Lewis v. Lewis ( 2022 )

[Cite as Lewis v. Lewis, 2022-Ohio-2090.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HANCOCK COUNTY
KATHRYN A. LEWIS,
PLAINTIFF-APPELLEE, CASE NO. 5-21-32
v.
MICHAEL E. LEWIS, JR., OPINION
DEFENDANT-APPELLANT.
Appeal from Hancock County Common Pleas Court
Domestic Relations Division
Trial Court No. 2017 DR 00303
Judgment Affirmed
Date of Decision: June 21, 2022
APPEARANCES:
William E. Clark for Appellant
Thomas H. Vogtsberger for Appellee
Case No. 5-21-32
MILLER, J.
{¶1} Defendant-appellant, Michael E. Lewis, Jr., appeals the September 20,
2021 judgment of the Hancock County Court of Common Pleas, Domestic Relations
Division. For the reasons that follow, we affirm.
{¶2} Michael and Kathryn A. Lewis were married on June 19, 2004. Four
minor children were born of the marriage. On September 8, 2017, Kathryn filed a
complaint for divorce with the Hancock County Court of Common Pleas, Domestic
Relations Division. Michael answered the complaint on September 27, 2017.
{¶3} The matter came before the magistrate on January 13, 14, and 16, 2020
and February 10, 11, and 25, 2020 for final hearing.1 At the hearing, the trial court
granted Kathryn’s oral motion to amend the complaint to include the additional
grounds as having lived separate and apart for more than twelve months.
{¶4} On March 29, 2021, the magistrate’s decision was filed. Relevant to
this appeal, the magistrate valued Kathryn’s dental practice at $1,640,000.00 and
this amount was allocated to Kathryn.
{¶5} On April 12, 2021, Michael filed initial objections to the magistrate’s
decision. On May 3, 2021, Kathryn filed her response to Michael’s initial
objections. On June 21, 2021, Michael filed his supplemental objections to the
1
The gap of more than two years between the initial divorce pleadings and the final divorce hearing was due,
at least in part, to the time needed for (1) the resolution of a related criminal matter filed against Michael in
the Hancock County Court of Common Pleas and (2) evaluations and appraisals of the parties’ businesses
and assets.
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magistrate’s decision. In relevant part, Michael argued that the magistrate erred in
adopting a valuation of Kathryn’s dental practice that did not include the reduction
of debt that was paid down in 2019. Michael also contended that the magistrate
erred by adopting a marketability discount for Kathryn’s dental practice which
included brokerage, legal, and accounting fees and other costs associated with
selling the business. On July 1, 2021, Kathryn filed her memorandum in opposition
of Michael’s supplemental objections to the magistrate’s decision. On July 8, 2021,
Michael filed his response to Kathryn’s memorandum in opposition.
{¶6} On August 17, 2021, the trial court overruled all of Michael’s objections
to the magistrate’s decision. On September 20, 2021, the trial court issued the
decree of divorce. The parties were granted a divorce on the grounds of having
lived separate and apart for more than 12 months. The trial court also valued
Kathryn’s dental practice at $1,640,000.00, which included a 20% discount for lack
of marketability and assigned the asset to Kathryn.
{¶7} Michael filed his notice of appeal on October 12, 2021. He raises three
assignments of error for our review, which we address together.
Assignment of Error No. I
The Trial Court erred in establishing the value of Kathryn’s
dentistry by failing to adjust the value for reduction of debt of
the dentistry between the valuation date and the termination of
marriage date.
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Assignment of Error No. II
The Trial Court erred in establishing the value of Kathryn’s
dentistry by allowing a marketability discount on the basis of
costs of sale where no sale is contemplated.
Assignment of Error No. III
The Trial Court erred in the division of property under O.R.C.
3105.171 by failing to properly evaluate Kathryn’s dentistry.
