Brave v. Brave

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SUPREME COURT OF ARKANSAS
No. CV-13-936
PETER BRAVE Opinion Delivered April 17, 2014
APPELLANT
APPEAL FROM THE PULASKI
V. COUNTY CIRCUIT COURT,
SIXTEENTH DIVISION
[NO. 60DR-2010-5539]
MARIE BRAVE
APPELLEE HONORABLE ELLEN B.
BRANTLEY, JUDGE
AFFIRMED; MOTION TO DISMISS
DENIED; COURT OF APPEALS’
OPINION VACATED.
CLIFF HOOFMAN, Associate Justice
Appellant Peter Brave (“Peter”) appeals from the divorce decree entered by the Pulaski
County Circuit Court on December 30, 2011, and the order on a posttrial motion to make
additional findings of fact and to reconsider the divorce decree, filed on January 30, 2012.
Appellee Marie Brave (“Marie”) filed a motion to dismiss the appeal. The court of appeals
reversed and remanded the case to the circuit court, after denying the motion to dismiss the
appeal, in a 4–2 decision. See Brave v. Brave, 2013 Ark. App. 542, ___ S.W.3d ___. Marie
petitioned this court for review, which this court granted, and we accepted jurisdiction of this
appeal pursuant to Arkansas Supreme Court Rule 1-2(e). When this court grants a petition
for review, we treat the appeal as if it had been originally filed in this court. See McNutt v.
Yates, 2013 Ark. 427. We granted Marie’s motion to file substituted briefs, and both Marie
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and Peter filed supplemental briefs. On appeal, Peter contends that (1) the circuit court
committed reversible error by dividing the goodwill in Brave New Restaurant, despite the
testimony largely indicating that the goodwill was personal to him, and (2) the circuit court
committed reversible error by “double dipping” into the same stream of his future income
when it divided the goodwill of Brave New Restaurant and gave Marie alimony. We deny
the motion to dismiss appeal, affirm the circuit court, and vacate the court of appeals’ opinion.
This case arose after Peter filed his complaint for divorce on November 24, 2010. The
couple had been married for more than twenty years and have two children. Peter and Marie
were co-owners of Brave New Restaurant. The division of the restaurant, specifically any
goodwill and characterization thereof, is the subject of this appeal. In the divorce decree filed
on December 30, 2011, Peter was ordered to pay $3,000 per month in child support until the
last minor child reached 18 or graduated from high school; $5,000 per month in long-term
alimony; and $5,000 per month until all of the $420,000, including statutory interest,
attributable to the division of the restaurant, was paid in full.1 The $420,000 represented
Marie’s share of the Brave New Restaurant, after the court found that the value of the real
estate was $495,000, and the value of Brave, Incorporated d/b/a Brave New Restaurant,
including the furniture, fixtures, goodwill and equipment, was $895,000. After deducting the
$550,000 debt on the property, the circuit court found that the net value of the business,
1
Since Peter’s arguments on appeal involve only the valuation and characterization of
any goodwill, a detailed understanding of every issue and each witnesses’ testimony
throughout the divorce proceeding is unnecessary.
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including the real property, was $840,000.
At the divorce hearing, Peter testified that Marie was a fifty-percent owner of Brave,
Inc., and that Marie initially assisted with the restaurant but became less involved after the
children were born. Peter introduced the testimony of Gus Dobbs (“Dobbs”), co-owner with
his wife of E.K. Williams and Company. Dobbs testified that his company provided
accounting and business-consultation services to the Braves. While Dobbs testified that he
is not an accountant, his wife is an agent enrolled to practice before the Internal Revenue
Service and prepares the tax returns. He prepared an evaluation of the business that was
introduced as an exhibit at the hearing. In relevant part, he testified as follows:
[DOBBS:] If you look on page three, you’ll see that I did a EBITDA
valuation of the business -- EBITDA means before interest, taxes,
depreciation and amortization -- and derived a value of $819,057 for the
business. When I did this valuation, the question that I was asked is if
I sold my business how’s it going to come out, and Peter asked me to
figure that out for him and so that’s what I did. I figured it out, and the
direction that I came from was a little bit different because that question
was a different question. That is, you know, if we sold our business, if
we got out, I mean what am I going to have left over. That’s -- that’s
the way that I came about this.
