Petitioner Mark A. Galasso, suing as the personal representative of the Estate of Martin A. Galasso, Sr. ("Estate"), commenced this special proceeding on January 25, 2019, seeking the judicial dissolution of respondent Cobleskill Stone Products, Inc. ("CSP" or "Corporation") under Business Corporation Law ("BCL") § 1104-a (see NYSCEF Doc No. 1 ["Petition"]).

The Estate is the owner of 38.78% of the outstanding shares of CSP, with the remaining shares owned by respondents Emil J. Galasso ("Emil") and the Emil J. Galasso Family Limited Partnership, L.P.

On March 28, 2019, CSP filed a written election under BCL § 1118 (a) to purchase the Estate's minority interest (see NYSCEF Doc No. 75). As a result, this proceeding became one to "determine the fair value of the [Estate's] shares" as of January 24, 2019 (BCL § 1118 [b]).

CSP is a vertically-integrated mining, materials and construction company headquartered in Cobleskill, New York. The company consists of three divisions: (1) an aggregates division that produces limestone, high friction aggregate, and sand and gravel products; (2) a division that produces asphalt and blacktop; and (3) a "construction arm" that performs heavy highway construction, paving, and site work. Under the leadership of Emil and his team of veteran managers, CSP has grown to include five hard-rock quarries, a sand and gravel pit, seven asphalt plants, and a large fleet of rolling stock.

CSP owns and operates quarries in Cobleskill (currently inactive), Schoharie and Hancock, New York, and it also mines a leased quarry at Howes Cave. Additionally, CSP leases a quarry in Lexington, New York from Donald and John Falke ("Falke Quarry"), and also operates a sand and gravel pit called Broe's Pit in Milford, New York.

The aggregate that CSP mines is sold to third parties, mainly New York State and its local governments, for use in construction. CSP also uses a substantial portion of the aggregate internally in its asphalt and construction divisions.

Additionally, CSP has a one-third ownership interest in Cushing Stone Company, Inc. ("Cushing"), which operates a quarry outside of Amsterdam, New York and produces aggregate and hot-mix asphalt products.

CSP's asphalt plants are located in Schoharie, Oneonta, Hancock and Middleburgh, New York. In these plants, aggregate is mixed with bitumen to make asphalt and blacktop, which are used internally by CSP's construction arm and also sold to the State, local governments and private businesses.

CSP's third division is its "construction arm," which performs heavy highway construction, road paving and site preparation work using aggregate and asphalt produced by CSP's other two divisions and by Cushing.

CSP's construction division serves the counties of Schoharie, Otsego, Delaware, Greene, Schenectady, Sullivan, Montgomery, Chenango, and, on occasion, Albany and Broome. Competitors include Barrett Paving, Hanson Materials, Callanan Industries, Lancaster Development, Inc. ("LDI"), Tri-City Highways (an LDI-affiliated company), Kubricky Construction (DA Collins), Rifenburg Construction and Suit Kote, all of which are "vertically-integrated" like CSP.

Martin A. Galasso, Sr. ("Martin Sr."), who passed away on January 1, 2014, is Emil's first cousin and the father of Mark and Martin Jr.

Martin Sr. was the longtime principal of LDI, a company that currently competes against CSP for construction work.

Originally, CSP's predecessor, Allied Materials, was a "sister company" to LDI that produced the aggregate and asphalt needed for LDI's construction business, and the two companies were operated jointly by Martin Sr. and Emil.

Eventually, CSP entered the construction business, and Mark and Martin Jr. purchased Emil's minority interest in LDI, leaving them as the sole owners.

Following Martin Sr.'s death, the Estate caused its interest in CSP to be valued as of January 1, 2014 ("Estate Proceeding"). In a valuation report issued in early 2015, Management Planning, Inc. ("MPI"), a business evaluation and advisory firm, determined the "minority interest basis fair market value" of the Estate's shares to be about $3.5 million as of January 1, 2014 (see Ex. 23).

Petitioner commenced a proceeding in this Court in early 2015 to inspect CSP's books and records under BCL § 624, which culminated in the Estate and its financial consultant receiving broad access to CSP's financial and operational records.

Next, petitioner commenced a shareholders' derivative action against CSP, Emil and a number of other individuals and entities associated with CSP, alleging, in substance, that Emil [*2]froze Martin Sr. out of CSP's management, mismanaged CSP, engaged in self-dealing, and caused CSP to pay excessive compensation to family members (see Galasso v Cobleskill Stone Prods., Inc., Albany County Index No. 5763-15 ["Derivative Action"]).

Following extensive pretrial disclosure in the Derivative Action, including the production of hundreds of thousands of pages of CSP's corporate and financial records, the taking of dozens of depositions, and an interlocutory appeal (see Galasso v Cobleskill Stone Prods., Inc., 169 AD3d 1344, 1345 [3d Dept 2019] [affirming order compelling the Estate to produce MPI valuation]), petitioner withdrew many of his claims for relief, and the Court ultimately dismissed the bulk of the remaining claims on summary judgment in March 2020.

Petitioner commenced this proceeding on January 25, 2019. Respondents filed answers denying the material allegations of the Petition on March 28, 2019 (see NYSCEF Doc Nos. 71-74). On the same date, CSP filed a written election under BCL § 1118 to purchase the Estate's 38.78% interest in the Corporation for its fair value as of January 24, 2019 ("Valuation Date") (see NYSCEF Doc No. 75).

After several years of fact and expert discovery and an unsuccessful attempt at mediation (see NYSCEF Doc Nos. 181, 185), a valuation trial was held over eleven days, from November 14, 2022 through December 14, 2022.

Petitioner presented testimony from 10 witnesses: (1) Mark Galasso; (2) Edward Davidson, a geology/mining expert; (3) David Fontana, a real estate appraiser; (4) Millard Murphy, an appraiser of heavy equipment and rolling stock; (5) Martin Jr.; (6) Daniel Kerrigan, the president of MPI; (7) Jeffrey Kern, an expert in the field of mining and mine appraisal who served as petitioner's lead expert; (8) Daniel Meehan, a former senior executive for a large regional mining company; (9) Emil Galasso; and (10) Craig Watson, the corporate secretary/treasurer of CSP and the company's longtime chief financial officer. In addition, the Estate introduced 59 exhibits into evidence, largely on stipulation.

Respondents called 12 witnesses at trial: (1) Craig Watson; (2) Paul Griggs, CSP's longtime consulting geologist; (3) Michael M. Moore, Sr., a longtime CSP employee with day-to-day operational responsibilities; (4) Michael McKaig, a real estate appraiser; (5) Joshua Frederick, the principal of a demolition company; (6) Sean Boyle, an appraiser of heavy equipment and rolling stock; (7) Daniel Kleeschulte, another senior executive of CSP involved in project estimation and project management; (8) Michael Wick, a mining and geological consultant; (9) Scott DeMarco, respondents' lead valuation expert; (10) Jeffrey Kern; (11) Mark Galasso; and (12) Jeffrey Sessler, another demolition company representative. In addition, respondents introduced 81 exhibits into evidence, largely on stipulation.

Trial transcripts were received by the parties on February 15, 2023 (see NYSCEF Doc No. 210), post-trial briefs were filed on May 16, 2023 (see NYSCEF Doc Nos. 211-212) and reply briefs were filed on May 31, 2023 (see NYSCEF Doc Nos. 213-214).

Based on the credible testimony and documentary evidence adduced at trial, the Court finds and determines as follows.

