Jacqueline S. Karschner v. Rusty L. Karschner

ARKANSAS COURT OF APPEALS
NOT DESIGNATED FOR PUBLICATION

DIVISION I

CA04-412

February 16, 2005

JACQUELINE S. KARSCHNER AN APPEAL FROM JACKSON COUNTY

APPELLANT CIRCUIT COURT

[E-2001-68]

v.

HONORABLE PHILLIP GREGORY SMITH,

RUSTY L. KARSCHNER CIRCUIT JUDGE

APPELLEE

AFFIRMED

Larry D. Vaught, Judge

Jacqueline Karschner appeals from portions of a divorce decree entered by the Jackson County Circuit Court in which she was awarded one-half of the parties' marital property and alimony for a period of six years. On appeal, she contends that the trial court erred in refusing to require appellee Rusty Karschner's employer, Medallion Foods, Inc.,1 to provide discovery of its financial statements to her. She also argues that the court erred in failing to award her permanent alimony and attorney's fees.

After twenty-four years of marriage, appellee filed for divorce in April 2001, while one of the parties' three children, a son, was still a minor. During the course of this litigation at the trial level, appellant sequentially employed three attorneys. Her first attorney, Melinda Gilbert, charged her over $30,000 in attorney's fees. Although appellant paid her, she filed a claim against Ms. Gilbert over the fee; she later took a nonsuit on that claim. The parties'primary dispute concerned property and whether appellee had provided appellant with adequate discovery. Medallion Foods supplied appellant with information concerning all aspects of appellee's compensation and his interest in a limited liability company, RLK, LLC, in which Medallion Foods's owner, Mark Grosvenor, owned a controlling interest. However, appellant's attempt to examine Medallion Foods's financial statements was unsuccessful.

At trial, appellee testified that the balance of his Anheuser-Busch 401(k) plan was $158,931.90; that his Medallion Foods 401(k) plan had a vested balance of $62,297; that his Medallion Foods deferred compensation plan had a balance of $238,619.69, of which thirty percent was vested; that a $214,640 contribution would be made in the deferred compensation plan for 2002; and that the parties' equity in their house was between $10,000 and $15,000.2

In the December 19, 2003 divorce decree, the circuit court awarded a divorce to appellee on the basis of eighteen months' separation and awarded custody of the minor child to appellant. The court ordered appellee to pay $328 per week in child support, as well as fifteen percent of any net amount he receives as a bonus, and to maintain medical insurance on the child. The court divided the marital property evenly between the parties. Their assets included the marital home, a 1999 Pontiac, a Sea-Doo watercraft and trailer, a boat, an all-terrain vehicle, four horses, three guns, computer equipment, tools, sporting goods, furniture, the Anheuser-Busch 401(k) plan, the Medallion Foods 401(k) plan, the Medallion Foods deferred compensation plan, the Medallion Foods stock-option plan, and appellee's twelve-percent interest in RLK, LLC (which it valued at $64,664). The court awarded appellant alimony of $500 per week for a period of forty-eight months and $250 per week for the next twenty-four months. The court equally divided all debts incurred during the marriage, other than legal fees, which were to be paid by the party who incurred them.

Discovery

In her first point, appellant argues that appellee's evidence was not trustworthy and that the trial court abused its discretion in failing to require Medallion Foods to disclose its financial records so that she could more accurately assess appellee's employment benefits that were, at least in part, dependent upon the performance and value of the company. She states that these benefits included his salary, bonuses, stock options, and deferred compensation but focuses her argument on his stock options.

Appellee does not dispute that Medallion Foods's financial statements could, in some circumstances, be discoverable but states that, in this case, their production was not warranted in light of the undisputed testimony he produced at trial that the stock options had no value unless the company was sold or taken public. At a preliminary hearing, Stephen James, who created the Medallion Foods stock-option plan, testified that stock options in privately held companies generally have no value until a liquidity event occurs, as when the company is sold or taken public. He said that, when a person exercises a stock option, he must pay income tax on ordinary income on the difference between the exercise price and the fair market price, and that, because Medallion Foods is a subchapter-S corporation, he would have imputed income every year from company profits, even though he would not receive any dividend income to pay the tax bill. Mr. James described this as a "nightmare scenario" if the company later becomes worthless. He also said that the fairest solution in this case would be to award appellant one-half of whatever profit appellee realizes if he exercises the stock options. At a later discovery hearing, Mike Farity, a former corporate executive, testified that the stock options were worthless and that exercising them would cause a serious long-term financial liability.

