Fredericks Peebles v. Assam , 300 Neb. 670 ( 2018 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
09/21/2018 09:10 AM CDT
- 670 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
Fredericks Peebles & Morgan LLP, appellee,
v. Fred Assam, appellant.
___ N.W.2d ___
Filed August 3, 2018. No. S-16-855.
1. Declaratory Judgments. An action for declaratory judgment is sui
generis; whether such action is to be treated as one at law or one in
equity is to be determined by the nature of the dispute.
2. Partnerships: Accounting: Appeal and Error. An action for a partner-
ship dissolution and accounting between partners is one in equity and is
reviewed de novo on the record.
3. Declaratory Judgments: Equity: Appeal and Error. In reviewing
an equity action for a declaratory judgment, an appellate court tries
factual issues de novo on the record and reaches a conclusion inde-
pendent of the findings of the trial court, subject to the rule that where
credible evidence is in conflict on material issues of fact, the review-
ing court may consider and give weight to the fact that the trial court
observed the witnesses and accepted one version of the facts over
another.
4. Partnerships. The interpretation of a partnership agreement presents a
question of law.
5. Appeal and Error. An appellate court independently reviews a lower
court’s rulings on questions of law.
6. Courts: Jurisdiction: States. In answering any choice-of-law question,
a court first asks whether there is any real conflict between the laws of
the states.
7. Jurisdiction: States. An actual conflict exists when a legal issue is
resolved differently under the law of two states.
8. Contracts. A contract written in clear and unambiguous language is not
subject to interpretation or construction and must be enforced according
to its terms.
9. Actions: Appeal and Error. An appellate court determines the nature of
an action from the relief sought.
- 671 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
10. Breach of Contract: Damages. A suit for damages arising from breach
of a contract presents an action at law.
11. Trial: Expert Witnesses. The trier of fact is not bound to accept expert
opinion testimony.
12. Trial: Evidence. Evidence not directly contradicted is not necessarily
binding on the triers of fact, and may be given no weight where it is
inherently improbable, unreasonable, self-contradictory, or inconsistent
with facts or circumstances in evidence.
13. Witnesses: Testimony. The credibility of a witness is a question for the
trier of fact, and it is within its province to credit the whole of the wit-
ness’ testimony, or any part of it, which seemed to it to be convincing,
and reject so much of it as in its judgment is not entitled to credit.
14. Options to Buy or Sell: Valuation: Words and Phrases. “Fair market
value” is the price that a willing buyer would pay a willing seller, both
persons having reasonable knowledge of all relevant facts and neither
person being under compulsion to buy or to sell.
15. Options to Buy or Sell: Presumptions. The willing buyer-willing seller
rule presumes that a potential transaction is to be analyzed from the
viewpoint of a hypothetical buyer whose only goal is to maximize his or
her advantage.
16. Options to Buy or Sell. The willing buyer-willing seller rule is applied
using the viewpoint of an objective hypothetical buyer, rather than a
subjective buyer.
Appeal from the District Court for Douglas County: Shelly
R. Stratman, Judge. Affirmed.
David A. Domina, of Domina Law Group, P.C., L.L.O., for
appellant.
Daniel P. Chesire, Brian J. Brislen, and Cathy S. Trent-
Vilim, of Lamson, Dugan & Murray, L.L.P., and James J.
Banks, of Banks & Watson, for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, K elch, and
Funke, JJ.
Funke, J.
This appeal concerns a determination of Fred Assam’s
ownership interest in the law firm of Fredericks Peebles &
Morgan LLP (FPM). After Assam voluntarily withdrew from
- 672 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
the firm, FPM filed suit seeking a declaration of the rights of
FPM and Assam under the governing partnership agreement
(Partnership Agreement). Following a bench trial, the district
court for Douglas County declared the fair market value of
Assam’s interest in FPM to be $590,000. For the reasons
stated herein, we affirm.
I. BACKGROUND
1. Partnership
FPM is a limited liability partnership composed of legal pro-
fessionals. FPM has a nationwide practice which specializes in
handling legal issues impacting Native American tribes, includ-
ing, but not limited to, facilitating interrelationships between
Native American tribes and the federal government, state gov-
ernments, and other tribes, as well as foreign governments and
foreign companies. FPM represents Native American tribes,
entities, and individuals, as well as banks and financial institu-
tions which deal with Native American tribes.
FPM was organized under the laws of the District of
Columbia, and its principal place of business is located in
Omaha, Nebraska. At the relevant time, FPM had dozens
of attorneys throughout offices in Sacramento, California;
Louisville, Colorado; Sioux Falls, South Dakota; Omaha,
Nebraska; Winnebago, Nebraska; Peshawbestown, Michigan;
and Washington, D.C.
As of October 1, 2014, FPM had five equity partners:
Thomas W. Fredericks, John M. Peebles, Lance G. Morgan,
Conly J. Schulte, and Assam. Fredericks, Peebles, Schulte, and
Assam each held a 23.25 percent interest in FPM, and Morgan
held the remaining 7 percent. FPM traditionally implemented
a team approach in servicing its clients’ accounts, but nearly
90 percent of FPM’s clients were brought in by Fredericks,
Peebles, Morgan, and Schulte. Assam, a financial attorney,
worked on accounts brought in by the other equity partners.