{¶8} In his assignments of error, Michael alleges the trial court erred in
establishing the value of Kathryn’s dental practice in two ways.2 First, Michael
contends the trial court erred by failing to adjust the value of the dental practice to
account for the reduction of the practice’s debt between the valuation date and the
termination of marriage date. Second, Michael alleges the trial court erred by
reducing the value of the dental practice by allowing a marketability discount
despite a sale of the practice not being contemplated. We disagree.
{¶9} “An appellate court generally reviews the overall appropriateness of the
trial court’s property division in divorce proceedings under an abuse-of-discretion
standard.” Stocker v. Stocker, 3d Dist. Hancock No. 5-17-11, 2017-Ohio-8434, ¶
12. A trial court’s decision allocating marital property and debt will not be reversed
absent an abuse of discretion. Jackson v. Jackson, 3d Dist. Paulding No. 11-07-11,
2008-Ohio-1482, ¶ 15, citing Holcomb v. Holcomb, 44 Ohio St.3d 128 (1989).
2
The parties agree that the dental practice is a marital asset and should be assigned to Kathryn.
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{¶10} The process of fashioning an equitable division of marital property
will generally require a trial court to assign or adopt valuations for marital assets.
Gilsdorf v. Gilsdorf, 3d Dist. Marion No. 9-13-34, 2014-Ohio-5000, ¶ 11. In
determining the value of assets, the trial court “is not required to adopt any particular
method of valuation.” Huelskamp v. Huelskamp, 185 Ohio App.3d 611, 2009-Ohio-
6864, ¶ 27 (3d Dist.). “Rigid rules to determine value cannot be established, as
equity depends on the totality of the circumstances.” Lotz v. Lotz, 3d Dist. Auglaize
No. 2-14-06, 2014-Ohio-5625, ¶ 18, quoting Baker v. Baker, 83 Ohio App.3d 700,
702 (9th Dist.1992).
{¶11} “The valuation of property in a divorce case is a question of fact.”
Schwarck v. Schwarck, 3d Dist. Auglaize No. 2-11-24, 2012-Ohio-3902, ¶ 27.
“Accordingly, a trial court’s decision pertaining to the valuation of property will be
reviewed under a manifest weight of the evidence standard and will not be reversed
so long as it is supported by some competent and credible evidence.” Id. “If the
parties to the divorce submit evidence in support of conflicting valuations, the trial
court ‘may believe all, part, or none of any witness’s testimony.’” Mousa v. Saad,
3d Dist. Marion No. 9-18-12, 2019-Ohio-742, ¶ 14, quoting Huelskamp at ¶ 27.
Because the trial court is in the best position to evaluate the credibility of witnesses,
“[a] reviewing court should be guided by a presumption that the findings of a trial
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court are correct.” DeWitt v. DeWitt, 3d Dist. Marion No. 9-02-42, 2003-Ohio-851,
¶ 11.
{¶12} Although another dentist used to work at the practice as Kathryn’s
business partner, Kathryn bought out his interest in the practice when he retired.
(Final Hearing Tr., Vol. I, at 58). Now, Kathryn is the practice’s only dentist and
owns 100% of the business. (Id.).
{¶13} At the final hearing, Terri Lastovka, who is a business appraiser and
forensic accountant, arbitrator, mediator, business consultant, CPA, and attorney,
gave expert testimony on Kathryn’s behalf regarding the valuation of the dental
practice. (Id. at 26-31); (Plaintiff’s Ex. 20).
{¶14} Lastovka used multiple methodologies when valuating Kathryn’s
dental practice, including the asset-based approach, earnings approach, and market
approach. (Final Hearing Tr., Vol. I, at 57-58); (Plaintiff’s Ex. 20). Lastovka
determined the value of the dental practice using each of the aforementioned
methodologies. (Final Hearing Tr., Vol. I, at 58). After determining that each of
the valuation methodologies resulted in valuations that were “really close,”
Lastovka used a blend of the methods to arrive at her valuation of $2,050,000 as of
December 31, 2018. (Id. at 58-59). Lastovka then discounted the $2,050,000 value
by 20% to account for a lack of marketability and arrived at the valuation of
$1,640,000 as of December 31, 2018. (Id. at 59-60).
