Marriage of Brooks ( 2019 )

Filed 3/27/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
In re the Marriage of VIOLET and EVAN H043467
BROOKS. (Santa Clara County
Super. Ct. No. 2009-6-FL-001820)
VIOLET BROOKS,
Appellant,
v.
EVAN BROOKS,
Respondent.
In this dissolution action, appellant Violet Brooks (Wife) appeals from an order
entered after trial on the bifurcated property issue of how to apportion certain stock
appreciation. Respondent Evan Brooks (Husband) owned stock in a business he started
prior to marriage; the trial court applied the Van Camp formula1 to apportion the
appreciation of the stock during the marriage. Utilizing this approach, the court
characterized the increased value of the stock after marriage as return on Husband’s
separate property, finding that Husband did not contribute to the growth of the business
after the date of marriage. Wife contends that the trial court erred in rendering that
ruling. We disagree and affirm the trial court’s order.
1
See Pereira v. Pereira (1909) 156 Cal. 1, 7-8 (Pereira); Van Camp v. Van Camp
(1921) 53 Cal. App. 17, 27-28 (Van Camp). The two apportionment formulas derived
from these cases are discussed more thoroughly below. In brief, under the Pereira
approach, the court calculates a fair return on the spouse’s separate property investment
in the business, with the remainder belonging to the community. Under the Van Camp
method, the court values the spouse’s community property efforts devoted to the
business, with the remainder constituting separate property income.
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2014, the trial court heard evidence on a variety of issues, during which the
parties agreed the pivotal issue was the characterization of assets derived from a company
known as DigiDesign, which Husband co-founded prior to the marriage. Pursuant to the
parties’ agreement, the trial court issued a bifurcated ruling on that issue in February
2016, in the form of a “Final Statement of Decision Re Characterization of DigiDesign
Adopting a Van Camp Analysis.” The court based its ruling on the evidence and
argument presented during the 28-day court trial. Relevant to the issues on appeal, the
court heard testimony from Wife, Husband, Peter Gotcher, Mark Jeffrey, Paul Lego, and
expert witnesses David Schultze, James Butera, and Timothy Harper. We glean the
following from the record created during the trial.
A. The Parties’ Background
The parties married in June 1989, and separated in March 2009, after nearly
twenty years of marriage. They met in 1981 or 1982, shortly after Husband finished
college at University of California Berkeley. The parties lived together starting in 1985.
B. Husband’s Role in DigiDesign
In 1983, Husband and his friend, Peter Gotcher, started a company manufacturing
replacement sounds on digital chips for digital drum machines. They incorporated the
company under the name DigiDesign in 1984, prior to the parties’ marriage. Husband
and Gotcher each invested $7,000 in capital; the company issued stock, and each founder
held shares equally. Husband acquired all of his stock prior to marriage. DigiDesign
became known for two “industry-altering products”: Sound Tools and Pro Tools, both of
which achieved “remarkable and international market success.” Gotcher explained that
Sound Tools and Pro Tools were “digital audio work stations” that “made it possible to
edit [sound] visually,” using a computer and computer monitor, “as opposed to the old
technique, which was cutting tape with a razor blade.” These products became “the new
editing paradigm, whereas, splicing tape had been the old one. [¶] Like going from a
2
typewriter to a word processor.” As a result of their work, DigiDesign won several
awards, including an Oscar and a Grammy. Avid bought DigiDesign in January 1995,
for $200 million. Husband’s shares of stock in DigiDesign were converted to stock in
Avid. At the time of the sale, Husband’s stock was worth approximately $38 million.
Gotcher and Husband had different roles within the company. Gotcher ran the
business side of the company; he did not have the software coding or hardware skills that
Husband possessed. Husband worked on a number of products and related product lines
during his tenure with DigiDesign, namely the software component of Sound Tools,
called Sound Designer, and its progeny. He held numerous formal and informal titles as
well, including vice president, chief scientist, chief technology officer, and director.
These titles did not significantly affect Husband’s job duties; Gotcher testified chief
scientist and chief technology officer were “honorific” with no attendant responsibility.
Gotcher served as CEO. While Husband was a director, the Board of Directors did not
elect to exercise control over Gotcher’s authority to determine the company’s products
and services.
Husband was the inventor and key software developer of Sound Designer, which
went to market in 1984 or 1985, and which was updated approximately 10 times between
1984 and 1989, the year the parties married. Sound Designer was a software application
that worked with Apple Macintosh computers to take sounds from a digital sampling
keyboard, see them graphically on the computer screen, edit and process the sounds, and
send them back to the keyboard for performance. DigiDesign launched Sound
Designer II in March 1989; Husband was the key software developer for it as well.
Gotcher referred to Sound Designer II as a “mature product,” as its predecessor had been
on the market for four to five years.
Sound Designer II was the user interface for the product known as Sound Tools, a
bundled product containing three to four hardware components and the Sound Designer II
software. Sound Designer was an essential component of Sound Tools. Sound Tools
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shipped in March 1989, prior to the parties’ marriage. It was the flagship product for
DigiDesign for several years, when another product, Pro Tools, eclipsed it; Gotcher
testified Pro Tools exceeded Sound Tools in 1992 or 1993. Husband’s primary task after
Sound Designer II shipped was supporting the software. Husband designed the prototype
for the hardware component of Sound Tools, after which the company delegated the
project to other engineers. Husband was not responsible for developing and maintaining
the hardware that shipped to customers.
At the time the parties married, Sound Tools was a new product to which the
company was still adding features, such that they were in what Gotcher called an
“investing” phase. The company continued to modify Sound Tools from 1989 until the
release of Pro Tools in 1991. While Husband testified that he did not do a “substantial”
amount of work on Sound Tools after the date of marriage, as so much work had already
been done prior to its release, Gotcher testified Husband was “heavily involved” in the
process. Husband was the key software engineer for the product; if someone reported
issues regarding the software, he was the person to call. A team of people worked on the
upgrades and improvements, such that Sound Designer became a mix of Husband’s
algorithms and those of other employees; Husband incorporated the team’s work into the
application. While Gotcher described Sound Tools as being in the investing phase in
June 1989, he said the development of new functionality in Sound Designer was tapering
off by that time. Husband contends he spent more time working on other projects from
June 1989 to the release of Pro Tools in 1991, rather than working on Sound Designer.