The Court's task is to determine the fair value of the Estate's shares as of the Valuation Date (see BCL § 1118 [b]). In so doing, the Court must ascertain "what a willing purchaser in an arm's length transaction would offer for [the Estate's] interest in [CSP] as an operating business" (Matter of Seagroatt Floral Co. [Riccardi], 78 NY2d 439, 445 [1991), "'rather than as [*3]a business in the process of liquidation'" (Matter of Pace Photographs [Rosen], 71 NY2d 737, 748 [1988], quoting Matter of Blake v Blake Agency, 107 AD2d 139, 146 [2d Dept 1985], lv denied 65 NY2d 609 [1985]).

"Fair value" is a "question of fact" that "will depend upon the circumstances of each case; there is no single formula for mechanical application" (Seagroatt, 78 NY2d at 445). A valuation approach "tailored to the particular case must be found, and that can be done only after a discriminating consideration of all information bearing upon an enlightened prediction of the future" (Amodio v Amodio, 70 NY2d 5, 7 [1987] [internal quotation marks and citation omitted]).

Petitioner's lead expert was Jeffrey Kern, the president of Resource Technologies Corp. ("RTC"). Kern has dedicated his forty-year career to valuing mineral interests and mining companies (see NYSCEF Doc No. 215 ["Transcript"], pp. 722-723). In addition to serving as the president of RTC, Kern is a Senior Member of the American Society of Appraisers, with a specially-designated technical discipline in mines and quarry businesses. Kern performs mining valuations throughout North America for clients including governments and lenders (see id., pp. 598-599, 722-723).

RTC valued CSP using an amalgam of the income and asset approaches. It conducted a discounted cash flow ("DCF") analysis of CSP's aggregate and materials divisions, to which it added the value of CSP's construction assets. While recognizing that CSP's "operation is vertically integrated, i.e., the quarries supply stone to the asphalt operations as well as to CSP construction services" (Ex. 24, p. 1), Kern typically values construction equipment separately due to the relatively low barriers to entry (see Transcript, pp. 575-577). Kern opined that CSP's permitted mines and asphalt plants are "the real foundation" of the Corporation (id., pp. 576-577; see also id., pp. 720-722).

In applying the income approach to value CSP's quarry and asphalt businesses, Kern created two different financial models: an "As-is-As-Operating" model ("As-is Model"), and an "Adjusted for Market Conditions" model ("Market Model"). The As-is Model was intended to reflect CSP's actual operating performance, whereas the Market Model "examine[d] the effect of a more efficient [CSP] operation taking into account market production, pricing, and market based expenses based on BizMiner" (Ex. 24, p. 139).^[FN1] The As-is Model valued CSP's aggregate and materials operations at about $38 million, and the Market Model yielded a value in excess of $42 million.

RTC chose to rely on the Market Model, reasoning that it more accurately reflects the value of CSP as "between a willing and informed buyer and a willing and informed seller" (Transcript, p. 908; see Ex. 24, p. 150). RTC therefore assigned a value of $42 million to CSP's operating quarries and asphalt plants, to which it added $5.5 million for CSP's construction assets.

After adding the value of CSP's non-operating assets, adjusting for excess land, equipment, inventory and cash, and applying a 15% discount for lack of marketability ("DLOM"), RTC determined the value of CSP to be $58.4 million, with the Estate's interest [*4]valued at $22.6 million.

Through a restricted use report dated October 13, 2021, RTC reduced the value of the Estate's interest to about $22 million to reflect a lower estimate of mineral reserves (see Ex. 32).

At trial, Kern reduced RTC's opinion of value again, to $19.9 million (see Exs. 56 & 58; Transcript, pp. 788-790).

Respondents' lead valuation expert was Scott DeMarco of Equitable Value ("EV"). As a Certified Business Appraiser by the Institute of Business Appraisers, DeMarco has applied his financial and analytical skills to "over 300 different businesses, ranging from manufacturing companies to construction companies, software companies, . . . many, many different kinds of companies" (Transcript, p. 1662). However, DeMarco has had only limited involvement with mining companies, and this is his first valuation of a vertically-integrated mining company (see id., pp. 1769-1790).

EV valued CSP through both the income and asset approaches. EV's application of the asset approach began with CSP's most recent balance sheet prior to the Valuation Date, which EV re-valued based upon appraisals by other experts (e.g. mining, real estate and equipment) or through other specified calculations. Through this process, EV arrived at a fair value for CSP of $13.5 million, with the Estate's minority interest valued at $5.25 million.

EV also determined the value of the Estate's interest in CSP using the income approach. This approach is discussed in detail below (see Part III, infra), but in brief: DeMarco normalized CSP's income, determined the net cash flow to invested capital, selected a capitalization rate, applied the single period capitalization method ("SPCM"), and then implemented various adjustments (see Ex. KK, pp. 38-42). This resulted in a fair value for CSP of $12.1 million, with the Estate's interest valued at $4.7 million (see id., p. 41).

EV's "conclusion of value for [the Estate's] 38.78% ownership interest was $5,250,000, since the adjusted book value method generally produces a floor on value" (id., p. 45). However, respondents rely primarily on the income approach in their post-trial submissions (see NYSCEF Doc No. 212, p. 23).

The Court finds that respondents' application of the asset approach is flawed and should not be assigned any weight in determining the fair value of CSP.

First and foremost, respondents inappropriately value CSP as a collection of assets subject to liquidation in an orderly fashion, rather than valuing CSP as a going concern that is actively and successfully engaged in mining, material sales and heavy construction work (see Transcript, pp. 584, 594-596, 1830-1831; see e.g. Ex. L, p. 2 [determining "orderly liquidation value" of CSP's plants and equipment]). As well-stated by Kern, "[EV is] looking at pieces and parts, and they don't sum to the whole when we're looking at an [active] operation" (Transcript, p. 595).

Relatedly, respondents ignored significant elements of value inherent in CSP's operations. For example, respondents' equipment appraiser assigned no value to the considerable costs incurred by CSP in assembling and setting up the vast collections of machinery that comprise CSP's aggregate and asphalt plants. Petitioner's appraiser attempted to [*5]capture this element of value by allocating setup and site-work costs to particular items (see id., pp. 325-326; see also id., p. 1526), but respondents' valuation does not reflect the enormous benefit that a purchaser of CSP would see in purchasing operating, installed equipment versus buying a collection of assemble-it-yourself parts from various online auctions around the country (see id., pp. 1856-1857).

Similarly, respondents chose to assign no value to the structures and improvements on CSP's operating properties. Rather, respondents' real-estate appraiser valued CSP's lands on the hypothetical assumption that they had been fully reclaimed, i.e., returned to their "natural habitat" on the Valuation Date, devoid of structures and improvements (id., pp. 1325-1326; see e.g. Ex. O, p. 1 ["Hypothetical Market Value of Fee Simple Estate In 'As Reclaimed' Condition As of January 24, 2019"]). And given this hypothetical assumption, respondents' appraiser saw no need to familiarize himself with CSP's structures and improvements to ascertain their condition and utility, or even to assess whether they are subject to a reclamation obligation (see Transcript, pp. 1370-1372).

Moreover, as persuasively testified to by Kern, governmental permits that authorize mining activities are a valuable and scarce resource, and the Court does not believe that this important element of value is fully reflected in EV's application of the relief-from-royalty method (see id., pp. 579-580, 595-596, 726-731, 1839-1840; cf. id., p. 1840).

