The Appellate Division issues an opinion in Estate of Claudia Cohen v. Booth Computers, et al. that offers a warning to carefully consider any provisions of partnership agreements. Despite a wide disparity between the fair value of the business and the "book value," the Court upheld the agreement to use book value - a difference of $11.348 million.
Booth Computers was a family partnership established by Robert Booth for the benefit of his three children. According to the partnership agreement, the value of the partnership was defined as the "net book value as shown on the most recent financial statement." In the event of a buyout, a partner was entitled to the net book value plus $50,000.00
The surviving member of the partnership tendered payment to Claudia Cohen's estate for $178,000 using the book value formula. The estate sued, claiming that the agreement was unconscionable given that the value of the partnership's holdings ranged from $30 million to $45 million.
The estate's argument was unsuccessful. The mere disparity in price was not sufficient to "shock the judicial conscious" to replace book value for fair value. While book value depends solely on the assets and liabilities on the books of a business, fair value reflects appreciation in value of tangible assets, among other attributes. The Appellate Division again affirmed that asking them to rewrite a provision to an agreement is a very high standard to meet.