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{¶15} Although Michael’s trial counsel extensively cross-examined
Lastovka, Michael did not call an expert witness to provide a valuation of the dental
practice. The trial court adopted Lastovka’s valuation of the dental practice of
$1,640,000 as outlined in Plaintiff’s Exhibit 20.
{¶16} Nonetheless, Michael argues that the trial court erred in establishing
the value of Kathryn’s dental practice by (1) failing to adjust the value of the dental
practice to account for the reduction of the practice’s debt between the valuation
date and the termination of marriage date and (2) reducing the value of the dental
practice by allowing a marketability discount.
{¶17} We first address Michael’s argument that the trial court erred in
establishing the value of Kathryn’s dental practice by failing to adjust the value of
the dental practice to account for the reduction of the practice’s debt between the
valuation date and the termination of marriage date.
{¶18} Although Lastovka’s valuation of Kathryn’s dental practice was made
as of December 31, 2018, the date for the termination of the marriage was the date
of the commencement of the final hearing, January 13, 2020. At the final hearing,
Lastovka acknowledged that between December 31, 2018 and December 31, 2019,
Kathryn made additional payments on a loan owed by the dental practice to State
Bank associated with Kathryn “buying out” her previous business partner.
Specifically, as of December 31, 2018, the balance on the loan was approximately
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$357,843.00. (Final Hearing Tr., Vol. I, at 83); (Defendant’s Ex. A). However,
throughout 2019, Kathryn made payments on the loan totaling approximately
$175,486.00, which reduced the loan balance to approximately $182,357.00 as of
December 2019. (Final Hearing Tr., Vol. I, at 83); (Defendant’s Ex. A).
{¶19} Michael contends that because Lastovka’s valuation of Kathryn’s
dental practice does not account for the reduction in the debt of the dental practice
between December 31, 2018 and December 31, 2019, the trial court erred by
adopting a valuation that did not account for the decrease in the dental practice’s
debt during this time.
{¶20} At the final hearing, Lastovka stated she was aware that in September
2019, Lewis began paying excess payments on the dental practice’s loan to State
Bank. In an attempt to account for the reduction in debt from December 31, 2018
to December 31, 2019, Michael’s trial counsel asked Lastovka to recalculate the
2018 valuation with the 2019 debt values. Lastovka performed the requested
calculation which resulted in a valuation of Lewis’s equity interest in the dental
practice of $1,780,000.00 after the 20% discount for lack of marketability.
(Defendant’s Ex. B)
{¶21} However, Lastovka stated that entering the 2019 debt values with the
2018 calculation made the analysis “disconnected.” (Final Hearing Tr., Vol. II, at
92). Specifically, although she had updated numbers for the dental practice’s debt
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as of December 31, 2019, Lastovka did not have updated information to change
other variables, such as the dental practice’s cash, receivables, dental supplies,
revenues, and profits. (Id. at 92-93).
{¶22} Lastovka stated that she cannot say that the value of the dental practice
at the time of the final hearing is closer to the value as of December 31, 2019 than
the initial report as of December 31, 2018. (Id. at 93). According to Lastovka, it is
not possible, using appropriate accounting principles to adjust only the debt from
December 31, 2018 to December 31, 2019 and calculate an accurate valuation of
the practice. (Id.). Lastovka stated that the disconnect resulting from updating only
the debt values creates a disconnect which is “inappropriate and violates uniform
standards of principal professional appraisal practice.” (Id. at 119). Rather,
Lastovka stated that the valuation the court should rely on is the December 31, 2018
valuation of the dental practice that was issued in October 2019 because it includes
all of the financial data as of a consistent date, namely December 31, 2018. (Id. at
118).
