter-century old and still spawning such significant debate, I wouldn't be surprised to see the State's highest court weigh in.
Either way, though, this story ends exactly how most of the cases discussing the DLOM start: calculation of the DLOM is "not an exact science," (Giaimo, 101 AD3d at 524), and trial courts have broad discretion to credit one expert's analysis over the other. For closely held business owners, it's a reminder that when it comes to the DLOM, outcomes are anything but guaranteed.
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