           If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                revision until final publication in the Michigan Appeals Reports.




                        STATE OF MICHIGAN

                         COURT OF APPEALS



JERRY H. NIEWIEK, individually and as the                        UNPUBLISHED
trustee of the JERRY H. NIEWIEK LIVING                           October 1, 2019
TRUST, and MARCIA F. NIEWIEK, as the
trustee of the JERRY H. NIEWIEK LIVING
TRUST,

             Plaintiffs/Counterdefendants-
             Appellants,
V                                                                No. 343088
                                                                 Kent Circuit Court
BERENDS HENDRICKS STUIT INSURANCE                                LC No. 16-07277-CBB
AGENCY, INC.,

             Defendant/Counterplaintiff/ Third-
             Party Plaintiff-Appellee,

and

STEVEN J. OLSON, individually and as the
trustee of the STEVEN JORDAN OLSON
TRUST, GREGORY T. CHRISTIE, individually
and as the trustee of the GREGORY T. CHRISTIE
TRUST, GREGORY J. HEERES, individually and
as the trustee of the GREGORY T. HEERES
TRUST, JAMES H. RYSKAMP, ZACKERY R.
VANDENBERG, individually and as the trustee of
the ZACKERY AND LISA VANDENBURG
TRUST, and PATRICK D. DALTON,


             Defendants/Counterplaintiffs-
             Appellees,
and

BRIAN D. NIEWIEK,

             Third-Party Defendant.

                                             -1-
Before: GADOLA, P.J., and MARKEY and RONAYNE KRAUSE, JJ.

PER CURIAM.

        Plaintiffs, Jerry H. Niewiek (Niewiek), individually and as the trustee of the Jerry H.
Niewiek Living Trust, and Marcia F. Niewiek, as a trustee of the Niewiek Trust, appeal as of
right the judgment of no cause of action entered by the trial court in favor of defendants, Berends
Hendricks Stuit Insurance Agency, Inc. (Berends), Steven J. Olson, individually and as the
trustee of the Steven Jordan Olson Trust, Gregory T. Christie, individually and as the trustee of
the Gregory T. Christie Trust, Gregory J. Heeres, individually and as the trustee of the Gregory
T. Heeres Trust, James H. Ryskamp, Zackery R. Vandenberg, individually and as the trustee of
the Zackery and Lisa Vandenburg Trust, and Patrick D. Dalton.1 On appeal, plaintiffs contend
that the trial court erred in granting defendants a judgment of no cause of action. We affirm.

                                              I. FACTS

       This is a contract dispute involving the valuation of Berends, an insurance agency, for
purposes of a forced buyout by the company of the Berends’ stock held by plaintiff, Jerry
Niewiek, through his trust. Plaintiffs contend that defendants breached the parties’ shareholder
agreement by undervaluing the stock.

        Niewiek joined Berends in 1988, and became a shareholder in 1995. Over time, he
purchased 104,199 shares of the company. In 2005, Berends began to use Reagan Consulting
(Reagan) to value its shares; Reagan valued Berends in 2005, 2007, 2008, 2009, and 2010. In
2011, Berends and its shareholders executed a shareholder agreement governing the parties’
rights and obligations. The agreement provides that if any shareholder’s employment is
voluntarily or involuntarily terminated, Berends has the right to purchase that shareholder’s
shares as follows, in relevant part:

                 14. Stock Purchase Option and Non-competing Provision. In the event a
          Shareholder’s employment with the Company should be voluntarily or
          involuntarily terminated for any reason other than death or total disability, the
          Company shall have the right, privilege and option of purchasing all the stock of
          the Shareholder, which stock shall be sold and purchased upon the following
          terms and conditions:

                                                ***

                 (b) The price and terms for the purchase of said stock shall be determined
          in accordance with paragraph 11 hereinabove set forth;

Paragraph 11 provides for the valuation of the stock as follows, in relevant part:




1
    Third-party defendant, Brian D. Niewiek, is not a party to this appeal.

                                                  -2-
              11. Purchase Price. . . . . the purchase price for each share of the
       Company to be sold pursuant to the purchase options or obligations contained in
       this Agreement shall be the amount per share agreed upon by the Shareholder and
       the Company established concurrently with the execution of this Agreement and
       updated as provided below, said value hereinafter referred to as “Agreed Value
       Per Share.”. . .

