Swaney v Swaney

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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure. NO. COA11-700 NORTH CAROLINA COURT OF APPEALS Filed: 20 December 2011 WENDY RENEE SWANEY, Plaintiff v. Randolph County No. 08 CvD 2541 THOMAS ERVIN SWANEY, Defendant Appeal by defendant from judgment entered 17 November 2010 and order entered 27 January 2011 by Judge Lee W. Gavin in Randolph County District Court. Heard in the Court of Appeals 7 November 2011. Robertson, Medlin & Bloss, PLLC, by Stephen E. Robertson and Carl I. Carlson IV, for Plaintiff-Appellee. Law Office of John W. Kirkman, Jr., by John W. Kirkman, Jr. and Adam W. Arthur, for Defendant-Appellant. ERVIN, Judge. Defendant Thomas Ervin Swaney appeals from a 17 November 2010 equitable distribution order and a 27 January 2011 order denying his motion to amend the 17 November 2010 equitable distribution order pursuant to N.C. Gen. Stat. § 1A-1, Rule 59. On appeal, Defendant contends that the trial court erred by utilizing an inappropriate method in calculating the goodwill -2of Defendant s business business fixed and assets. in determining After careful the value of the consideration of Defendant s challenges to the trial court s judgment and order in light of the record and the applicable law, we conclude that Defendant s contentions lack merit and that the challenged orders should be affirmed. I. Factual Background Plaintiff Wendy Renee Swaney and Defendant were married on 18 April 1992. The couple had one child, a daughter, who was born on 26 September 1995. Plaintiff and Defendant separated on 27 July 2008. On 23 September 2008, Plaintiff filed a complaint seeking post-separation support, alimony, child custody, child support, equitable distribution, temporary and preliminary injunctive relief, a preliminary injunction, and an interim allocation of marital assets. In his answer, Defendant asserted counterclaims for child custody, child support, and equitable distribution. On 23 November 2009 and 21 December 2009, the parties entered into consent orders addressing child support, and alimony. the issues of child custody, The remaining matters came on for hearing before the trial court on 10 September 2010. At the equitable distribution hearing, the parties litigated issues relating to the proper valuation of Defendant s -3information technology business, Milestone Computer Solutions, LLC. As part of that process, the trial court heard testimony from Defendant s expert witness, George Batten, and Plaintiff s expert witness, Christy Smith. Both Mr. Batten and Ms. Smith discussed the value that should be assigned to MCS s goodwill given the Defendant absence and MCS of and a noncompetition addressed a agreement hypothetical between situation which MCS was sold subject to such an agreement. in Mr. Batten testified that, as of the date of separation, MCS was worth $2,233.36 given the value of existing assets and liabilities, with the only positive component in his analysis being MCS s goodwill, the value of which hinged upon the existence of an agreement between Defendant and the new owner under which Defendant would refrain from competing with and work for the new owner. On cross examination, Mr. Batten testified that, based upon a reasonable multiple of net earnings over the ten month period that Defendant separation, MCS s neighborhood of had owned goodwill thirty MCS prior could thousand be dollars. to the valued In parties in addition, the Mr. Batten testified that MCS s fixed assets consisted of office furniture, fixtures, and office equipment and had a total book of value of $36,051.78. derived from the According to Mr. Batten, this total was information contained in MCS s books and -4records prior to Defendant s ownership and that, [i]f you went through [Defendant s] office, there s definitely not [$36,000] worth of desks and chairs and bookcases and so forth like that. Mr. Batten did not obtain a fixed asset listing for MCS and had not inventoried the fixed assets that were actually on hand at the time of his valuation. Ms. Smith, who was a former employee of MCS and ran a competing business, testified that, without a noncompetition agreement or some obligation on the part of Defendant to remain in the employ of MCS, there would not be a lot of value in [MCS] and that she would not purchase the business in the absence of such an arrangement. On 17 November 2010, the trial court entered an equitable distribution order in which it valued MCS at $64,000.00, with this figure derived by taking into account the business fixed assets, cash on hand, . . . accounts