Colclasure v. Colclasure

• Decision Date: 04 February 2013
• Docket Number: No. 109,218.,109,218.
• Citation: 295 P.3d 1123
• Parties: Lori COLCLASURE, Now Dean, Petitioner/Appellant, v. Kent COLCLASURE, Respondent/Appellee.
• Court: Oklahoma Supreme Court

295 P.3d 1123

Lori COLCLASURE, Now Dean, Petitioner/Appellant,

v.Kent COLCLASURE, Respondent/Appellee.

No. 109,218.

Supreme Court of Oklahoma.

Nov. 20, 2012.

Rehearing Denied Feb. 4, 2013.

CERTIORARI TO THE OKLAHOMA COURT OF CIVIL APPEALS, DIVISION 4; Honorable Barry L. Hafer, Trial Judge

¶ 0 The appellant wife and the appellee husband owned a business together. The business had been the sole property of the wife until shortly before the parties' marriage, when the husband bought a forty-nine percent interest in the business for five-thousand dollars. The wife filed for divorce five years later. During the pendency of the divorce, the wife terminated the husband from the marital business. Husband, still a co-owner of the marital business and receiving the benefits of this ownership, started a competing business. The trial court, in determining the value of the husband's share of the business did not consider any loss in value to the marital business because of the husband's competing business. The Court of Civil Appeals affirmed. We granted certiorari and hold that the trial court should have, in settling the value of the business for property settlement purposes, included any loss in business value because of the husband's competing business.

CERTIORARI PREVIOUSLY GRANTED; COURT OF CIVIL APPEALS OPINION VACATED; TRIAL COURT REVERSED AND REMANDED.

George H. Brown, Oklahoma City, Oklahoma, for Petitioner/Appellant.

John E. Barbush, Oklahoma City, Oklahoma, for Respondent/Appellee.

KAUGER, J.:

¶ 1 The only issue presented on appeal is whether the trial court erred in its valuation of the marital business. We reverse and remand to the trial court for a valuation of the parties' marital business which includes any loss in its value due to husband's competing business. Such a determination must include its value as of the date that the husband purchased a share of the business, as well as any offset to the valuation of husband's share of the business because he received money from the business during the pendency of the divorce.

FACTS

¶ 2 The appellant, Lori Colclasure Dean (wife), was, from January 1, 1999, until January 1, 2004, the sole owner and operator of Arrow Hardwood Floors, LLC, (Arrow) ¹ Arrow was an Oklahoma Limited Liability Company under the Articles of Organization filed with the Oklahoma Secretary of State on April 2, 1998. On January 1, 2004, Dean and appellee Kent Colclasure (husband), executed a document entitled Unit Purchase Agreement for Dean's sale of forty-nine percent (49%) of Arrow Hardwood Floors to her then fiancée, Colclasure. The purchase price under the agreement was five-thousand dollars ($5,000).² No valuation of the company was made at the time of the Unit Purchase Agreement. However, Colclasure's expert indicated that the Gross Receipts for the calendar year 2003, were $635,549 and that the Gross Profits totaled $126,431.³

¶ 3 The parties were married on October 1, 2004. On December 19, 2006, they executed a document entitled Operating Agreement for Arrow Hardwood Floors, LLC. The agreement was presented to them by an accountant and business consultant who worked for Arrow and was a friend of the husband.⁴ The template for the document was prepared by a lawyer and finalized by the accountant.⁵ The wife was described in the Agreement as the manager of Arrow and she signed the document as such. The husband and wife both signed as members. The Certificate of Agreed Value contained in the agreement was blank, as was the addendum setting forth their initial capital contributions and the percentages of ownership. The agreement contained two pertinent clauses which should be noted in their entirety, clause 6.08,⁶ concerning outside activities of members and clause 12.01,⁷ disqualification of a member.

¶ 4 The wife and husband each worked at Arrow. The husband worked as the sales representative and the wife worked as the manager/bookkeeper. The petition for divorce was filed by the wife on December 28, 2009, and included an application for a temporary order. An agreed temporary order was filed on February 9, 2010. The agreement provided that the wife was to continue as the accountant, although the Agreement does not describe her as such, and that the husband was to work for the company as the sales representative. The parties were prohibited from incurring any corporate indebtedness without written permission from the other party or order of the court. The order provided for monthly distributions to be made to both parties.

