Jaclyn R. Mugge, petitioner, Respondent, vs. Alan I. Mugge, Appellant.

Jaclyn R. Mugge, petitioner, Respondent, vs. Alan I. Mugge, Appellant. A06-503, Court of Appeals Unpublished, January 2, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-503

 

 

Jaclyn R. Mugge, petitioner,

Respondent,

 

vs.

 

Alan I. Mugge,

Appellant.

 

 

Filed January 2, 2007

Affirmed in part, reversed in part, and remanded

Toussaint, Chief Judge

 

St. Louis County District Court

File No. 69-F1-04-101456

 

Gerald J. Brown, Brown, Andrew & Signorelli, P.A., 306 W. Superior Street, Suite 300, Duluth, MN 55802 (for respondent)

 

Larry M. Nord, Orman Nord Spott & Hurd Law Office, 1301 Miller Trunk Highway, Suite 400, Duluth, MN 55811 (for appellant)

 

            Considered and decided by Toussaint, Chief Judge; Minge, Judge; and Hudson, Judge.

U N P U B L I S H E D   O P I N I O N

TOUSSAINT, Chief Judge

            Appellant-husband Alan I. Mugge challenges the district court's amended findings and order valuing and distributing his business.  Because the district court did not consider the value of appellant's personal services to the business or include a key-person discount, we affirm in part, reverse in part, and remand.

D E C I S I O N

A district court's valuation of an item of property is a finding of fact and it will not be set aside unless it is clearly erroneous on the record as a whole.  Maurer v. Maurer, 623 N.W.2d 604, 606 (Minn. 2001).  An appellate court does not require the district court to be exact in its valuation of assets; "it is only necessary that the value arrived at lies within a reasonable range of figures."  Johnson v. Johnson, 277 N.W.2d 208, 211 (Minn. 1979). 

"[T]he market valuation determined by the trier of fact should be sustained if it falls within the limits of credible estimates made by competent witnesses . . . ."  Balogh v. Balogh, 356 N.W.2d 307, 310 (Minn. App. 1984) (quoting Lammi v. Lammi, 348 N.W.2d 372, 374 (Minn. App. 1984)).  When valuing a business by capitalizing its income, the district court should ordinarily exclude the value of personal services rendered by the owner.  Roberson v. Roberson, 296 Minn. 476, 477, 206 N.W.2d 347, 348 (1973); see Robinson v. Robinson, 355 N.W.2d 737, 740 (Minn. App. 1984) (stating that capitalization of individual compensation is impermissible), review denied (Minn. Jan. 4, 1985).

Appellant argues that the district court erred by not considering the value of his personal services to his business, Tomahawk Ford, a garbage-collecting operation doing business as East Mesabi Sanitation.  We agree.  The district court valued Tomahawk by capitalizing its income, but did not account for the value of appellant's services to the business.  The record contains sufficient evidence to attach a value to appellant's personal services at Tomahawk, and, following Roberson, it should be excluded from the valuation.  Roberson, 296 Minn. at 477, 206 N.W.2d at 348.

Appellant also argues, and we agree, that the district court erred by not including a key-person discount in valuing Tomahawk.  The Minnesota Supreme Court addressed the key-person discount in Rogers v. Rogers, 296 N.W.2d 849 (Minn. 1980).  In Rogers the husband owned 85% of a closely-held engineering-services company.  Id. at 850.  In valuing the company, the district court failed to consider the husband's importance to the business.  Id. at 853.  The husband appealed, and the supreme court held that it was error not to account for the husband's importance to the company.  Id.  The court explained that "[w]hile the testimony did not establish that [the company] would be worthless without appellant, it is clear that appellant is a key man if not the key man in [the company], and the profitability of the corporation could be substantially reduced if he were to leave."  Id.

Here, the record shows that appellant is Tomahawk's sole director and only full-time employee.  He does substantial every-day work for the business and personally negotiates all of Tomahawk's contracts.  Appellant's expert testified that appellant "is Tomahawk Ford, and without him, the company would suffer financially."  Therefore, like the business in Rogers, "the profitability of the [business] could be substantially reduced if [appellant] were to leave."  296 N.W.2d at 853.  Accordingly, on remand the district court should make a personal services adjustment and apply a key-person discount in valuing Tomahawk.  The district court should not make a duplicative adjustment.

Next, appellant contends that the district court erred by assigning Tomahawk's value based on a capitalization-of-benefits method.  Appellant argues that because Tomahawk is a personal business that depends solely on him for its success, capitalizing the earnings from the business is the same as capitalizing his income, which is impermissible.  See Robinson, 355 N.W.2d at 740.  While we agree that capitalizing appellant's income is impermissible, any such error will be addressed on remand by considering the value of appellant's personal services to the business as well as by applying a key-person discount to Tomahawk's valuation. 

Finally, appellant argues that the district court abused its discretion by not including a value for Tomahawk's nonmarital going-concern.  Appellant contends that the record supports such a finding because the business existed at the time the parties married.  "A party seeking to establish the nonmartial character of an asset must do so by a preponderance of the evidence."  Wopata v. Wopata, 498 N.W.2d 478, 484 (Minn. App. 1993).  We find that appellant did not meet his burden in proving Tomahawk's nonmarital going-concern value.  Although the record shows that Tomahawk engaged in garbage collecting before the parties married, the business only had one contract at that time.  Additionally, the record does not contain evidence regarding any going-concern value that may have existed when the parties married.  Therefore the district court did not abuse its discretion because the record does not support a finding of Tomahawk's nonmartial going-concern value.

Affirmed in part, reversed in part, and remanded.