Only three clients followed Assam when he left FPM, two of
which maintained a relationship with FPM.
- 673 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
In early 2014, FPM undertook a thorough financial review
in order to implement long-term planning. The partners
began to discuss changes to their compensation structure in
order to reward younger partners for bringing in new cli-
ents. Fredericks proposed that compensation should be based
on client generation, while others proposed that compensa-
tion should be based upon equity ownership. The partners
exchanged and refined proposals over a period of months,
and FPM ultimately arrived at a hybrid of the two compensa-
tion structures.
According to the testimony of Peebles, Assam had not kept
up to date on the various proposals and voiced concern about
only Fredericks’ initial proposal, which Assam felt negatively
impacted his compensation. As a result of his concerns, Assam
hired the accounting firm Eide Bailly LLP to perform a valua-
tion of his equity interest in FPM.
On the evening of October 2, 2014, Assam sent an email to
his partners in which he voluntarily resigned from FPM. In the
email, Assam advised, “As you are all aware, over the course
of the last few months, I have been under a personal attack
by . . . Fredericks.” Assam stated the compensation structure
Fredericks had proposed would “transfer complete control of
[FPM] over to [Fredericks]. This means the life of my family
and me will [sic] in complete control of a man who does not
care for me and, in fact, will apparently act with intent to only
to [sic] harm me.”
The following morning, Assam, whose office is located
in Sioux Falls, flew to Denver, Colorado, to attend a partner
meeting at the Louisville office, which had been scheduled
prior to Assam’s resignation email. During his flight, Assam
reviewed some of the more recent compensation structure
proposals and realized the documents he had relied on when
deciding to resign had significantly changed. At the meeting,
Assam told the partners he had made a mistake and wanted to
rescind his resignation and rejoin FPM. The partners declined
and formally voted to accept Assam’s resignation.
- 674 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
The FPM partners then continued their meeting and, as part
of their ongoing financial review, addressed the agenda item
of how to treat approximately $10 million in old accounts
receivable. Many of FPM’s clients are sovereign under fed-
eral law and therefore may not be sued to collect on past-due
billing absent a waiver of sovereign immunity. FPM has a
practice of not requesting such a waiver from its clients so as
to not jeopardize client relationships. As a result, according to
the testimony of Morgan, FPM has a lower-than-average col-
lection rate.
FPM carried a significant amount of outstanding accounts
receivable for an extended period of time. At the partnership
meeting, FPM decided to write off as uncollectable approxi-
mately $10 million in old accounts receivable.
After Assam’s resignation, the partners made him an offer
of payment intended to represent the fair market value of
his equity interest as set out in the Partnership Agreement.
However, the two sides could not agree as to the value of
Assam’s interest.
In late 2014, FPM filed a declaratory judgment action
to determine the value of Assam’s interest. Assam filed an
answer and counterclaim for an accounting and fair valuation
of his interest in FPM, based on the Partnership Agreement.
Assam sought a money judgment and attorney fees. FPM filed
an amended complaint which asserted claims for breach of
contract, breach of fiduciary duty, fraud, constructive fraud,
rescission, disgorgement, and an accounting. Assam filed
an answer which denied such claims and stated affirma-
tive defenses.
At trial, FPM moved without objection to conform its plead-
ings to the adduced evidence in order to clarify that its sole
claim was for declaratory judgment as to the amount it owed
Assam for the fair market value of his ownership interest, as
provided under the Partnership Agreement. Assam clarified
that he maintained his counterclaim for an accounting, fair
valuation, and a money judgment, plus attorney fees.
- 675 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
The Partnership Agreement is dated May 1, 2007, and was
signed by Fredericks, Peebles, Morgan, Schulte, and Assam
on August 9, 2008. The parties agree that the provision which
governs the determination of Assam’s equitable interest in
FPM is:
In the event any Equity Partner gives a notice of voluntary
withdrawal more than sixty months of July 1, 2003, such
withdrawing Equity Partner will receive an amount equal
to 100% of the fair market value of the Equity Partner’s
interest in the Partnership as of the date of such notice of
voluntary withdrawal, which amount will be paid out in
six equal monthly installments without interest.
2. Expert Testimony
The court heard valuation testimony from several expert
witnesses. FPM called William Brennan, a management con-
sultant for the legal profession. Assam called Chad Flanagan
and Jay Fullerton, of Eide Bailly. In addition, Assam called
Matthew Stadler as an expert witness. Assam himself also
opined as to valuation.
(a) Brennan
Brennan has worked for over a decade as a principal with
a law firm management consulting group. He testified that
in the past 25 years, he has consulted with over 500 firms of
all types and sizes. Prior to becoming a management consult­
ant, Brennan worked as an accountant and auditor. Brennan’s
work experience includes serving as chief financial officer
and executive director for two law firms, one of which had
250 attorneys.
As a consultant, Brennan developed a specialty in law
firm mergers and acquisitions, which included performing firm
valuations. Over his career, he had performed about 25 firm
valuations. He previously testified in court seven times as an
expert in law firm valuation. He is published in the area of
valuation and is a frequent speaker on the issue of law firm
financial management.