Appellee also correctly points out that, except for Medallion Foods's financial statements, he and Medallion Foods provided all discovery requested by appellant. Additionally, although appellant subpoenaed a broad range of documents from appellee and Medallion Foods for a number of purposes, at the preliminary and final hearings, her only argument concerned the production of the financial statements so that the court could place a value on appellee's stock options. Therefore, to that extent, appellant has partially changed her argument on appeal. It is well settled that an appellant may not change the grounds for objection on appeal but is limited by the scope and nature of her objections and arguments presented at trial. City of Benton v. Ark. Soil & Water Conservation Comm'n, 345 Ark. 249, 45 S.W.3d 805 (2001). Additionally, the discoverability of the financial statements for the purpose of valuing the stock options was the only ground stated by the court in its ruling. Thus, the only discovery issue to be decided on appeal is whether the trial court abused its discretion in denying appellant discovery of Medallion Foods's financial statements for the purpose of valuing appellee's stock options.

Arkansas Rule of Civil Procedure 26(b)(1) provides that parties may obtain discovery regarding any matter, not privileged, that is relevant to the issues in the pending action and that it is not ground for objection that the information sought will be inadmissible at trial, if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. One of the purposes of discovery procedures is to provide a device for ascertaining not only the facts, but information as to the existence or whereabouts of facts relative to the basic issues between the parties; this permits a litigant to secure the type of information that may lead to the production of other relevant evidence or that will facilitate his preparation for trial. Turner v. Northwest Ark. Neurosurgery Clinic, P.A., 84 Ark. App. 93, 133 S.W.3d 417 (2003).

At the conclusion of the discovery hearing, the circuit court stated that it would not require Medallion Foods to produce its financial statements because their production was not reasonably likely to lead to the discovery of admissible evidence. The trial court has wide discretion in matters pertaining to discovery, and its decision will not be reversed absent an abuse of discretion that is prejudicial to the appealing party. Banks v. Jackson, 312 Ark. 232, 848 S.W.2d 408 (1993). An abuse of discretion may be found when there was an undue limitation of the appellant's substantial rights under the prevailing circumstances. Dodson v. Allstate Ins. Co., 345 Ark. 430, 47 S.W.3d 866 (2001).

Here, it is clear that appellant's rights were not unduly limited by the trial court's ruling on discovery. Although appellant argues that appellee's witnesses' testimony about the stock options' having no value unless the company was sold or taken public was not credible, the trial court obviously thought otherwise. On appeal, we give due regard to the superior position of the trial court to judge the credibility of the witnesses. Cmty. Bank of N. Ark. v. Tri-State Propane, ___ Ark. App. ___, ___ S.W.3d ___ (Feb. 2, 2005). If the stock options had no value at the time of trial, it cannot be said that appellant was prejudiced by the trial court's decision. We therefore cannot say that the trial court abused its discretion, and its decision on this issue is affirmed.

Alimony

Appellant argues in her second point that, because of the parties' lengthy marriage and the disparity in their financial resources and employment prospects, the trial court abused its discretion in awarding alimony to her for only six years. She argues that we should recognize her twenty-four years of service as a homemaker while appellee established his career and points out that a large amount of the marital property awarded to her is not liquid; only the $32,332 representing one-half of appellee's interest in RLK will be paid in cash, and, she argues, that amount will be consumed by her legal fees. She also asserts that she became accustomed to the lifestyle enjoyed by the parties prior to the divorce and that the employment prospects for a woman of her age (45) are not promising. She further notes that she has a serious gynecological health problem (dysplasia).

Appellee responds that, in the two and one-half years during the divorce proceeding, appellant made no meaningful effort to become self-supporting; she received one-half of the parties' assets, which are substantial; she has some experience working outside the home; and there was no evidence that her dysplasia limits her ability to work. He argues that the two and one-half years of temporary support and the six years of rehabilitative alimony should be sufficient for appellant to become self-supporting. We agree.