Further counseling against application of the asset approach is the considerable uncertainty attendant to valuing CSP's costly and unique assets, especially the plants. Given the limited and largely inapt comparables relied on by the equipment appraisers and the other methodological concerns about their work (see Parts IV [A] [1], [B] [1], infra), the Court is left with little confidence in the resulting estimates of value.

For example, CSP constructed a new state-of-the-art aggregate plant at Howes Cave beginning in 2005 at a cost of more than $8 million and subsequently invested another $1 million into the plant prior to the Valuation Date (see Transcript, pp. 319-321). Despite this plant having a useful life of between 50 and 100 years (see id., pp. 1545-1546; see also id., pp. 970-971), respondents valued it at only $930,000 (see id., pp. 1545-1546; Ex. L, p. 74 [item 3983]).

Finally, as EV properly recognized, the asset approach ordinarily is the "floor on value" (Ex. KK, p. 45), and it generally tends to undervalue a vertically-integrated going concern like CSP (see id., p. 37).

For all of the foregoing reasons, the Court declines to accept the $5.25 million valuation of the Estate's interest arrived at by respondents using the asset approach. It is not a fair reflection of the price that "a willing purchaser, in an arm's length transaction, would offer for [CSP] as an operating business" (Pace Photographers, 71 NY2d at 748 [internal quotation marks and citation omitted]).

Both sides applied an income approach in valuing the Estate's interest in CSP. For the reasons that follow, the Court finds that EV's application of the income approach is superior and, with appropriate modifications and adjustments, should be used to determine the fair value of CSP.

First, the Court remains puzzled by RTC's decision to exclude CSP's construction arm from its application of the income approach. Kern acknowledged that CSP is a vertically-integrated company, and the construction division uses about one-half of the aggregate and [*6]asphalt produced by CSP (see Transcript, pp. 567-568). Nonetheless, RTC valued CSP as if the construction division were separate and independent (see id., pp. 892-893).

Kern offered no convincing rationale for RTC's use of this approach, even assuming that it complies with the Uniform Standards of Professional Appraisal Practice. At one point, Kern explained that he typically values mining companies for banks, which tend not to assign much value to a construction business due to the low barriers to entry (see id., pp. 720-725). Earlier in the trial, however, Kern testified that he normally begins his analysis of a vertically-integrated company like CSP with a "quick and dirty DCF on the entire operation to see what a target value might be" (id., p. 576), but Kern did not explain what in the "quick and dirty DCF" led to his decision to exclude the construction division (see id., p. 902).

Moreover, RTC's approach required CSP's assets to be allocated among the three divisions, including assets like trucks and trucking labor that are shared by multiple divisions. This resulted in a complex, made-for-litigation analysis to allocate CSP's trucking resources between quarry and asphalt operations and the construction division (see id., pp. 449-457, 466-469).

Second, the Court has significant concerns about the process by which RTC's DCF model was prepared. Kern was a very credible and persuasive witness when it came to mining and mineral interests, but he did not display the same kind of mastery when it came to the more technical aspects of business valuation. In contrast, DeMarco lacked Kern's deep knowledge and experience with mines, mining and minerals, but he presented a clear and reasonably coherent financial model.

It also bears emphasis that the DCF model advanced by RTC and testified to by Kern actually was prepared by MPI. Kern testified that MPI was retained for this purpose because he was too busy with other professional matters (see id., pp. 832-833). But MPI's principal, Daniel Kerrigan, refused to take any ownership over the resulting DCF analysis (see e.g. id., p. 517), and questions to Kern about the details of RTC/MPI's DCF analysis often were met with vague generalities and arm waving.

Third, the CSP financial data upon which EV based its income model is superior to the data relied upon by RTC. EV's model was based on figures taken or derived from CSP's general ledger, audited financial statements, balance sheets, summary trial balances, detailed trial balances and similar financial records spanning a multi-year period (see Ex. KK, pp. 86-87; Transcript, pp. 1703-1705).

RTC used a portion of this information, but did not analyze CSP's audited financial statements (see Transcript, p. 1897) and limited itself largely (but not exclusively) to data from 2018.

Moreover, as a consequence of its decision to separately value the aggregate and asphalt divisions within the DCF, RTC relied heavily on production data derived from "blasting" and "work hours" records, together with a host of assumptions about conversion factors, yields, efficiencies, selling prices and the like (see id., pp. 792-794, 894-896; see also NYSCEF Doc No. 213, p. 5 [aptly describing the process as "financial gymnastics"]). EV's approach of valuing CSP by reference to its actual revenues and production figures is superior.^[FN2]

Finally, the Court prefers EV's implementation of the income approach as a technical matter. RTC's model is overly complex, difficult to understand and cumbersome. In contrast, EV's model is relatively straightforward, even if one disagrees with certain of the financial assumptions made by EV. In fact, petitioner does not challenge the SPCM methodology applied by EV, other than taking issue with two of the proposed allocations of net income (see NYSCEF Doc No. 211, pp. 56-57; see also Part III [C], infra).^[FN3]

For all of the foregoing reasons, the Court finds that EV's income approach should be the starting point in valuing CSP, subject to the modifications and adjustments set forth below.

Table 6 of EV's report shows CSP's normalized income for the five years preceding the Valuation Date (see Ex. KK, p. 30). EV normalized CSP's income by, among other things, (1) removing expenses relating to the operation of Falke Quarry, (2) adjusting for certain non-recurring expenses, (3) reallocating expenses between fiscal years, and (4) adjusting for non-arm's length and discretionary spending (see id., pp. 27-29; see also Transcript, pp. 1698-1707).

EV relied on CSP's normalized income in the three years preceding the Valuation Date using a 3:2:1 weighting ($4,500,000), recognizing that CSP's performance in 2018 ($5,159,230) was substantially better than in 2017 ($4,098,881), which itself was substantially better than in 2016 ($3,228,635) (see Ex. KK, p. 30; Transcript, pp. 1706-1707, 1822-1823).

In contrast, RTC's As-is Model relied on CSP's financial performance in 2018 and did not give any meaningful weight to the company's performance in prior years. Kern testified that he applied a "trending analysis" — one "based on weighting, but . . . geometric rather than simple weighting" (Transcript, p. 1904).

The Court agrees with EV that some weighting of CSP's normalized income is warranted. A willing purchaser relying on the income approach would consider CSP's fiscal performance over a period longer than one year, particularly given that 2018 was a record year due to the company's realization of several large contracts (see id., pp. 1283-1284).

That said, CSP's 2016 performance would not be reflective of a reasonable purchaser's expectations for the company going forward. Given CSP's strong gains in 2017 and again in 2018, together with the proof at trial showing that CSP remained on a solid growth trajectory as of the Valuation Date (see Ex. 24, pp. 86-119), the Court is satisfied that a willing purchaser would place controlling weight on the two years preceding the Valuation Date, with 2018 [*7]receiving a higher weight than 2017.

In rejecting petitioner's invitation to rely exclusively on CSP's 2018 financials (or the even rosier assumptions of RTC's Market Model), the Court finds that the geographic market in which CSP reasonably can operate, and the high degree of competitiveness of that market, provide some real upper bounds on CSP's operations, profitability and expansion prospects (see Transcript, pp. 1564-1579, 1614-1615). CSP is a well-positioned participant in a "stable . . . but . . . solid" market (id., p. 715) with only limited prospects for continued substantial growth (see id., pp. 704-706; Ex. 24, pp. 108-110).

