In re the Marriage of: Victor Anthony Kreuziger, petitioner, Appellant, vs. Patricia Evelyne Kreuziger, Respondent.

In re the Marriage of: Victor Anthony Kreuziger, petitioner, Appellant, vs. Patricia Evelyne Kreuziger, Respondent. A06-910, Court of Appeals Unpublished, August 7, 2007.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-910

A06-1142

 

In re the Marriage of:
Victor Anthony Kreuziger, petitioner,
Appellant,
 
vs.
 
Patricia Evelyne Kreuziger,
Respondent (A06-910),

In re the Marriage of:
Victor Anthony Kreuziger, petitioner,
Appellant,
vs.
 
Patricia Evelyne Kreuziger,
Respondent (A06-1142).

 

Filed August 7, 2007

Affirmed

Peterson, Judge

 

Crow Wing  County District Court

File No. F0-04-1212

 

Debra E. Yerigan, Jodi M. Terzich, Messerli & Kramer P.A., 1800 Fifth Street Towers, 150 South Fifth Street, Minneapolis, MN  55402-4218 (for appellant)

 

Robert W. Due, Susan A. Daudelin, Katz, Manka, Teplinsky, Due & Sobol, Ltd., 225 South Sixth Street, Suite 4150, Minneapolis, MN  55402 (for respondent)

 

            Considered and decided by Shumaker, Presiding Judge; Peterson, Judge; and Ross, Judge.

U N P U B L I S H E D   O P I N I O N

PETERSON, Judge

            On appeal in this marital dissolution, appellant-husband argues that (1) certain real property awarded to husband was overvalued because the valuation (a) was based on the speculative assumption that the property could be rezoned; and (b) misstated the value of the marital improvements to the property; (2) the value of the overvalued real property should have been reduced by the amount of loans secured by the property; (3) the distribution of the marital property was inequitable; and (4) the district court should have granted husband's motion to reopen the judgment for fraud.  We affirm.

FACTS

            The 43-year marriage of appellant-husband Victor Anthony Kreuziger and respondent-wife Patricia Evelyne Kreuziger was dissolved by a judgment and decree entered December 28, 2005.  The primary dispute on appeal concerns the district court's valuation of lakeshore property consisting of four parcels, acquired sequentially and totaling 8.76 acres, with 1,110 feet of frontage on Clamshell Lake in the Lower Whitefish Chain in the Brainerd Lakes area, an area undergoing rapid development where lakeshore property is in extremely high demand.  Husband began acquiring the property before the marriage.  In addition to the lakeshore property, the parties acquired during the marriage interests in two undeveloped islands in the lake, which total .23 acres. 

            Improvements to the Clamshell Lake property were made during the marriage.  Husband cleared much of the land, planted hundreds of Red Pine trees, and built a cabin, boathouse, and pole barn on the property.  Five years before the divorce, husband began constructing a chalet on the property.  The funds used to construct the chalet were channeled through two closely held corporations owned by husband, Valley Forge Enterprises (VFE) and Alpine Design, Inc.  Husband presented evidence that VFE borrowed $75,000 from husband's nonmarital inheritance account, $60,000 from the parties' daughter, $10,000 from the parties' granddaughter, and $9,500 from the parties' son. 

            Frank McLean, who testified as an expert for wife, opined that it was highly probable that the Clamshell Lake property could be rezoned from the current, more-restrictive shoreland residential 2 (SR2) classification to shoreland residential 1 (SR1).  Under an SR1 classification, the property could reasonably be subdivided into eight lots, which would maximize the property's value.  McLean testified as follows about how he determined the property's highest and best use:

[The use] must be legally permissible, the use must be physically possible, and the use should be financially feasible, and the use should be maximumly productive.

 

            I addressed the legally permissible in that the -- I find that there were no deed restrictions or environmental regulations, no restrictive building code that would preclude specific uses.  I note that the property is in a rural residential district, and I go on to discuss that in my opinion that the zoning could be changed to residential to allow for denser development of the property.  That addressed the legally permissible use, in my opinion, of highest and best [use].

