On June 1, 2010, the Appellate Division, Second Department, rendered its enlightened decision in Murphy v. United States Dredging Corp., 74 A.D.3d 815, a corporate dissolution proceeding, thereby ending its lone holdout position on marketability discounts. While not explicitly stating such, in essence, the court reversed its prior long-held stance limiting application of marketability discounts to a corporation’s goodwill, thus harmonizing its holding with the other three appellate departments in this state, and in so doing, revised 15 years of more narrow holdings beginning with its two decisions in Cinque v. Largo Enterprises of Suffolk County Inc., 212 A.D.2d 608, 622 N.Y.S.2d 735 (1995) and Whalen v. Whalen’s Moving & Storage Co., 234 A.D.2d 552 (1996).

Murphy deftly applies complex, and often unfamiliar or misunderstood, principles and provides a clearer understanding of this business appraisal concept. The decision will also have a salutary impact on oft litigated valuation disputes, soundly establishing new bedrock for the application of marketability discounts. The Appellate Division, relying on the Court of Appeals decision in Matter of Seagroatt Floral Co., 78 N.Y.2d 439 (1991), determined that “…any risk associated with illiquidity of the shares” requires proper consideration, and concluded New York law permits a lack of marketability discount not limited solely to the goodwill of the corporation.

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