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Manelick v. Manelick (11/22/2002) sp-5642
Manelick v. Manelick (11/22/2002) sp-5642
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
NATALIE B. MANELICK, )
) Supreme Court No. S-9986
Appellant, )
) Superior Court No.
v. ) 3AN-97-6172 CI
)
GREGORY A. MANELICK, ) O P I N I O N
)
Appellee. ) [No. 5642 - November
22, 2002]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Rene J. Gonzalez, Judge.
Appearances: Peggy A. Roston, Law Office of
Peggy A. Roston, Anchorage, for Appellant.
Maryann E. Foley, Law Office of Maryann E.
Foley, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
CARPENETI, Justice.
I. INTRODUCTION
I. In this appeal of the superior courts property
division, Natalie Manelick challenges the superior courts
valuation of her medical practice. Because the superior court
failed to make findings as to the marketability of the goodwill
of that practice, we reverse the superior courts valuation of
goodwill and, because the record demonstrates that the goodwill
was not marketable, we hold that no value may be assigned to it.
Because both parties agree, we hold that the superior court erred
in failing to include a debt the parties owed on a piano in the
property division order. Finally, we hold that the superior
court did not err in assigning a marital car a value of zero.
II. FACTS AND PROCEEDINGS
A. Facts
On July 31, 1997 Natalie B. Manelick filed for divorce
from her husband, Gregory A. Manelick. Natalie and Gregory were
married on July 11, 1987, and have three children. Natalie and
Gregory accumulated a substantial amount of property and debt,
including Natalies medical practice, Gregorys military pension,
and property and related debt in Alaska and Pennsylvania.
Natalie started a private medical practice as an
internist in 1989. Natalie provided her medical services out of
both her Wasilla medical clinic and Palmer Valley Hospital, where
she has hospital privileges. The value of the medical practice
was hotly contested during the divorce proceedings.
Gregory was in the military from 1973 until 1992, when
he retired under a Voluntary Separation Incentive annuity
program. Since Gregory earned part of this retirement during the
marriage, the portion earned from July 11, 1987 until his
retirement was marital property.
Natalie and Gregory acquired a house in Palmer, a truck
and camper, a Land Rover, and a piano, all of which had
outstanding debt. The parties had $258,000 left to pay on their
home mortgage and $44,228 on a home improvement loan. They also
owed $39,868 on the truck and camper and $56,000 on the Land
Rover. In addition, the parties owed the Internal Revenue
Service $1,971.57. The piano is not recorded on the listing of
marital properties but $7,000 is owed on it, even though it is
apparently worth only $3,000. The marital estate also includes
an 8.82 acre parcel in Palmer, three horses, personal property,
three large parcels of property in Pennsylvania, and a retirement
account, none of which carries any debt and the division of which
is not at issue on appeal.
B. Proceedings
Trial was held August 30-September 1, 1999 before
Superior Court Judge Rene J. Gonzalez. The parties put their
agreement as to child support, custody and visitation on the
record on August 30, 1999 and the superior court accepted this
agreement as in the best interests of the children. The parties
stipulated to a partial decree of divorce on December 10, 1999,
dissolving the marriage.
Both Natalie and Gregory submitted reports and
presented expert testimony as to the value of Natalies medical
practice. Jacquelyn M. Briskey, a certified public accountant,
served as an expert witness for Natalie in valuing her medical
practice. Briskey opined that the fair market value of the
practice as of December 31, 1998 was $156,497. Briskeys opinion
was based on two methods of valuation: the capitalization of
excess earnings method and a market approach method. The
capitalization of excess earnings method is a method used to
value intangible assets, such as goodwill. It is done by taking
adjusted net income, as shown by tax returns, and subtracting an
average rate of return on net assets (total assets - total
liabilities = net assets). This amount is the total excess
earnings, which are then reduced to present value. The excess
earnings (intangible assets) are added to the net assets, reduced
to present value, to calculate the fair market value of the
practice. Briskey opined that under this method Natalies work at
the hospital must be considered separately from the value of the
practice because she was essentially a part-time employee of the
hospital, since her privileges were individual to her and not
transferable.
Under the market approach, one compares similar
businesses and sales to determine the value of the business.
