In The Court of Appeals

Brenda Phillips, individually and as shareholder of Personnel Solutions, Inc., a South Carolina Corporation,        Plaintiff,


William D. Brown, Charles Lee Smith, Robert J. Burnstein, Express Temps, Inc., Tri Core East, Inc., and Burnstein & Strickland, P.C. and Ruby Cromer,        Defendants,


Charles Lee Smith, Robert J. Burnstein, Express Temps, Inc., Tri Core East, Inc., and Burnstein & Strickland, P.C.,        Third Party Plaintiffs,


Kim Whisnant, Personnel Solutions, Inc., Preferred Personnel, Inc. and Staffing Associates, Inc.,        Third Party Defendants,

of whom William D. Brown is the,        Appellant,


Brenda Phillips, individually and as shareholder of Personnel Solutions, Inc., a South Carolina Corporation is the,        Respondent.

Appeal From Spartanburg County
Charles B. Simmons, Jr., Special Referee

Unpublished Opinion No. 2004-UP-135
Heard January 13, 2004 – Filed February 27, 2004


Matthew A. Henderson and Joshua M. Henderson, both of Spartanburg, for Appellant.

Kenneth C. Anthony, Jr., of Spartanburg, for Respondent.

PER CURIAM:  In this “business divorce,” William D. Brown appeals the special referee’s valuation of his ownership interest in Personnel Solutions, Inc.  (PSI).  We affirm.


Brown and Brenda Phillips met while both were working for Personnel, Inc., a temporary services provider.  In 1991, they decided to leave Personnel, Inc., and form PSI, their own competing company.  Because of the possibility of legal action by their former employer to enforce the non-compete agreements each had signed, PSI was established showing Phillips as the sole shareholder of the corporation. [1]   Both parties, however, agreed orally that in reality each held a one-half interest in the business. 

After a few years in business, the parties formed Express Temps (ET), which was set up solely in Brown’s name.  ET was established as a separate company that was to act solely as a “pass through” corporation.  The desired result was that permanent employees of PSI would be allowed greater benefits and PSI’s many temporary employees would now be officially employed by ET, which would have much lower workers’ compensation premiums because, as a new company, it had no history of workers’ compensation claims.  At this point, PSI, although still in fact the temporary services provider, was on paper merely a management firm with ET as its sole client. [2]

In October 1995, the company accountant alerted Phillips that Brown had been embezzling money from PSI for some time.  After confronting Brown, Phillips agreed that, if Brown completed a treatment program for his gambling and other addictions, he could return to PSI although he would have no control over the company finances.  The parties further agreed that Phillips would be allowed certain payments over time from the company to her own personal accounts until the disparity between their compensations was eliminated.

After completing the treatment program, Brown attempted to return to work at PSI.  According to Phillips, however, because she had learned that the extent of Brown’s embezzlement was much greater than she initially believed, she did not allow him to return to the business.  Phillips then established a new corporation, Preferred Personnel, Inc., to essentially take the place of ET.

Brown attempted for a brief time to form his own business under ET’s name; however, Phillips subsequently filed this action and secured a temporary order enjoining all parties to the action from operating under that name.  Brown then opened Staffing Associates, a new temporary employment service, and in the process hired approximately one-half of PSI’s employees and took a portion of the customer base of PSI. 

During the course of the litigation, the parties stipulated the issues to be decided at trial were (1) the value of PSI and the appropriate date on which the corporation was to be valued, [3] and (2) the amount, if any, due from Brown as a result of his embezzlement from PSI.

By order entered March 27, 2002, the special referee determined the value of Brown’s interest in PSI to be $16,920 as of December 31, 1995. [4]   The special referee also determined that neither party was entitled to damages from the other, having found the amounts Brown embezzled were offset by several large payments made to Phillips from company funds.  Brown appeals only the special referee’s evaluation of his interest, contending error in the weight given to certain expert testimony and the application of certain discounts in stock value. 


1.  Brown first contends the special referee placed too much weight on the fact that he and Phillips were not bound by a non-compete agreement.  We disagree with this argument.

The presence or absence of a covenant not to compete is a valid factor in determining the worth of a service-oriented corporate entity. [5]   Here, Brown’s own witnesses acknowledged the detrimental effect of the absence of a non-compete agreement on the attractiveness of PSI to any potential buyers.  Moreover, Brown’s own actions in this case best illustrate why such a decrease in value was due and proper.  Once prohibited by injunction from interfering with PSI from within, Brown quickly moved into direct competition across the street from the company, taking a substantial number of PSI employees and clients with him.  The value of a service-oriented business such as PSI lies in its contacts.  The right of a departing owner to take contacts with him and directly compete with his former business most certainly decreases the value of the original corporate entity.