Since I did not value the property, I did not know what that
value was and they did not go out and get a property valuation. So,
therefore, what I came up with was a difference number because I knew
the assets, and liabilities, and the goodwill value, and basically told them
that if -- you know, that at that point in time if they sold the business
that I felt like they could derive $268,877 -- you know, after it was all
done.
[MS. JAMES:] Okay. That value includes how much goodwill?
[DOBBS:] The goodwill part is the value of the business, which is $819,057. That
has no -- no fixtures, furniture, equipment, anything in it. That’s just
the business itself.
[MS. JAMES:] Okay. So, basically, on your report you -- there’s $819,057 on number
one that says business.
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[DOBBS:] Right.
....
[MS. JAMES:] Okay. And then you had equipment and fixtures at fair market value
of $82,330?
[DOBBS:] Right.
....
[MS. JAMES:] Okay. And so if you took goodwill out of this -- if I do the math in my
head -- if you said your grand total was $268,877, but if you took
goodwill out of it of $819,057, it would have a negative $550,000
equity; is that correct?
[DOBBS:] That’s a weird way to look at it, but it’s not incorrect.
....
[MS. LUEKEN:] Now, when you prepared this -- what you’re calling a business
valuation -- and you included in there, you said of particular
importance is -- you know, Peter Brave being part of the
business.
[DOBBS:] Right.
[MS. LUEKEN:] But you made an adjustment when you valued this business by
putting in a high salary for him, didn’t you? $120,000?
[DOBBS:] I think you’re referring to the adjustment in the adjustment to EBITDA
section, and essentially the way it works is -- pardon me. You have to
take out the present owner and put in the operation of a new owner.
[MS. LUEKEN:] Okay. And so you did that?
[DOBBS:] I did that, and in my valuation the way my method is that I always put
myself in the place of -- unless I have a specific buyer, for example, and
I was working for the buyer, I put myself in that place and I say okay
what’s it going to take. And that’s where that came from.
[MS. LUEKEN:] So my question to you again is you have already calculated the
replacement for Peter if that business was sold?
[DOBBS:] I calculated an operator for the business, and that operator included a
somewhat -- you know, actually as I told you, two people.
At the circuit court’s hearing announcing its oral ruling, Peter announced, through
counsel, his intention to appeal the valuation of the business and to request a stay pending an
appeal. Peter subsequently filed a motion to make an additional finding of fact and to
reconsider the decree on January 6, 2012, and a hearing on the motion was held on January
30, 2012. In his motion, Peter requested the circuit court to state a specific amount of
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goodwill and to reconsider either that the characterization of goodwill should be personal or
that the amount of alimony should be adjusted. After the circuit court heard oral argument
from both parties, the circuit court announced its ruling, and its ruling from the bench helps
to clarify the rationale for its findings in the subsequent written order. The circuit court
recognized that personal goodwill has not been expanded to this type of business in Arkansas
and that it may be appropriate under certain cases like this one. However, the court stated,
On the other hand, the testimony that came in, in regard to valuation, is not helpful,
in my opinion, to the argument that we should recognize personal goodwill. And this
is what I mean, which is ordinarily the testimony that you get in a divorce case about
valuing either a business or a practice is testimony that has been developed solely for
the purpose of litigation. This case is a little bit different in the sense that the
testimony, as I recollect it, was that while Mr. Brave may have asked the witness what
he thought the business would be worth for the purpose of litigation, he didn’t phrase
it to the witness that way. He just simply said if I want to sell my business, what could
I sell it for. Well, here is the deal. From the standpoint of a judge, that’s the perfect
witness. The person that comes in to say this is my belief based on my assessment of
what this would sell for in the open market. So that was good testimony.
Additionally, the circuit court stated that it was reducing the monthly alimony award from
$5,000 to $4,000. Upon further inquiry, the circuit court additionally stated, “I’m saying that
I don’t have any basis to allocate it between personal and corporate. . . . I’m finding it’s
corporate since he testified that’s what the business could be sold for.” Furthermore, the
circuit court stated that it took Peter’s argument regarding “double dipping” into
consideration in reducing the amount of alimony.
On the same day, the circuit court filed an order conforming with its oral ruling,
denying the motion to make a specific finding concerning the amount of goodwill, finding
that the goodwill is corporate goodwill, denying Peter’s “argument that splitting the goodwill
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and awarding alimony based on Plaintiff’s future income constitutes impermissible ‘double
dipping,’” and reducing the amount of alimony to $4,000 per month.