Briskey testified that there were no transfers of medical
practices in Alaska to compare to Natalies practice and that
other certified public accountants had stated that doctors have
walked away from practices because there was no market for
medical practices in this state. Briskey testified that the
dearth of doctors in the Palmer area allowed a new doctor to come
in with his or her own equipment and have a full schedule almost
immediately. Using both methods, Briskey concluded that Natalies
practice was worth only as much as the tangible assets minus the
practices liabilities ($156,497) because of the shortage of
doctors in the area and the fact that much of Natalies income is
derived from her non-transferable privileges that allow her to
perform surgery at the hospital. Briskey calculated Natalies
salary from her practice to be approximately $146,160.
Ronald E. Greisen, also a certified public accountant,
valued the practice for Gregory. Greisen valued the practice as
of July 31, 1997 using the capitalization of excess earnings
method. Greisen valued the tangible assets at $138,733 and the
intangible assets at $297,000, giving the practice a fair market
value of $435,733. Greisen credited Natalie with a maximum
salary of $126,410 in 1996.
The superior court disagreed with Briskeys opinion that
Natalies income from work done at the hospital should not be
included in the total gross income of her medical practice. The
superior court relied on several facts to support its position:
Natalie was not an employee of the hospital, she did not receive
a W-2 income statement from the hospital, her services were
billed by her medical office, and payments were paid directly to
her office. Thus, the superior court found that Briskeys
valuation of the practice was too low.
At the same time, the superior court did not accept
Greisens opinion either. The superior court found that Greisens
computation of Natalies compensation was too low and that his
computation of fixed assets was based on incomplete information.
The superior court found that Natalies salary was $140,000. The
court accepted Greisens computation of $138,733 as the tangible
asset value, and the court valued the excess earnings of the
practice at $221,692 when reduced to present value. Using the
capitalization of earnings method, these valuations led to a fair
market value of $360,425.
Based on this valuation and the valuation of the other
marital property, the superior court then divided the marital
estate in what it considered to be a just and equitable manner.
Natalie was awarded the medical practice, the family home, the
Land Rover, the truck and camper, the three horses, and the
personal property in the family home. Natalie was also assigned
the debts on these items and the money owed to the IRS. Gregory
was awarded his military retirement, all of the property in
Pennsylvania, the property in Palmer, the Fidelity retirement
account, the personal property in his possession, a post-
separation distribution of funds from a joint checking account,
and an increase in credit card debt. In order to equalize the
division of marital property, Natalie was ordered to pay Gregory
$178,063. Due to the lack of liquidity of Natalies assets, the
parties were ordered to enter into a reasonable agreement for the
payment of this sum.
III. STANDARD OF REVIEW
I. The superior court has broad discretion in fashioning a
property division.1 The valuation of available property is a
factual determination that should be reversed only if clearly
erroneous.2 A finding of fact is clearly erroneous when we are
left with a definite and firm conviction that the trial court has
made a mistake.3
We will reverse the superior courts determination of
what property is available for division only if we find an abuse
of discretion based on our review of the entire record.4 The
superior courts equitable allocation of property is also reviewed
under an abuse of discretion standard.5 We review the denial of
a motion for reconsideration for an abuse of discretion.6 We
will find an abuse of discretion only when we are left with a
definite and firm conviction that the trial court erred after
reviewing the whole record.7
IV. DISCUSSION
A. The Superior Court Erred by Overvaluing Natalies
Medical Practice at $360,425.
1. The superior court erred in undervaluing the tangible assets
of the practice at $138,733.
0. In Wanberg v. Wanberg,8 we explained that division of
marital assets involves a three-step process: (1) the trial court
determines what specific property is available for distribution;
(2) the court then determines the value of this property; and (3)
the court decides what allocation is most equitable.9 In Merrill
v. Merrill,10 we held that the trial court must make sufficiently
detailed and explicit findings to give the appellate court a
clear understanding of the basis of the trial courts decision,
and to enable it to determine the ground[s] on which the trial
court reached its decision. 11
Natalie argues that, in total, the superior court
overvalued her medical practice. But her complaint as to the
valuation of the tangible assets by the superior court is that
the court selected a value that was too low. Natalie argues that
the superior court erred when it found that the tangible assets
of the practice had a fair market value of $138,733, rather than
the $156,497 figure that her expert testified to. Natalie
asserts that, since Greisen used the list of assets found in the
tax returns for 1992-1996 and looked to no other source, his list
of assets was inaccurate and, therefore, so was his valuation.