Thus, while CSP has been on a strong upward trend, the Court declines to assume that growth trajectory can or will continue to the same degree. Nor will the Court assume that CSP can successfully capture significant market share from formidable competitors, some of whom possess considerable geographic advantage.

Accordingly, it is proper to maintain EV's 3:2 weighting for 2018 and 2017, but the Court finds that no weight should be given to 2016. The result is a normalized net income for CSP of $4,750,000 (rounded) per year.^[FN4]

EV applied the SPCM to value the Estate's minority interest in CSP based on the relatively stable benefit stream expected to be derived by a purchaser (see Ex. KK, pp. 36-38; Transcript, pp. 1724-1725).

In applying the SPCM, the appropriate discount rate is the weighted average cost of capital ("WACC") (see Ex. KK, p. 36). To compute the WACC, EV began with a 15.7% cost of equity for small publicly-traded companies, to which EV added a 2% company-specific risk premium for CSP, reflecting the seasonal nature of its business, the need for substantial working capital, its dependence on government infrastructure spending, the capital-intensive nature of the business, and other similar risks (see id., p. 40; see also Transcript, pp. 1729-1730). Using an after-tax cost of debt of 3.4% and a 74:26 weight between equity and debt, EV computed a WACC of 9.7% (see Ex. KK, pp. 40-41).

The Court generally finds EV's approach to be reasonable, and petitioner does not challenge the computation of WACC in its post-trial submissions. Accordingly, the Court accepts EV's computation of WACC at 9.7%.

Next, EV computed CSP's net cash flow to invested capital (see Ex. KK, p. 39; Transcript, pp. 1725-1726). Petitioner takes issue with two elements of EV's analysis: (1) the expected working capital reserve of $277,000 per year; and (2) the expected capital expenditures of $1.3 million per year.

EV allocated $277,000 per year in income to a working capital reserve. DeMarco testified that this reserve was necessary due to CSP's seasonal cash fluctuations, and it also served as a surrogate for the taking of a discount for lack of marketability (see Transcript, pp. [*8]1736-1738).

The Court finds neither of EV's rationales to be convincing. CSP had $5.75 million in cash on hand as of the Valuation Date (see Part V [E], infra); CSP's working capital historically has dovetailed fairly well with its accounts receivable (see Transcript, pp. 934-935, 1116-1169, 1834-1836, 1877); and any temporary pressure on cash reserves could be met by borrowing from CSP's line of credit, as the company has done in the past (see id., pp. 988-990). And the issue of whether the value of CSP (or the Estate's interest therein) should be discounted for lack of marketability or control is a separate matter, logically distinct from CSP's working capital needs.

Accordingly, the Court rejects EV's working capital reserve.

In allocating $1.3 million per year of net income to expected capital spending, DeMarco relied on the asset-intensive nature of CSP's businesses, which require substantial annual spending "to support the maintenance and purchases of equipment for the aggregate mining operations, asphalt production and significantly for the construction company" (id., p. 1727).

DeMarco also relied on CSP's historical level of capital spending over the five years preceding the Valuation Date, which varied from a low of $790,692 in 2014 to more than $4.6 million in 2018 (see Ex. NN). Although average spending over this period was around $2.2 million, DeMarco recognized that CSP's capital expenditures had been "elevated" for some time and would not need to continue at that same high level (Transcript, pp. 1727-1728).

Based on this historical and trend analysis, together with a review of industry statistics, DeMarco allocated $1.3 million of CSP's net income to expected capital spending (see id.).

Petitioner complains that DeMarco did not disclose the source or content of the industry statistics that he relied upon, and the allocation of $1.3 million per year in expected capital spending is excessive. In this regard, Kern testified:

[O]ver the . . . last four years prior to the date of valuation, [CSP] has spent significant money upgrading the asphalt plant, the new one on Route 88 in Oneonta, and has upgraded the processing facility at Howe's Cave. Both the asphalt plant and the processing plant at Howe's Cave will last many years without additional . . . improvements. There will be wear parts, which are generally expenses, but there won't be capital expenditures. I believe that the . . . operation wisely invested in basically doubling their asphalt output and their ability to do that and various more . . . useful mixes of asphalt with the advent of the asphalt plant. . . . I don't believe that this operation requires significant investments in the . . . future in terms of capital investment, either in the asphalt division or in the quarry division (id., pp. 1876-1877).

All parties agree that CSP does not need to continue capital spending at the same high level as from 2016 through 2018, when CSP spent at least $2 million, and as much as $4.67 million, per year (see Ex. NN). Nonetheless, the Court is unpersuaded by Kern's breezy assertion that "there won't be capital expenditures" in CSP's future (Transcript, p. 1876) or by the argument of petitioner's counsel that expected capital spending is a "fake liabilit[y]" (NYSCEF Doc No. 211, p. 33).

The income approach represents a capitalization of operational results historically achieved by CSP (see Ex. KK, p. 36), and those results must continue into the future to arrive at [*9]a sound valuation of the company. And even upgraded plants and machinery require substantial repairs and improvements over time, and other capital assets, like rolling stock, must be replaced or upgraded periodically.

Nonetheless, EV provides little in the way of analysis or backup to support its expectation of $1.3 million in annual capital spending. According to DeMarco, he computed CSP's average capital spending over the last five years to be around $2.2 million, looked at some industry statistics, and decided that CSP would spend about 60% of its five-year average (see Transcript, pp. 1727-1728, 1845-1846, 1866; see also Ex. KK, p. 12; NYSCEF Doc No. 212, p. 57 n 44). But the industry statistics that EV used are not part of the trial record, and it is unclear why EV believes that the proper fraction is 60% versus some other percentage.^[FN5]

EV's large allocation of net income to expected capital spending also raises the question of the relationship between that dedicated allocation and the separate negative adjustments for capital spending that appear elsewhere in EV's analysis. In particular, the claimed expansions of Howes Cave quarry and the Oneonta asphalt plant would seem to be exactly the kind of smart capital investments that EV contemplated (or should have contemplated) in allocating a considerable portion of CSP's net income to capital spending (see Transcript, pp. 1719-1720 [claiming that a separate deduction is warranted because the costs of the projects are "beyond what (CSP) would normally spend for capital expenditures"]).

Having considered the long operational period at issue under the income approach, the capital-intensive nature of CSP's mining, materials and construction businesses, and the high level of investments into CSP's plants and equipment needed to support the company's long-term success, the Court finds that EV's approach is the more reasonable starting point for expected capital spending, subject to the following two reductions.

First, the Court finds that the allocation for expected capital spending shall be reduced to $1.1 million per year, reflecting about one-half of CSP's average capital spending over the five years preceding the Valuation Date.

Second, this allocation shall serve as a source of funding for the expansion of Howes Cave quarry and the Oneonta asphalt plant, and no separate adjustments or deductions will be granted for such work (see Part V [B], infra).

Applying the single period capitalization method to a net cash flow of $2,769,726 using a WACC of 9.7% in the manner employed by EV (see Ex. KK, p. 41) results in a value of invested capital for CSP of $29,781,690. After subtracting the $4,216,845 in debt relied upon by EV in Table 10, the fair value of CSP's operating assets, prior to adjustments and discounts, is $25,564,845.

After valuing the operating assets of CSP through the income approach, EV added the value of CSP's non-operating assets (see Ex. 24, pp. 128, 163; Ex. KK, pp. 41-42).

