JAMES A. BERGER v. DENISE R. BERGER (N/K/A MENKE) AND ROBERT W. CARRAN, HER ATTORNEY
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RENDERED:
FEBRUARY 3, 2006; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001691-MR
JAMES A. BERGER
v.
APPELLANT
APPEAL FROM KENTON CIRCUIT COURT
HONORABLE DOUGLAS M. STEPHENS, SPECIAL JUDGE
ACTION NO. 99-CI-00930
DENISE R. BERGER (N/K/A MENKE)
AND ROBERT W. CARRAN, HER ATTORNEY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
JUDGE.1
COMBS, CHIEF JUDGE; McANULTY, JUDGE; PAISLEY, SENIOR
McANULTY, JUDGE:
In this dissolution of marriage case, James A.
Berger (Jimmy) claims that the trial court erred in (1) valuing
certain assets and (2) awarding attorney’s fees and costs.
Because we conclude that the trial court’s valuation was not
clearly contrary to the weight of the evidence, and the trial
court did not abuse its discretion in ordering Jimmy to pay a
1
Senior Judge Lewis G. Paisley sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
KRS 21.580.
portion of his former wife’s attorney’s fees and costs, we
affirm.
Jimmy and Denise Menke (formerly Denise Berger)
(Denise) married on December 15, 1990.
The marriage was Jimmy’s
second and Denise’s first. Jimmy and Denise had no children
together, but Jimmy did have children from his previous
marriage.
During the marriage, Denise worked as a self-employed
interior designer, and Jimmy was the part owner/agent of an
insurance business.
Specifically, he owned one-fifth of the
shares of the Chas. H. Bilz Insurance Agency, Inc. (the Bilz
Agency).
And he worked for the Bilz Agency as an insurance
agent, although Jimmy, as opposed to the Bilz Agency, owned his
book of business.
A book of business is the industry term for
the customer list served by the agency or, in Jimmy’s case, the
agent, and consists of the customer name and contracts and
expiration dates that are the source of the commissions received
by the agents.
In its early findings, the trial court found
that Jimmy’s earning capacity was $260,000 per year, and
Denise’s earning capacity was $60,000 per year.
These findings
are not challenged in these proceedings.
Jimmy and Denise separated on May 5, 1999, and Denise
filed a petition for dissolution one week after the separation.
At the time, Denise was 32 years of age and Jimmy was 41.
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Four
months after she filed her petition, Denise made a motion for a
bifurcated divorce.
The trial court issued the decree of
dissolution on October 20, 1999, but reserved all issues of
property distribution and debt division.
Over four years after the decree was issued, the trial
court heard in two hearings conducted on December 5, 2003, and
January 8, 2004, the issues of property distribution and debt
division.
After hearing the evidence of both parties, including
the testimony from five experts as to the valuation of Jimmy’s
book of business, the trial court made preliminary findings of
fact and conclusions of law and issued a post-decree judgment on
January 23, 2004.
Four months later, on May 24, 2004, the trial
court rendered its final judgment and decree of dissolution,
from which Denise filed a motion to amend and Jimmy filed a
motion for a new trial, to alter, amend or vacate the decree and
judgment, or alternatively, to amend the findings or make
additional findings.
Jimmy’s motion pertained primarily to the trial
court’s valuation of his book of business and the award of
attorney’s fees and costs to Denise.
In response to the
motions, the trial court issued an order denying Jimmy’s motion
and granting Denise’s motion by amending its final judgment and
decree of dissolution to specify that Jimmy was solely
responsible for any debt related to the valuation of his
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insurance business.
Consequently, on appeal, the issues raised
by Jimmy pertain to the valuation of his insurance business, the
business debt and the award of Denise’s attorney’s fees and
costs.
At this point, we turn to the testimony of the experts
called by Jimmy and Denise to value Jimmy’s book of business.
By agreement of the parties, the marital increase in the fair
market value of Jimmy’s book of business was measured from
December 31, 1990, to June 30, 1999.
We begin with Jimmy’s experts -– Anna Shuherk, Charles
Berger and Mark Wilcox.
Anna Shuherk is the Vice President of
Fament, Inc., a consulting service that specializes is servicing
the insurance industry.