              In the event the Valuation Date of the most recent certification of Agreed
       Value Per Share is more than twelve (12) months prior to the event creating the
       option or obligation to purchase or sell the shares, the Agreed Value Per Share
       shall be unanimously agreed upon by the selling Shareholder . . . and
       Company. . . . In the event such an agreement cannot be reached, the Agreed
       Value Per Share shall be the fair market value of the Company for perpetuation
       planning as of the year end immediately preceding the event giving rise to the
       option or obligation to purchase . . . as determined by Reagan Consulting, Inc., or
       other appraiser or consultant selected by the Company with a nationally
       recognized reputation for valuing insurance agencies, . . . .

        In sum, under paragraph 11 of the shareholder agreement, the stock is to be valued at the
agreed value per share established periodically under the agreement. If the established agreed
value per share is more than 12 months old, the stock is to be valued at the price agreed to by the
selling shareholder and Berends. If they are unable to agree, the agreed value is to be the fair
market value of the Company for perpetuation planning as of the year end immediately
preceding the event giving rise to the option or obligation to purchase, as determined by Reagan,
or other appraiser selected by Berends.

        In November 2015, after a dispute between Niewiek and the other shareholders, Berends
asked Niewiek to resign. Thereafter, Berends requested that Reagan value the company to
ascertain the per share price of its stock. Based upon Reagan’s valuation, Berends offered to buy
Niewiek’s shares at $95.96 per share. Niewiek refused to sell at that price and initiated this
action, alleging that defendants were breaching the shareholder agreement by failing to
accurately value the shares. Niewiek also sought declaratory relief, and further alleged minority
shareholder oppression, breach of fiduciary duty, and civil conspiracy. Defendants thereafter
filed a counterclaim, alleging breach of contract and breach of fiduciary duties. The parties
eventually stipulated to dismiss all claims except plaintiffs’ claim that Berends and the other
shareholders breached the shareholder agreement by offering to buy Niewiek’s shares at a value
that was below fair market value. A bench trial was held on this issue alone.

        During the bench trial, the evidence primarily concerned whether Thomas Doran of
Reagan Consulting properly valued Berends for purposes of establishing the per share value of
$95.96 for Berends’ stock. Plaintiffs’ expert, Jesse Ultz, testified that the shares were properly
valued at $170.03 per share, pointing to a number of alleged errors in Reagan’s valuation. At the
conclusion of trial, the trial court entered a judgment of no cause of action against plaintiffs and
dismissed their claim. In its written findings of fact and conclusions of law, the trial court found
that the parties to the shareholder agreement contractually agreed to the valuation of the stock by
Reagan. The trial court determined that it could only reject that value if plaintiffs demonstrated
that the valuation was the product of bad faith, fraud, or gross mistake, and noted that plaintiffs
had challenged the valuation only on the ground of gross mistake. The trial court then
summarized the evidence and identified the points of dispute with the valuation, finding that for
                                                  -3-
each disputed point there was a reasonable explanation for the conclusion arrived at by Reagan.
The trial court concluded that there was no evidence that Reagan made a gross mistake in the
calculation of the stock value, and dismissed plaintiffs’ claim. Plaintiffs now appeal to this
Court.

                                         II. DISCUSSION

                                  A. STANDARD OF REVIEW

        We review de novo the proper interpretation of a contract, which is a question of law.
Innovation Ventures v Liquid Mfg, 499 Mich 491, 507; 885 NW2d 861 (2016). We review for
clear error a trial court’s factual findings after a bench trial. See Sands Appliance Services, Inc v
Wilson, 463 Mich 231, 238; 615 NW2d 241 (2000). A finding is clearly erroneous when this
Court is left with the definite and firm conviction that the trial court made a mistake. DC Mex
Holdings LLC v Affordable Land LLC, 320 Mich App 528, 546; 907 NW2d 611 (2017).