The parties valued three non-operating mining sites, Broe Pit, Cobleskill Quarry and Falke Quarry, based on competing appraisals of: (1) real estate and improvements; and (2) [*10]equipment. To value the real property and improvements, petitioner relied upon appraisal reports prepared by David Fontana of Armstrong Appraisals, LLC (see Exs. 16-A-16-L, 17-18), and respondents relied on appraisal reports prepared by Michael D. McKaig of De L. Palmer Appraisal Co. (see Exs. O-GG).

Fontana valued the Cobleskill Quarry property at $940,000 (see Ex. 16-C), allocating $650,000 to the land and $290,000 to improvements, which included 29,000 square feet of office/warehouse space (see id., p. 12; see also id., pp. 25-27).^[FN6] Fontana employed a hybrid approach, appraising the land as if it were vacant using the sales comparison approach, and then separately valuing the improvements using a cost approach (see Transcript, pp. 216-219).

Fontana justified this methodology based on the atypical nature of the improvements, which left him no real comparables (see id., pp. 245-246), as well as his opinion that non-mining structures with useful life remaining, like warehouse/office space, would not be demolished as part of eventual mine reclamation (see id., pp. 236-238).

Fontana's application of the cost approach relied on the CoreLogic database of construction costs, an industry-recognized cost manual that "estimate[s] the cost new of every form of improvement you can imagine" and allows for adjustments based on the particular characteristics of the improvements (id., p. 242). "So when you put in the information about the subject property, how many square feet it is, what the perimeter of the building is, what the ceiling heights are, whether or not it's average, good, or excellent, it takes all that into consideration and basically it spits out a value," which then is adjusted for depreciation and other relevant factors (id., pp. 242-243).

Fontana acknowledged that in tax certiorari matters in New York State, application of the cost approach ordinarily is limited to licensed architects and engineers, but he saw no professional impediment using that approach in this valuation litigation, as he has done many times before in non-assessment matters (see id., pp. 240-241).

McKaig valued the Cobleskill Quarry land at $540,000 (see Exs. P & X), but he assigned no value to the improvements. McKaig valued CSP's mining lands on the hypothetical condition that the lands had been fully reclaimed as of the Valuation Date. In other words, McKaig was "requested" (Transcript, p. 1365) by his "client" to value CSP's real property as if "all reclamation work" had been "complete[d] and all structures and their foundations have been demolished and removed" (id., p. 1355). But McKaig was unfamiliar with the process of mine reclamation, and he did not consider the scope or timing of reclamation or whether particular structures even were subject to a reclamation obligation (see id., pp. 1364-1366; cf. id., p. 236).

The Court finds that respondents' approach of hypothesizing away valuable improvements to real property is not a proper method of determining the value of CSP's non-operating assets. There has been no convincing showing that non-mining structures used for non-mining purposes, like offices and warehouse space, would be demolished as part of eventual mine reclamation work. And, of course, the hypothetical assumption relied upon by respondents — that the mining lands are vacant and reclaimed as of the Valuation Date — is contrary to fact.

Accordingly, Fontana's application of the cost approach using the CoreLogic database, while imperfect, is the only record evidence of the value of the improvements to CSP's non-operating mining lands after McKaig simply assumed away this element of value.^[FN7]

Upon review of the competing appraisal reports, the Court finds that Cobleskill Quarry land has a value of $600,000, and the Court accepts petitioner's value of $290,000 for improvements.

Fontana valued the land at Broe Pit at $520,000 (see Ex. 16-G, p. 4), and he assigned a value of $12,000 to two small sheds (see id., pp. 50-51). The parcel (AA) generally consists of level land in an industrial zone with some flood zone issues, and Fontana cited five comparables, though none were particularly close on point.

McKaig valued the Broe Pit land at $75,000 (see Ex. S), relying on mainly rural residential land that included significant wetlands and/or was in a flood zone.

Neither side's comparables were particularly close on point, though the Court tends to share McKaig's bleaker assessment of the land. The Court finds that the land has a value of $175,000, and the structures are valueless.

The Estate had the equipment associated with the three non-operating mining sites appraised by Millard W. Murphy of Best Tractor Inc. (see Exs. 19-21). Respondents engaged Sean Boyle of PCA Atlantic as their equipment appraiser (see Exs. L-N).

Murphy valued the equipment at Broe Pit at $497,050 (see Ex. 19, p. 1419). Boyle valued the same equipment at $103,050 (see Ex. LL, p. 34). Overall, the Court finds both sides' evidence of value to be highly problematic.

There is no reasonable way to compare the competing sets of appraisals, and it appears that each side appraised equipment that does not appear in the other side's reports.

Further, respondents' appraiser applied an "orderly liquidation value" standard, which is not the "fair value" standard of BCL § 1118 (see id., p. 2; see also Transcript, pp. 1519-1520). The "liquidation" process contemplated by Boyle may be "orderly," in that the auction sales are conducted over a month or two (see Transcript, pp. 1447-1448), but there still is an element of compunction in respondents' analysis (see id., pp. 1448-1449, 1509-1511).

On the other hand, petitioner's appraiser placed excessive weight on dealer listings (i.e. asking prices) without adequate evidence of willing purchasers who paid (or would pay) such prices. And many of Murphy's listings were from after the Valuation Date. Further, while the substantial setup and site-work costs incurred by CSP may be relevant to valuing the equipment as part of a going concern, such costs do not bear on the price that a willing purchaser would pay for the equipment.

Additionally, the Court has serious reservations about the manner in which both sides valued CSP's conveyer belts and conveyer units, which are some of the most valuable equipment at the non-operating mining sites. Murphy assigned astonishingly high prices to used conveyers, prices approaching or even exceeding that of new equipment (see Ex. 19-B, pp. 1422-1423; see [*11]also id., pp. 1413-1419).

Boyle, on the other hand, failed to adequately consider the particular specifications of the equipment at issue, relying almost exclusively on unit pricing for very long conveyer belts, which led him to assign unreasonably low prices to the smaller units at Broe Pit (see Ex. 21, pp. 96-97).

Nonetheless, having conducted an item-by-item review of each appraisal and applied a very substantial reduction to Murphy's conveyer prices, the Court finds the value of the Broe Pit equipment to be $310,000.

Petitioner assigns a value of $93,900 to the equipment at Cobleskill Quarry (see Ex. 19-B, p. 1450). Respondents assigned no value, saying that they were told by a CSP employee that the equipment is worn out and has no value. Upon review, the Court finds that the equipment has a value of $7,500.

Petitioner values the Falke Quarry equipment at $874,670 (see id., p. 1238). Respondents value the same equipment at $183,155, and the principal difference is again the conveyers (see Ex. 21, p. 96). In the Court's view, Murphy vastly overstates the value of CSP's used conveyers, and Boyle substantially understates their value.

The Court finds the value of the Falke Quarry equipment to be $475,000, with the bulk of the reduction taken against the conveyer units.

The parties also appraised three other non-operating parcels: (i) CSP's offices on Rock Road; (ii) 249 Sagendorf Corners Road in Cobleskill, New York; and (iii) land along Rt. 30 in Fulton, New York.

Petitioner appraised the Rock Road office building at $1,018,000 versus respondents' appraisal of $400,000 (compare Ex. 16-B, with Ex. EE). The Court shares Fontana's view that respondents' appraisal does not reflect the fair value of the property due to the use of patently inapt comparables. Nonetheless, Fontana overstates the value of the office building to some degree, and the Court assigns a value of $800,000 to the Rock Road property, which is somewhat above the full-value assessment of $740,000 (see Transcript, p. 224).