Peter filed his notice of appeal on February 8, 2012. Additionally, Peter filed a motion
to stay the judgment on February 16, 2012, and Marie filed a motion for contempt for
nonpayment on March 30, 2012.2 The circuit court filed an order denying the stay pending
appeal, ordering Peter to make all back-payments and future payments as set in the divorce
decree. Additionally, the circuit court specifically held that “[a]ll payments made by Plaintiff
to Defendant pursuant [to] the judgment on the restaurant are recognized to be involuntary.”
Furthermore, the court denied Marie’s motion for contempt.
Marie filed a motion to dismiss the appeal on April 8, 2013, alleging that this court
lacks jurisdiction since Peter made three voluntary payments in partial satisfaction of the
judgment. The Arkansas Court of Appeals passed the motion on May 1, 2013, for
consideration when the case was submitted. The court of appeals denied Marie’s motion in
a footnote in the majority opinion. Since the motion raises issues of jurisdiction, we first
address this motion before addressing the merits on appeal.
Marie argues that Peter paid $10,000 on January 1, 2012; $10,000 on February 1, 2012;
and $5,000 on February 15, 2012. Marie cites to this court’s holding in Hall v. Hall, as
support for her argument. See Hall v. Hall, 2012 Ark. 429. In Hall, Justin Hall (“Justin”) was
2
On January 9, 2013, the Arkansas Court of Appeals granted an unopposed motion to
correct the record on appeal and remanded the case for the circuit court to settle the record.
A supplemental record was filed to include all relevant motions and orders that were filed in
the circuit court.
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ordered to pay his ex-wife, Tammye Hall (“Tammye”), $68,691.84 thirty days after the
judgment and another $100,000 almost three months after the judgment. Id. Justin made the
first payment and admitted that he did so voluntarily. Id. After Tammye filed a notice of
appeal, Justin cross-appealed. Id. This court found that “Justin’s payment was a voluntary
acquiescence to the judgment against him” and granted the motion to dismiss the cross-
appeal. Id. Justin made a substantial payment in compliance with the judgment, did not try
to reserve his rights or attempt to designate that his payment was going to only one part of
the judgment, and did not try to post a supersedeas bond or present any argument that he was
unable to do so. Id.
Unlike the circumstances in Hall, Peter announced from the beginning his intention
to appeal and filed a motion to stay the judgment pending appeal. Furthermore, Peter did not
admit that his payments were voluntary as Justin did in Hall. In fact, the circuit court
specifically found in its order denying the motion to stay that “[a]ll payments made by Plaintiff
to Defendant pursuant [to] the judgment on the restaurant are recognized to be involuntary.”
As such, we do not think that Peter’s actions were a voluntary acquiescence to the judgment
to bar this appeal, and we deny the motion to dismiss the appeal.
Peter contends in his first point on appeal that the circuit court erred in holding that
the goodwill was corporate goodwill and dividing it as marital property rather than holding
that it was personal to him. On appeal, divorce cases are reviewed de novo. Taylor v. Taylor,
369 Ark. 31, 250 S.W.3d 232 (2007). With respect to the division of property, we review
the circuit court’s findings of fact and affirm them unless they are clearly erroneous, or against
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the preponderance of the evidence; the division of property itself is also reviewed and the
same standard applies. Id. A finding is clearly erroneous when the reviewing court, on the
entire evidence, is left with the definite and firm conviction that a mistake has been
committed. Kelly v. Kelly, 2011 Ark. 259, 381 S.W.3d 817. We give due deference to the
circuit court’s superior position to determine the credibility of witnesses and the weight to be
given their testimony. Id.
In Wilson v. Wilson, this court adopted the Nebraska Supreme Court’s analysis
regarding whether goodwill is an asset and is marital property subject to division. Wilson v.
Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987).
The court in Taylor pointed to the difficulty that arises in valuing a professional
practice when goodwill is likely to depend on the professional reputation and
continuing presence of a particular individual in that practice. . . . [Taylor v. Taylor, 222
Neb. 721, 729, 386 N.W.2d 851, 857 (1986).] In a further discussion of that point,
the court said:
[W]here goodwill is a marketable business asset distinct from the personal
reputation of a particular individual, as is usually the case with many
commercial enterprises, that goodwill has an immediately discernible value as
an asset of the business and may be identified as an amount reflected in a sale
or transfer of such business. On the other hand, if goodwill depends on the
continued presence of a particular individual, such goodwill, by definition, is
not a marketable asset distinct from the individual. Any value which attaches
to the entity solely as a result of personal goodwill represents nothing more than
probable future earning capacity, which, although relevant in determining
alimony, is not a proper consideration in dividing marital property in a
dissolution proceeding.