                                   B. BINDING VALUATION

        Plaintiffs contend that defendants breached the shareholder agreement by asserting the
right to purchase the 104,199 shares held by Niewiek through his trust at $95.96 per share, which
was the value per share calculated based on Reagan’s valuation of Berends. In interpreting a
contract, our primary obligation is to give effect to the intention of the parties at the time they
entered into the contract. Miller-Davis Co v Ahrens Const, Inc, 495 Mich 161, 174; 848 NW2d
95 (2014). The best indicator of the parties’ intent is the plain and unambiguous language of the
contract. See Wyandotte Electric Supply Co v Electrical Technology Sys, Inc, 499 Mich 127,
143-144; 881 NW2d 95 (2016). If the terms are unambiguous, this Court must enforce the
agreement as written. Innovation Ventures, 499 Mich at 507. The rights and duties of parties to
a contract are thus determined by the terms of the agreement, and generally, parties have “the
utmost liberty of contracting” and “their agreements voluntarily and fairly made shall be held
valid and enforced in the courts.” Wilkie v Auto-Owners Ins Co, 469 Mich 41, 62-63; 664 NW2d
776 (2003) (quotation marks and citation omitted).

        An appraisal agreement is an agreement that a third party shall determine the value of a
claim or property. E E Tripp Excavating Contractor, Inc v Jackson Co, 60 Mich App 221, 246;
230 NW2d 556 (1975). Michigan law gives effect to appraisal agreements. Id., citing Noble v
Grandin, 125 Mich 383; 84 NW 465 (1900), and Weggner v Greenstine, 114 Mich 310; 72 NW
170 (1897). See also Strom-Johnson Construction Co v Riverview Furniture Store, 227 Mich 55,
66; 198 NW 714 (1924) (parties who contract to abide by the valuation of some commodity by a
third party are bound by the valuation in the absence of fraud or mistake).

        In this case, the parties do not dispute that the valuation of Berends’ shares is controlled
by the shareholder agreement. The shareholder agreement provides that Berends may purchase a
shareholder’s shares when that shareholder leaves employment with Berends, that the per share
value is to be set by agreement, that if the parties do not agree, then the per share price “shall be
the fair market value of the Company for perpetuation planning,” and that Reagan (or another
appraiser or consultant selected by Berends) will determine the fair market value of Berends for
perpetuation planning. This unambiguous provision of the shareholder agreement demonstrates
the parties’ intent. See Wyandotte Electric Supply Co, 499 Mich at 143-144. The fact that the
shareholder agreement does not specifically state that the Reagan valuation will be “final” or
                                                 -4-
“binding,” does not negate the parties’ agreement. See Strom-Johnson Construction Co, 227
Mich at 66 (an agreement to abide by a third-party’s assessment as final is conclusive and
binding even if the agreement does not use that specific language, if the plain language of the
agreement shows the parties’ intent to be bound). Consequently, the parties in this case agreed to
be bound by Reagan’s valuation in determining the fair market value of Berends for perpetuation
planning.

        Plaintiffs, however, dispute whether Reagan properly valued the shares. Our Supreme
Court long ago established that when parties contractually agree to commit the valuation of some
commodity to a third party, they are then bound by the valuation in the absence of fraud or
mistake. See Walter N Kelley Co v Andrews, 225 Mich 403, 415; 196 NW 407 (1923). The
purpose of this rule is to prevent later disputes by binding the parties to an agreed-upon third-
party’s determination. Id. In some instances, the Court has cited with approval treatise language
stating that such a valuation is binding in the absence of fraud, bad faith, or mistake. See Strom-
Johnson Construction Co, 227 Mich at 66; see also WJ Howard & Sons, Inc v Meyer, 367 Mich
300, 309-310; 116 NW2d 752 (1962).

        In other instances, our Supreme Court has stated that parties who agree to a valuation or
calculation by a third party are bound in the absence of fraud or gross mistake. See Brooks v
Bellows, 179 Mich 421, 431; 146 NW 311 (1914); see also Moran v Schmitt, 109 Mich 282, 292;
67 NW 323 (1896) (“The rule is well settled that an award or estimate, if made, can be
impeached for fraud, or such gross mistake as would necessarily imply bad faith, or failure to
exercise an honest judgment in the premises.”); and also see Carlini v US Rubber Co, 8 Mich
App 501, 505; 154 NW2d 595 (1967).2 In Malone v Gates, 87 Mich 332, 336; 49 NW 638
(1891), our Supreme Court explained that it used the term gross mistake to signify “a mistake not
depending upon the judgment of the [appraiser],” and an error other than “an honest error of
judgment.” That understanding is consistent with the definition stated in Moran, that an estimate
“can be impeached for fraud, or such gross mistake as would necessarily imply bad faith, or
failure to exercise an honest judgment in the premises.” Moran, 109 Mich at 292. We therefore
conclude that Reagan’s valuation is binding upon the parties unless its valuation was
demonstrated to be the product of fraud or gross mistake, being a mistake that rises to the level
of a failure to exercise honest judgment. See Strom-Johnson Construction Co, 227 Mich at 66;
Malone, 87 Mich at 336.