- 676 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
Brennan spent over 100 hours on his valuation of FPM
and drafted a 48-page report. Brennan’s report demonstrated
several different business valuation approaches for compari-
son. Brennan testified that although market-based, asset-based,
and income-based approaches are each generally accepted, the
income approach is best for valuing law firms. Brennan stated
the market-based approach is not useful for valuing law firms,
because such businesses are privately owned and therefore a
firm’s private transaction data is not publicly available to be
used to compare value with other businesses in the market. As
for an asset-based approach, Brennan testified firm assets must
be adjusted down to their cash value in order to determine the
asset’s “net realizable value.” Without this adjustment, assets
such as encumbered assets and uncollectible accounts receiv-
able would be overvalued.
Brennan testified that the income approach has several
subsets, including the discounted cashflow approach and the
“capitalization of economic income” approach. Brennan’s
methodology focused on future cashflows and relied on 5
years of historical income statements which were adjusted
to normalize the income stream by removing nonrecurring
expenses and adding liabilities not present on income tax
forms. Brennan’s analysis considered economic environment
risks, government regulation risks, and risks specific to FPM
such as sustainability, infrastructure, and technological and
data security risks. Brennan employed the “Ibbotson Build-Up
Method” to determine an appropriate discount rate which
considered a risk-free rate, an equity premium, systemic
environmental risk unique to the legal industry, and spe-
cific risks unique to FPM such as aging partners generating
the majority of the client revenue and lower-than-average
collection rates, coupled with an inability to pursue legal
action against nonpaying clients. Brennan also emphasized
that certain factors limit the control and marketability of a
law firm, including that only attorneys can own law firms,
that lawyers cannot ethically restrict their ability to serve
- 677 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
clients through the use of noncompete agreements, and that
most firms have partnership agreements which control com-
pensation and/or admission into the firm. In considering all
of these factors, Brennan applied a 60-percent discount to
Assam’s partnership interest. Brennan’s ultimate opinion was
a valuation of $590,000.
(b) Eide Bailly
Flanagan, the director of Eide Bailly’s business valuation
department, and Fullerton, a senior official in Eide Bailly’s
business valuation department, coauthored two reports regard-
ing the value of Assam’s interest. Their reports complied with
industry standards outlined by the “Statements on Standards
for Valuation Services” and the National Association of
Certified Valuation and Analysts. The first report was a calcu-
lation engagement in 2014, and the second report was a more
detailed valuation engagement in 2016. Between Flanagan and
Fullerton, approximately 50 hours were spent compiling the
second report.
Flanagan is a certified public accountant who is a member
of the American Institute of Certified Public Accountants.
Flanagan also holds the designation of being accredited in
business valuation. Fullerton holds a juris doctorate degree, a
master’s degree in business administration, and a bachelor of
science degree in economics with a minor in accounting.
In his practice, Flanagan performs between 150 and 200
business valuations per year. Fullerton testified he had per-
formed 300 business valuations in his career. Flanagan and
Fullerton performed business valuations for various indus-
tries including wholesale, retail, manufacturing, insurance,
real estate holding companies, restaurants, dental practices,
construction, and farming operations. Flanagan had performed
one law firm valuation, and Fullerton had not performed a law
firm valuation prior to this case. Neither had ever performed
financial consulting services for a law firm or had published
any scholarly articles in the area of law firm valuation.
- 678 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
Eide Bailly’s opinion also employed a buildup rate which
included industry risk and firm risk to reach a discount rate
of 4 percent. The opinion also incorporated a 10-percent
discount for lack of control as to nonoperating assets and
a 5-percent discount for lack of marketability, because the
Partnership Agreement provides a market for the sale of
those shares.
Flanagan admitted his valuation assumed that in a fair mar-
ket value analysis, FPM should be understood as the specific
hypothetical buyer of Assam’s interest. Fullerton admitted
this assumption was part of Eide Bailly’s scope of engage-
ment. In addition, Fullerton testified that Assam suggested
to Eide Bailly that the reference to fair market value in the
Partnership Agreement should equate to fair value. Fullerton
further testified that fair value is essentially the same thing as
fair market value without any discounts for lack of control or
lack of marketability.
Prior to commencing the valuation engagement, Assam’s
counsel sent a letter to Eide Bailly, dated April 28, 2016, which
indicated:
The District of Columbia statutes permit a partnership
agreement or a limited partnership agreement to spec-
ify buy-out terms. The [Partnership] Agreement in this
case uses the phrase “fair market value”. However, the
[Partnership] Agreement provides for a market within
[FPM] and its Equity Partners. This means the transaction
occurs at a fair price and on fair terms, not as if the sale
were to a stranger. The internal market assures retention
of client relationships, partnership identity, business con-
tinuity, and avoidance of startup costs and cash flow limi-
tations. It is . . . Assam’s view that these circumstances
require that “fair market value” be understood as the fair
value of the partner interest in the context of the market
created by the [Partnership] Agreement itself. This is, we
think, the same as “fair value” in model corporate and
business entity statutes.