In contrast, Briskey relied on three separate sources to value
the fixed assets: the list from the tax returns, a list from
Natalies bookkeeper, and a list prepared by Natalie herself.
Briskey stated that she primarily relied on the list prepared by
Natalie.
The superior court acknowledged that Greisens
computation of fixed assets is questionable as it is based on
incomplete information. Nonetheless, the court used Greisens
figure for the tangible asset value in which the fixed asset
figure was one component. Because the superior court
acknowledged that Greisens figures were questionable and did not
attempt to obtain a more accurate figure, it was error to use
these figures. We therefore adopt Briskeys valuation, $156,497,
of the net assets.
2. The superior court did not err in finding that the practice
has goodwill as calculated by the capitalization-of-the-excess-
earnings method.
Natalie argues that the superior court erred when it
found that the practice had goodwill value. She claims that the
practice actually had no value beyond its tangible assets. In
Moffitt v. Moffitt,12 we held that the valuation of goodwill is a
two-step process.13 First, the trial court must decide whether
good will exists.14 Second, if the superior court determines that
goodwill exists, it then must determine whether the good will
could actually be sold to a prospective buyer. If the trial
court determines either that no good will exists or that the good
will is unmarketable, then no value for good will should be
considered in dividing the marital assets.15 To be clearly
erroneous, a superior courts findings of fact with regards to
goodwill must be entirely unsupported by the record.16
Here, the superior court heard testimony from two
experts: Briskey and Greisen. Briskey stated in her report that
Natalies revenue from hospital procedures should not be
considered in valuing the practice because Natalie was really
acting as a part-time employee of the hospital, her privileges
were individual to her and not transferable, and the privileges
were renewable at the discretion of the hospital every two years.
Briskey testified that Natalies practice was a special case
really because shes got income in there that really isnt
comparable to other internal medicine or other practices of this
nature. Briskey went on to state that if you are trying to
compare [Natalies] practice with other practices, you have to
extract that other income. Because Briskey would extract
revenues from procedures done at the hospital, her analysis
concluded that the practice would actually have a net loss
instead of net income.
Greisen disagreed with Briskeys conclusion that the
income from Natalies work at the hospital should not be included
in the excess earnings analysis. Greisen testified that Briskeys
conclusion that Natalies work at the hospital was separate from
her practice was a fiction because, in reality, all of Natalies
activities comprised one practice. Greisen believed that Briskey
used a novel approach that he had never seen before in the
medical profession, even though it is common for doctors to have
several locations of practice.
Based on this evidence, the superior court came to the
conclusion that Natalie was not an employee of the hospital, she
received no compensation from the hospital, and her practice
billed and received all payments for procedures Natalie did at
the hospital. We have upheld a trial courts determination of
goodwill based on the capitalization of excess earnings method
and qualified expert testimony.17 Because Natalie is not
contesting Greisens qualifications as an expert witness and there
was ample testimony by Greisen to allow the superior court to
find that Greisens evaluation was sound, the trial court did not
clearly err in determining that the practice possessed goodwill.
Therefore, we uphold the superior courts finding that the
practice had goodwill.
3. The superior court erred in finding that the practices
goodwill was marketable.
Natalie argues that the superior court erred in valuing
her practice above the fair market value of the tangible assets
because the goodwill is personal to her and she would be unable
to sell the practice for anything more than the value of the
tangible assets. Because there is more demand for physicians
than there are physicians to meet the demand, Natalie argues that
there is no reason for a physician wishing to open a practice in
the Wasilla/Palmer area to buy an existing practice. Natalie
argues that a new doctor merely has to obtain equipment and
office space and open the office doors to have a full-time
practice, so there is no reason for a physician to pay extra for
goodwill.