Certainly, the substantial marital assets awarded to appellant are relevant to this issue. Alimony and property divisions are complementary devices that a trial judge employs to make the dissolution of a marriage as equitable as possible. Davis v. Davis, 79 Ark. App. 178, 84 S.W.3d 447 (2002). A trial court's decision regarding alimony is a matter that lies within its sound discretion and will not be reversed on appeal absent an abuse of that discretion. See Cole v. Cole, ___ Ark. App. ___, ___ S.W.3d ___ (Jan. 5, 2005); Hiett v. Hiett, ___ Ark. App. ___, ___ S.W.3d ___ (Apr. 14, 2004); Delacey v. Delacey, 85 Ark. App. 419, ___ S.W.3d ___ (2004). The purpose of alimony is to rectify, so far as possible, the frequent economic imbalance in the earning power and the standard of living of the parties to a divorce in light of the particular facts of each case. Powell v. Powell, 82 Ark. App. 17, 110 S.W.3d 290 (2003). The primary factors that a court should consider in determining whether to award alimony are the financial need of one spouse and the other spouse's ability to pay. Id. Secondary factors that may also be considered include: (1) the financial circumstances of both parties; (2) the couple's past standard of living; (3) the value of jointly owned property; (4) the amount and nature of the income, both current and anticipated, of both parties; (5) the extent and nature of the resources and assets of each ofthe parties; (6) the amount of each party's spendable income; (7) earning ability and capacity of both parties; (8) the property awarded to each party; (9) the disposition of the homestead or jointly owned property; (10) the condition of health and medical needs of the parties; (11) the duration of the marriage. Delacey v. Delacey, 85 Ark. App. 419; see also Ellis v. Ellis, 75 Ark. App. 173, 57 S.W.3d 220 (2001). The award of alimony, however, always depends on the facts of the case. Killough v. Killough, 72 Ark. App. 62, 32 S.W.3d 57 (2000).

The type of alimony awarded in this case is rehabilitative alimony, i.e., alimony payable for a short but specific and terminable period of time that will cease when the recipient is, in the exercise of reasonable efforts, in a position of self-support. See Myrick v. Myrick, 339 Ark. 1, 2 S.W.3d 60 (1999); Bolan v. Bolan, 32 Ark. App. 65, 796 S.W.2d 358 (1990).

It is true that most of the property awarded to appellant is not "liquid." Nevertheless, appellant's financial assets are substantial, and there is no reason demonstrated by the record why she cannot go to work or do so after furthering her education during the six years during which she will receive alimony. The trial court did not abuse its discretion regarding alimony, and we affirm on this point.

Attorney's Fees

Appellant argues in her third point that the trial court abused its discretion in refusing to require appellee to pay her attorney's fees because appellee filed the divorce action; appellee has superior financial resources; and a lot of the fees were incurred in attempting to discover financial information that was within his control.

Appellee responds that he filed the complaint only after appellant told him that she was moving back to Kentucky and had transported "truckloads" of personal items to Louisville. He also notes that a significant portion ($31,675) of appellant's attorney's fees were incurred by Ms. Gilbert, whose charges appellant has claimed were unreasonably high,and argues that he should not be held responsible for the attorney's fees incurred by appellant's second lawyer, Jerrie Grady, in pursuit of appellant's claim against Ms. Gilbert. Additionally, appellee stated that he observed Ms. Gilbert testify under oath in her deposition that she and appellant purposefully drew out the proceeding as long as they could. Appellee further points out that Jerrie Grady and appellant's third attorney, Lohnes Tiner, were required to spend additional time becoming acquainted with the existing discovery and argues that they unnecessarily increased appellant's fees; for example, Jerrie Grady withdrew a subpoena based on improper service, and the subpoenas served by Lohnes Tiner on Mr. Grosvenor and Medallion Foods's chief financial officer were quashed.

Although courts have the inherent power to award attorney's fees in a domestic relations proceeding, Miller v. Miller, 70 Ark. App. 64, 14 S.W.3d 903 (2000), they are not required to do so. See Williford v. Williford, 280 Ark. 71, 655 S.W.2d 398 (1983). Unless the trial court finds it to be equitable, there is no compelling reason for the husband to automatically pay the wife's attorney's fees. Wilson v. Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987); Ark. Code Ann. § 9-12-309(a)(2) (Repl. 2002). The trial court's decision on this issue will not be reversed absent an abuse of discretion. Page v. Anderson, ___ Ark. App. ___, ___ S.W.3d ___ (Apr. 7, 2004); Miller v. Miller, 70 Ark. App. 64, 14 S.W.3d 903.

Certainly, the trial court was in a better position than we to determine appellant's need for appellee to pay her attorney's fees. Given appellant's dispute with Ms. Gilbert over her fees and appellant's employment of two other lawyers during the trial court proceeding,3 we cannot say that the trial court abused its discretion on this issue.

Affirmed.

Pittman, C.J., and Gladwin, J., agree.

1 Appellee is president of Medallion Foods, which is a subchapter-S corporation owned by Mark Grosvenor.

2 Charlie Brown, Medallion Foods's chief financial officer, testified that appellee will not receive any of his vested deferred compensation unless the company is sold or he is terminated without cause.

3 A fourth attorney represents her on this appeal.