DigiDesign released Sound Tools II during the marriage, but it was an “invisible
upgrade” using the same Sound Designer II software. At trial, Gotcher opined
DigiDesign would not have been successful if Sound Tools was its only product, as it did
not have the market potential to grow and generate income in the same way Pro Tools
did.
4
Pro Tools provided “a leap in advancement in capability when it was released in
August 1991.” Where Sound Tools allowed for the editing of only two tracks, Pro Tools
introduced multi-track functions, where each track could record and playback
independently. Gotcher conceived of Pro Tools and its enhanced features in 1989,
around the time Sound Tools shipped. He tasked another DigiDesign employee, Mark
Jeffrey, to design and develop Pro Tools in late 1989; it used a different computer
language from that used to write Sound Designer II. While the company discussed
whether Sound Tools and Sound Designer could become multi-track, they determined
they would be better off starting from scratch. Sound Designer was not architected to be
a multi-track application, and did not have the correct user interface or real time audio
recording and processing engine to be multi-track. Pro Tools had a number of features
not available with, or achievable by, Sound Tools. Pro Tools did not use the same
software as Sound Tools; they were different platforms.
Although listed as the primary inventor on one of the patents related to Pro Tools,
for software essential to Pro Tools’ operation, Husband did not participate in the
development of Pro Tools’ software or hardware. Rather, his role was to maintain Sound
Designer II. Husband did not direct or guide Jeffrey’s work on Pro Tools; Jeffrey
testified he did not consult Husband in the design of Pro Tools in any significant way. A
key decision resulting in Pro Tools’ success was to provide an open architecture allowing
users to use Pro Tools’ hardware with third party software and applications, a decision
made by Gotcher; Husband was not involved in that decision.
Once released, Pro Tools quickly became DigiDesign’s primary product. The
revenue Sound Tools generated dropped within a few years of its release; it reached its
peak revenue in 1991. By 1992, Sound Tools accounted for 25 percent of the company’s
revenue. Husband’s retained valuation expert David Schultze testified DigiDesign’s
value would have decreased after the date of marriage had Sound Tools been the only
product sold; the increase in value was the result of Pro Tools and had nothing to do with
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Husband’s post-marriage efforts, as his contribution was equal to the contributions made
by every employee during that period. Rather, it was Husband’s pre-marriage efforts that
provided the most value increase, as Sound Tools did contribute prior to Pro Tools’
release; Schultze noted Sound Tools was developed and released prior to the date of
marriage.
By the time Avid acquired DigiDesign, Sound Tools’ revenue comprised 4 percent
of DigiDesign’s revenue. Sound Tools was part of the reason Avid acquired DigiDesign.
Avid was interested specifically in the hardware component of Sound Tools, rather than
the Sound Designer software. But the primary reason Avid purchased the company was
to acquire Pro Tools, as Avid was already an original equipment manufacturer (OEM) of
Pro Tools, using it as an audio component of their systems. Gotcher believed Pro Tools
was DigiDesign’s most important product at the time of the sale, an opinion shared by
Wife’s valuation expert, James Butera. Gotcher and Paul Lego, who was DigiDesign’s
chief operating officer at the time, negotiated the sale to Avid; Husband did not attend
negotiation meetings with Avid.
Although Pro Tools did eventually become the company’s flagship product, there
was a period after its release where it did not do well. Jeffrey testified Pro Tools was
“buggy” and described the software as not being “mature in terms of its feature set.”
DigiDesign used an outside software development team on the very first version of Pro
Tools, the results of which Gotcher described as a “disaster” and “train wreck.” The trial
court found DigiDesign might have “lost the market share” without Husband’s continued
work on Sound Tools, as Pro Tools was not a market success for several years.
Gotcher testified DigiDesign would not have existed without Husband, because
Husband had the technical skills the company needed at its start. The company
maintained “key man” life insurance policies on Husband and Gotcher, as well as on
Lego. Husband’s compensation expert, Timothy Harper, testified that Husband’s work at
DigiDesign helped create a positive culture, making it one of the best places to work.
6
Gotcher confirmed that the increase in the company’s value between the date of the
parties’ marriage and the date of the sale to Avid was due to “active appreciation,”
meaning “it was due to activity and things that were going on within the company, new
products, new hires . . . versus simply watching it grow on its own passively.” Schultze
opined that the value increased not because of Husband and his “community efforts,” but
rather “due to the organization itself, the fact that it was able to raise capital through a
Series A, B, C preferred stock; that it has a significant number of employees; that . . . the
value is driven by the products that the company has developed and sold, that it doesn’t,
per se, relate to personal efforts. It’s really a product-driven company.”
C. Husband’s Work Habits and Salary
From the date of marriage through the sale of DigiDesign to Avid, Husband
worked long hours for DigiDesign. Wife testified that he was “always working”; he
worked Monday through Friday, and on weekends, getting up early to go to work, and
staying “well into dinner or past dinner.” Wife described Husband as always being “on,”
in that “he was always thinking about DigiDesign or working—working on projects for
DigiDesign.” Husband’s work habits did not diminish between the date of marriage and
the end of Husband’s time working for the company in 1996. Gotcher confirmed that
Husband worked “full-time, if not more than full-time” during the relevant period.
Between the date of marriage and the sale of DigiDesign to Avid, Husband
received a yearly salary from DigiDesign. He earned $68,412 in W-2 wages in 1989;
$90,773 in 1990; $113,429 in 1991; $101,060 in 1992; $119,888 in 1993; and $140,675
in 1994. All witnesses who testified on the subject opined Husband’s salary during this
period adequately compensated the community for his efforts. Lego, who had oversight
of the salaries paid to DigiDesign employees, testified the company used Radford, a
“salary benchmarking and survey service,” to set salary levels for himself, Gotcher and
Husband, as well as all employees. Expert Harper described Radford as being “state of
the art”; “they’re known for technology, salary compensation studies that are accurate,
7
and they’re held in high esteem by companies.” Overall, the company maintained
salaries that “were kind of right at the midpoint, maybe slightly below the midpoint of the
Radford surveys,” because DigiDesign was a company people in the industry wanted to
work at, so it could afford to be “slightly below the 50th percentile and still attract great
employees.” Lego described Husband’s function at the company between mid-1989 and
the end of 1994 as that of a “very high-level . . . contributor engineer” with no
management duties; while he was on the board of directors and participated in executive
team meetings, he did not take a leadership role.