- 679 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
In their reports, Flanagan and Fullerton used an income
approach which utilized FPM’s average normalized annual
pretax revenue over a 4-year period. Eide Bailly also upwardly
adjusted the value of the partnership due to its having a
passthrough entity tax status. Flanagan testified that passthrough
tax status is, in effect, a capitalization of taxes saved because
FPM, as a limited liability partnership, is not subject to corpo-
rate taxation.
According to Flanagan’s testimony, Eide Bailly’s calcula-
tion engagement in 2014 concluded the value of Assam’s
interest in FPM to be $3,420,000. Eide Bailly’s valuation
engagement in 2016, using more recent revenue streams,
concluded the value of Assam’s interest to be $3,120,000.
Eide Bailly’s valuation accounted for FPM’s nonoperating
assets, such as an interest in real estate and dormant accounts
receivable.
(c) Stadler
Stadler was engaged by Assam to review and compare the
fair market value opinions of Brennan, Eide Bailly, and Assam.
Stadler is a certified public accountant who holds a juris
doctorate and a master’s degree in professional accountancy.
Stadler also has an accreditation in business valuation. Stadler
has never worked in a law firm and has valued only one other
law firm.
At Assam’s request, Stadler examined only Brennan’s valu-
ation report, Eide Bailly’s calculation report, and Assam’s
calculation report, and no other evidence. In doing so, Stadler
did not develop an opinion as to value. Stadler identified defi-
ciencies in each of the reports he reviewed. In the Eide Bailly
report, Stadler opined that the failure to include 2010 data
was a concern, that long-term growth rate was too high, and
that the capitalization rate was too low. In regard to Brennan’s
report, Stadler found fault in the capitalization rate as being
too high and the discount for lack of control and lack of mar-
ketability as being too high. Ultimately, Stadler concluded
- 680 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
that Brennan’s opinion was understated by $1,235,000 and
that Eide Bailly’s opinion was overstated by $1,275,000.
Stadler fundamentally disagreed with Assam’s approach and
described Assam’s valuation as not being credible “in any
respect” and “ridiculous.”
(d) Assam
Assam is a financial attorney whose practice includes busi-
ness valuation matters. Assam valued his interest in FPM
at $4,877,850. Assam testified his valuation included his
23.25-percent share of the $10 million in written-off accounts
receivable. Assam encouraged the court to reject his experts’
valuations and adopt his own.
3. Trial Court Judgment
In its written order, the court found the proper remedy was
declaratory judgment; it dismissed Assam’s counterclaim and
declined to award attorney fees. In doing so, the court found
FPM’s decision to write off approximately $10 million in old
accounts receivable was not done in bad faith or with an intent
to harm Assam, because the writeoff equally affected all equity
partners and was set on the agenda for the partners’ meeting
prior to Assam’s notice of resignation.
The court also determined, based on the language of the
Partnership Agreement, that Assam’s interest was the fair mar-
ket value of his equity partnership interest in FPM as of the
date of his notice of voluntary withdrawal, October 2, 2014.
The court further found Assam’s valuation opinion was
“unreliable and not credible.” The court accepted Assam’s
testimony that the court should not adopt the opinions offered
by Eide Bailly or Stadler and found that Assam attempted to
“influence in an upward manner” Eide Bailly’s conclusion as to
the fair market value of Assam’s interest. The court concluded
that the April 28, 2016, letter from Assam’s counsel to Eide
Bailly showed that Eide Bailly’s “calculation engagement”
report included an incorrect assumption that FPM must be
- 681 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
the hypothetical buyer of Assam’s interest under a fair market
value analysis.
The court declined to adopt Eide Bailly’s opinion, because
Flanagan and Fullerton collectively had valued a law firm on
only one other occasion; neither had ever worked at a law firm,
been a chief financial officer for a law firm, or provided finan-
cial consulting services to a law firm; and neither had pub-
lished any scholarly articles in the area of law firm valuation.
The court noted that Stadler also lacked comparable expertise
in law firm valuation for these same reasons.
The court found that the testimony of Brennan was cred-
ible; Brennan’s 60-percent lack-of-control and marketability
discount was credible; Brennan’s discounts were appropriate
as part of a “fair market value” analysis, because they helped
replicate a public marketplace for a private entity; Brennan’s
discount analysis was consistent with the fair market value
standard of a hypothetical buyer’s ability to convert the owner-
ship interest to cash and control the investment; and Brennan
was the only expert to weigh risk factors which were credible
and relevant to determining the fair market value test of a fully
informed hypothetical willing buyer’s desire to maximize his
economic interest.
The court found that the Partnership Agreement was not
ambiguous; the Partnership Agreement did not contain a
choice-of-law provision; there was no conflict with Nebraska
law and District of Columbia law with regard to interpreta-
tion of a contract; if there were a conflict, Nebraska law
would control due to Nebraska’s interest in and contacts with
the dispute; and neither party had breached the Partnership
Agreement.
The court found and declared that the fair market value of
Assam’s equity partner interest in FPM is $590,000; pursu-
ant to the Partnership Agreement, FPM may pay Assam this
amount; and Assam was not entitled to a money judgment or
attorney fees.
Assam appealed, and we moved the case to our docket.
