In re the Marriage of: Paul Timothy Patock v. Cathy Liane Patock n/k/a Cathy Liane Mehr, County of Kandiyohi, intervenor ( 2015 )

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA
IN COURT OF APPEALS
A14-0658
In re the Marriage of:
Paul Timothy Patock, petitioner,
Respondent,
vs.
Cathy Liane Patock n/k/a Cathy Liane Mehr,
Appellant,
County of Kandiyohi, intervenor,
Respondent.
Filed January 12, 2015
Affirmed
Klaphake, Judge*
Kandiyohi County District Court
File No. 34-FA-05-115
Theresa Patock, Jones & Patock PA, Willmar, Minnesota (for respondent Paul Timothy
Patock)
Gregory Anderson, Anderson, Larson, Hanson, Saunders, P.L.L.P., Willmar, Minnesota
(for appellant)
Shane Baker, Kandiyohi County Attorney, John Kallestad, Assistant County Attorney,
Willmar, Minnesota (for respondent county)
Considered and decided by Peterson, Presiding Judge; Larkin, Judge; and
Klaphake, Judge.
*
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
UNPUBLISHED OPINION
KLAPHAKE, Judge
Appellant Cathy Mehr argues that the district court misapplied Haefele v. Haefele,
837 N.W.2d 703 (Minn. 2013) when addressing whether to modify respondent Paul
Patock’s sub-guideline child support obligation. Because the district court correctly
applied Haefele, its findings of fact are supported by the record, and appellant has not
otherwise shown that the district court abused its discretion in addressing child support,
we affirm.
DECISION
We review orders modifying child support—including whether to deviate from a
presumptive guideline support obligation—to determine whether the district court abused
its discretion by resolving the matter in a manner contrary to logic and the facts on
record. Haefele, 837 N.W.2d at 708, 714. Whether a district court correctly applied
caselaw is reviewed de novo. In re Estate of Eckley, 780 N.W.2d 407, 410 (Minn. App.
2010).
A. Haefele
Haefele directs a district court addressing child support to calculate a presumptive
support obligation based on the “gross incomes” of the parents, and then to assess
whether, based on the factors listed in Minn. Stat. § 518A.43 (2012), it is appropriate to
set an actual obligation that deviates from the presumptive obligation. 837 N.W.2d at
708. For purposes of this calculation, “gross income” includes income from self-
employment and operation of a business. Minn. Stat. §§ 518A.28(a); .29 (2012).
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Respondent is the owner and sole operator of Willmar Wood Products (WWP).
Previously, the district court set respondent’s child support obligation at an amount below
the presumptive obligation. It did so largely because, when respondent acquired WWP in
2010, it was by a “strip sale,” in which ownership of WWP was transferred to respondent,
but all of its cash, as well as both its accrued accounts receivable and its earned accounts
receivable, were retained by the former owner. Further, it is WWP’s practice to retain,
rather than distribute to respondent, much of WWP’s earnings.
The district court calculated respondent’s presumptive basic and medical support
obligations using a “gross income” for respondent that included WWP’s retained
earnings. The district court also acknowledged that, under Minn. Stat. § 518A.39, subd.
2 (2012), these presumptive support obligations created a rebuttable presumption
favoring an increase of respondent’s existing obligations. Consistent with Haefele,
however, the district court also noted that because the statutory definition of “gross
income” includes undistributed earnings of a closely held business, a strict application of
that definition had “a significant potential for unfairness.” 837 N.W.2d at 714.
In considering the deviation factors, the district court emphasized the factors of the
“circumstances[] and resources of each parent[,]” Minn. Stat. § 518A.43, subd. 1(1), and
referred to Haefele’s observation that, in setting an actual support obligation, the “plain
meaning” of the deviation statute “allows the district court to consider, among other
things, the extent to which the parent’s gross income is actually available to him or her to
pay support.” 837 N.W.2d at 714. Concluding that the “retention of income within
WWP is a legitimate use of corporate funds” and a “sufficient” reason to rebut the
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presumption that WWP’s earnings for 2012 and 2013 should be attributed to respondent
for support purposes, the district court ruled that a “deviation from the Guidelines is in
the children’s best interests[,]” and deviated from the presumptive obligations by
calculating actual basic and medical support obligations for respondent using the amount
respondent was actually being paid by WWP. The process used by the district court to
set respondent’s actual basic and medical support obligations at amounts deviating from
the presumptive obligations is consistent both with the support statutes and with Haefele.
In her reply brief, appellant asserts, for the first time, that the district court failed
to address the deviation factors of (a) the parties’ earnings, income, circumstances, and
resources; and (b) the standard of living the children would enjoy if the parties still lived
together. See Minn. Stat. § 518A.43, subd. 1(1), (3). Issues first raised in a reply brief
are waived. Szarzynski v. Szarzynski, 732 N.W.2d 285, 291 n.3 (Minn. App. 2007).