She had particular experience with the
Bilz Agency as it had hired her in 1998 to conduct an appraisal
of the value of its stock.
To determine the value of the
agency’s stock, she valued the Bilz Agency’s book of business by
multiplying the agency’s annual premiums by one, then adding a
nominal amount for hard assets.
Consistent with her 1998 appraisal of the Bilz Agency,
as to the value of Jimmy’s individual book of business, Shuherk
opined that it had a value of one times annual premiums.
In
addition, Shuherk considered a clause in Jimmy’s employment
contract with the Bilz Agency that stated that Jimmy would not
be able to sell his book of business unless and until he settled
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his account receivables.
(Jimmy refers to his account
receivables as his “bad debt” or unpaid premiums).
In other
words, in order for Jimmy to actually own his book of business,
he must pay to the agency any unpaid premiums owed by his
customers.
Shuherk valued Jimmy’s book of business in 1990 at
$187,928.82, which number reflects a reduction of $471.18 to
account for Jimmy’s bad debts in that year.
Shuherk valued
Jimmy’s book of business in 1999 at $258,365.47, which number
reflects a reduction of $118,534.53 to account for Jimmy’s bad
debts in that year.
The difference in the 1990 and 1999
valuations is $70,436.65, which is the marital value of Jimmy’s
book of business.
Charles Berger is Jimmy’s brother and president of the
Bilz Agency.
He testified by deposition that a book of business
is typically sold for a price equal to one to one and a half
times annual commission.
Mark Wilcox is married to Jimmy’s sister, and also
worked at the Bilz Agency at one point.
At the time of
hearings, however, he had sold his book of business to another
local insurance agency and was currently working for that agency
as an agent.
He testified by deposition that the sale took
place in 1999, and the terms of the sale were that Wilcox was
paid one times his retained commissions from his book of
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business.
In addition, Wilcox retained the right to service
that book of business and receive commissions, as well as the
right to receive commissions from any new policies that he
wrote.
And he was given the opportunity to buy agency stock at
a discount.
In turn, Denise called two experts to value Jimmy’s
book of business -- Ariye Ginzburg and Steve Santen.
Ginzburg
used a multiple of Jimmy’s pre-tax income as reported on his tax
returns.
He then used both a market and income approach to
determine the increase in value.
In his market approach, due to
characteristics of Jimmy’s agency as compared to the four
similar companies selected for the appraisal, Ginzburg used a
multiple of 6.8 and then applied a 20 percent premium to arrive
at a 1999 value.
As for the 1990 value, he used a multiple of
2.4 and then applied a 35 percent premium.
Ginzburg’s market
approach yielded an increased value of $1,352,000.00, and income
approach yielded an increased value of $725,000.00.
Denise’s second expert was Steve Santen.
He
calculated the value of the Jimmy’s book of business using a
multiplier of 3.2 times earnings.
A couple of weeks after the hearings concluded, the
trial court made written preliminary findings and conclusions.
As to the value of Jimmy’s book of business, the trial court
found as follows:
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As suggested by the court to the
parties and counsel, on the record of the
January 8, 2004 hearing, with respect to
establishing a value for the husband’s
individual books of business, the court was
not persuaded by the calculations and
testimony of the experts. The court finds
and concludes from the evidence that the
sale by Mr. Wilcox, while not identical to
the question of evaluation herein, offers
the best guidance for valuing the husband’s
books of business. And, the value of those
books of business is greater than Mr.
Wilcox’s sale price, because Mr. Wilcox
retained value in his business and received
compensation in other forms. Further, the
testimony indicates that such sales, similar
to Mr. Wilcox’s, in this area, are typically
for 1 to 1 ½ times net commissions.
With the above in mind, the court has
concluded that the marital value of the
husband’s books of business is arrived at by
multiplying the difference between the
husband’s earnings at the beginning of the
marriage ($69,549.00) and the husband’s
earnings at the end of the marriage
($212,469.00), for a difference of
$142,920.00, by 3, which produces a value of
the marital interest in this asset of
$428,760.00. The court further concludes
that all the rest and remainder of the
interest in, and value of, the husband’s
individual books of business is the
husband’s non-marital property.
