'Fair Value' of Partnership Interest Defined by Maryland Appellate Court
On March 6, 2006, Maryland's Court of Special Appeals in East Park Limited Partnership v. Larkin issued an opinion holding that 'fair value', for the purposes of determining limited partners' interests on withdrawal under Maryland Code, Courts and Judicial Proceedings, section 10-604, equals a proportionate share of the value of the limited partnership as a going concern, without discount.
East Park was a Maryland limited partnership which held a single real estate asset. Faced with a capital call to pay an outstanding promissory note, the limited partners elected withdrawal and demanded fair value under the statute. The Court determined that the statute which referenced 'fair value', did not mean 'fair market value'. Nonetheless, the court started its findings of the fair value with the fair market value of the real estate, plus or minus available cash and liabilities.
Holding that the determination of the limited partners' interests should be based upon value received in an arms length sale of the sole real estate asset, the Court refused to apply minority, lack of control, or lack of marketability discounts to the valuation. The Court rationalized that, "[t]he application of discounts is appropriate only under a fair market value analysis, that is, in determining what price a willing buyer would offer, and a willing seller would accept, on the open market". Decision at page 26.