Petitioner valued the 249 Sagendorf at $130,000 (see Ex. 16-K), versus the $145,000 value assigned by respondents (see Ex. BB). The Court will apply a value of $137,500.

Finally, petitioner appraised the Fulton land at $90,000 (see Ex. 16-J), and respondents appraised the same land at $38,000. The Court finds $62,500 to be a reasonable value.

EV assigned a "terminal value" to CSP's operating real estate "because the premise of value in the real estate appraisal report was on an as-reclaimed basis" (Ex. KK, p. 31; see Transcript, pp. 1850-1851; see also Ex. LL, p. 11).

Petitioner's experts did not appraise or value CSP's mining properties on a reclaimed basis and did not assign a terminal value (see Transcript, p. 619 ["at a certain point the present worth of a dollar is meaningless 60, 70 years from now"]).

Given the Court's adoption of petitioner's approach to valuing CSP's real property and its rejection of respondents' "as-reclaimed" hypothetical valuation, the Court declines to assign a terminal value.

Petitioner proposed a value of almost $3 million for the assets of the three non-operating mining companies, and respondents valued these assets at $900,000. The Court finds the fair value of $1,857,500 as of the Valuation Date.

The Court further finds that CSP's remaining non-operating real estate has a value of $1,000,000, bringing the total value of CSP's non-operating assets to $2,857,500.

After valuing CSP's operating assets through the income approach and its non-operating assets through the cost approach, EV applied various adjustments to arrive at the fair value of CSP (see Ex. KK, p. 42).

EV applied a negative adjustment of $6,828,765 for the liabilities associated with the reclamation of CSP's lands once mining has been completed, a requirement of New York State law (see Environmental Conservation Law, article 23, title 27).

In valuing each of CSP's quarries, respondents' consulting geologist and mining expert, Paul Griggs of Griggs-Lang Consulting Geologists and Engineers, P.C., (i) assessed future reclamation costs over the life of mine, and (ii) opined as to when such costs are likely to be incurred. For example, Griggs opined that there were reclamation costs of $2,352,767 in present dollars for Hancock Quarry, but reclamation work would not be performed for at least 41 years (see Ex. C, pp. 12-13). To estimate the cost of the reclamation work, Griggs relied on cost estimating manuals, similar to the CoreLogic manuals (see Part IV [A] [1], supra), as well as his own experience with mine reclamation.

EV inflated Griggs's estimates by an annual rate of 2.23% to reflect the growth in costs over time, and then reduced the estimates to present dollars by applying an annual discount of between 3% and 5%, which is said to be the rate associated with high-quality corporate bonds (see Ex. KK, p. 11, Table 2). Through this process, EV reduced future reclamation costs of $14.2 million to a present liability of $6,828,765 (see id.).

Petitioner's mining expert, Edward Davidson of JMT of New York, Inc. ("JMT"), did not offer any opinions about the cost or timing of reclamation in his appraisals (see Ex. 12 [A-G]). Further, RTC's report did not assign reclamation costs, though it noted the requirement of mine reclamation (see e.g. Ex. 24, p. 12) and referred to bonds that CSP has on file with the New York State Department of Environmental Conservation ("DEC") to secure the cost of such work (see e.g. id., p. 68).

In its rebuttal report, RTC opined that the reclamation costs claimed by respondents are substantially overstated (see Ex. 31, pp. 6-13), reasoning that in ongoing mining operations like those conducted by CSP, "stripping functions are generally combined with reclamation operations using onsite labor, equipment, and material. Stripped overburden becomes fill and cover for reclamation acreage" (id., p. 12).

"Since [EV] assumes a highest and best use . . . , one should assume that sites will be reclaimed 'continuously' as the operation moves forward. . . . To consider the cost to remove overburden as an expense for an ongoing mine and then to include the full cost as a present liability to reclaim is 'double counting'" (id., p. 9).

Kern expanded on these points at trial, testifying that mine operators ordinarily would not spend cash to close a mine with a valid permit when the extraction of minerals becomes [*12]uneconomical due to overburden or other site conditions:

My experience in the quarry business, and it's obvious from looking at the quarry business . . . here, if there is no reason to close that down and spend that money to close that operation when sometime in the future one may want to mine that stone as the price of stone increases over time. There will come a time when stone [prices rise], which may make it profitable to open up that quarry again.

Since the [Cobleskill] quarry was closed in 2008, no one has made any [effort] to cover up anything . . . , to blast down . . . any high walls, to replant anything. It stays open and exposed and ready to be mined for the last 11 years prior to this appraisal. To assume that it would be closed and reclaimed within zero to five years is just not the way the industry works and is not the pattern that this company used on that particular asset. . . .

The operators tend not to want to reclaim a site. They want to keep it open. They want to keep their bonds active. They want to keep whatever they have to do to minimally keep it open so that they have assets that they can use in the future. The last thing an operator wants to do is close off assets. That's inviting their competition to come into their territory. . . .

They also want to delay as long as possible spending any money whatsoever on any reclamation.

Lastly, typically, what happens is a portion, if not all, of the reclamation is generally accomplished while they are mining. They don't want to spend the money at the end. If I'm exposing material at the beginning, I have to move the overburn off of it. It would be asinine for a company to move the overburn off of it and dump it somewhere else just so they can move it back to cover up for reclamation later (Transcript, pp. 1894-1895).

While Kern raises some legitimate points, the fact remains that the Griggs/EV analysis is the only serious effort made to quantify CSP's reclamation liabilities. The reclamation bonds on file with DEC do not relieve or limit CSP's liability for reclamation costs, and the bonds are intended to cover reclamation costs only over the life of particular mining permits (see id., pp. 169-170, 1259-1260, 1270-1271). And Kern's vague testimony that his DCF model allocates dedicated funding of a few cents per ton to reclamation costs is unconvincing (see id., pp. 637-638).

That said, the Court shares the concerns expressed by petitioner that EV's negative adjustment of $6.8 million vastly overstates the liabilities that CSP is likely to incur for mine reclamation.

First and foremost, the Court declines to credit EV's assumption that CSP actually would proceed with any substantial reclamation work within the 0-5 year period identified by Griggs. Kern persuasively testified that mine owners generally do not reclaim quarries with subsisting reserves and valid mining permits, and Emil confirmed the substance of this testimony (see id., pp. 965-968). The trial record offers no reason to believe that CSP would perform millions of dollars in reclamation work at Broe Pit, Cobleskill or Falke Quarry within the 0-5 year timeframe claimed by Griggs.

The Court similarly finds that Griggs's timing estimates for medium and long-term reclamation fail to adequately reflect the fact that a savvy mine operator like CSP would wait as long as possible to dedicate cash, materials and personnel to reclamation efforts, beyond that which can be performed in the regular course in tandem with stripping and other mining [*13]activities.

Second, the Court finds respondents' estimate of reclamation costs to be overstated. Griggs's reliance on the Means Book, a respected industry source for the costs of construction and land grading activities, may be a reasonable approach for determining the cost to engage a third party to perform such work, but a mining company like CSP would conduct this kind of work itself, using its own heavy equipment, operators, material and expertise, not contract the work out to a competitor. Thus, even if CSP deviates from industry norms by failing to perform substantial reclamation in parallel with regular mining activities, CSP would eventually perform the bulk of the reclamation work on its own, at a much lower cost than engaging an outside contractor (see id., pp. 1893-1896).

