Carla Sword and Jim Peck each owned 150 voting shares of Acme Corporation. Carla's husband, Michael was the manager of the corporation and handled all of the corporations daily affairs and client contacts. The Board of Directors was made up of Jim and Carla. Eventually disagreements about the management of the corporation started and Carla decided to invoke the corporation's shareholder agreement. The agreement provided that in the event of a deadlock on the Board, the shareholders would hire ABC Accountants, LLC to determine the fair market value of the corporation's outstanding shares and the shareholders would have the right to buy out the other shareholder's interest.

ABC estimated the stock's fair market value at $1 million dollars. In accordance with the shareholder's agreement, Carla offered Jim $500,000 for his proportionate share of the stock. Jim countered by offering $1.3 million for Carla's shares. Carla rejected Jim's offer and insisted he sell his shares to her at the valued price or she would sue to enforce the shareholder's agreement. Ultimately Jim sold the shares to Carla for $750,000 in order to avoid litigation.

Jim then sued ABC Accountants. He argued that his shares were worth more than twice ABC Accountant's estimate. He argued that the firm had been negligent and had disregarded "commonly accepted and reliable methods of valuation in favor of less reliable methods." The firm stated that they defined the fair market value as "the price at which the property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of relevant facts." The firm was aware that the shareholders would use the valuation to determine the price of the stock.

Instructions:

Consider the above fact situation and consider and suggest why you think, based upon the facts provided, that Jim Peck would have sold his shares to Carla.

Consider the principles discussed in this chapter and comment regarding whether you believe ABC Accountants should be liable to Jim Peck for their valuation of the corporation's shares.