This derivative shareholder action arises from the misappropriation of $14 million from the Company between 2004 through 2010 by one of the controlling family members, Danny. The defendant, Zelouf Corp argues on appeal that a Discount for Lack of Marketability is applicable to value Nahal’s interest. The court affirms its decision not to apply a DLOM as there is no NY Appellate Court holding that such a discount must be applied in a fair value appraisal of a closely held company. Further, since Danny is not likely to give up control of the Company, Nahal should not recover less due to possible illiquidity costs in the event of a sale that is not likely to occur.
Furthermore, because Nahal has essentially been forced out of the company, applying a DLOM would be the economic equivalent of imposing a minority discount, something that is not permitted by New York law. The court rests much of its detailed reasoning upon fairness for the plaintiff-Nahal.