 

            Then I discussed briefly the site characteristics, having nearly nine acres and 1,100 plus feet of frontage, and stated that I thought that eight sites would each include one acre or more and have 130 to 140 feet of frontage, both of those statistics being in excess of county minimum requirements under the residential zoning that existed at that time.  And I stated that in my opinion there was no unique physical characteristics of the property that would preclude residential development. . . .

 

            And then I addressed the feasibility of it and discussed the demand in the area for lakeshore properties and discussed the -- the challenges that would face a developer.  And in the subject case, they would be minimal.  There's a road fronting the entire length of the property.  There's public utilities along the road.  None of this infrastructure would be required for a developer to put in.  His costs would be primarily surveying and soft costs associated with all the legal hoops and jump-through to get the plat approved.  That addressed the feasibility.

 

            The fourth and final element is the maximumly productive.  And the demand for waterfront lots in this area is again strong and continues to be strong, and that I felt like there was an adequate market, that there would be a premium pay for these properties, and they would sell out relatively quickly. 

 

Using a discounted-cash-flow approach, McLean determined the value of the Clamshell Lake property to be $4,345,000, as the property is presently improved and assuming that it would be developed into separate lots.  McLean opined that if the property had not been improved, its value would have been $3,530,000. 

            Laura Lorek, a licensed real-estate agent who was trained as an appraiser and had experience selling lakeshore properties in the Brainerd Lakes area, opined that the property was worth $4,671,000.  She testified that if she were selling the property, she would advise that it be divided up into as many parcels as possible.  She also testified that her valuation was valid notwithstanding the current rural-residential zoning, which would permit subdivision into a maximum of three lots. 

            Janie Lapka, a licensed real-estate broker with 18 years of experience selling real estate in the Brainerd Lakes area, valued the property at $5,000,000.  She testified that if she were selling the property, she would advise the owner to subdivide it into as many lots as possible and that obtaining rezoning for that purpose in the area of the Clamshell Lake property was very common.  She also testified that her valuation was valid notwithstanding the current rural-residential zoning. 

            David Goedker, who testified as an expert for husband, valued the Clamshell Lake property at $2,155,000 using a cost-comparables method and based on the existing use.  Goedker appraised the property as a single-family residence with a guest cottage. 

            The district court adopted McLean's valuation of the Clamshell Lake property.  By order filed March 13, 2006, the district court granted in part husband's motion for amended findings, extending the time for payment of wife's lien against the Clamshell Lake property, but otherwise denied husband's motion.  On May 15, 2006, husband filed a notice of appeal from the December 28, 2005 judgment and the March 13, 2006 order.

            On April 24, 2006, husband filed a motion to reopen the judgment and decree.  By order filed May 23, 2006, the district court denied husband's motion in its entirety.  On June 21, 2006, husband filed a notice of appeal from the May 23, 2006 order.  This court ordered the two appeals consolidated.

D E C I S I O N

I.

            Asset valuations are findings of fact, and we will not set them aside unless they are clearly erroneous.  Minn. R. Civ. P. 52.01; Hertz v. Hertz, 304 Minn. 144, 145, 229 N.W.2d 42, 44 (1975).  Asset valuations that fall within the limits of credible estimates made by competent witnesses need not "coincide exactly with the estimate of any one [witness]" or exhibit.  Hertz, 304 Minn. at 145, 229 N.W.2d at 44.  Although the district court has broad discretion in the valuation of an asset, that discretion is not unlimited, and the valuation "should be supported by either clear documentary or testimonial evidence or by comprehensive findings."  Ronnkvist v. Ronnkvist, 331 N.W.2d 764, 766 (Minn. 1983). 

            In determining market value in the context of eminent domain, the court may consider any competent evidence if it legitimately bears upon the market value.  County of Ramsey v. Miller, 316 N.W.2d 917, 919 (Minn. 1982).  The measure of compensation is the amount that a purchaser willing but not required to buy the property would pay to an owner willing but not required to sell it, taking into consideration the highest and best use to which the property can be put.  Id.  The development-cost method "is recognized as an acceptable appraisal practice" and is designed to reflect, through cash-flow analysis, "the current price a developer-purchaser would be warranted in paying for the land, given the cost of developing it and the probable proceeds from the sale of developed sites."  Id. at 920-21.  "Elements affecting value that depend upon events or combinations of occurrences which, while within the realm of possibility, are not fairly shown to be reasonably probable, should be excluded from consideration . . . ."  Olson v. United States, 292 U.S. 246, 257, 54 S. Ct. 704, 709 (1934). 