Although they started the company together, from mid-1989 through the sale to
Avid, Gotcher received higher compensation than Husband. Husband knew Gotcher
made more money and understood that Gotcher’s salary would rise based on what would
be expected for a chief executive officer. Husband testified that he was “informed” that
his salary was “fairly high” for what he was doing; if he wanted it to continue to rise, he
needed to go into management, something he did not like and was not good at. Gotcher
believed Husband received fair compensation from 1989-1993. Similarly, Lego also felt
Husband received fair compensation during this period; he based his belief on the
Radford surveys, as well as “internal equity,” comparing Husband to “all the other
executives in the company.” Lego indicated his opinion Husband received fair
compensation also included the fact he had some equity in the company, in addition to his
salary.
Harper, Husband’s compensation expert, confirmed Husband had minimal if any
management duties after marriage, characterizing Husband’s job as that of a “software
programmer, a senior software guy.” “Senior software programmer” is the job
description Harper felt best fit Husband’s job duties when he did a comparative salary
analysis, noting that in technology start-up companies he frequently sees job titles that do
not reflect the person’s actual duties. While Husband’s job title was chief technology
officer, after talking with Husband, Harper determined Husband did not have the
8
executive managerial functions he would expect from someone with that title, particularly
given that Husband was not involved with Pro Tools. In Harper’s opinion, Husband
received “competitive” compensation for his services from 1989 to 1994, both inside
DigiDesign and compared to other technology start-ups in the nature of DigiDesign. He
based his comparison primarily on wages, not including bonuses, commissions, other
cash incentives, or stock options; Harper testified he gave more weight to wages because
that is generally how start-ups operate, “there’s not a lot of money to throw around on
profit sharing or even bonuses because companies are cash starved, and even if they
make a little money, they don’t have a lot to throw around.” Harper confirmed that in
1988, “equity interest or equity compensation in the form of stock or stock option was
generally a very critical part of an executive’s . . . compensation package.”
Wife did not offer any contrary expert opinion. Her retained expert, Butera,
addressed Husband’s compensation as part of his valuation of DigiDesign, but did not do
so in an effort to address whether or not Husband’s compensation was reasonable; Butera
had not qualified as a compensation expert, or consulted with such an expert in his work
in this case. Rather, he offered an opinion about “replacement compensation” for
Husband in the context of his valuation of DigiDesign at various points in time under the
Pereira method. While he used figures that were higher than Husband’s actual reported
salary, Butera stated it was common for the actual salary figures to be “substantially
higher or lower” than the figure he used for replacement compensation.
Similarly, Schultze was not specifically retained to offer an opinion as to whether
Husband received adequate compensation from DigiDesign in the form of salary and
bonuses; he recommended Husband hire a compensation expert to undertake that
analysis. Yet, Schultze did testify that he believed Husband was fairly compensated in
bonuses and salary, if not overpaid, compared to Jeffrey, who Schultze considered the
most comparable employee in terms of job function. Schultze also opined that Husband
would have received stock options if he was not a founder of the company, as he was a
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“key employee.” Thus, Schultze believed that had Husband been a regular employee of
DigiDesign from 1989 to 1995, he likely would have received stock options, just as Lego
and Jeffrey did; because he did not receive such options, Schultze stated Husband was
not fairly compensated “[i]n regards to stock options.”
D. The Trial Court’s Ruling and Subsequent Proceedings
After issuing a tentative decision and two proposed statements of decision, and
receiving additional briefing from the parties, the trial court issued its “Final Statement of
Decision Following Court Trial Re Characterization of DigiDesign – Adopting a Van
Camp Analysis.” The court stated at the outset, “After reading the parties’ supplemental
papers, the Court performed an additional review of the evidence submitted in the trial
and concluded that [Husband] has correctly argued the facts and the law. As such, the
Court has determined that is must take the Van Camp approach.” The court included
several factual findings relevant to the appeal: “. . .[t]he evidence is clear that Sound
Tools was a successful and mature product before the marriage and that Digi Design’s
[sic] growth after the marriage did not stem from extraordinary contributions by
[Husband]”; and, “Mr. Schultze and Mr. Timothy Harper, as well as the facts, establish
that the community was adequately compensated by [Husband’s] earnings during the
marriage.”
Additionally, the court found, “Although Sound Designer was a relatively mature
product when it was released prior to the marriage, [Husband] continued to work on and
update Sound Tools which contributed to the continued growth of the company”;
“[Husband] was a critical member of DigiDesign, contributing greatly to the company’s
success during the life of Sound Tools”; “. . . DigiDesign would not have been able to
maintain and improve [Sound Tools] without [Husband’s] ongoing deployment on Sound
Tools during the term of the marriage. . . . If Sound Tools had not been constantly
updated, DigiDesign might have lost market share since Pro Tools was not a market
success until 1992 and it did not overtake Sound Tools completely until 1994”;
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“Although [Husband] played no role as an executive leader of the company, his skills,
time, talents, energy and labor were singularly required to maintain the company’s
viability until at least 1992 when Pro Tools began to experience success and no later than
1994 when Pro Tools eclipsed Sound Tools as DigiDesign’s best selling product”;
“[Husband] earned yearly salaries at DigiDesign that ranged from $30,000 in 1989 to
$100,000 to $120,000 in 1993.”
Finally, in the conclusion of the final statement of decision, the trial court stated,
“Based [on] the above findings of fact, the Court is satisfied that it should make an
apportionment of the DigiDesign profits between the separate and community estates. . . .