                           C. SPECIFIC ALLEGATIONS OF ERROR

        Plaintiffs’ specific allegations of error arise from the opinion of their expert, Jesse Ultz,
that the Reagan valuation as calculated by Doran is rendered inaccurate by fundamental errors.


2
  Although this Court is not required by MCR 7.215(J)(1) to follow the rule of law established by
this Court in an opinion published before November 1, 1990, we traditionally regard published
cases of this Court issued before November 1, 1990 as retaining some authority. See Woodring v
Phoenix Ins Co, 325 Mich App 108, 114-115; 923 NW2d 607 (2018). See also MCR
7.215(C)(2), providing that published opinions of this Court have precedential effect under the
rule of stare decisis. People v Bensch, ___ Mich App ___, ___; ___ NW2d ___ (2019) (Docket
No. 341585), slip op at 2 n 6.

                                                 -5-
Based on Ultz’s assessment of error in the Reagan valuation, plaintiffs contend that Reagan
failed to properly determine the value of the Berends’ stock.

         Ultz’s testimony can be summarized as follows: Ultz reviewed Doran’s valuation of
Berends and relied on it as a baseline. He noted that Doran used three separate valuation
techniques: the discounted cash flow analysis and two forms of the market approach, being the
guideline public companies method and the merger and acquisition transactions method. Ultz
testified that the income approach looks at the cash flow that the business is expected to generate
in the future “discounted back to today at a rate of return that matches the risk of actually
achieving those cash flows.” He explained that the most common way to determine discounted
cash flow is to look at the weighted average cost of capital. Ultz opined that the three valuation
approaches used by Doran were proper approaches, and that cash flow value drives businesses
such as insurance businesses. However, Ultz observed that when Doran applied the three
valuation approaches, there appeared unusually large variations between the market approaches
and the discounted cash flow analysis compared to past valuations by Reagan. Ultz explained
that the differences previously had been in the range of 10 to 20%, but the difference was 70%
for the valuation at issue in this case, which he considered an indicator that Doran’s report
contained serious errors.

       Ultz did not find mathematical errors in Doran’s report, but identified four metrics that he
found to be incorrect: (1) the rate of return used in the discounted cash flow analysis was
incorrect because the underlying inputs for that formula did not correspond with the correct
market data, (2) in applying the approaches, Doran had weighted the discounted cash flow
method at 80% and then 10% for each of the market approaches, while Ultz believed that the
three approaches should be weighted equally, (3) Ultz applied a 15% S-corporation premium to
the valuation because S-corporations avoid the double taxation problems associated with C-
corporations, which Doran had not applied (though Ultz later agreed that the use of an S-
corporation premium is an area where valuation experts disagreed); and (4) unlike Doran, Ultz
subtracted current liabilities as though they all had to be paid at the point of the valuation, and
Ultz added back the full $6.2 million in cash on hand to the value of the business.

        Plaintiffs contend that these errors resulted in Reagan miscalculating the fair market
value of Berends’ stock. Ultz testified that Doran indicated that he was using a fair market value
standard—as opposed to fair value or investment value—in appraising Berends, which is “the
price that an asset would change hands between a hypothetical willing buyer and seller when
both have all the information that they need, and they’re not compelled to act; they can act
freely.” Ultz testified that “perpetuation planning” is not a standard of value. After hearing
Doran’s explanations for his weighting of the approaches, Ultz understood that Doran interpreted
perpetuation planning to mean that the value should be ascertained by reference to an internal
buyer. That, Ultz stated, was in effect an investment value, not a fair market value.