¶ 5 By April of 2010, the relationship between the parties had deteriorated further. On or about April 1, 2010, at the Arrow premises, during a dispute over husband's charges of entertainment and other purchases to the company accounts, the husband shoved the wife, causing her to fall. As a result of the fall, the wife was treated for contusions and bruising to her tailbone and she filed for a victim's protective order. She terminated the husband from his role as the company's sales representative on April 5, 2010.

¶ 6 The husband started his own flooring company in direct competition with Arrow and, pursuant to the agreed temporary order, used the Arrow showroom as his office. The wife alleged that the husband used Arrow order books, samples, mobile telephones, and transport in this competing business. She also alleged that he stole Arrow's customers and undercut Arrow on bids. On June 30, 2010, the trial court issued a minute order setting forth the parties' agreed use of the Arrow showroom. The order provided that the husband was not to use the warehouse; the telephone; say he was with Arrow or access Arrow's current bids; neither husband nor wife was to interfere with each other's business or customers. The husband was still receiving disbursements from Arrow.

¶ 7 The case was tried during the last week of September of 2010; the Decree of Dissolution of Marriage was filed on January 28, 2011. The husband was awarded $235,200.00 in property division alimony for his forty-nine (49) percent interest in Arrow. This amount is forty-seven times the amount of his initial investment in Arrow, just five years before the divorce was filed.

¶ 8 The valuation of the business was not conducted pursuant to the terms of the Agreement. Both sides presented expert valuation testimony during the divorce trial. The valuations were significantly different. The procedures in the Agreement providing for a third tie-breaking evaluation were not used. ⁸

¶ 9 The wife's expert, Kenneth W. Klingenberg (Klingenberg), was a certified public accountant and a member of the Oklahoma Bar. His valuation was made using an income method and an excess earnings approach, with a December 31, 2009, valuation date. He testified that he used the end of the business year valuation date because the records were better and because the divorce was filed on December 28, 2009. His valuation reduced the total value of Arrow because of diversion of $298,085.58 in business by the husband. Klingenberg calculated, using Dean's figures, that the loss in the value of Arrow because of diverted business was $104,330.⁹ His buy/sell valuation of Arrow was $216,315. He included the diverted business in the valuation because, although it occurred after the valuation date, a subsequent event, it was both known and knowable and thus should have been used in the valuation.

¶ 10 The husband's expert, Ralph E. Blodgett (Blodgett), was a certified public accountant, a member of the Oklahoma Bar and a Certified Valuation Analyst. He used the capitalized cash flow method of valuation with a valuation date of November 30, 2009, which he stated was required by the agreement. He considered the filing of the divorce to be the Event of Dissolution. He calculated Arrow's value at $480,000, and the husband's interest at $235,200.¹⁰ He testified that the diversion of business by husband in 2010, was not known or knowable as of the date of valuation and thus could not be used to value the business.¹¹ This method precludes any reduction in the value of the business because of the husband's competing business. There was no evaluation of the enhanced benefits the husband received. The trial court valued the business at $480,000. The husband was awarded property division alimony of $235,200.

¶ 11 The Court of Civil Appeals affirmed the value which the trial court placed on Arrow and the resulting amount of property division awarded husband for his portion of Arrow. We granted certiorari on May 14, 2012, to consider the disputed valuation of Arrow in the property division.

¶ 12 THE TRIAL COURT ERRED IN FAILING TO CONSIDER A REDUCTION IN VALUATION OF THE MARITAL BUSINESS BECAUSE OF HUSBAND'S BUSINESS COMPETITION.

¶ 13 The wife argues that the husband's direct competition with Arrow caused a decrease in the value of the business which should have been reflected in the trial court's determination of Arrow's valuation and thus the amount of the husband's property division alimony. She argues that there was “double-dipping” by the husband because he had income from business diverted from Arrow and income from Arrow, with no adjustment whatsoever for the decline in Arrow's value because of this.

¶ 14 The husband argues that, under the Agreement, the date of valuation was unalterably November 30, 2009. He also argues that, because his competition against Arrow took place after November 30, 2009, it cannot be used to alter the value of Arrow on the valuation date. He contends that, because the Agreement permitted his competition, he cannot be penalized for his actions by a reduction of his property award.

¶ 15 At the outset we note that the agreement was a buyout agreement and failing a buyout, an agreement for the dissolution of a business, which neither party followed. They did not obtain appraisers by the time they were required to do so under the contract. They did not follow the contract requirement that, if the appraisers did not...