Based upon the court’s findings of fact
and conclusions of law, as well as the
entire record of this case, the court enters
the following Judgment resolving all
remaining issues herein
. . .
8. The marital portion or value of the
husband’s individual books of business, with
a value of $428,760.00, is awarded equally
to the husband and the wife, and all the
rest and remainder of the husband’s
individual books of business shall be
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restored to the husband as his non-marital
property.
In the May 24, 2004 final judgment and decree of
dissolution, the trial court ordered Jimmy to pay Denise the sum
of $214,380.00, which was one-half the value of the book of
business.
Later, in response to Denise’s motion to amend, the
trial court further ordered as follows:
With respect to the Petitioner’s request
regarding any debt related to Respondent’s
book of business, it is the judgment of the
Court that such debt, if any, is the sole
responsibility of the Respondent. The Court
has previously made a part of the record of
this case, the Court’s Findings of Fact and
Conclusions of Law with respect to those
debts or bad debts, if any, and same shall
not be repeated herein. Simply stated, the
Respondent’s repeated failure to provide
court-ordered discovery regarding those bad
debts precludes him from now claiming any
benefit or value in an allocation of the
marital estate. Additionally, these debts
are under the control and management of
Respondent, and Petitioner has no ability to
protect her interest with respect to those
debts, if any.
. . .
IT IS THEREFORE ORDERED AND ADJUDGED as
follows:
1. The Court’s Final Judgment and Decree of
Dissolution is amended to the extent that
Respondent, James A. Berger, shall be solely
responsible for, and hold Petitioner
harmless therefrom, any debt related to his
book of business . . .
Jimmy argues in this appeal that the trial court
committed three errors in arriving at the value of Jimmy’s book
of business.
First, Jimmy contends that the trial court’s
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finding of an increase in value during the marriage of Jimmy’s
individual book of business as $142,920.00 based upon earnings
was inconsistent with the evidence presented at the hearings
because Jimmy had earnings unrelated to his commissions in the
form of officer compensation and bonuses.
Second, Jimmy
believes that the trial court’s use of the multiplier of three
times his earnings was without any evidentiary basis and was,
therefore, arbitrary.
Third, Jimmy asserts that the trial court
erred in failing to reduce the marital value of Jimmy’s book of
business by his bad debts.
In the alternative, Jimmy argues
that the trial court erred in failing to give him a credit and
offset in the final division of marital assets for his bad debt
since it represented marital debt that had been accumulated over
the term of the marriage and which was paid by him with postdecree non-marital funds.
In addition to the arguments pertaining to the trial
court’s valuation of the book of business, Jimmy argues that the
trial court erred in awarding Denise $25,000.00 in attorney’s
fees and costs.
Finally, Jimmy contends that the trial court
failed to re-open the proof to hear evidence concerning the tax
consequences associated with the sale of an asset, which
according to the trial court’s decision, appreciated in eight
years by $428,760.00.
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We begin our analysis of the issues raised by Jimmy by
addressing his arguments pertaining to the trial court’s method
of calculating his book of business.
Jimmy argues that the
trial court’s use of the multiplier of three times Jimmy’s
earnings was without any evidentiary basis and was, therefore,
arbitrary.
To the contrary, the record shows that the parties,
through expert testimony, adduced substantial conflicting
evidence as to valuation of the book of business, and the trial
court assigned a value within the parameters of this evidence.
A trial court's valuation of marital property in a divorce
action will not be disturbed on appeal unless it is clearly
contrary to the weight of the evidence.
See Underwood v.
Underwood, 836 S.W.2d 439, 444 (Ky. App. 1992), overruled in
part on other grounds by Neidlinger v. Neidlinger, 52 S.W.3d 513
(Ky. 2001).
In this case, we cannot conclude that it was,
especially when we consider the fact that Shuherk, Jimmy’s own
expert, acknowledged in her report that appraisals of this type
are recognized for being “more of an art than science.”
Having concluded that the multiplier of 3 selected by
the trial court fell within the range of competent testimony, we
will not further evaluate the earnings figures selected by the
trial court in its valuation.