        Ultz testified in more detail about the errors in the discounted cash flow analysis
employed by Reagan and opined that the errors all related to components of the weighted
average cost of capital. Ultz testified that Doran failed to use the “risk-free rate plus beta,”
wherein the risk-free rate is the treasury rate, and instead used a normalized rate, which is
appropriate when the rates are artificially low. Ultz further testified that Doran did not use the
correct data for normalizing, which in Ultz’s opinion resulted in inflated equity rate of return.
However, Ultz agreed that it was a judgment call as to which method to use—actual risk-free

                                                -6-
rate or normalized risk-free rate—but testified that once an analyst picked a method, he or she
had to follow the rules for that method.

         The next error Ultz asserted in the discounted cash flow analysis was the corporate bond
rate. At the time it was 4.68%, and Doran used 6% on the basis of a 10-year average. By using a
10-year average, Doran captured the recession, when the cost of capital was unusually high, but
failed to consider that in 2014 the market had improved dramatically. Ultz opined that the
artificially inflated weighted average cost of debt caused the discounted cash flow analysis to
result in an outlier. Doran also had used a lower cost of capital calculation, being 12.5% rather
than 20%, increasing the weighted average cost of capital.

        Finally, Ultz did not agree with the specific risk premium applied to the weighted average
cost of capital. Historically, Berends had increased its EBITDA—the earnings before interest,
tax, depreciation, and amortization—every year for the last five years, but Reagan’s valuation
assumed that it would decline every year for the next five years. According to Ultz, Reagan had
already adjusted the cash flow to reflect risk, essentially double-counting the risk. Ultz agreed
on cross-examination that whether to use a company-specific risk premium was a matter of
judgment.

                                  1. FAIR MARKET VALUE

        Plaintiffs first argue that Reagan failed to follow the requirements of the shareholders’
agreement because Reagan did not value Berends using fair market value as mandated by the
shareholder agreement, but instead applied the “internal transaction value.” The shareholder
agreement, however, required Reagan to value Berends not merely at the fair market value, but at
the “fair market value of the Company for perpetuation planning . . . without applying lack of
marketability or control discounts.” In its opinion, the trial court observed: “Thus, the dispute
can be reduced to a disagreement about ‘the fair market value of [Berends] for perpetuation
planning. . .’ The Court must decide whether the Reagan Report is based upon a ‘gross mistake’
that renders its valuation unsustainable.”

        Ultz criticized Doran’s decision to give more weight to the discounted cash flow method
of valuation over the market methods to derive a value that ultimately was not in accord with
street value. Ultz testified that Doran employed three tests of value or valuation methods—
discounted cash flow, guideline public company method, and mergers and acquisitions method—
that were typically applied to calculate fair market value. Ultz found fault with Doran’s decision
to weigh the first method more heavily than the others because, in Ultz’s view, Doran’s
discounted cash flow calculation had errors that made it an outlier and rendered it unreliable for
determining fair market value.

        However, Doran testified that he calculated the fair market value of Berends in a manner
that was consistent with his previous valuations of Berends and consistent with Reagan’s
methods. Moreover, Doran testified that he calculated the fair market value of the stock “for
perpetuation planning,” which involves structuring the insurance agency to perpetuate ownership
without interruption. He also testified that he gave controlling weight to the income approach to
valuation because insurance agencies rely heavily upon future earnings to provide income, and
that discounted cash flow results are always lower than market approach results.


                                               -7-
       Ultz testified that there was no standard of value that included the phrase “for
perpetuation planning;” he further noted that Reagan did not mention that phrase in its report.
Despite Ultz’s testimony, the shareholders—including Niewiek—each testified or agreed with
the testimony that the phrase “for perpetuation planning” was deliberately added to the
shareholders’ agreement and was intended to express the goal of maintaining the business as a
going concern and as an independent agency.