{¶23} Thus, after reviewing the record, we find that competent and credible
evidence supported the trial court’s valuation of the dental practice using Lastovka’s
valuation as of December 31, 2018. “‘In valuing a marital asset, a trial court is
neither required to use a particular valuation method nor precluded from using any
method. * * * A trial court may rely in whole or in part on an expert’s opinion when
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setting a value on marital property[.] * * * There are no rigid rules used by courts
to determine value as equity depends on the totality of the circumstances.’” Hissa
v. Hissa, 8th Dist. Cuyahoga Nos. 93575 and 93606, 2010-Ohio-3087, ¶ 22, quoting
Bunjevac v. Bunjevac, 8th Dist. Cuyahoga No. 80069, 2002-Ohio-2956, ¶ 17.
Furthermore, “‘[t]he trial court is not required to use the same de facto termination
date consistently in valuating [assets] of the marital estate when the trial court has
adequately explained its reasons for deviating.’” Bunjevac at ¶ 12, quoting Kramer
v. Kramer, 8th Dist. Cuyahoga No. 74166, 1999 WL 561527, * 1. Accordingly, the
trial court did not err by not adjusting the value of Kathryn’s dental practice to
account for the reduction in the practice’s debt between the valuation date and the
termination of marriage date. See Cronin v. Cronin, 2d Dist. Greene Nos. 02-CA-
110 and 03-CA-75, 2005-Ohio-301, ¶ 13 (finding that the trial court did not abuse
its discretion in choosing a value for the property because the value chosen was a
figure presented by an expert witness).
{¶24} Next, we turn to Michael’s argument that the trial court erred by
reducing the value of Kathryn’s dental practice by 20% due to a lack of
marketability. In support of his position, Michael argues that a discount for
marketability is not appropriate because no sale of Kathryn’s dental practice is
contemplated. However, courts have permitted a discount for lack of marketability
for closely-held businesses even when no sale is contemplated. See Bohme v.
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Bohme, 2d Dist. Montgomery No. 26021, 2015-Ohio-339, ¶ 5, 27; Kuper v.
Halbach, 10th Dist. Franklin No. 09AP-899, 2010-Ohio-3020, ¶ 27-28.
{¶25} In support of his position that the trial court erred by applying a
marketability discount to Kathryn’s dental practice, Michael relies heavily on Sweet
v. Sweet, 11th Dist. Ashtabula Nos. 2007-A-0003 and 2008-A-0003, 2009-Ohio-
1924, ¶ 44. In that case, the Eleventh District Court of Appeals reviewed the trial
court’s valuation of car dealerships and an antique car collection. Id. at ¶ 35-46.
When determining the valuation of the husband’s antique car collection, the trial
court deducted the sales commission from the gross value of the automobile
collection “in the event * * * the car collection would need to be sold as part of the
marital division.” Id. at ¶ 38. With respect to husband’s car dealerships, the trial
court applied a marketability discount to the gross valuation of the businesses. Id.
at ¶ 41-42.
{¶26} On appeal, the Eleventh District Court of Appeals found that the trial
court erred by reducing the valuation of the antique car collection by the costs of
sale because “[t]here was no evidence that the sale of the collection was actually
contemplated or that it would be necessary for [husband], being a professional
automobile dealer, to use another professional to sell the collection.” Id. at ¶ 38.
However, with respect to husband’s car dealerships, the appellate court found that
the trial court did not err by applying a lack of marketability discount despite no sale
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of the car dealerships being contemplated. Id. at ¶ 44-45. In explanation, the
Eleventh District Court of Appeals stated, “[u]nlike a reduction for cost of sale, the
non-marketability discount is a factor in determining the fair market value of a
business. The applicability of the discount is not dependent on the intention or
likelihood of the business being sold.” Id. at ¶ 44.
{¶27} Michael attempts to analogize the marketability discount applied to
the valuation of Kathryn’s dental practice to the reduction for the cost of sale applied
to the antique car collection at issue in Sweet. Specifically, Michael contends that
the lack of marketability discount applied to Kathryn’s interest in her dental practice
relates exclusively to the cost of sale of the business, and, because no sale is
contemplated, such a discount is inappropriate. We disagree.