[S]pecific numerical, analytical and illustrative evidence supporting the developmental cost approach appraisal will be allowed only if the party introducing such evidence can lay a proper foundation to show that (a) the land is ripe for development; (b) the owner can reasonably expect to secure the necessary zoning and other permits required for the development to take place; and (c) the development will not take place at too remote a time. 

 

Miller, 316 N.W.2d at 922.  Because the development-cost approach is complex and susceptible to manipulation, "it should be employed judiciously, when the other traditional methods for valuing property are not wholly reliable and only after a proper foundation has been laid."  Hansen v. County of Hennepin, 527 N.W.2d 89, 94 (Minn. 1995); see Miller, 316 N.W.2d at 919 (listing traditional real-property valuation methods).

            The district court adopted McLean's $4,345,000 valuation of the Clamshell Lake property.  McLean's valuation method complied with the requirements for determining value in an eminent-domain proceeding.  Given the characteristics of the Clamshell Lake property, we conclude that use of the development-cost method was appropriate in this case. 

            Husband first argues that McLean's valuation was erroneous because it depended on the speculative assumption that the property could be rezoned to permit its subdivision into eight lots.  Based on 19 years of experience appraising lakeshore properties in the Brainerd Lakes area and consideration of the development and zoning classification of nearby properties, McLean opined that rezoning of the Clamshell Lake property was "highly probable."  Lapka's testimony also indicated that rezoning was likely to be approved.  Lapka testified that the best way to market the property would be "to get the minimum lot width to maximize value" and that "it's very common to get a rezoning to do that, and in that area especially."  The rezoning assumption in this case meets the standard that "the owner can reasonably expect to secure the necessary zoning and other permits required for the development to take place."  Miller, 316 N.W.2d at 922.

            Citing Kitchar v. Kitchar, 553 N.W.2d 97 (Minn. App. 1996), review denied (Minn. Oct. 29, 1996), husband argues that "[t]his court has signaled that when valuing real property in a dissolution proceeding, district courts are not to assume that the property can and will be rezoned."  Husband's argument misconstrues Kitchar.  In Kitchar, this court affirmed the district court's adoption of a valuation that did not involve rezoning, but this court did not indicate that rezoning was an impermissible assumption.  553 N.W.2d at 102.

            Husband also relies on Stageberg v. Stageberg, 695 N.W.2d 609 (Minn. App. 2005), review denied (Minn. July 19, 2005).  But Stageberg involved the valuation of the marital interest in contingent legal fees that would be generated by a law practice, and it is not on point.  695 N.W.2d at 616-17.

            Husband argues that using the development-cost method in this case was contrary to Buzick v. City of Blaine, 505 N.W.2d 51 (Minn. 1993).  The Buzick court stated, "Property is ripe for development when the improvements are completed making possible the development of the property at its highest and best use."  505 N.W.2d at 53.  Buzick was a special-assessment case, and the term "improvements" referred to the paving of city streets and construction of city waste and sewer mains.  Id. at 52.  McLean considered the presence of such improvements when valuing the Clamshell Lake property, noting that a developer's costs would be minimal because a road fronted the entire length of the property and there were public utilities along the road.  Use of the development-cost method in this case is not contrary to Buzick.

            Husband's valuation argument disregards the valuation opinions of three qualified experts who testified at trial.  This court defers to the district court's determinations regarding the weight and credibility of expert evidence.  Alstores Realty, Inc. v. State, 286 Minn. 343, 353, 176 N.W.2d 112, 118 (1970).  In the memorandum accompanying the order denying husband's motion for amended findings, the district court provided a detailed explanation that stated valid reasons for rejecting Goedker's valuation and adopting McLean's.  The district court did not err in valuing the Clamshell Lake property.  We note that the valuation adopted by the district court was less than those of Lorek and Lapka, who valued the property at $4,671,000 and $5,000,000, respectively.  Lorek testified that her valuation was valid even if rezoning was not obtained. 