[¶] While some evidence supports that [Husband] was important to the company and held
an officer’s position, he did not play a leadership role in the company. He did not
contribute to the company’s growth after the date of marriage. That role was fulfilled by
others at DigiDesign. Accordingly, the Court adopts a Van Camp approach in
apportioning the company’s growth between [Husband] and the community. The Court
finds that the appreciation of the DigiDesign stock was return on [Husband’s] separate
property—shares that were issued to him before the marriage.”2 The court ordered the
parties to proceed before a special master based on its ruling.
Shortly after the court issued its final statement of decision, Wife filed a request
for order seeking a certificate of probable cause to appeal the bifurcated ruling. After
receiving briefing from both parties, the court held a hearing on the request in March
2016, at which it granted the motion, finding that immediate appeal of the final statement
of decision was warranted. In its written order, the trial court ruled that the final
statement of decision constituted an order deciding a bifurcated issue in a family law
2
Although the evidence indicates Husband’s DigiDesign stock was converted into
Avid stock once Avid bought DigiDesign, the trial court refers to the stock at issue as
DigiDesign stock. Given the factual circumstances of this case, we will do the same, as it
is Husband’s efforts prior to the sale of DigiDesign to Avid that are at issue here.
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matter, thus it granted the motion pursuant to Family Code section 2025 and California
Rules of Court, rule 5.392(b) and (c). Within the time established by California Rules of
Court, rule 5.392(d), Wife moved this court for permission to appeal, which we granted
on May 4, 2016.
II. DISCUSSION
On appeal, Wife disputes the trial court’s decision to use the Van Camp method to
apportion the increase in the value of Husband’s DigiDesign stock post-marriage. She
argues the court should have instead used the Pereira method, as she contends Husband’s
post-marriage efforts caused the increase in the company’s value. Husband first argues
Wife failed to comply with the rules of appellate advocacy, such that she waived any
substantial evidence issues. To the extent we consider Wife’s contentions, Husband
argues it was the efforts of others, not his own efforts, that lead to the increase in the
company’s value, such that the court correctly used the Van Camp method to apportion
the increase.
At the threshold, we consider and reject Husband’s waiver argument. We then
address Wife’s arguments on the merits, first describing the standard of review, then
summarizing the applicable legal principles, and finally applying those principles to the
case before us.
A. Rule Violations
Husband accuses Wife of violating a primary rule of appellate advocacy, requiring
the appellant to summarize all material evidence on point in her opening brief, not just
the evidence favorable to appellant. He argues that Wife’s opening brief constitutes a
“one-sided presentation of the evidence.” As Husband correctly observes, the parties to
an appeal “are required to set forth in their brief all the material evidence on the point and
not merely their own evidence.” (Foreman & Clark Corp. v. Fallon (1971) 3 Cal. 3d 875,
881, italics omitted; see In re Marriage of Davenport (2011) 194 Cal. App. 4th 1507, 1531
(Davenport) [reciting only favorable evidence and making an argumentative factual
12
presentation that merely reasserts position at trial “disregards the most fundamental rules
of appellate review.”].) While Wife’s statement of facts emphasizes the evidence
favoring her position, we decline to find that she violated the rules of appellate advocacy
in doing so, or that any rule violation is so egregious as to warrant forfeiture. We
therefore exercise our discretion to disregard any deficiencies in her brief.
B. Standard of Review
We review issues pertaining to the allocation of the community’s interest in a
spouse’s separate property business for abuse of discretion. (In re Marriage of Brandes
(2015) 239 Cal. App. 4th 1461, 1473 (Brandes).) “Discretion is abused whenever, in its
exercise, the court exceeds the bounds of reason, all of the circumstances before it being
considered. The burden is on the party complaining to establish an abuse of discretion,
and unless a clear case of abuse is shown and unless there has been a miscarriage of
justice a reviewing court will not substitute its opinion and thereby divest the trial court
of its discretionary power. The abuse of discretion standard . . . measures whether, given
the established evidence, the act of the lower tribunal falls within the permissible range of
options set by the legal criteria. As long as there is a reasonable or even fairly debatable
justification for the ruling, we will not set it aside.” (Id. at pp. 1473-1474, internal
quotations and citations omitted.) “Where statement of decision [sic] sets forth the
factual and legal basis for the decision, any conflict in the evidence or reasonable
inferences to be drawn from the facts will be resolved in support of the determination of
the trial court decision.” (Davenport, supra, 194 Cal.App.4th at p. 1531, internal
quotations and citations omitted.)
In her briefs, Wife argues we should review the trial court’s findings de novo,
because the order “rests on undisputed facts.”3 She cites In re Marriage of Blazer (2009)
176 Cal. App. 4th 1438, 1443, in support of this position, a case in which this court
3
At oral argument, Wife’s attorney seemingly conceded abuse of discretion is the
appropriate standard of review.
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determined a spousal support order is generally reviewed for abuse of discretion, but a
question of law based on undisputed facts is reviewed de novo. Wife contends the facts
on which the trial court based its decision to apply the Van Camp method were not in
dispute. We disagree. The trial court’s ruling in the case before us rests on the disputed
factual question of whether Husband’s efforts during the marriage contributed to the
growth of DigiDesign. The court heard competing evidence on this point. “It is
primarily a question of fact for the court to determine what portion of the profits
thereafter arises from the use of [the spouse’s] (separate) capital and what part arises
from the activity and personal ability of the husband.” (Somps v. Somps (1967)
250 Cal. App. 2d 328, 335-336 (Somps), internal quotations and citations omitted.)
Therefore, we decline to apply the de novo standard of review. We consider the trial
court’s adoption of the Van Camp method of apportionment under the abuse of discretion
standard. We review the trial court’s factual findings for substantial evidence. (See
Oregel v. American Isuzu Motors, Inc. (2001) 90 Cal. App. 4th 1094, 1100; Somps, supra,
250 Cal.App.2d at pp. 334-335.) “In so doing, we ‘view the evidence in the light most
favorable to the prevailing party, giving it the benefit of every reasonable inference and
resolving all conflicts in its favor in accordance with the standard of review so long
adhered to by this court.’ [Citation.] If the record demonstrates substantial evidence in
support of the judgment, we must affirm even if there is substantial contrary evidence.
[Citation.]” (Donovan v. Poway Unified School Dist. (2008) 167 Cal. App. 4th 567, 582
(Donovan).)