receivable, [and] . . . business liability, which the trial court valued at $36,051.68, and by valuing its goodwill at $30,000.00. In its factual findings, the trial court adopted Mr. Batten s willing buyer, willing seller approach and specifically pointed to Mr. Batten s testimony that a willing buyer of a service business such as that operated by Defendant would require a noncompetition agreement and an agreement that Defendant remain -5an employee of the business for a period of time as a condition of any purchase. On 30 November 2010, Defendant filed a motion pursuant to N.C. Gen. Stat. § 1A-1, Rule 59, seeking the entry of an order reopening the proceeding, the taking of additional testimony concerning MCS s fixed assets, and an amendment to the findings of fact and conclusions of law relating to MCS s value on the grounds that the trial court value of MCS s fixed assets. had incorrectly calculated On 27 January 2011, the trial court entered an order denying Defendant s motion. noted an equitable appeal to this distribution Court order the and from the the 27 17 Defendant November January 2011 2010 order denying his motion to amend pursuant to N.C. Gen. Stat. § 1A-1, Rule 59. II. Legal Analysis A. Standard of Review According to N.C. Gen. Stat. § 50 20, trial courts have considerable distribution discretion of marital in determining and divisible the appropriate property, with the exercise of such discretion [to remain un]disturbed in the absence of clear abuse. Mrozek v. Mrozek, 129 N.C. App. 43, 48, 496 S.E.2d 836, 840 (1998) (quoting Lawing v. Lawing, 81 N.C. App. 159, 162, 344 S.E.2d 100, 104 (1986)). As a result, -6our review of a trial court s distribution decision is limited to determining whether there was a clear abuse of discretion, with the trial court s order to be upheld unless it is so arbitrary that [it] could not have been the result of a reasoned decision. Id. (quoting Lawing, 81 N.C. App. at 162, 344 S.E.2d 104). The trial court s findings of fact, on which its exercise of discretion rests, are conclusive if supported by any competent evidence. The mere existence of conflicting evidence or discrepancies in evidence will not justify reversal. Id. (quoting Lawing, 81 N.C. App. at 162, 344 S.E.2d at 104). B. Substantive Legal Issues 1. Net Value of MCS In his Defendant willing goodwill. first contends seller challenge to that trial and the willing the trial court buyer court s erred method to by judgment, using value the MCS s More specifically, Defendant contends that the trial court should have declined to utilize this method of valuation given the absence of any evidence tending to show the existence or availability of a noncompetition agreement and an employment agreement. Defendant s argument lacks merit. A trial court, [f]or purposes of equitable distribution, shall determine the net value of marital property as of the date of the separation of the parties. N.C. Gen. Stat. § 50- -721(b). As a result of the fact that there is no single best approach to valuing a business, the task of a reviewing court on appeal is to determine whether the approach used by the trial court reasonably approximated the net value of the business. Poore v. Poore, 75 N.C. App. 414, 419, 331 S.E.2d 266, 270 (citing Weaver v. Weaver, 72 N.C. App. 409, 412, 324 S.E.2d 915, 917-18 (1985), disapproved on other grounds in Armstrong v. Armstrong, 322 N.C. 396, 403-04, 368 S.E.2d 595, 599 (1988)), disc. review denied, 314 N.C. 543, 335 S.E.2d 316 (1985). In valuing a professional practice, a court should consider the following components of the practice: (a) its fixed assets including cash, furniture, equipment, and other supplies; (b) its other assets including accounts receivable and the value of work in progress; liabilities. (c) its goodwill, if any; and (d) its Id. (citing In re Marriage of Lopez, 38 Cal. App. 3d 93, 113 Cal. Rptr. 58 (1974) and Stern v. Stern, 66 N.J. 340, 331 A.2d 257 (1975)). The approach outlined in Poore, which was developed in connection with the valuation of a professional partnership, is also applicable to the valuation of closely held corporations such as MCS. Locklear v. Locklear, 92 N.C. App. 299, 301, 374 S.E.2d 406, 407 (1988) (citation omitted), disc. review allowed, 324 N.C. 336, 378 S.E.2d 794 (1989). appeal, if it appears that the trial court On reasonably -8approximated the net value of [a business] and its goodwill, if any, based on competent evidence and on a sound valuation method or methods, the valuation will not be disturbed. Poore, 75 N.C. App. at 422, 332 S.E.2d at 272. As we have already indicated, the net value