            Husband argues that the value of marital improvements to the Clamshell Lake property totaled at most $334,000, and, therefore, the district court erred in determining the marital interest to be $825,000.  The district court explained its determination of the marital interest as follows:

            Mr. McLean was . . . assigned the task of determining the hypothetical value the property would have if [husband] had acquired the entire property before the marriage and had done nothing to it during the 43-year marriage specifically, if [husband] had not cleared the land, landscaped the property, planted the trees, built the cabin, boathouse, and pole barn, or constructed the Swiss-style chalet.  He concluded that the property would have been worth $3,530,000 under that hypothetical.  The difference of $815,000 would be marital property, and to that figure must be added the value of the island parcels acquired during the marriage, $10,000 according to [husband].

 

            . . . .

 

            [Husband] . . . argues that the marital component of value should be limited to the depreciated cost of reproducing the structures on the property estimated variously by the appraisers at $334,000 to $355,000.  But that approach ignores the synergistic effects of locating the chalet on the shore of a lake (a marital decision requiring marital effort and funds), as opposed to locating the chalet on a former cornfield or Brainerd city street.  While Mr. McLean estimated the depreciated cost of reproducing the chalet at $284,059 including the well and septic system . . . and the cost of acquiring similar lakeshore for a 133 frontage foot lot at $3,200 per foot or $425,600, he has valued the chalet and a 133 frontage foot lot together at $1,047,600.  In other words, the whole is greater than the sum of its parts because of the incredibly high demand created by combining a Swiss chalet with scenic lakeshore. 

 

We affirm the district court' determination of the marital interest in the Clamshell Lake property.

II.

            Husband argues that the district court erred in failing to reduce the value of the Clamshell Lake property by $175,333, the amount of loans and accrued interest owed by VFE to the parties' daughter, son, and granddaughter and to husband's inheritance account.  The district court explained that its decision to disregard the loans to the parties' daughter and granddaughter was due to inconsistent representations by husband about the purported loans, the lack of documentation of the purported loans and their terms, and the lack of evidence corroborating husband's testimony.  The district court also noted that at the same time VFE was purportedly borrowing money from the parties' daughter in increments of $10,000, husband was gifting substantial sums of money to the daughter, also in increments of $10,000.  Although the district court did not specifically address the money allegedly borrowed from the parties' son and husband's inheritance account, in addressing the purported loans from the daughter and granddaughter, the court found "that there has been insufficient proof of the existence of any loans." 

            Husband argues that the district court incorrectly understood that as a matter of law, it could not consider loans between family members.  But the district court's statements show that it was exercising its discretion when it declined to deduct the amount of the purported loans from the value of the Clamshell Lake property, and the court acted within its discretion in doing so.  See Novick v. Novick, 366 N.W.2d 330, 332 (Minn. App. 1985) (affirming finding that money received by wife from her parents were gifts rather than loans when the advances were undocumented, unsecured, and without interest).

III.

            "District courts have broad discretion over the division of marital property and appellate courts will not alter a district court's property division absent a clear abuse of discretion or an erroneous application of the law."  Sirek v. Sirek, 693 N.W.2d 896, 898 (Minn. App. 2005).  A district court's division of marital property need only be "just and equitable."  Minn. Stat. § 518.58, subd. 1 (2006).  "An equitable division of marital property is not necessarily an equal division."  Crosby v. Crosby, 587 N.W.2d 292, 297 (Minn. App. 1998), review denied (Minn. Feb. 18, 1999).  A division of property will be affirmed if it has "an acceptable basis in fact and principle" even if this court might have resolved the matter differently.  Rohling v. Rohling, 379 N.W.2d 519, 522 (Minn. 1986) (quoting Bollenbach v. Bollenbach, 285 Minn. 418, 426, 175 N.W.2d 148, 154 (1970)).