- 682 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
II. ASSIGNMENTS OF ERROR
Assam assigns, restated, that the district court erred by (1)
failing to apply District of Columbia law; (2) finding FPM
did not breach the Partnership Agreement; (3) adopting the
opinion of FPM’s expert, Brennan, whose valuation opinion
excluded approximately $10 million in old accounts receiv-
able, as well as the value of real estate, automobiles, tenant
improvements, and equipment; and (4) failing to award Assam
a money judgment and attorney fees.
III. STANDARD OF REVIEW
[1-3] An action for declaratory judgment is sui generis;
whether such action is to be treated as one at law or one in
equity is to be determined by the nature of the dispute.1 An
action for a partnership dissolution and accounting between
partners is one in equity and is reviewed de novo on the
record.2 In reviewing an equity action for a declaratory judg-
ment, an appellate court tries factual issues de novo on the
record and reaches a conclusion independent of the findings of
the trial court, subject to the rule that where credible evidence
is in conflict on material issues of fact, the reviewing court
may consider and give weight to the fact that the trial court
observed the witnesses and accepted one version of the facts
over another.3
1
Christiansen v. County of Douglas, 288 Neb. 564, 849 N.W.2d 493
(2014); Vlach v. Vlach, 286 Neb. 141, 835 N.W.2d 72 (2013); Lone Cedar
Ranches v. Jandebeur, 246 Neb. 769, 523 N.W.2d 364 (1994).
2
Robertson v. Jacobs Cattle Co., 288 Neb. 846, 852 N.W.2d 325 (2014); In
re Dissolution & Winding Up of KeyTronics, 274 Neb. 936, 744 N.W.2d
425 (2008); Bass v. Dalton, 213 Neb. 360, 329 N.W.2d 115 (1983). See
Darr v. D.R.S. Investments, 232 Neb. 507, 441 N.W.2d 197 (1989).
3
Gast v. Peters, 267 Neb. 18, 671 N.W.2d 758 (2003); Lake Arrowhead v.
Jolliffe, 263 Neb. 354, 639 N.W.2d 905 (2002). See Badran v. Bertrand,
214 Neb. 413, 334 N.W.2d 184 (1983).
- 683 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
[4,5] The interpretation of a partnership agreement presents
a question of law.4 An appellate court independently reviews a
lower court’s rulings on questions of law.5
IV. ANALYSIS
1. No Conflict of Laws
In Assam’s first assignment of error, he claims that the dis-
trict court erred by determining that no conflict in substantive
law existed between District of Columbia law and Nebraska
law, as pertaining to the governing effect of the Partnership
Agreement. Assam argues the district court erred when it
concluded that if there were a conflict of laws, Nebraska
law would control over District of Columbia law, because of
Nebraska’s pertinent interest in the subject matter. Assam fur-
ther argues that the choice of law impacts three legal issues,
including what constitutes a breach of duty by FPM to Assam,
what is “fair market value,” and attorney fees.
As we will discuss in more detail later, Assam did not
properly raise a claim for breach of contract; as a result, any
claim that the laws of the District of Columbia differ from
the laws of the State of Nebraska on breach of contract is
without merit. In addition, since we find that Assam was not
entitled to attorney fees, any difference of law on that issue
is irrelevant.
The only remaining issue is the determination of fair mar-
ket value of Assam’s partnership interest. The record indicates
that FPM was organized as a Washington, D.C., limited liabil-
ity partnership. In addition, the Partnership Agreement does
not contain a specific choice-of-law provision, and District of
Columbia law does not allow for such a provision.6
4
Robertson, supra note 2; Shoemaker v. Shoemaker, 275 Neb. 112, 745
N.W.2d 299 (2008).
5
Id.
6
D.C. Code Ann. § 29-701.07(b)(2) (West, Westlaw through 2013
legislation).
- 684 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
As our analysis will show, the determination of fair market
value is controlled by the Partnership Agreement and no real
conflict exists between the laws of the District of Columbia
and the laws of the State of Nebraska with respect to the con-
trolling effect of partnership agreements.
[6,7] In answering any choice-of-law question, a court first
asks whether there is any real conflict between the laws of the
states.7 An actual conflict exists when a legal issue is resolved
differently under the law of two states.8 We agree with the
district court when it found there was no conflict between
District of Columbia and Nebraska substantive law governing
the determination of Assam’s equity interest.
Under Nebraska’s Uniform Partnership Act of 1998,9 FPM
is a “foreign limited liability partnership,” because FPM was
formed under the laws of the District of Columbia.10 Section
67-457 provides that the law under which a foreign limited
liability partnership is formed governs relations among the
partners and between the partners and the partnership.
Under the laws of the District of Columbia, relations among
the partners and between the partners and the partnership are
governed under the controlling partnership agreement.11 In
addition, under Nebraska law, relations among the partners
and between the partners and the partnership are also governed
by the partnership agreement.12 Thus, whether the laws of the
District of Columbia or the laws of the State of Nebraska are
applied, the terms of the partnership agreement are controlling.
As a result, no actual conflict of laws exists.
7
O’Brien v. Cessna Aircraft Co., 298 Neb. 109, 903 N.W.2d 432 (2017).