After reviewing Jimmy’s motion
filed after the trial court made its findings and conclusions,
we conclude that this argument is unpreserved.
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Notwithstanding
the preservation issue, the trial court took the 1990 and 1999
earnings figures from supporting documentation in Shuherk’s
report.
The numbers ($212,469.00 in 1999) and ($69,549.00 in
1990) represent 50 percent of the actual commission generated
from the accounts owned and controlled by Jimmy in the
respective years.
To the extent the figures were calculated by
Jimmy’s expert, they cannot be contrary to the evidence.
We move to the issues pertaining to the bad debt.
Jimmy failed to produce -- in spite of several court orders -any documents in support of his bad debt claim until December
11, 2003, when all opportunity had passed for Denise to crossexamine Jimmy’s witnesses.
Consequently, the trial court
decided that it would consider Jimmy’s bad debt claims only as
his bare, unsupported assertions that he had bad debt from his
business and that he repaid the debt after the divorce.
In this
appeal, Jimmy does not defend his inaction or even acknowledge
his responsibility for the trial court’s rulings pertaining to
the bad debt.
Rulings regarding evidentiary matters are within the
sound discretion of the trial court.
of review is abuse of discretion.
Accordingly, our standard
See Goodyear Tire and Rubber
Co. v. Thompson, 11 S.W.3d 575, 577 (Ky. 2000).
Under the
circumstances of this case, the trial court did not abuse its
discretion in issuing an order refusing to allow Jimmy to
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support his bad debt claim.
See CR 37.02(2)(b).
Moreover, the
trial court did not err, under the circumstances, in refusing to
give Jimmy a credit and offset in the final division of marital
assets for his bad debt.
See id.
We now turn to the award of attorney’s fees and costs.
In the post-decree judgment issued January 23, 2004, the trial
court ordered as follows:
Because of the disparity in income of the
parties, and because of the difficulty of
discovering all of the husband’s financial
information, which the court found was
principally a result of the husband’s lack
of effort, the husband shall pay to the wife
the sum of $25,000.00 as a partial
contribution to the wife’s attorney fees and
expenses, and the husband shall be entitled
to a credit or set-off against this amount
for the $10,000.00 he has previously
advanced for the wife’s expert witness fees.
Jimmy contends that the trial court erred in awarding
Denise $25,000.00 in attorney’s fees and costs because (1)
Denise’s income and resources were adequate to pay for her
litigation expenses; (2) Denise’s huge expenditure of costs was
unnecessary and wasteful; and (3) the trial court had also
awarded Denise approximately $12,000.00 in temporary maintenance
and health insurance.
In assessing attorney’s fees and costs against Jimmy,
the trial court found disparity in the incomes of Jimmy and
Denise.
Under KRS 403.220, no more is required.
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See Gentry v.
Gentry, 798 S.W.2d 928, 937 (Ky. 1990).
Clearly, the trial
court had the authority to award reasonable attorney’s fees and
costs to Denise.
In addition to the disparity in income, however, the
trial court considered the difficulty that Denise encountered in
obtaining Jimmy’s financial information and awarded attorney’s
fees and costs based in part on Jimmy’s conduct and tactics.
The amount of an award of attorney's fees is committed to the
sound discretion of the trial court, which is in the best
position to observe obstructive conduct and which must be given
wide latitude to sanction or discourage such conduct.
at 938.
See id.
There is no abuse of discretion in requiring Jimmy, the
party whose conduct caused the unnecessary expense, to pay for
it.
See id.
Finally, Jimmy argues -- with no statement of where
and how this issue was preserved for review or citation of
authority -- that the trial court erred in failing to re-open
the proof to receive evidence concerning the tax consequences of
the sale of an asset.
Consequently, his unpreserved and
unsupported argument merits no consideration by this Court.
For the foregoing reasons, the judgment of the Kenton
Circuit Court is affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Beverly R. Storm
Robert L. Raper
Arnzen, Wentz, Molloy, Laber &
Storm, P.S.C.
Covington, Kentucky
Robert W. Carran
Taliaferro, Mehling, Shirooni,
Carran & Keys, PLLC
Covington, Kentucky
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