In Re Marriage of Connolly

Summary

The parties stipulated to a May 17, 1976 valuation date for 10,000 shares of a not-yet-public company. The court valued the shares at $7.50 each and awarded them to husband, a director, in exchange for a $37,500 note to wife. The company went public about three months later at roughly $27.50 per share, and wife sought to vacate the judgment under CCP 473, alleging husband concealed the planned offering. The Supreme Court affirmed the denial. It held that husband had no duty to disclose because the offering was publicly reported and the parties were adversaries. It also held that substantial evidence supported the $7.50 value, which was the midpoint of $5 to $10 private trades and the company's own $10 ceiling for option pricing.

What it means for the financial analysis

The case shows that value at the stipulated valuation date is tested against the evidence available then, such as arm's-length trades and the company's own pricing, and a later jump in value does not by itself undermine it. For valuation work on closely held or pre-IPO interests, it supports documenting the market information that was publicly available at the valuation date, though the decision rests on its adversarial facts and the abuse-of-discretion standard.

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