Natalie presented evidence at trial that the practices
goodwill was not marketable. Briskey testified that she talked
with several CPAs in the Anchorage area who indicated that they
did not know of any recent sales of medical practices. Briskey
also stated that she was told of two doctors who walked away from
their practices after they were unable to find buyers. Briskey
spoke with the doctor who now shares the practice with Natalie,
Dr. Cooney. According to Briskey, Dr. Cooney stated that there
was no reason for her to buy into the practice. Natalie
testified that she was able to convince Dr. Cooney to share
office space with her by providing free office space to Dr.
Cooney for four months and then requiring only one-third of the
rent for another two months before Dr. Cooney started paying one-
half of the rent.
Natalie also testified that the region where she
practices is under-served and that she had been trying to get
another physician into her practice almost since she started in
1989 but that because there was so much demand for doctors in the
area, no one would buy into her practice. Natalie testified that
she had 6,000 patients, that she had not been taking new patients
for the last several years, and that any internist would only
have to buy some equipment and open the office doors to have a
practice.
In response to this Alaska-specific evidence, Gregory
offered only evidence based on a nationwide scale. Greisen
testified that a physician coming to practice without having a
practice and if their alternative was hanging their sign out that
says Im a doctor and wait for the patients to come, theyre not
going to make the average salary of [$]126,410. Greisen admitted
that he did not have any market data on medical practices in
Alaska, but used nationwide data to determine the marketability
of Natalies practice. Greisen also admitted that he was unaware
of any practices that had been sold in the area. Greisen offered
no other testimony as to the marketability of the practices
goodwill.
We have held that if the superior court determines that
goodwill exists it then must determine whether the good will
could actually be sold to a prospective buyer.18 Where no market
exists for goodwill, it should be considered to have no value.19
Here, the superior court made no findings regarding whether there
was actually a market for the goodwill of the practice. Because
the trial court did not make sufficiently detailed and explicit
findings to give the appellate court a clear understanding of the
basis of the trial courts decision, and to enable it to determine
the ground[s] on which the trial court reached its decision, 20 we
must reverse its valuation of goodwill.
The superior court failed to make any findings
regarding the marketability of the practices goodwill. Because
Natalie offered substantial evidence that the goodwill would not
be marketable and Gregory failed to counter that evidence on a
regional scale in terms of the Wasilla/Palmer area, or even in
terms of Alaska as a whole, the superior court clearly erred in
determining that Natalies practice had a value beyond its
tangible assets. Therefore, because Natalie presented
substantial evidence that her practice had no marketable goodwill
and Gregory presented no substantial evidence to the contrary,
the superior court should have adopted Briskeys opinion that the
practice had no value beyond the value of its net assets. We
thus hold that the practice has a fair market value of $156,497.
B. The Superior Court Erred in Failing To Include the Loan
for the Piano in the Property Distribution.
Natalie argues that the superior court erred in failing
to include the loan for the piano on the list of liabilities.21
Gregory agrees that the property distribution order should be
amended to include the $7,000 piano debt. To that must be added
a $3,000 credit (reflecting the pianos fair market value) to
Natalies net property value, giving a net loss to Natalie of
$4,000. On remand, we direct the superior court to amend the
property order to reflect this change.
C. The Superior Court Did Not Err in Valuing the Range
Rover at Zero Value instead of a Negative Value.
Natalie asserts that it was clear error to assign the
Range Rover a value of $56,000 when she presented evidence at
trial that the car was worth only $45,000. Instead, Natalie
argues that the superior court should have assigned the car a
negative value of $11,789.12, the value of the car minus the
balance on the car loan as of December 5, 1996. Gregory argues
that, since the Range Rover was purchased only eight months
before trial, the superior court was within its discretion in
using the promissory note to value both the Range Rover and the
balance of the debt instead of requiring more information from
the parties or accepting Natalies testimony of the value.
The valuation of marital property is a factual
determination which will not be set aside unless it is
clearly erroneous. 22 The superior court used the promissory
note and the balance of the debt on the car to value the
car. Natalie testified that the car was worth about $45,000
at the date of separation. Natalie offered no other
evidence of the value of the car. Specifically, Natalie did
not offer any expert testimony or documentation as to the
value of the Range Rover and neither did Gregory. Also,
neither party offered any evidence of the balance on the
loan as of the date of trial. The superior court was not
required to procure its own evidence on the value of the
Range Rover. We hold that the superior court did not
clearly err in adopting the value reflected on the
promissory note instead of relying on Natalies testimony.