8
Id.
9
Neb. Rev. Stat. §§ 67-401 to 67-467 (Reissue 2009 & Cum. Supp. 2014).
10
See, § 67-402(4); D.C. Code Ann. § 29-701.06 (West, Westlaw through
2013 legislation).
11
D.C. Code Ann. § 29-701.07(a).
12
§ 67-404.
- 685 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
Assuming without deciding that the district court erred
when it determined that if there were a difference in the
law of the State of Nebraska and the law of the District of
Columbia, Nebraska law would apply exclusively, any such
error was harmless.
[8] The Partnership Agreement is clear and unambigu-
ous. A contract written in clear and unambiguous language
is not subject to interpretation or construction and must be
enforced according to its terms.13 Therefore, the terms of the
Partnership Agreement provide the legal framework for our
analysis.
2. No Breach of Contract
In Assam’s second assignment of error, he claims that
the district court erred by failing to find FPM breached the
Partnership Agreement. We find no merit to this assignment
of error.
[9,10] Assam did not assert an independent claim for breach
of contract, but merely asserted a breach of contract claim as
an affirmative defense to FPM’s amended complaint. At the
commencement of trial, Assam clarified that he was seeking
only an accounting and a fair valuation of his interest in FPM.
We determine the nature of an action from the relief sought.14
Even though Assam’s first two assignments of error advance
breach of contract arguments, at oral argument, Assam empha-
sized to this court that this is a proceeding in equity. A suit for
damages arising from breach of a contract presents an action
at law.15
We agree with the district court that this is a declaration of
rights proceeding. The Partnership Agreement does not specify
a particular amount due to Assam or a time period for payment.
13
Frohberg Elec. Co. v. Grossenburg Implement, 297 Neb. 356, 900 N.W.2d
32 (2017).
14
See Elting v. Elting, 288 Neb. 404, 849 N.W.2d 444 (2014).
15
Id.
- 686 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
Instead, the Partnership Agreement requires that FPM pay
Assam “an amount equal to 100% of the fair market value” of
his 23.25-percent interest. The relief sought by both parties is
the determination of the “fair market value” of Assam’s inter-
est. Consistent with Assam’s view, we find the nature of the
dispute to be one in equity, and as a result, this assignment of
error is without merit.
3. District Court Did Not Err
In Determining Assam’s
Equity Interest
In Assam’s third assignment of error, he claims the district
court erred when it adopted the opinion of Brennan, because
Brennan’s opinion did not account for FPM’s nonoperating
assets. Assam claims the court erred by assigning no value to
approximately $10 million in uncollectable accounts receivable
and FPM’s real estate investments. We find no merit to this
assignment of error.
(a) Conclusions of Law
[11,12] The trier of fact is not bound to accept expert
opinion testimony.16 The determination of the weight that
should be given expert testimony is uniquely the province
of the fact finder.17 Evidence not directly contradicted is not
necessarily binding on the triers of fact, and may be given
no weight where it is inherently improbable, unreasonable,
self-contradictory, or inconsistent with facts or circumstances
in evidence.18
[13] The credibility of a witness is a question for the trier
of fact, and it is within its province to credit the whole of the
16
Green v. Box Butte General Hosp., 284 Neb. 243, 818 N.W.2d 589 (2012).
See Lewison v. Renner, 298 Neb. 654, 905 N.W.2d 540 (2018).
17
Pohlmann v. Pohlmann, 20 Neb. Ct. App. 290, 824 N.W.2d 63 (2012).
18
Marston v. Drobny, 166 Neb. 747, 90 N.W.2d 408 (1958). See Maloney v.
Kaminski, 220 Neb. 55, 368 N.W.2d 447 (1985).
- 687 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
witness’ testimony, or any part of it, which seemed to it to be
convincing, and reject so much of it as in its judgment is not
entitled to credit.19
[14-16] Under the laws of the District of Columbia, “fair
market value” is the price that a willing buyer would pay a
willing seller, both persons having reasonable knowledge of
all relevant facts and neither person being under compulsion to
buy or to sell.20 The willing buyer-willing seller rule presumes
that a potential transaction is to be analyzed from the view-
point of a hypothetical buyer whose only goal is to maximize
his or her advantage.21 The willing buyer-willing seller rule is
applied using the viewpoint of an objective hypothetical buyer,
rather than a subjective buyer.22
(b) Analysis
The evidence of fair market value included the opinions of
Brennan, Assam, Flanagan, Fullerton, and Stadler. Each expert
posited a different fair market value, and each based his opin-
ion on different factors. Just as the trial court did, we too find
that there is evidence in conflict on material issues of fact con-
cerning the appropriate considerations in valuing Assam’s fair
market value interest. As a result, under our de novo review,
we consider and give weight to the fact that the trial court
observed the witnesses and accepted one version of the facts
over another.23
In reaching his opinion that the fair market value of his own-
ership interest was $4,877,850, Assam used the asset approach,
the income approach, and the market approach. Assam testified
19
General Fiberglass Supply v. Roemer, 256 Neb. 810, 594 N.W.2d 283
(1999); In re Estate of Ross, 19 Neb. Ct. App. 355, 810 N.W.2d 435 (2011).