of a business includes goodwill, which must be valued and considered in determining the value of a [business] for purposes of equitable distribution. (emphasis Poore, 75 N.C. App. at 420-21, 331 S.E.2d at 271 added). Any legitimate method of valuation that measures the present value of goodwill by taking into account past results, and not the postmarital efforts of the professional spouse, is a proper method of valuing goodwill. Id. at 421, 331 S.E.2d at 271. A widely accepted method for determining the value of a business goodwill is the price that a willing business. buyer would pay to a willing seller for that Id. In this case, Mr. Batten valued MCS s goodwill using the willing buyer, willing seller method as in the neighborhood of thirty thousand dollars based upon a reasonable multiple of earnings accumulated during the time period that Defendant had owned MCS. In addition, Ms. Smith testified that, given the execution of would willing be a noncompetition to buy MCS. and employment The trial agreement, court based she its -9valuation decision upon this testimony and valued MCS s goodwill at $30,000.00. Although Defendant contends that, given the absence of any evidence tending to show that a noncompetition agreement and an employment agreement actually existed or would be made available, it was inappropriate for the trial court to rely on this approach in valuing MCS s goodwill, we do not find this argument persuasive. On the contrary, the inclusion of such assumptions was necessary in order to fully reflect the value of the goodwill that Defendant had accumulated as a result of his operation of the business, particularly given the absence of any indication that Defendant intended to close or abandon MCS at less than its actual value. As a result, given that the trial court based its valuation of MCS s goodwill on competent evidence and on a sound valuation method previously accepted by this Court, its goodwill disturbed on appeal. valuation [method] will not be Offerman v. Offerman, 137 N.C. App. 289, 293, 527 S.E.2d 684, 686 (2000) (quoting Poore, 75 N.C. App. at 422, 331 S.E.2d at 272). 2. Valuation of Fixed Assets In addition, Defendant contends that the trial court s method of calculating the value of MCS s fixed assets was in error given the testimony of Mr. Batten. More specifically, Defendant claims that the $36,051.68 figure adopted by the trial -10court was based upon an accounting entry and did not represent MCS s actual fixed assets given Mr. Batten s testimony that he had not observed premises. fixed assets of that total value at MCS s Once again, we conclude that Defendant s argument lacks merit. At trial, information Batten contained corporation s fixtures, Mr. and $36,051.78. fixed office The in testified MCS s assets, books consisting equipment, trial that, court s had a finding based and of upon records, office total with the the furniture, book value respect to of the valuation of MCS s fixed assets was based upon this evidence. Although Mr. Batten expressed the opinion that the actual value of MCS s fixed assets might been lower than the value shown on MCS s records given that this book value figure was calculated at a time when Defendant did not own MCS and given that Mr. Batten had not observed sufficient fixed assets at MCS to support such a valuation, he had not obtained a listing of MCS s fixed assets or performed an accounting of the fixed assets that were actually on hand and could not, for that reason, provide a more specific value for MCS s fixed assets. Although this evidence raises questions about the validity of the net book value figure upon which the trial court relied, this conflict in the evidence involves a factual determination of the type for -11which the trial court, and ultimately responsible. not this Court on appeal, is As a result, given that the record contains sufficient evidence, if believed, to support the trial court s valuation of MCS s fixed assets, we have no basis for overturning the trial court s resolution of this issue on appeal even though the record also contains evidence from which the trial court could have reached a different conclusion. III. Conclusion Thus, for the reasons set forth above, we conclude that neither of Defendant s challenges to the trial court s judgment and order have merit. As a result, the trial court s equitable distribution order and order denying Defendant s motion pursuant to N.C. Gen. Stat. § 1A-1, Rule 59, should remain undisturbed. AFFIRMED. Chief Judge MARTIN and Judge STROUD concur. Report per Rule 30(e).

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