Franklin Capital Associates, L.P. v. Almost Family, Inc., No. M2003-02191-COA-R3-CV (TN 12/21/2005), M2003-02191-COA-R3-CV.

• Decision Date: 21 December 2005
• Docket Number: No. M2003-02191-COA-R3-CV.,M2003-02191-COA-R3-CV.
• Parties: FRANKLIN CAPITAL ASSOCIATES, L.P. v. ALMOST FAMILY, INC. f/k/a CARETENDERS HEALTH CORPORATION.
• Court: Tennessee Supreme Court

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Unpublished Opinion

FRANKLIN CAPITAL ASSOCIATES, L.P. v. ALMOST FAMILY, INC. f/k/a CARETENDERS HEALTH CORPORATION.

No. M2003-02191-COA-R3-CV.

Court of Appeals of Tennessee, at Nashville.

February 10, 2005 Session.

Filed December 21, 2005.

Appeal from the Chancery Court for Williamson County; No. 26976; Robert E. L. Davies, Judge.

Frank G. Clement, Jr., J., delivered the opinion of the court, in which William B. Cain and Patricia J. Cottrell, JJ., joined.

OPINION ON PETITION TO REHEAR

FRANK G. CLEMENT, JR., JUDGE.

This court issued an opinion on November 29, 2005 affirming in part and modifying in part the trial court's judgment, the result of which was an award of damages against Almost Family, Inc., f/k/a Caretenders Health Corporation, (Caretenders) in the amount of $658,886.50 in favor of Franklin Capital Associates, L.P. See Franklin Capital Associates, L.P., v. Almost Family, Inc., f/k/a Caretenders Health Corporation, No. M2003-02191-COA-R3-CV, 2005 WL 3193688, (Tenn. Ct. App. Nov. 29, 2005). On December 9, 2005, Franklin filed a timely petition for this court to rehear that portion of the case relating to the application of a block discount to determine Franklin's damages.¹ Having considered the petition for rehearing, we have concluded the trial court did not err by applying a block discount to determine Franklin's damages. Accordingly, we deny the petition for rehearing.

The trial court applied a conversion measure of damages. Damages in a conversion action are generally determined by the fair, reasonable market value of the property at the time and place of conversion. Lance Productions, Inc. v. Commerce Union Bank, 764 S.W.2d 207, 213 (Tenn. Ct. App. 1988); 18 AM. JUR. 2d, Conversion § 116 (2005). Franklin contends the measure of damages for conversion requires the assessment of its damages at the price at which Franklin could have purchased a share of Caretenders, the so-called New York rule. (See Hedges v. Burke, 247 S.W. 91 (Tenn. 1922)(holding the plaintiff's damages are equal to the replacement cost, the price at which the plaintiff could have purchased the converted property in the open market)). We find this argument to be without merit because it is based upon a false premise, that the shares at issue would not be subject to a block discount.

The practice of discounting the value of the price per share of a large block of shares in a limited market is known as a "block discount." Utilization of a "block discount" to value stocks developed in recognition of the fact that large blocks of stock cannot be sold as readily as smaller blocks of stock. See G.H. Fisher, Annotation, Application of "Blockage Rule" or "Blockage Discount Theory" in Determining Stock Valuation, for Purposes of Taxation of Intangibles, 33 A.L.R.2d 607 (2004). Block discounts are often used in cases involving estate or inheritance tax. Id. Tennessee courts recognize the block discount as a factor that may be considered when valuing shares. Hamilton National Bank of Knoxville v. Benson, 444 S.W.2d 277 (Tenn. 1969); see also Tenn. Code Ann. § 67-8-412 (2003).

After determining the price per share of Caretenders' stock, the trial court considered uncontroverted testimony as to the impact of 890,349 shares on the market value of the shares. Paul Mallarkey, an expert witness called by Caretenders, testified that the block discount measures the effect on the price per share. He further explained that a block discount was appropriate when a large block of "thinly-traded" stock is to be sold. Mr. Mallarkey also explained that "thinly traded" stock is stock that is traded infrequently and/or in low volumes. The evidence established that an average weekly trading volume for Caretenders' stock was approximately 100,000 shares a week, which is indicative of a market that is not prepared to absorb 890,349 additional shares in a brief period of time. In the absence of a ready market for such a large block of stock, Mr. Mallarkey explained, the market would discount the price.

The evidence established that a willing purchaser would have agreed to purchase and a willing seller would have agreed to sell 890,349 of Caretenders' shares for the discounted price of $1,963,219.50.² Nevertheless, Franklin contends a...