C. The Trial Court Did Not Abuse Its Discretion by Selecting Van Camp Method
1. General Legal Principles
The parties did not ask the trial court to characterize the stock Husband received
for DigiDesign; he earned that stock prior to marriage; clearly it was his separate
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property.4 (See In re Marriage of Dekker (1993) 17 Cal. App. 4th 842, 850 (Dekker).)
“When a spouse’s personal efforts increase the value of his or her separate property
business, ‘it becomes necessary to quantify the contributions of the separate capital and
community effort to the increase,’ because the ‘community is entitled to the increase in
profits attributable to the community endeavor.’ [Citations.]” (Brandes, supra,
239 Cal.App.4th at p. 1472.) Thus, the parties asked the trial court to apportion the post-
marriage increase in the value of Husband’s DigiDesign stock between his separate estate
and the community. The key issue at the bifurcated trial was which method of
apportionment to use—the Van Camp method, advocated by Husband, or the Pereira
method, advanced by Wife.
“ ‘Pereira is typically applied where business profits are principally attributed to
efforts of the community.’ [Citation.] ‘The Pereira approach is to allocate a fair return
to the separate property investment and allocate the balance of the increased value to
community property as arising from community efforts.’ [Citation.] In a Pereira
allocation, the court need not ‘limit the community interest to a salary as reward for a
spouse’s efforts . . . .’ [Citation.] ‘To limit the community to compensation received by
way of salary during the marriage would ignore California’s egalitarian marriage model
and the apportionment formula of Pereira . . .’ [Citation.] [¶] ‘Conversely, Van Camp is
applied where community effort is more than minimally involved in a separate business,
yet the business profits accrued are attributed to the character of the separate asset.’
[Citation.] ‘The Van Camp approach is to determine the reasonable value of the
community’s services, allocate that amount to community property and the balance to
separate property.’ [Citation.]” (Brandes, supra, 239 Cal.App.4th at p. 1473.)
Although courts regularly refer to these two methods of apportionment, we have
not developed a “precise criterion or fixed standard, but have endeavored to adopt that
4
On appeal, Wife conceded Husband’s “stake in DigiDesign on the date of
marriage was his separate property . . . .”
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yardstick which is most appropriate and equitable in a particular situation . . . depending
on whether the character of the capital investment in the separate property or the personal
activity, ability, and capacity of the spouse is the chief contributing factor in the
realization of income and profits [citations].” ’ [Citation.] The court ‘ “may select
[whichever] formula will achieve substantial justice between the parties. [Citations
omitted in orig.]” ’ [Citations.]” (Brandes, supra, 239 Cal.App.4th at p. 1473.) Thus in
Brandes, the trial court applied both methods, finding Pereira applied to an early period
in the marriage, and Van Camp to a later period; the appellate court upheld this hybrid
approach, illustrating the trial court’s broad discretion in choosing the formula that will
achieve substantial justice between the parties.
2. The Trial Court Did Apportion the Post-Marriage Growth
Wife argues the trial court’s application of the Van Camp method did not achieve
substantial justice, in that the trial court found the entire appreciation of the DigiDesign
stock to be return on Husband’s separate property, based on its finding that Husband’s
efforts, and thus, the community’s efforts, did not contribute to DigiDesign’s post-
marriage growth. In her opening brief, Wife contends the trial court did not apportion the
post-marriage growth at all. Wife is incorrect.5 The trial court clearly stated, “based [on
its] finding of fact, the Court is satisfied that it should make an apportionment of
DigiDesign profits between the separate and community estates,” thereafter adopting the
Van Camp approach to apportionment of the stock appreciation. That approach
ultimately led to the court finding that Wife would not receive any additional funds from
the money earned from DigiDesign; implicit in this ruling is a finding that Husband’s
salary during the marriage reflected the “reasonable value of the community’s services,”
such that the remainder of the increase constituted Husband’s separate property. In its
final statement of decision, the court explicitly stated that Husband’s experts, “as well as
5
At oral argument, Wife’s attorney acknowledged the trial court did apportion
using the Van Camp method.
16
the facts, establish that the community was adequately compensated by [Husband’s]
earnings during the marriage.”
Thus, Wife’s main concern is not that the trial court did not apportion the post-
marriage increase in DigiDesign’s stock value, but rather, that it did so in a manner that
kept her from receiving any additional funds.
3. Substantial Evidence Supports the Finding that Husband was Not the
Primary Factor in DigiDesign’s Post-Marriage Growth
Although the court made numerous factual findings in its final statement of
decision, those most relevant to this appeal are in the court’s conclusion. It found that,
“[w]hile some evidence supports that [Husband] was important to the company and held
an officer’s position, he did not play a leadership role in the company. He did not
contribute to the company’s growth after the date of the marriage. That role was fulfilled
by others at DigiDesign.” The court thereafter applied the Van Camp method of
apportionment based on this finding. Wife argues this finding of no contribution on
Husband’s part to the company’s post-marriage growth contradicts other of the court’s
findings. Certainly, a number of the court’s stated findings would support a ruling that
Husband did contribute significantly to DigiDesign’s growth, notably that Husband was a
“critical member” of the company, “contributing greatly to the company’s success during
the life of Sound Tools,” that the company would not have been able to maintain and
improve Sound Tools without Husband’s ongoing work during the marriage, and that
Husband’s “skills, time, talents, energy and labor were singularly required to maintain the
company’s viability until at least 1992 when Pro Tools began to experience success and
no later than 1994 when Pro Tools eclipsed Sound Tools as DigiDesign’s best selling
[sic] product.” Wife contends substantial evidence supports these findings, all of which
she believes reveal the court’s error in applying the Van Camp method of apportionment
rather than that described in Pereira.