Further, as noted, the district court’s analysis emphasized the factors of the circumstances
and resources of each parent: the district court’s entire order focuses on the finances of
the parties and WWP. Moreover, respondent testified that if the parties still lived
together he would not take more money out of WWP. Therefore, we decline, on this
record, to remand for explicit findings on the standard of living the children would enjoy
if the parties still lived together. See Grein v. Grein, 364 N.W.2d 383, 387 (Minn. 1985)
(declining to remand and affirming when, “from reading the files, the record, and the
court’s findings, on remand the [district] court would undoubtedly make findings that
comport with the statutory language” and reach the same result); Tarlan v. Sorensen, 702
N.W.2d 915, 920 n.1 (Minn. App. 2005) (citing Grein).
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B. Appellant’s arguments
1. Control of WWP: Several of appellant’s arguments assert that because
respondent controls WWP and can decide how to use its funds and whether to disburse
funds, calculation of respondent’s “gross income” for his actual support obligations
should include WWP’s retained earnings. Haefele, however, notes that the statutes
defining “gross income” and addressing income from self-employment do not support the
idea that “gross income” of a parent with an interest in a closely held business depends on
“the extent of shareholder control over the company.” 837 N.W.2d at 710. Indeed, the
district court calculated presumptive support obligations for respondent based on a “gross
income” that included WWP’s retained earnings, but rejected those presumptive
obligations in favor of ones that deviated from those obligations. Further, respondent’s
financial expert, whom the district court found credible, counseled respondent to use
funds received by WWP to pay its line of credit and to build WWP’s cash reserves to the
point that WWP will not need to rely on a line of credit in the future, and not to disburse
to respondent funds beyond those necessary for him to pay the taxes on WWP’s retained
earnings attributable to him for tax purposes. Appellate courts defer to district court
credibility determinations. Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988).
2. Minority owner: We reject appellant’s suggestion that the district court
misapplied Haefele because respondent is the sole owner of WWP and Haefele addresses
only cases involving minority owners of closely held businesses. Haefele states that its
analysis applies to situations “including” and hence not limited to “cases in which the
parent is a minority owner of the business.” 837 N.W.2d at 714.
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3. Taxes: Appellant asserts that the district court erred by excluding from
respondent’s “gross income” the funds WWP distributed to him to pay taxes on WWP’s
retained earnings. See Haefele, 837 N.W.2d at 713 (addressing whether to exclude from
“gross income” amounts disbursed by a business to an obligor to allow the obligor to pay
taxes). But, as noted, the district court’s deviation analysis refers to Haefele’s
observation that the “plain meaning” of the deviation statute allows the district court to
consider the extent to which a parent’s “gross income” “is actually available to him” to
pay support. 837 N.W.2d at 714. On this record, we conclude that even if the district
court had calculated a higher presumptive support obligation for respondent based on a
“gross income” for him including the amounts disbursed to respondent to pay taxes on
WWP’s retained earnings, the district court’s deviation analysis still would support
setting respondent’s actual support obligation at the amount selected by the district court.
Therefore, we decline to alter that obligation.
4. Sheltering income: We reject appellant’s argument that respondent is using
WWP to “shelter” income from being considered for support purposes. The district court
was aware of both respondent’s “gross income,” and the presumptive support obligation
based thereon. The district court also found, however, that (a) because of the 2010 “strip
sale” of WWP to respondent, WWP had limited financial resources; (b) appellant’s
financial expert stated that WWP “is very well operated by [respondent] and that it is
very sound financially”; (c) the parties’ financial experts disagreed regarding “whether all
earnings should be retained by WWP and that its Line of Credit always be paid when
money is available to do so”, and the court was “unable” to find one expert “more
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credible than the other”; (d) “there is no allegation that [respondent] is self-limiting his
income in order to avoid payment of child support,” and “the Court has been presented
with no evidence of extraordinary needs of the children”; and (e) a “deviation from the
Guidelines is in the children’s best interests,” and respondent’s plan to grow WWP means
that “the children will ultimately benefit from such growth.”
Appellant challenges none of these findings. Thus, any “sheltering” of income is
not the result of conduct by respondent, but of a decision by the district court that, on this
record, the deviation from the presumptive support obligation previously granted when
respondent acquired WWP as an operating business but without cash and accounts
receivable continues to be warranted. Finally, it is unclear how the district court can be
seen to have abused its discretion by continuing a support obligation that deviates from
guideline obligation when the district court found that the request to continue the
deviation was not based on an attempt by respondent to finesse his support obligation,
was consistent with expert financial advice which the district court found credible, and
will ultimately benefit the children.
Affirmed.
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