{¶28} In Plaintiff’s Exhibit 20, Lastovka’s written valuation of Kathryn’s
dental practice, Lastovka states that the $2,050,000 value of the dental practice
“represents a nonmarketable, controlling interest” in Kathryn’s dental practice.
(Plaintiff’s Ex. 20). Lastovka further described the marketability discount as
follows:
All other things being equal, an investment is worth more if it is
marketable than if it is not marketable since investors prefer liquidity
over lack of liquidity. Marketability is defined as the ability to convert
the property to cash quickly with minimal transaction and
administrative costs in so doing and with a high degree of certainty of
realizing the expected amount of net proceeds. Interests in closely-
held businesses are illiquid relative to similar, freely-traded
investments.
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***
Empirical studies have been designed to qualify the discounts for lack
of marketability for interest in closely-held entities. They consist of
restricted stock studies, pre-IPO studies, and sales of limited
partnership interests.
(Plaintiff’s Ex. 20).
{¶29} At the final divorce hearing, Lastovka stated that the lack of
marketability discount represents “a lack of liquidity because it takes time and
energy to sell these types of assets.” (Final Hearing Tr., Vol. I, at 59). Although
Lastovka did reference fees associated with sale of the practice, such as brokerage
fees and legal fees, the record here indicates that the lack of marketability discount
Lastovka described is due to the closely-held nature of the business and is
distinguishable from the cost of sale discount applied to the valuation of the antique
car collection in Sweet which related exclusively to the fees associated with a
hypothetical sale of the car collection. Sweet at ¶ 45. Rather, we find the lack of
marketability discount applied to Kathryn’s dental practice to be akin to that applied
to the husband’s car dealerships in Sweet.
{¶30} In overruling Michael’s objections to the magistrate’s decision, the
trial court stated that the considerations which factored into Lastovka’s analysis of
the marketability discount included “business broker fees, due diligence costs, legal
costs, and other costs associated with selling the business.” (Doc. No. 254).
However, as the trial court noted, Lastovka “also refers to the difficulty in selling a
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dentistry, the time it would take [to sell a dental practice], decreased patient
retention, and the competitive dental market in Findlay in applying the marketability
discount, all of which affect the marketability of the dentistry in this context.” (Id.).
{¶31} Moreover, once again we note that although Michael’s trial counsel
engaged in an extensive cross-examination, Michael did not present an expert to
contest Lastovka’s valuation of the dental practice or application of lack of
marketability discount. Although Michael was not required to present an expert
witness regarding the value of Kathryn’s dentistry practice, by not presenting
another witness or evidence to challenge Lastovka’s valuation of the dentistry
practice, Lastovka’s valuation of the dental practice was largely unrefuted. Thus,
for the aforementioned reasons, we do not find that the trial court abused its
discretion by applying a lack of marketability discount to the valuation of Kathryn’s
dental practice. See Bohme, 2015-Ohio-339, ¶ 27, 33 (finding that the trial court
did not err by accepting an expert witness’s valuation of the husband’s solely-owned
dental practice that included a 30% discount for lack of marketability).
{¶32} Accordingly, Michael’s first and second assignments of error are
overruled.
{¶33} In Michael’s third assignment of error, he argues that the trial court
erred in the division of property under R.C. 3105.171 by failing to properly
determine the value of Kathryn’s dental practice. Specifically, Michael argues that
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due to the alleged errors addressed in his first and second assignments of error, the
trial court failed to equitably divide the marital property. However, because we
found Michael’s first and second assignments of error to be without merit, Michael’s
third assignment of error is overruled.
{¶34} Having found no error prejudicial to the appellant herein in the
particulars assigned and argued, we affirm the judgment of the trial court.
Judgment Affirmed
ZIMMERMAN, P.J. and SHAW, J., concur.
/jlr
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