New Jersey Supreme Court Rejects Application of Marketability Discount in Determining Fair Value in Statutory Appraisal Action

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The state courts are divided on the issue of whether, in a statutory appraisal action, the court should apply a non-marketability discount in determining the “fair value” of stock held by dissenting shareholders in a closely held corporation. The Delaware courts have not allowed such discounts, while the New York courts have taken the opposite view. In two lengthy and thorough decisions issued earlier this month, the Supreme Court of New Jersey addressed this issue and held that marketability discounts generally should not be applied in determining the “fair value” of dissenters’ shares in a statutory appraisal action when there is no finding of “extraordinary circumstances” to warrant such a discount. In doing so, the New Jersey Supreme Court became the first to adopt and interpret the American Law Institute’s Principles of Corporate Governance on this issue. Thus, not only is this case one of first impression in New Jersey, it may also serve as a benchmark for other state courts in considering this recurring issue.

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