17
Our concern is not whether substantial evidence supports Wife’s position. If we
adopted Wife’s proposed de novo standard of review, we would determine anew which
apportionment method best affords substantial justice between the parties. However, as
we are reviewing the issue for abuse of discretion, we consider whether the trial court’s
action fell within the permissible range of options set by the legal criteria. (Brandes,
supra, 239 Cal.App.4th at p. 1474.) “We do not review the evidence to see if there is
substantial evidence to support the losing party’s version of events, but only to see if
substantial evidence exists to support the verdict in favor of the prevailing party.” (Pope
v. Babick (2014) 229 Cal. App. 4th 1238, 1245.) So long as substantial evidence supports
the trial court’s findings, “it is of no consequence that the trial court believing other
evidence, or drawing other reasonable inferences, might have reached a contrary
conclusion.” (Bowers v. Bernards (1984) 150 Cal. App. 3d 870, 874, original italics
omitted.) If we conclude substantial evidence supports the trial court’s findings, “we
must affirm” the trial court’s ruling. (Donovan, supra, 167 Cal.App.4th at p. 582, italics
added.)
We agree with Wife that the evidence shows Husband made at least a minimal
contribution to DigiDesign’s growth after marriage. However, that conclusion does not
compel us to overrule the trial court’s decision. The relevant legal criteria do not require
the trial court to find Husband made absolutely no contribution to the increase in value
during the marriage in order to apply the Van Camp apportionment method. Rather, the
court considers whether Husband’s efforts during the marriage were the “chief
contributing factor” causing the increase. (Brandes, supra, 239 Cal.App.4th at p. 1473.)
In fact, the decision to apportion presupposes that Husband made more than minimal
contributions to the separate property business during the marriage. (See Beam v. Bank
of America (1971) 6 Cal. 3d 12, 17 [“the trial court was compelled to determine what
proportion of the total profits should properly be apportioned as community income”
where there was no question the husband’s “efforts in managing his separate property
18
throughout the marriage were more than minimal.”].) If his contributions during
marriage were minimal, the court would not have had to choose a method of
apportionment, as there would have been no potential community interest.
While the trial court may have erred in finding Husband made no contribution to
DigiDesign post-marriage, the record includes substantial evidence demonstrating his
post-marriage contributions were not the chief factor in DigiDesign’s growth, despite the
court’s seemingly contradictory findings. Even if the trial court articulates the wrong
reasons when arriving at a correct conclusion, we will presume the judgment correct and
affirm it on any ground supported by the evidence, whether articulated by the trial court
or not. (See Coral Construction, Inc. v. City and County of San Francisco (2010)
50 Cal. 4th 315, 336; D’Amico v. Board of Medical Examiners (1974) 11 Cal. 3d 1, 18-
19.) Here, substantial evidence supports the trial court’s finding that the contributions of
others, rather than Husband’s contributions, caused the increase in DigiDesign’s value
after the date of marriage.
Wife argues that Van Camp applies only when market forces cause the increase of
a separate property business’s value during marriage. She therefore argues it is
“irrelevant that ‘others at DigiDesign’ . . . contributed to its growth during marriage.”
She relies heavily on Gotcher’s testimony that DigiDesign was an “active” company.
Gotcher confirmed the appreciation was active versus passive, as it was “due to activity
and things that were going on within the company, new products, new hires, all of those
things . . . .” (Italics added.) However, Gotcher’s overall testimony and the testimony of
the other witnesses at trial reveal it was the efforts of others in the company, rather than
Husband’s efforts or market forces, that led to the significant increase in the company’s
value after the date of marriage. Wife did not provide contradictory evidence or opinion
at trial; Butera, her retained valuation expert, testified only to his valuation under the
Pereira method, which he performed at Wife’s attorney’s request, explicitly stating he
did not undertake a Van Camp analysis. He did not review the depositions of Husband,
19
Gotcher, Lego, or Jeffrey in forming his opinions. He had limited information about
Husband’s job duties or DigiDesign’s products and who was responsible for developing
the products. He did not know whether Husband contributed to the increase in
DigiDesign’s sales during the marriage. And, Butera agreed Pro Tools was DigiDesign’s
most important product in terms of revenue at the time of the sale to Avid, although he
did not know whose services were significant in developing the Pro Tools family of
products.
As Brandes makes clear, the trial court can apply Van Camp when the efforts of
others within a company cause the increase in value; that approach is not limited to
situations where only market forces are at work during the marriage. In Brandes, the
husband founded an investment advisory services company nine years before meeting the
wife; by the date of marriage the company managed $20 million in assets. (Brandes,
supra, 239 Cal.App.4th at p. 1467.) By the date of separation, almost 20 years later, the
managed assets were $85 billion; the community estate was worth over $200 million
excluding any interest in the company. (Id. at p. 1468.) The trial court adopted a “hybrid
approach” to apportion the appreciation in assets, finding that the husband’s personal
efforts were the “primary factor” in the company’s growth during the first five years of
marriage, justifying the use of the Pereira method for that period. (Id. at p. 1469.)
During that time the husband “was the sole manager of the business; he established [the
company’s] investing philosophy; he was the central figure in business marketing; his
track record attracted investors; and he hired employees, trained them, and directed their
activities.” (Ibid.) For the next period of time, the court applied the Van Camp approach,
as the company’s new CEO and COO proposed changes to the company’s investment
strategies, which husband was not receptive to at first. They also suggested hiring new
managers and changing the management structure, taking decisions away from the
husband. These internal factors, as well as other market factors, drove the company’s
growth after 1991. (Id. at pp. 1469-1470.) For the Van Camp period, the trial court
20
found the community had already been “overcompensated” for the husband’s services
during that period, such that the community was not entitled to any additional funds for
that time. (Id. at p. 1470.) The Court of Appeal upheld the trial court’s apportionment.
It did not express concern that factors other than market factors caused the growth during
the Van Camp period. (Id. at p. 1478.)
Here, the trial court modified its ruling after considering Brandes, which was
decided after the trial court had issued its tentative decision and proposed statement of
decision. In its final statement of decision, the trial court said, “In Brandes, the appellate
court spoke approvingly of the trial court’s decision to achieve justice by using a hybrid
Pererira [sic]/ Van Camp method. In the present case, the Court initially determined that
a singular approach under Pererira [sic] or Van Camp would be unfair to the parties with
too stark a result for [Wife] on the one hand or [Husband] on the other. In weighing the
evidence presented at trial, however, the Court cannot justice [sic] a hybrid approach.