        On this record, the trial court did not clearly err in finding no gross mistake in Reagan’s
calculation of Berends’ fair market value for perpetuation planning, as required under the
shareholders’ agreement. The fact that there was evidence that appraisers do not recognize a
standard of value or premise of value “for perpetuation planning” did not preclude the parties
from agreeing that an appraiser’s valuation of a business at fair market value should take into
consideration the owners’ desire to perpetuate the business in its current form. The law does not
preclude parties from contractually modifying a valuation method, and this Court must give
meaning to the shareholders’ decision to include that language as far as practicable. See Klapp v
United Ins Group Agency, Inc, 468 Mich 459, 467; 663 NW2d 447 (2003). Consequently, the
trial court did not err in concluding that the shareholders’ agreement authorized Reagan to weigh
the various methodologies3 for determining fair market value to emphasize the method that best
captured the fair market value for a buyer who is amenable to maintaining the agency’s current
business model.

                   2. WEIGHTING OF VALUATION METHODOLOGIES

        The trial court also did not err when it determined that Doran’s weighting of the three
approaches was not a gross mistake. Doran testified that he followed Reagan’s practice of
assigning an 80% weight to the discounted cash flow method because of the peculiar nature of
the business of selling insurance. He explained that insurance businesses typically derive their
value from their cash flow rather than physical assets. He therefore more heavily weighted the
discounted cash flow method for calculating fair market value because that method more
accurately captured the value of the entity to a purchaser who intended to recoup his or her
investment over time through the entity’s normal operations. Doran further testified that he
applied the weighting that Reagan had always applied over a period of years. Doran further
indicated that Reagan had always taken into consideration the unique characteristics of the
agencies that it regularly values when weighting the various valuation methodologies.

        Doran conceded that the market approaches for valuation tended to provide higher
values, but explained that the market approaches examined circumstances where large insurance
firms purchased smaller firms and paid a premium on the assumption that the firm would be able
to reduce expenses while maintaining the smaller firm’s cash flow. He explained that the


3
  Plaintiffs argue that the trial court erred when finding that Niewiek has long benefited from
Reagan’s weighting valuation and thus should not contest it now. Although the trial court opined
that Niewiek’s concern that Reagan was suddenly misapplying the fair market value standard
rang hollow, it did not conclude that it had to defer to the Reagan valuation on that basis. Rather,
the trial court found that it was obligated to defer to the Reagan valuation absent a demonstration
of fraud, bad faith, or gross mistake.

                                                -8-
purchasing firm would typically eliminate staff, sell off unneeded offices, consolidate operations,
and find other efficiencies. In that way, the larger firm could recoup its investment despite
paying a premium. Such calculations, however, ignored the circumstances typically involved in
the sale of equity for smaller firms that want to perpetuate their ownership over time. Doran
criticized Ultz’s corrected valuation because, if it were actually applied, the shareholders of
Berends would have no way to perpetuate their business as a going concern given the business’s
cash flow; they would have to sell the agency to a larger firm in order to raise the funds to pay a
departing shareholder under Ultz’s valuation.

        Moreover, Ultz admitted that an appraiser had discretion to weigh the different valuation
methodologies to better reflect what the appraiser felt was an accurate understanding of the
business’s fair market value. Because Doran’s decision to weigh the discounted cash flow
method more heavily than the market methods was a matter committed to Doran’s judgment,
Ultz’s mere disagreement with Doran’s weighing of the discounted cash value at 80% does not
establish an error that invalidated the valuation by Reagan. Accordingly, the trial court did not
err when it determined that plaintiffs failed to establish that Doran’s weighting of the three
methods amounted to a gross mistake.

                             3. HANDLING OF OUTLIER VALUE

        Plaintiffs also contend that Doran made a mistake in the valuation when he failed to
correct or disregard his discounted cash flow value after he determined that it was an outlier from
his two market-based valuations. Plaintiffs rely on Ultz’s testimony that, when presented with an
outlier valuation, a valuator should do one of three things: discard the method as unreliable, give
it a low weight, or investigate why it is so different and correct any errors or reassess the
assumptions to make sure that it makes sense and is reasonable. However, this testimony merely
established that Doran had a range of possible actions that he could take in analyzing the outlier
value suggested by his application of the discounted cash flow method; it did not establish that
Doran had to handle the suggested value in some specific way such that his failure to handle it
would amount to a gross mistake.