Third, the very long timeframes associated with most of the reclamation work leave the Court with serious doubts as to the reliability of EV's present-dollar valuations. Even under respondents' assumptions, the bulk of the reclamation at Schoharie Quarry would not be performed for 59 years, the majority of the Howes Cave reclamation would be performed at 45 years, the reclamation of Hancock Quarry would not begin for 41 years, and reclamation at Broe Pit may be as far out as 30 years (see Ex. KK, p. 11). DeMarco's approach of inflating costs and then reducing them to present values may be reasonable, but the Court finds that a willing purchaser of CSP would be appropriately skeptical of estimates of costs to be incurred many decades from now.

Finally, respondents have not demonstrated that the demolition costs at Howes Cave constitute a legitimate mine reclamation expense. CSP obtained demolition quotes after the Valuation Date, and there was no reason to believe that CSP harbored any intention of demolishing the old silos/water towers as of the Valuation Date. And even if such an intention had been proven, respondents have not shown that demolition of the old structures is a legitimate mine reclamation obligation, rather than an ordinary capital expenditure of CSP to be funded from the $1.1 million in net operating income allocated for such purpose (see Part III [C] [2], supra).

Accordingly, the Court begins with the EV/Griggs estimate of $6,828,765 in present dollars, which is reduced to about $6 million after disallowance of the demolition work. Assuming that (i) CSP intends to wait as long as possible to engage in any dedicated reclamation activities and would not engage in any mine reclamation within the 0-5 year timeframe, (ii) a considerable portion of the reclamation work will be performed in parallel with stripping and other regular mining activities, and (iii) any remaining reclamation work will be performed at a much lower cost than estimated by EV/Griggs due to CSP's use of its own equipment, personnel and expertise, together with the considerable uncertainty associated with cost estimates for work to be performed so many decades from now, the Court finds that a willing purchaser and seller would agree that a negative adjustment of $3,000,000 for future mine reclamation costs is warranted.

EV applied a $4.7 million adjustment for the future costs of expanding Howes Cave quarry and the Oneonta asphalt plants (see id., p. 42). For the reasons stated above in Part III (C) (2), supra, the Court declines to recognize a separate negative adjustment for capital spending. The annual allocation of $1.1 million in expected capital spending is sufficient to support CSP's [*14]capital needs going forward.^[FN8]

EV took a negative adjustment of $1.05 million for the costs associated with closing Falke Quarry, reflecting: (1) the minimum annual royalty payments of $50,000 under CSP's lease of the quarry, which runs through 2035 (see Ex. YY); and (2) the cost of relocating on-site equipment to other CSP locations.

Craig Watson testified that CSP decided to close Falke Quarry prior to the Valuation Date (see Transcript, p. 1132), and that expected closure was reflected in EV's estimate of reclamation expenses, relocation expenses and ongoing royalty obligations. In terms of the closure decision, Emil testified that the mine could no longer produce a high-friction aggregate source (see id., p. 1036), and Griggs reported that remaining reserves could not be economically extracted (see Ex. D, p. 6).

RTC did not adjust CSP's value for the closing of Falke Quarry, reasoning that it made more sense to keep the quarry open, given the mining permit, mineral reserves and the required minimum royalty payment through 2035.

While RTC's approach might be superior, CSP decided to close Falke Quarry prior to the Valuation Date, and it is not appropriate to revisit that decision in the context of this valuation proceeding. The full present value of CSP's minimum royalty obligation under the Falke lease is an appropriate downward adjustment.

However, respondents' estimate of $300,000 to relocate the Falke equipment has not been adequately supported. Craig Watson simply told EV that moving the Falke equipment would cost $300,000, but no written breakdown or any other documentation supporting the claimed costs was provided to the Court (see Transcript, p. 1837). And given that the bulk of this work could be performed using CSP equipment and personnel, the estimate appears to be vastly overstated.

Nonetheless, the on-site equipment does have substantial value and must be removed from the Falke's land prior to the expiration of the lease, and there are real costs associated with relocating this collection of heavy equipment.

Accordingly, the Court will allow a negative adjustment of $850,000 for the costs of closing Falke Quarry.

Respondents applied a negative adjustment of about $1.7 million to reflect CSP's long-term deferred tax liability (see Ex. KK, p. 42). "This deferred tax liability consisted of $940,000 for future taxes due to the difference between 'book' financial statement income and 'tax' deductions for depreciation, and $772,616 for the taxes that would be due upon the sale of the non-operating investment in Cushing" (Ex. LL, p. 41).

The Court finds that the deferred taxes estimated by EV are unlikely to ever come due. DeMarco was unaware of CSP ever paying depreciation recapture (see Transcript, p. 1842), and CSP has no interest in selling its interest in Cushing, for which it serves as a "construction arm" (see id., p. 1057). Accordingly, a willing purchaser would not insist on a reduction in price for deferred liabilities that are unlikely to ever be realized.

RTC added a positive adjustment of $5.75 million to the value of CSP to reflect "excess cash" on hand as of the Valuation Date, reasoning that a willing purchaser of CSP would, in essence, pay a premium for CSP's excess cash (see Ex. 24, p. 163; Transcript, pp. 918-919).

As respondents observe, however, the cash on hand used by CSP in its operations already has been valued under the income approach, and petitioner has failed to establish that any of the cash on hand as of the Valuation Date was not part of the company's operating assets.

Rather, the credible testimony and documentary evidence adduced at trial showed that CSP is a seasonal business, and its cash balances fluctuate substantially throughout the year, resulting in a need for occasional seasonal borrowing (see Transcript, pp. 918, 988, 1118-1121; see also Ex. TT [2]). Indeed, these cash flow concerns animated EV's proposal for a substantial working capital reserve.

Given CSP's large seasonal fluctuations in cash and the Court's elimination of the proposed working capital reserve (see Part III [C] [1], supra), petitioner's proposed adjustment for excess cash is unwarranted.

RTC added an "excess inventory" adjustment of $9,771,474 to reflect the value of CSP's substantial inventory of processed sand and gravel, crushed stone, reclaimed asphalt pavement and other mineral products (see Ex. 24, p. 163). RTC's estimates of processed inventory were derived from a "topographic survey via a drone" performed and analyzed by JMT (see Transcript, pp. 98-99).

Following its initial report, RTC reduced the value of excess inventory to $8,612,000 based on revisions to the volumetric conversion of JMT's imaging data (see Ex. 32, p. 6).

RTC further reduced the value of excess inventory to $5,872,000 after substituting a factor of 1.5 to convert from volume (cubic yards) to weight (tonnage), rather than the conversion factor of 2.2 originally applied (see Ex. 55).

At trial, Kern reduced the value of excess inventory again, to $4,845,345, by applying a conversion factor of 1.25 for crushed stone and manufactured sand (see Ex. 58).

RTC's adjustments to conversion factors were prompted by Griggs's rebuttal report, which observed that a conversion factor of 2.2 was appropriate for in-place materials but not the bulk materials at issue here (see Ex. H, pp. 6-8). Griggs explained that bulk materials should have a conversion factor "of about 1.2 to maybe as high as 1.5 tons per cubic yard" (Ex. H, p. 6; see e.g. Ex. 14-A, pp. 1-2), which he confirmed through empirical testing (see id., pp. 16-17, 20-21, 33-34; see also Transcript, pp. 1249-1252).