20
Adkins Ltd. Ptp. v. O Street Management, 56 A.3d 1159 (D.C. 2012).
21
Eisenberg v. C.I.R., 155 F.3d 50 (2d Cir. 1998); Estate of Curry v. United
States, 706 F.2d 1424 (7th Cir. 1983).
22
See Estate of Bright v. United States, 658 F.2d 999 (5th Cir. 1981).
23
See cases cited supra note 3.
- 688 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
that in his practice, he routinely used business valuations to
assist his clients in obtaining financing and would retain indi-
viduals to perform the business valuations. In determining how
to prepare his valuation, Assam testified that he relied upon
“some articles” that he read, including one by the American
Bar Association and one from “Inc. Magazine.”
In preparing his valuation, Assam included in the asset
approach real estate, automobiles, tenant improvements, equip-
ment, and $10 million of old accounts receivable. For the
income approach, he simply added 2013 income figures together
with estimated 2014 income figures and divided the sum by
two. For the market approach, he determined an average annual
gross revenue (the amount determined in the income approach)
and multiplied it by two. Ultimately, he determined amounts
for each valuation method, added the values together, divided
the total by three, and multiplied the amount by his partnership
interest. Nothing in the record supports the valuation process
used by Assam. In fact, Assam’s own expert, Stadler, testified
that Assam’s valuation was “ridiculous.”
In regard to Eide Bailly’s opinion as to fair market value,
both Flanagan and Fullerton testified that it was premised
upon FPM’s being the hypothetical buyer. However, as men-
tioned above, fair market value is the price that a willing buyer
would pay a willing seller. A willing buyer is presumed to be a
hypothetical buyer whose only goal is to maximize his or her
advantage. The willing buyer is considered from the viewpoint
of an objective hypothetical buyer, rather than a subjective
buyer. In using FPM as the willing buyer, Eide Bailly’s opinion
failed to fully consider discounts for lack of control and lack
of marketability.
In addition, Eide Bailly employed 4 years of income instead
of 5 years of income. In doing so, Eide Bailly disregarded
2010 income based on the determination that 2010 income
was lower than the other years and was nonrepresentative of
FPM’s regular annual income. However, both Brennan and
Stadler testified that using the income figures over a 5-year
- 689 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
period was preferred over using income figures over a 4-year
period. Even Flanagan testified that, typically, they use a sam-
ple of 5 years of income. Additionally, Eide Bailly annualized
2014 income, because they did not have final figures for that
year when preparing the report in May 2016. However, the
record indicates that the 2014 income figures were finalized
in March 2015.
Eide Bailly also adjusted the value of FPM due to having a
“pass-through entity tax status.” However, Flanagan testified
that this passthrough status had not been accepted by the U.S.
Tax Court.
Further, though Flanagan and Fullerton are in the profession
of preparing business valuation, neither had significant experi-
ence in valuating law firms. Prior to their engagement with
Assam, Flanagan had performed only one law firm valuation
and Fullerton had performed no law firm valuations.
Each of these decisions by Eide Bailly upwardly impacted
its valuation. As a result, we agree with the district court that
the valuation determined by Eide Bailly of $3,120,000 does
not accurately reflect the value of FPM as of October 2, 2014.
Albeit for different reasons, Assam also testified that Eide
Bailly’s opinion should not be followed by the court.
In regard to Stadler’s testimony that Brennan’s opinion
was understated by $1,235,000 and that Eide Bailly’s opinion
was overstated by $1,275,000, Assam testified that the court
should not adopt Stadler’s analysis. In addition, the record
indicates that Stadler has limited experience in valuating law
firms, Stadler testified that Brennan was more experienced in
that particular field, and Stadler examined only the reports of
the other experts and no other evidence. Further, Stadler used
an industry risk premium for companies having much larger
revenues than FPM; he used a lower specific company risk
premium without reviewing the Partnership Agreement or any
financial documents of FPM; and he used the passthrough
entity tax status, which has not been widely adopted by the
U.S. Tax Court. All of these decisions increased his “opinion”
- 690 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
of FPM’s fair market value. Lastly, Stadler included approxi-
mately $2.5 million of goodwill, which from the evidence is
attributable to personal goodwill of the remaining partners as
opposed to goodwill of FPM, resulting in an overstating of
the fair market value by $573,000. As a result, we agree that
Stadler’s determination of value was not accurate.
In regard to Brennan’s opinion, the trial court noted his
vast experience in valuating law firms, including working
for a law firm management consulting group dealing with
over 500 law firms, working as an accountant and auditor,
and serving as chief financial officer and executive direc-
tor for two law firms. At the time of trial, Brennan had also
performed approximately 25 law firm valuations and had
testified in court seven times as an expert in law firm valu-
ation. Ultimately, the trial court expressly based its findings
on a credibility determination which accepted Brennan’s ver-
sion of the facts over Assam’s and Eide Bailly’s. The court
found Brennan’s testimony credible and controlling, because
he implemented an approach which valued Assam’s inter-
est in the context of a market. The court therefore found the
60-­percent discount for lack of control and marketability
assigned by Brennan to be credible, because of the limitations
presented by Assam’s minority interest in a law firm with
a specialized practice area and equity partnership makeup
such as FPM. The court found that Assam and Eide Bailly
sought to remove the need for a market from the fair market
value analysis dictated by the Partnership Agreement and that,
therefore, their small discounts for lack of control and market-
ability were not credible.