There simply is not enough weighty evidence to counter the more robust showing that
supports [Husband’s] case.” Presumably the court found the facts of this case to more
closely resemble the Van Camp period in Brandes, where the husband was not the chief
or primary factor affecting the company’s growth, despite continuing to contribute more
than minimal effort toward that business.
Certainly, the record reveals substantial evidence supporting such a finding.
Unlike the husband in Brandes during the period in which the trial court applied the
Pereira approach, Husband was not the sole manager at DigiDesign after the date of
marriage. Husband did not have any significant managerial duties after the date of
marriage. Husband did not dictate the company’s business philosophy; Gotcher was the
primary decision maker, making the critical choice to open Pro Tools to third party
applications. Husband was a figure in business marketing and his involvement in the
company did attract other employees. However, he had minimal involvement in hiring,
training, and directing other employees.
21
By comparison, Husband’s role in the company after marriage was analogous to
that of Mr. Brandes when that court applied the Van Camp method of apportionment.
While Husband continued to work for the company, his contribution after marriage was
more akin to the work done by other senior software engineers in the company. He
maintained Sound Designer, but Gotcher testified that a team of employees worked on
upgrades and improvements. Sound Tools was at least part of the reason Avid bought
DigiDesign, yet the evidence shows Pro Tools was the primary reason for the purchase.
Had DigiDesign not developed Pro Tools, the company would not have had the kind of
success it did. Substantial evidence supports a finding that Husband did not significantly
contribute to Pro Tools. Despite being listed as the chief inventor on a patent related to
Pro Tools, the testimony at trial confirmed the company started from scratch when it
moved from Sound Tools to Pro Tools; Husband did not contribute to the software or
hardware used in Pro Tools. Gotcher came up with the idea and Jeffrey created the
software, using a different computer language than Husband used for Sound Designer.
Husband did not direct or guide Jeffrey’s work on Pro Tools; Jeffrey testified he did not
consult Husband in the design of Pro Tools in any significant way. To the extent Pro
Tools was built on Sound Tools, the evidence shows it was built on ideas and designs
Husband developed prior to the marriage, rather than on work he did during the marriage.
Nor is Brandes the only legal precedent applying Van Camp when other people,
and not just market factors, contributed to the post-marriage growth of a separate
property business. In Somps, the Court of Appeal upheld a trial court order determining a
business the husband owned prior to marriage was entirely his separate property.
(Somps, supra, 250 Cal.App.2d at p. 336.) While the appellate court agreed the
community should be compensated for the husband’s contribution to the increase in the
business after the date of marriage, it upheld the trial court’s decision to depart from the
Pereira method of apportionment, despite the wife’s arguments to the contrary. (Id. at
pp. 335-336.) “. . .[T]here was substantial evidence for the trial court’s holding that the
22
increase in the partnership assets or in the value of the stock after the business was
incorporated was attributed to a reasonable return upon the separate property of husband
invested by him before marriage, and the faithful, loyal and effective services of his
partner MacKay and the employees, together with the unprecedented population growth
in Santa Clara County, causing an abnormal demand for residential subdivisions and
other favorable business factors not related to husband’s abilities or labors.” (Id. at
p. 334.) Wife suggests we should distinguish Somps from the instant matter as the trial
court in Somps found the business would have operated just as well without the husband
based on the market demand for the single-family homes that constituted the husband’s
business. Yet, the Court of Appeal did not rest its ruling on market factors alone; it
clearly stated the services of the company’s employees and the husband’s business
partner contributed to the growth of the company. Here, the record similarly contains
evidence that the efforts of Gotcher and DigiDesign’s other employees were the primary
factors contributing to the company’s growth after the date of marriage, in addition to
Husband’s continuing contribution, for which he was compensated through salary.
We distinguish the facts of the instant case, as well as those of Brandes and
Somps, from In re Marriage of Zaentz (1990) 218 Cal. App. 3d 154 (Zaentz), a case Wife
believes stands for the proposition that the efforts of other people should not factor into
the trial court’s apportionment decision. In Zaentz, the husband, through a production
company founded prior to marriage, entered into an agreement during marriage to
produce the movie “Amadeus,” which became a critical and financial success. (Id. at
pp. 158-159.) Since the profits contractually inured to the husband’s separate property
business, he argued wife had no right to any part of the money. (Id. at p. 159.) The trial
court disagreed; “In awarding wife an equal share of the community interest ($300,000),
the court underscored the evidence of husband’s unique value to SZC in producing
‘Amadeus’ and the scope of the community’s and husband’s investment in
‘Amadeus’. . . .” (Id. at p. 162.)
23
The trial court in Zaentz did not make any findings regarding equitable
apportionment. (Zaentz, supra, 218 Cal.App.3d at p. 166.) The Court of Appeal
considered the increased value of the husband’s separate stock interest in the company as
only one of the factors relevant in awarding wife an equitable share of the community
interest. (Ibid.) “Husband acknowledges the doctrine of equitable apportionment in
connection with the increased value of his separate property stock interest. Under that
doctrine, ‘since income arising from the husband’s skill, efforts and industry is
community property, the community should receive a fair share of the profits which
derive from the husband’s devotion of more than minimal time and effort to the handling
of his separate property.’ [Citation.]” (Id. at pp. 165-166.) The husband argued on
appeal that the trial court should have used the Van Camp method to apportion the
increase in his separate property stock. “However, as wife points out, the trial court made
no finding on apportionment and obviously considered the increase in value of husband’s
stock (or [the company] itself) as only one factor contributing to the actual financial
picture. [Fn. omitted.] [¶] From the evidence before it, the trial court could reasonably
have believed that without husband’s personal efforts in acquiring the film rights, acting
as its producer and managing the financial arrangements, there would have been no
economic increase in the value of the company. [Fn. omitted.]” (Id. at p. 166.)