            The district court awarded wife a 60% share of the marital estate,[1] explaining the disproportionate award as follows:

            Given the extraordinary length of the marriage, given the fact that both parties have passed normal retirement age, and given that [wife] should be able to retire from teaching piano, just as [husband] has retired from the practice of law, and be self-sufficient on the basis of the assets awarded to her, and taking into account the substantial nonmarital property [husband] will retain after the dissolution of the marriage, the Court finds that the following disproportionate division of marital property is fair and equitable after consideration of all of the factors set forth in Minn. Stat. § 518.58 . . . .

 

            While the above division gives [wife] approximately 60% [ ] of the marital property, it gives [husband] 70 percent of the total marital and nonmarital assets after a 43-year marriage.  [Wife] is also awarded more than 50% of the marital assets because of the following:

            (1) Given the extraordinary length of the marriage and the ages of the parties, it would constitute unfair hardship for [wife] not to be awarded sufficient property to render her self-sufficient, apart from her income as a piano teacher.  Given [wife's] age and health problems . . ., she should not be forced to continue teaching piano well past her normal retirement age.

            (2) [Husband] has substantially more property available to him and a likely sale of a portion of the lakeshore real estate will allow him greater opportunity to acquire assets in the future. 

 

            The factors considered by the district court in awarding wife a disproportionate share of the marital estate are permissible factors to consider in the division of marital property.  See, e.g., Kaste v. Kaste, 399 N.W.2d 128, 130 (Minn. App. 1987) (upholding division of marital property awarding wife 57% of marital estate considering wife's health and occupational and financial difficulties), review denied (Minn. Mar. 13, 1987). The district court did not abuse its discretion in dividing the marital property.

IV.

            Husband argues that the district court erred in denying his motion to reopen the judgment based on fraud.  A dissolution judgment may be reopened for ordinary fraud.  Minn. Stat. § 518.145, subd. 2(3) (2006).  A motion to reopen for ordinary fraud must be treated as a complaint in an independent fraud allegation.  Doering v. Doering, 629 N.W.2d 124, 130 (Minn. App. 2001), review denied (Minn. Sept. 11, 2001).  The court must hold an evidentiary hearing on the fraud claim unless "there is no genuine issue of material fact in dispute and where a determination of the applicable law will resolve the controversy."  Id. (quotation omitted).  "Ordinary fraud, in a dissolution context, does not require an affirmative misrepresentation or an intentional course of concealment because parties to a marriage dissolution have a duty to disclose all assets and liabilities completely and accurately."  Id.  

            Wife failed to disclose an asset that she owned that was worth about $50,000, which is less than one percent of the total assets divided by the court.  The asset is a remainder interest in real property owned by wife's mother.  Husband submitted no discovery requests specifically addressing the omitted asset, and wife stated in an affidavit that she did not understand that the future interest was relevant to the dissolution proceeding.  It is understandable that a layperson would not understand that a future interest in real estate is a present asset for purposes of a dissolution proceeding, particularly when, as here, the layperson was not involved in the details of the estate planning that resulted in the creation of the future interest and the interest was created many years earlier.  Husband argues that he should have been permitted discovery on the issue, but he has made no showing that discovery would likely lead to relevant evidence.  The district court did not err in finding that the lack of disclosure did not affect the fairness of the property division and denying husband's motion to reopen the dissolution judgment without an evidentiary hearing.

V.

            The record on appeal consists of "[t]he papers filed in the trial court, the exhibits, and the transcript of the proceedings."  Minn. R. Civ. App. P. 110.01.  "An appellate court may not base its decision on matters outside the record on appeal, and may not consider matters not produced and received in evidence [in the district court]."  Thiele v. Stich, 425 N.W.2d 580, 582-83 (Minn. 1988).

            Husband moves to strike from the appendix to wife's brief a letter written by McLean.  Because the letter was not part of the district court record, we grant husband's motion.  Wife moves to strike from husband's brief and reply brief references to amendments to the zoning ordinance that occurred after the district court issued its decision.  The zoning ordinance and amendments are legal authorities that may be considered by this court to the extent that they are relevant to this appeal.  Accordingly, we deny wife's motion.

            Affirmed.

[1] Husband's argument that the district court awarded wife 85% of the marital estate is based on his claim that the district court erred in valuing the Clamshell Lake property.