The record indicates that Brennan considered several dif-
ferent business valuation approaches for comparison, includ-
ing market-based, asset-based, and income-based approaches.
Brennan was able to articulate why the income approach was
the most suitable valuation method. Brennan used income fig-
ures for 5 years as opposed to 4 years, and he did not apply the
passthrough entity tax status calculation. Brennan employed
- 691 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
the “Ibbotson Build-Up Method” to determine an appropriate
discount rate, and his analysis considered economic environ-
ment risks, government regulation risks, and risks specific to
FPM such as sustainability, infrastructure, and technological
and data security risks. Though Brennan’s capitalization and
discount rates were significantly higher than those propounded
by the other experts, Brennan was able to articulate why law
firms should be valued differently from other professional
serv­ices industries. We therefore agree with the district court
that Brennan’s opinion of value as to FPM is the most appro-
priate value.
In regard to FPM’s decision to write off approximately
$10 million in old accounts receivable, the trial court found
that it was not done in bad faith or with an intent to harm
Assam. Specifically, the court noted that the writeoff equally
affected all equity partners.
At trial, Peebles testified that the accounts receivable were
“years old” and that the decision to write off the receivables
was not made suddenly but was part of an ongoing analysis
of compensation, partner continuity, personnel, and finances.
He further testified that each of the partners was charged with
the responsibility to review the accounts he was associated
with and to make a determination as to collectability. Morgan
testified that FPM’s collection rate was close to 70 percent.
Assam testified that the aggregate of the accounts receivable
was in excess of $15 million, of which $10.8 million was over
120 days old.
Assam also testified that he was not part of any decision
to write off the accounts receivable. Brennan testified that the
longer a receivable ages, the less likely it will be collected
in full, and that as they continue to age, especially beyond a
year, it is unlikely that a firm would collect any such receiv-
able. Brennan also testified that the partners made a specific
determination for each of the receivables to be written off,
that some of the accounts were 4 to 5 years old, and that
the partners determined that nothing more could be done to
- 692 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
collect the accounts. As a result, Brennan opined that the
uncollectable accounts receivable were appropriately written
off, because that was a correct reflection of the “net realiz-
able value” of the assets. Even Eide Bailly’s valuation report
indicated that nearly $9 million in accounts receivable was
likely uncollectable.
Despite Assam’s testimony that the writing off of accounts
receivable was not discussed in 2014, he also testified that
the subject of the writeoff was on the agenda for the partners’
meeting prior to the night he sent his notice of withdrawal. In
addition, the majority of FPM’s clients were Native American
tribes and therefore entitled to sovereign immunity, prevent-
ing FPM from bringing suit to collect on unpaid legal fees. As
a result, we agree with the district court that the writeoff of
accounts receivable was not improper.
Finally, Assam contends that the trial court failed to apply
any value for the assets of FPM, including the building and
the vehicles. However, all of the experts, with the exception
of Assam, testified that the asset approach was not the best
method to value FPM, due to the absence of significant capital.
The income approach adopted by the trial court took into con-
sideration FPM’s past and present revenue stream and deter-
mined an appropriate fair market value for it.
We agree with the trial court that Brennan’s testimony is
persuasive and controlling. Based upon our de novo review, we
find no merit to this assignment of error.
4. Failure
Award Money Judgment
to
Attorney Fees
and
Because we find no error in the district court’s ruling that
FPM did not breach the Partnership Agreement, Assam is not
entitled to a money judgment. Though a court may grant a
money judgment as consequential relief in a declaratory judg-
ment action,24 FPM was the entity seeking the declaratory
24
See Hoiengs v. County of Adams, 245 Neb. 877, 516 N.W.2d 223 (1994).
- 693 -
Nebraska Supreme Court A dvance Sheets
300 Nebraska R eports
FREDERICKS PEEBLES v. ASSAM
Cite as 300 Neb. 670
relief. In its pleadings, FPM did not seek a money judgment.
Only Assam sought a money judgment, which was part of his
claim for breach of contract. Having failed to prove the ele-
ments of a breach of contract, Assam is not entitled to a money
judgment. Consequently, the district court did not err in declin-
ing to award him a money judgment.
In regard to Assam’s request for attorney fees, the Partnership
Agreement allows for attorney fees for any prevailing party
who was required to institute an action or proceeding to
enforce any term or provision of the Partnership Agreement.
However, because we find no merit to Assam’s claim that FPM
breached the Partnership Agreement or that the district court
erred by adopting the valuation opinion of Brennan, Assam
was not a prevailing party. The district court did not err in
refusing to award Assam attorney fees.
V. CONCLUSION
For the foregoing reasons, we affirm the order of the
district court which declared Assam’s interest in FPM to be
$590,000, and that FPM should pay Assam such sum accord-
ing to the terms of the Partnership Agreement.
A ffirmed.
K elch, J., not participating in the decision.
Wright, J., not participating.