2.  Brown argues the special referee erred in assigning too much weight to the testimony of James Forest Joyner, III, Phillips’s expert witness on the fair market value of PSI and in disregarding the testimony of his own experts.  We find no error.  Joyner was an experienced certified public accountant, certified financial planner, and certified valuation analyst.  He testified at length to the three generally accepted approaches to determining the value of a corporate entity, thoroughly explaining his reasoning and methods in determining the value of Brown’s interest in PSI.  Joyner presented his opinion on the corporation’s net asset value, income value, and market value, noting the proper weight to assign each varied with the type of business.  In contrast, although  each of Brown’s experts had varying degrees of experience in the field of temporary service providers, one admitted he did not consider himself “exactly an expert” and the other was unfamiliar with the valuation approaches that Joyner discussed.  We therefore hold the special referee committed no abuse of discretion in weighing the testimony of the various experts. [6]

3.  Brown next contends the special referee erred in applying lack of control and marketability discounts in establishing a fair value for his interest in PSI.  In support of his argument, he cites the case of Morrow v. Martschink [7] for the proposition that there are policy reasons against applying minority and marketability discounts to the present situation.  We recognize the inequities in applying these discounts to judicial dissolutions; however, we hold it was proper to apply them to the present situation.

First, although the special referee referenced South Carolina Code section 33-14-310(d)(4), [8] this is not a true minority shareholder’s or dissenter’s rights case.  Here, as it was undisputed that the parties were equal shareholders in PSI and had agreed that Phillips would purchase Brown’s interest in PSI, the issue before the special referee was solely the value of that interest. 

Second, although Morrow extends the same protection against the application of unfair discounts to a situation that, like this one, falls outside the traditional minority dissenter paradigm, it does so on the basis that many of the same policy concerns apply to close intra-family transactions, “where a minority interest has been improperly squeezed out of the business.” [9]   Such factors simply are not present here.  We therefore hold the special referee properly applied lack of control and marketability discounts in valuing Brown’s interest in PSI. [10]

4.  Brown further argues the special referee erred in assigning no weight to market value because he considered only the value of PSI as a stand-alone management services company rather than as a temporary services company.  Brown further alleges error in the special referee’s calculation of income value, arguing that Joyner’s analysis, on which the special referee based his calculation, relied on incorrect adjustments to net income and failed to account for bonuses, excessive expenses, and other nonfunctional distributions paid to PSI’s shareholders.  These issues are not preserved for appellate review.  We did not see any ruling in the appealed order specifically addressing these concerns and Brown did not raise them in a post-trial motion. [11]

5.  We reject Brown’s argument that the special referee erred in assigning too much weight to net asset value. [12]   Although Brown’s experts testified that physical assets were generally never used to determine the value of a temporary services company, Joyner stated the income approach, even for a business that had enjoyed substantial income, was unreliable if, as was the case here, a principal of the company could leave at any time and take a substantial portion of the customer base. [13]


GOOLSBY and ANDERSON, JJ., and CURETON, A.J., concur.

[1]   The parties believed Phillips, a single mother, would be a more sympathetic defendant in the event of a lawsuit.

[2] Based on this arrangement, both parties were later indicted for insurance fraud and spent some time in prison.

[3]   The parties agreed Brown’s interest was fifty per cent of this amount and Phillips would pay him for his shares.

[4]   The special referee found December 31, 1995, was the critical date because 1995 was the last year Brown was actively involved with PSI.  Neither party appeals this finding.

[5]   See McDuffie v. O’Neal, 324 S.C. 297, 305-06, 476 S.E.2d 702, 706 (Ct. App. 1996) (recognizing the negative impact of the absence of a covenant not to compete on the value of a corporation and imposing such a covenant rather than changing the value).

[6] See 88 C.J.S. Trial § 208 at 415 (1955) (“In weighing evidence the law makes no distinction between expert testimony and evidence of any other character, and it is for the trier of the facts to determine the weight to be given to any evidence.”), quoted in Smith v. Smith, 294 S.C. 194, 200, 363 S.E.2d 404, 408 (Ct. App. 1987).

[7]   922 F. Supp. 1093 (D.S.C. 1995).

[8]   This section provides in pertinent part as follows:

(d) In any action filed by a shareholder to dissolve the corporation . . . the court may make such order or grant such relief, other than dissolution, as in its discretion is appropriate, including, without limitation, an order:

. . . .

(4) providing for the purchase at their fair value of shares of any shareholder, either by the corporation or by other shareholders.

S.C. Code Ann. § 33-14-310(d)(4) (1990).               

[9]   Morrow, 922 F. Supp. at 1105 (emphasis added).

[10] See Belk of Spartanburg v. Thompson, 337 S.C. 109, 124, 522 S.E.2d 357, 365 (Ct. App. 1999) (“Appraisal is not an exact science, and the precise weight to be given to any factor is necessarily a matter of judgment for the court in the light of circumstances in each case.”) (citing Santee Oil Co. v. Cox, 265 S.C. 270, 277, 217 S.E.2d. 789, 793 (1975)).  

[11] See Noisette v. Ismail, 304 S.C. 56, 58, 403 S.E.2d 122, 124 (1991) (holding that, when the trial court does not explicitly rule on a question and the appellant fails to make a motion under Rule 59(e), SCRCP, to amend or alter the judgment on that ground, the issue is not properly before the court of appeals and should not be addressed).

[12] Although the special referee “accepted, for the most part, the valuation analysis undertaken by Joyner,” he “adjusted . . . the relative weights given by Joyner using the income and asset approaches,” assigning a weight of fifty per cent to each, as opposed to Joyner’s decision to assign ten per cent to income and ninety per cent to the assets of PSI.

[13] See Santee Oil Co. v. Cox , 265 S.C. 270, 273, 217 S.E.2d. 789, 791 (1975) (noting “‘fair value’ does not restrict the appraising court to the use of any one method of valuation”).