Delaware Open MRI and the Van Vleet Model

On April 26, 2006, the Court of Chancery of the State of Delaware (the “Court”) rendered a decision in the matter styled Delaware Open MRI Radiology Associates, P.A. v. Howard B. Kessler, et al. (the “decision”). Although this decision is nine years old, its relevance has recently become more of an issue due to an emerging school of thought that suggests the decision provides a model that may be used to value S corporation equity. In this article, I will describe why the valuation calculations provided in the decision (the “decision calculations”) have merit in limited circumstances. I will also address why the decision calculations are generally inadequate for the purpose of valuing S corporation equity in most circumstances. In doing so, I will demonstrate why the decision calculations are not a valuation model that addresses the potentially diverse facts and circumstances that typically confront valuation analysts when valuing S corporation equity. I will also demonstrate the fact that the decision calculations are a limited mathematical reworking of the S Corporation Economic Adjustment Model (“SEAM” or the “Van Vleet Model”) presented to the valuation profession in 2002.