Id. at 731, 386 N.W.2d at 858.
We believe the view expressed in Taylor is a sound one, and conclude that, for
goodwill to be marital property, it must be a business asset with value independent of
the presence or reputation of a particular individual—an asset which may be sold,
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transferred, conveyed or pledged. Thus, whether goodwill is marital property is a fact
question and a party, to establish goodwill as marital property and divisible as such,
must produce evidence establishing the salability or marketability of that goodwill as
a business asset of a professional practice.
Id. at 205–06, 741 S.W.2d at 646–47 (alteration in original).
Peter argues that although Wilson involved goodwill associated with a professional
practice, specifically an orthopedic-surgery practice, personal goodwill can also be found in
other nonprofessional practices, such as the goodwill associated with Brave New Restaurant.
However, even if this court were to assume that personal goodwill could be found in the
valuation of the restaurant, we do not find that the circuit court clearly erred in finding that
the goodwill was corporate goodwill under these particular facts based on Dobbs’s testimony
that he added the goodwill in his valuation of the restaurant if sold on the open market and
that he also took into account the replacement of Peter in that valuation. Goodwill is
characterized as corporate goodwill and marital property, subject to division, if the evidence
establishes the salability or marketability of the goodwill as a business asset. See Wilson, supra.
Thus, based on this court’s standard of review, we affirm the circuit court’s decision on this
point.
Peter contends in his second point on appeal that the circuit court erred by “double
dipping into the same stream of [his] future income” when it divided the goodwill of Brave
New Restaurant in awarding Marie alimony. However, Peter is mistaken. This court’s
standard of review regarding an award of alimony is clear and is outlined as follows in
Kuchmas:
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An award of alimony is a question that addresses itself to the sound discretion
of the trial court. See McKay v. McKay, 340 Ark. 171, 8 S.W.3d 525 (2000); Burns v.
Burns, 312 Ark. 61, 847 S.W.2d 23 (1993). This court has held that the trial court can
make an award of alimony that is reasonable under the circumstances. See Mulling v.
Mulling, 323 Ark. 88, 912 S.W.2d 934 (1996) (citing Harvey v. Harvey, 295 Ark. 102,
747 S.W.2d 89 (1988)).
The purpose of alimony is to rectify economic imbalances in earning power and
standard of living in light of the particular facts in each case. Mulling, supra. The
primary factors that a court should consider in determining whether to award alimony
are the financial need of one spouse and the other spouse’s ability to pay. Harvey v.
Harvey, 295 Ark. 102, 747 S.W.2d 89 (1988); see also Valetutti v. Valetutti, 95 Ark. App.
83, 234 S.W.3d 338 (2006). The trial court should also consider the following
secondary factors: (1) the financial circumstances of both parties; (2) the amount and
nature of the income, both current and anticipated, of both parties; (3) the extent and
nature of the resources and assets of each of the parties; (4) the earning ability and
capacity of both parties. See Anderson v. Anderson, 60 Ark. App. 221, 963 S.W.2d 604
(1998). The amount of alimony should not be reduced to a mathematical formula
because the need for flexibility outweighs the need for relative certainty. See Mitchell
v. Mitchell, 61 Ark. App. 88, 964 S.W.2d 411 (1998).
Kuchmas v. Kuchmas, 368 Ark. 43, 45–46, 243 S.W.3d 270, 271–72 (2006).
Peter’s argument in his second point on appeal is flawed because it again is premised
on the fact that the goodwill, which he alleges represents his future earning capacity, used in
the valuation of the business was personal goodwill. See Wilson, supra (quoting Taylor, 386
N.W.2d 851). However, as explained in his first point on appeal, the circuit court did not
err in finding that the goodwill in this case was corporate goodwill. Furthermore, at the
hearing on the motion for reconsideration, the circuit court reduced the alimony to $4,000
per month and specifically stated that it did so after taking Peter’s argument regarding “double
dipping” into consideration. As such, we do not find that the circuit court abused its
discretion and affirm the order of the circuit court.
Affirmed; motion to dismiss appeal denied; court of appeals’ opinion vacated.
James Law Firm, by: Lee D. Short, for appellant.
Lueken Law Firm, by: Patty W. Leuken; and James, House & Downing, P.A., by: Matthew
R. House, for appellee.
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