We affirm the superior courts valuation of the Range Rover.
V. CONCLUSION
Because the superior court failed to make findings
as to the marketability of the goodwill of Natalies medical
practice, we REVERSE its conclusion concerning the value of
the practice. Because the evidence allows no other
conclusion, we hold that the practice had no marketable
goodwill. We adopt the net asset value of $156,497. Because
the piano debt was not included in the property division, we
REMAND this issue so that the court may amend the list
accordingly. We AFFIRM the superior courts valuation of the
Range Rover.
On remand the court should adjust the property
division in accordance with this opinion. If the court
decides to continue to divide the parties property equally,
the equalizing payment due Gregory from Natalie will be
approximately $74,099.23 If the court determines that it is
no longer just to divide the parties property equally, the
court is authorized to make adjustments in the property
division supported by appropriate findings of fact and
conclusions of law.
_______________________________
1 Edelman v. Edelman, 3 P.3d 348, 351 (Alaska 2000).
2 Berry v. Berry, 978 P.2d 93, 95 (Alaska 1999) (citing
Cox v. Cox, 882 P.2d 909, 913-14 (Alaska 1994)).
3 Dingeman v. Dingeman, 865 P.2d 94, 96 (Alaska 1993).
4 Berry, 978 P.2d at 95.
5 Id.
6 Harrelson v. Harrelson, 932 P.2d 247, 250 (Alaska
1997).
7 Morgan v. State, Dept of Revenue, 813 P.2d 295, 297 n.4
(Alaska 1991).
8 664 P.2d 568 (Alaska 1983).
9 Id. at 570.
10 368 P.2d 546 (Alaska 1962).
11 Id. at 548 (quoting Irish v. United States, 225 F.2d 3,
8 (9th Cir. 1955)); see also Alaska R. Civ. P. 52(a) (stating in
pertinent part [i]n all actions tried upon the facts without a
jury or with an advisory jury, the court shall find the facts
specially and state separately its conclusions of law thereon . .
. .).
12 749 P.2d 343 (Alaska 1988).
13 Id. at 347.
14 Id.
15 Id.
16 Id.
17 See Miles v. Miles, 816 P.2d 129, 131 (Alaska 1991)
(stating that the trial court used an accepted method of business
valuation, capitalization of excess earnings, to determine
whether goodwill exists. Based on the testimony of Williams
expert witness, Ronald Griesen, the superior court found that
Miles & Associates possessed no goodwill value. Because Greisen
was qualified as an expert in business valuation, we find no
error in the courts acceptance of his testimony. (citations
omitted)).
18 Moffitt, 749 P.2d at 347.
19 Miles, 816 P.2d at 131.
20 Merrill v. Merrill, 368 P.2d 546, 548 (Alaska 1962)
(quoting Irish v. United States, 225 F.2d 3, 8 (9th Cir. 1955));
see also Alaska R. Civ. P. 52(a) (stating in pertinent part [i]n
all actions tried upon the facts without a jury or with an
advisory jury, the court shall find the facts specially and state
separately its conclusions of law thereon . . . .).
21 See Lacher v. Lacher, 993 P.2d 413, 421 (Alaska 1999)
(stating [w]hen dividing property between divorcing parties, the
trial court must distribute all assets acquired during
marriage.).
22 Sloane v. Sloane, 18 P.3d 60, 64 (Alaska 2001)
(quoting Musser v. Johnson, 914 P.2d 1241, 1242 (Alaska
1996)).
23 Calculated by deducting from Natalies net
recovery, $613,243, the over-valuation of her practice,
$203,928 ($360,425 - $156,497) and the net negative value of
the piano, $4,000, for a new net recovery of $405,315.
This, when added to Gregorys net recovery of $257,117,
represents the total net marital property. A 50/50 division
would thus be $331,216 [($405,315 + $257,117)/2]. This
exceeds Gregorys net recovery by $74,099.