In addition to taking issue with the conversion factor, Griggs's rebuttal report cited the fact that JMT's aerial survey was conducted in September 2019, which is after the Valuation Date and at a time of year when CSP's inventory of processed materials is at peak levels (see Ex. H, p. 8). The report also complained about the lack of field verification to support the conclusions reached from the aerial survey, as well as RTC/JMT's decision to treat the various types of processed stone products in CSP's inventory in a combined fashion (see id.). And EV's rebuttal report maintained that RTC should have applied a much lower cost-per-ton figure in valuing the inventory (see Ex. LL, p. 33).

At trial, Griggs testified that the conversion rate for crushed stone, sand and gravel stockpiles should be about 1.25 tons per cubic yard (see Transcript, pp. 1253-1255), and Kern reduced the value of CSP's excess inventory to about $4.85 million through application of this factor (see Ex. 58; see also Ex. 32, p. 7).

Additionally, DeMarco testified that inventory should be valued "us[ing] the actual cost per ton that [CSP] uses in its internal . . . financial statements" (Transcript, pp. 1771-1772), which would further reduce the value of CSP's excess inventory to about $3.2 million (see Ex. LL, p. 33; Ex. 58).^[FN9]

Notwithstanding their critiques of petitioner's approach, respondents made no serious effort to quantify and value CSP's stockpiled inventory (see Transcript, p. 1258). The omission of an appraisal is significant, as Griggs himself performed an analysis very similar to the one conducted here by petitioner — the measurement of processed inventory using drone imagery — in earlier litigation between the same parties (see id., pp. 1258-1261; Ex. 44).

Instead, EV chose to rely exclusively on Craig Watson's "pure[] estimate[]" of CSP's inventory, which was derived from financial data concerning CSP's production costs (Transcript, pp. 992-994). There was no examination or measurement of the stockpiles (see id., p. 994).

Under the circumstances, the Court will use an adjusted "excess inventory" value of $3.2 million obtained by applying petitioner's approach to identifying the quantity of processed inventory, but valuing that processed inventory using the internal cost-per-ton figures relied on by EV. However, the Court finds that this $3.2 million figure must be reduced further.

The record shows that there are significant seasonal variations in inventory levels for CSP's operating quarries, and petitioner evaluated the stockpiles in September 2019, a peak month.

Further, CSP's inventory consists of a broad range of very different products, but petitioner treated them in an aggregate manner and conducted only very limited field inspections to confirm that piles observed from the air were, in fact, processed inventory rather than waste or scrap (see id., p. 1305).

Moreover, petitioner's appraisal of processed inventory was conducted after the Valuation Date. Although this was done for practical reasons, including the difficulty of performing an aerial analysis of inventory stockpiles during the winter months in upstate New York, petitioner is not entitled to the benefit of any inventory created after the Valuation Date.

Finally, the Court finds that petitioner has, to some degree, overstated the amount of inventory that is "excess," versus the level of inventory maintained by CSP in the regular course of business for its operational needs.

Under the circumstances, the Court finds that petitioner has demonstrated that a positive adjustment of $2,000,000 is warranted for excess inventory.

The foregoing analysis results in an undiscounted fair value of $32,000,000 (rounded).

RTC applied a 15% discount for lack of marketability (see Ex. 24, p. 162). EV declined to take a separately-stated discount based on the large allocation of net income to cash reserves (see Transcript, pp. 1852-1853, 1862-1863), as well as the fact that EV's application of the income approach already produced a lower value than the asset approach, which "generally [is] a floor on value" (Ex. KK, p. 45).

Given the Court's rejection of EV's asset approach (see Part II [C] [1], supra) and of EV's proposed allocation of net income to cash reserves (see Part III [C] [1], supra), the Court will [*15]apply the 15% discount for lack of marketability proposed by RTC.

Applying a 15% DLOM reduces the fair value of CSP to $27.2 million, with the Estate's 38.78% interest having a fair value of $10,535,000 (rounded).

Petitioner seeks interest at the statutory rate of 9% from January 25, 2019.

Under BCL § 1118 (b), "the court, in its discretion, may award interest from the date the petition is filed to the date of payment for the petitioner's share at an equitable rate." "The appropriate rate is to be determined by the court, and the interest should run from the date prior to the filing of the petition until the date of payment, unless a determination is made that petitioner has acted in bad faith" (Blake, 107 AD2d at 150). Courts are not bound by the statutory nine-percent interest rate (see CPLR 5004), but rather have discretion to award interest at an "equitable rate" (Matter of Murphy v United States Dredging Corp., 74 AD3d 815, 820 [2d Dept 2010], lv dismissed and denied 18 NY3d 953 [2012]).

Respondents argue that petitioner's bad faith precludes an award of interest. Petitioner is said to have commenced this dissolution proceeding "on the same allegations . . . made in the largely discredited Derivative Action" (NYSCEF Doc No. 212, p. 71 [emphasis omitted]). "Petitioner could have/should have filed this Proceeding, if he thought he had a right too, all the way back when he filed the Derivative Action" (id., p. 72). "Instead, Respondents have had to engage in years of unnecessary litigation, needless expense of delay based on Petitioner's largely baseless and dismissed Derivative action" (id.).

The Court is unpersuaded by respondents' invocation of the bad-faith exception. If petitioner's dissolution allegations were as meritless as respondents now claim, they were free to litigate the issue of grounds. Instead, CSP elected to purchase the Estate's interest, transforming this case into a valuation proceeding. And "[i]nterest is not awarded as a penalty or to punish a party, it is a cost imposed for having the use of another party's money over a period of time" (Matter of Giaimo v Vitale, 101 AD3d 523, 526 [1st Dept 2012], lv denied 21 NY3d 865 [2013]).

Nor does the Court agree with respondents that interest should be tolled prior to December 7, 2020, the date on which the parties exchanged initial valuation reports, or during periods in which pretrial disclosure was delayed. In regard to the latter point, the Court finds that both sides bear some responsibility for the delays in bringing this matter to a conclusion, though unavoidable public and private health issues also contributed.

Nonetheless, the serial nature of petitioner's litigation against respondents has led to the Estate reaping a considerable financial benefit from the "substantial[]" increase in CSP's value between the December 9, 2015 filing of the Derivative Action and the January 25, 2019 commencement of this dissolution proceeding (NYSCEF Doc No. 214, pp. 9-10). Under the circumstances, the Court finds that an award of interest in excess of prevailing commercial rates would constitute an inequitable windfall to the Estate.

The Court finds that an equitable rate of pre-award interest is 4.75% (see Transcript, pp. 1141-1143; Exs. CCC, GGGG, HHHH), and interest shall run from January 25, 2019 (see Matter of Whalen v Whalen's Moving & Stor. Co., 234 AD2d 552, 554 [2d Dept 1996]). Accordingly, the Estate shall recover $2,300,000 (rounded) in interest.

Based on the foregoing, it is

ADJUDGED that the fair value of the Estate's shares in Cobleskill Stone Products, Inc. as of January 24, 2019 is $10,535,000; and it is further

ADJUDGED that the Estate is entitled to pre-award interest of $2,300,000; and finally it is

ORDERED that, unless the parties agree otherwise in writing, CSP shall have sixty (60) days from the date of this Decision, Order & Judgment to purchase the Estate's shares for the total sum of $12,835,000.

This constitutes the Decision, Order & Judgment of the Court, the original of which is being uploaded to NYSCEF for electronic entry by the Albany County Clerk. Upon such entry, counsel for petitioner shall promptly serve notice of entry on all parties entitled thereto.