Wife argues Zaentz stands for the proposition that it does not matter that other
people contributed to the increase in the value of a spouse’s separate property, as the
appellate court in Zaentz apportioned increased value to the community despite the
contributions of others. However, that is not what the opinion says. The trial court did
not explicitly apportion the increase; it listed the increase in value as one of several
factors it considered in determining the community had an interest in the funds at issue in
the case. (Zaentz, supra, 218 Cal.App.3d at p. 162.) The opinion does not discuss the
effect others had on the increase in the stock’s value. It simply says the evidence before
the trial court supported a finding that there would not have been an economic increase in
24
the value of the company without the husband’s personal efforts. (Id. at p. 166.) Here,
the evidence suggests that DigiDesign could have still increased in value after marriage
without Husband’s post-marriage efforts; it was his pre-marriage work that resulted in the
company’s success prior to the development of Pro Tools.
As substantial evidence supports a finding that Husband and his efforts were not
the chief factors in DigiDesign’s increase in value after the marriage, we conclude it was
within the trial court’s discretion to apply the Van Camp method to apportion that
increase, rather than the Pereira method. Given that Husband’s most significant
contribution to DigiDesign occurred prior to marriage, it was within the permissible
range of options for the trial court to determine the Van Camp approach would achieve
substantial justice between the parties.
4. There is Substantial Evidence Supporting the Finding that the
Community was Adequately Compensated
Where a trial court determines Van Camp is the appropriate method by which to
apportion the increase in value of a separate property business during marriage, it next
determines “the reasonable value of the community’s services, allocate[s] that amount to
community property and the balance to separate property.’ [Citation.]” (Brandes, supra,
239 Cal.App.4th at p. 1473.) Here the trial court found that Husband’s DigiDesign salary
during the marriage represented adequate compensation to the community and
characterized the remaining increase in the stock value as Husband’s separate property.
Substantial evidence supports this finding.
Wife on the one hand argues the trial court’s application of the Van Camp
apportionment method ignores Husband’s contribution to DigiDesign during the
marriage, while on the other hand arguing his salary during the marriage should be
irrelevant to the court’s determination of which apportionment method to apply. The law
is clear that under the Van Camp method, where a party’s contributions are not the chief
factor in the separate property business’s growth during the marriage, the trial court still
25
considers the spouse’s contribution to the business by looking to his or her compensation
during the marriage. (See Brandes, supra, 239 Cal.App.4th at pp. 1469-1470, 1473;
Somps, supra, 250 Cal.App.2d at pp. 334-336.) As in Brandes and Somps, the trial court
here did exactly as it was required to do once it determined Van Camp applied—it looked
to whether Husband’s compensation reflected a reasonable value for the community’s
services during marriage. 6
Wife argues there is no substantial evidence supporting the trial court’s finding
that Husband’s salary served as adequate compensation to the community. In her
opening brief, Wife stated that Husband’s salary was not “fair” for the community, given
that Husband’s separate property interest in the company’s equity did not “benefit the
community.” Essentially, Wife claims that the evidence shows the adequacy of
Husband’s compensation must include consideration of his equity in the company, in
addition to his salary. However, substantial evidence supports the trial court’s finding
that Husband’s post-marriage salary fairly compensated him for his post-marriage
contributions to the company. The testimony revealed that Husband’s main contribution
to the company took place prior to marriage, through the creation of Sound Designer and
its progeny. The company used a well-regarded salary index to set its salaries; while
Lego indicated DigiDesign paid salaries in the mid-range of that index, rather than the
6
While Wife argued in her opening brief that Husband’s salary was not relevant to
the trial court’s evaluation, she clearly did so believing the trial court should have used
the Pereira approach, under which the court does not consider the spouse’s
compensation. When a trial court elects the Pereira method, it is “not required to find
whether [the non-owner spouse’s] community property interest was already satisfied by
[the owner spouse’s] compensation during the marriage. [Fn. omitted.] The court need
not ‘limit the community interest to a salary as reward for a spouse’s efforts . . . .’
[Citation.] ‘To limit the community to compensation received by way of salary during
the marriage would ignore California’s egalitarian marriage model and the apportionment
formula of Pereira . . . .’ [Citation.]” (Patrick v. Alacer Corp. (2011) 201 Cal. App. 4th
1326, 1341.) Because the trial court properly exercised its discretion to select the Van
Camp method of apportionment, rather than the Pereira method, it was required to
consider Husband’s compensation during the marriage.
26
higher range, Harper, Husband’s compensation expert, agreed Husband’s salary was
“competitive.” After marriage, Husband’s job duties matched those of a regular
employee, rather than an executive or management level employee. The court did hear
testimony indicating that similarly situated companies might have offered regular
employees stock options or other compensation in addition to salary, including testimony
from Schultze, Husband’s own valuation expert. However, Harper testified that, in his
opinion, salary should receive a greater weight in the analysis because of the nature of
startup companies. Harper did indicate stock options could be a critical component of
“executive compensation,” however he also testified that Husband’s job duties after
marriage did not match those of an executive level employee. While the court in its final
statement of decision questioned Schultze’s credibility, it did not raise any concerns
about Harper’s, suggesting it gave weight to his testimony and opinions. Wife did not
offer contradictory testimony from a compensation expert, as Butera’s opinion about
Husband’s compensation concerned “replacement compensation” for Husband in the
context of his valuation of DigiDesign at various points in time under the Pereira
method.
As substantial evidence supports the trial court’s finding that Husband’s earnings
during the marriage adequately compensated the community for his efforts, we find no
abuse of discretion in applying the Van Camp method of apportionment to find that the
increase in the stock value was Husband’s separate property.
III. DISPOSITION
We affirm the trial court’s order.
27
_______________________________
Greenwood, P.J.
WE CONCUR:
_____________________________________
Grover, J.
______________________________________
Danner, J.
Brooks v. Brooks
No. H043467
Trial Court: Santa Clara County Superior Court
Superior Court No.: 2009-6-FL-001820
Trial Judge: The Honorable Erica Yew
Attorneys for Appellant, REED SMITH LLP
VIOLET BROOKS: Paul D. Fogel
Dennis Peter Maio
LAW FIRM OF J. HECTOR MORENO,
JR. & ASSOCIATES
J. Hector Moreno, Jr.
J. Michael Sean Onderick
WESTOVER LAW GROUP, A.P.C
Andrew L. Westover
Attorneys for Respondent, BAUGH & AMINI
EVAN BROOKS: Bradford Baugh
Garrett C. Dailey
Brooks v. Brooks
H043467