        Doran testified that the value suggested by the discounted cash flow method was an
outlier, and that he therefore reviewed the underlying calculations. After he determined that
there were no mathematical errors, he concluded that the value remained the best indicator of an
investor who expected to get a return on his or her investment through cash flow. Doran testified
that the values suggested by the market approaches were inflated because there had been a bull
market on the “buy side” of the insurance industry. Doran thus undertook the reevaluation that
Ultz identified as the third option for handling an outlier value: he reexamined the calculation for
errors and reevaluated his assumptions, and then determined that it was reasonable to continue
using that value, combined with the market approaches. Doran testified that he followed the
procedures recommended for handling outliers by a noted author of a treatise on the subject, and
that with any outlier, the ultimate determination must be left to the judgment of the appraiser.
Because Doran exercised his judgment, as Ultz stated he was permitted to do under the valuation
standards, Ultz’s disagreement with Doran’s exercise of judgment was not sufficient to establish
a gross mistake.




                                                -9-
                    4. ERRORS IN DISCOUNTED CASH FLOW METHOD

         Plaintiffs also contend that the trial court erred when it ignored evidence that Doran made
several gross mistakes in applying the discounted cash flow method for valuing Berends.
Specifically, plaintiffs argue that Doran miscalculated the weighted cost of capital by using an
incorrect risk-free rate and by using an incorrect corporate bond rate. Ultz testified that, when
calculating the weighted average cost of capital, one must determine the cost of equity.
Normally, one would use the 20-year treasury bond rate for the risk-free rate of that formula.
Although he acknowledged that one could also normalize that rate when the treasury rates were
artificially low, which was the case during the period at issue, he opined that Doran erred by
using figures from both the risk-free rate method and the normalizing rate method. More
specifically, he criticized Doran’s use of the wrong equity risk premium with the normalized rate
method.

        By contrast, Doran testified that normalizing the rates created a more accurate picture,
and that it was not inconsistent to establish the risk-free rate by averaging figures for the risk-free
rate over 10 years. Because there was competing evidence about the propriety of calculating the
risk-free rate, it was for the finder of fact to determine whether Doran was required to use a
particular input. The trial court concluded that Doran’s normalizing of the rate could not be
described as a gross mistake. On this record, that finding was not clearly erroneous.

        The same is true of the bond rate. Ultz testified that Doran erred when he used a 10-year
average for the bond rate; Doran testified that whether to use a normalized bond rate was a
matter committed to his judgment. Doran explained that Reagan developed its normalized
values because it was not trying to capture the discount rate for a particular moment in time;
rather, it normalized the rates to develop a discount rate that would reflect a very long period.
Again, the trial court did not clearly err in finding that Ultz’s disagreement with Doran’s exercise
of judgment was insufficient to establish gross mistake.

                           5. ERRORS IN EQUITY ADJUSTMENTS

         Plaintiffs also contend that Doran erred when he failed to add back $6.2 million in cash
that Berends held on the valuation date, but instead subtracted the company’s liabilities, and
erred when he refused to apply a premium value for Berends’ status as an S-corporation. Ultz
testified that the valuation methods assume that a company will continue to operate in perpetuity,
which means that the company will not have to pay off its current liabilities, and that a proper
valuation therefore does not subtract current liabilities. He concluded that Doran made a mistake
when he chose to adjust the cash on hand by subtracting the value of current liabilities. Doran
disagreed. He testified that the liabilities were not accounted for in the cash flow analysis and
had to be captured somewhere. He felt that it was appropriate to capture them by subtracting the
amount of the liabilities from the cash on hand. However, no testimony established that there
was a clear rule regarding the proper handling of cash on hand.

       The same was true of Ultz’s claim that Doran made a mistake by not adjusting the value
of Berends by adding a 15% premium to reflect the tax benefits of being an S-corporation. The
testimony established that the application of a premium to the equity of an S-corporation was not
an established rule, but rather a matter of some controversy. The trial court therefore did not err
when it determined that Doran’s treatment of this factor was not a gross mistake.

                                                 -10-
        In sum, the trial court did not err when it determined that plaintiffs failed to establish that
the valuation provided by Reagan was the product of a gross mistake. Consequently, the trial
court did not err when it concluded that the valuation was binding on the parties.

       Affirmed.



                                                               /s/ Michael F. Gadola
                                                               /s/ Jane E. Markey
                                                               /s/ Amy Ronayne Krause




                                                 -11-
