Helfer v. Helfer
Decision Date | 02 November 2009 |
Docket Number | No. 34703.,34703. |
Citation | 686 S.E.2d 64 |
Parties | Carol A. HELFER, Petitioner Below, Appellant v. Robert J. HELFER, Respondent Below, Appellee. |
Court | West Virginia Supreme Court |
Syllabus by the Court
1. Syllabus, Carr v. Hancock, 216 W.Va. 474, 607 S.E.2d 803 (2004).
2. ." Syl. Pt. 2, Helfer v. Helfer, 221 W.Va. 625, 656 S.E.2d 70 (2007).
3. " Syl. Pt. 3, Helfer v. Helfer, 221 W.Va. 625, 656 S.E.2d 70 (2007).
4. Syl. Pt. 1, Bettinger v. Bettinger, 183 W.Va. 528, 396 S.E.2d 709 (1990).
5. Syl. Pt. 3, State ex rel. Frazier & Oxley v. Cummings, 214 W.Va. 802, 591 S.E.2d 728 (2003).
6. "A circuit court's interpretation of a mandate of this Court and whether the circuit court complied with such mandate are questions of law that are reviewed de novo." Syl. Pt. 4, State ex rel. Frazier & Oxley v. Cummings, 214 W.Va. 802, 591 S.E.2d 728 (2003).
Kevin M. Pearl, William R. Keifer, Frankovitch, Anetakis, Colantonio & Simon, for the Appellant.
Mark D. Panepinto, Panepinto Law Offices, Wheeling, for Appellee.
This is the second appeal by Appellant Carol A. Helfer ("Appellant wife" or "Appellant") concerning the valuation of the chiropractic practice of her former spouse, Appellee Robert J. Helfer ("Appellee husband" or "Appellee"), for purposes of equitable distribution in the parties' divorce. In a previous appeal, this Court concluded that the family court committed reversible error insofar as it failed to take into account the intangible asset of enterprise goodwill when it adopted the valuation calculation offered by Appellee husband's accounting expert. Helfer v. Helfer, 221 W.Va. 625, 656 S.E.2d 70 (2007) ("Helfer I"). Accordingly, we ordered, inter alia, that, 221 W.Va. at 628, 656 S.E.2d at 73.
The issue in the present appeal is whether, following remand, the family court properly attributed an enterprise goodwill value of zero to Appellee's chiropractic business.
Having carefully considered the briefs, record and arguments of counsel, this Court affirms the order of the circuit court.
This divorce proceeding began in 2002 when Appellee husband filed for divorce from Appellant wife after almost twenty years of marriage. As in Helfer I, the singular issue in the present appeal involves the valuation of Appellee's chiropractic business for purposes of equitable distribution. The precise issue herein concerns the value, if any, of the enterprise goodwill as it relates to the business, a sole proprietorship.1
During an evidentiary hearing conducted on April 1, 2005, in the Family Court of Ohio County, the parties' accounting experts testified in connection with their respective written reports on the valuation, or fair market value, of Appellee's chiropractic practice. Appellee's accounting expert, Louis J. Costanzo, III, used the straight capitalization of earnings method to value the business at $41,000.00.2 It is undisputed that Mr. Costanzo's valuation calculation of the business did not specifically address enterprise goodwill.
Appellant's accounting expert, Jack R. Felton, CPA, calculated the value of Appellee's business at $388,000.00, using the capitalization of excess earnings approach.3 During the April 1, 2005, hearing, Mr. Felton opined that there is some enterprise goodwill associated with Appellee's business. According to Mr. Felton, "[e]nterprise goodwill considers things such as location, facilities, convenience, advertising, telephone numbers, patient lists and other data base materials." Mr. Felton was of the opinion that Appellee's business has a "great location" that is in a "high traffic area" where there has been "a lot of development." However, Mr. Felton acknowledged that Appellee's business was experiencing a "downward trend" in terms of number of patients seen per day and yearly revenue.4 Mr. Felton noted that, according to his research, the use of chiropractic services is generally increasing in this country; however, Appellee's practice is "trending downwards." Finally, Mr. Felton testified:
The last part that I'll say about the goodwill section is I guess you'd have to think in terms of, you know, what if [Appellee husband] didn't show up tomorrow, what would be the goodwill in his practice at that point, and that would be a good question to ask. And I think that at this point in time you would say hypothetically if the practice was left there on its own could [Appellant wife] take the practice over, hire a chiropractor — this is all hypothetical — and basically pay that person a fee and collect the balance of the money that was available and earn what would be the goodwill at that point."
Although Mr. Felton opined that there was enterprise goodwill associated with Appellee's business, it is undisputed that he failed to assign a value to it.
Following the testimony of Mr. Felton, Appellee husband presented a rebuttal witness, accountant John S. Bodkin, Jr., the managing partner of a local certified public accounting firm. Mr. Bodkin testified that, upon reviewing the valuation reports of both Mr. Costanzo and Mr. Felton, he ascertained their similarities and differences and, in his professional judgment, indicated what he "thought were reasonable assumptions and reasonable approaches." First, Mr. Bodkin testified that the valuation method used by Mr. Felton, the capitalization of excess earnings method (a cost approach) was not an appropriate method in this case, particularly because the business is a sole proprietorship. Mr. Bodkin stated:
Mr. Costanzo [Appellee husband's expert] made an assumption that the cash and the accounts receivable which ultimately had been liquidated into cash would be distributed as cash and not as assets of the practice itself5.
I think that this fact that this is a sole proprietorship and as the assets, cash, and ultimately the accounts receivable were divided as marital assets and not assets of the practice, the selection of the excess earnings method by Mr. Felton are inappropriate. There would basically be no assets at this point to substantially impact the value of the practice.
According to Mr. Bodkin,
The excess earnings method is a method of valuing businesses that was devised by the Internal Revenue Service back in 1968, and the IRS recommends it be used, but only if there's no better method available. That's what it says in ruling 68-679, only if there's no better basis available. The conceptual basis for the [excess] earnings method computes the company's equity based on the appraised value of tangible assets.
So Mr. Felton says that the majority of assets are intangibles in this method. But also to that you would add the tangible assets, but only if you have appraised values available.
Mr. Bodkin was critical of the fact that Mr. Felton did not use appraised values for the business' tangible assets, but instead, used assumed values:
If we're trying to figure out what the value of those assets is, we have to know what the appraised value is, and I think that the literature on how to use the excess earnings method clearly states that you need to have an appraised value. ... I thought it was interesting, Mr. Felton said that his value of $53,000 for the assets was determined based on his understanding from [Appellant wife] of the condition of the assets.6
(Footnote added)
Mr. Bodkin emphasized that "without an appraisal this method [capitalization of excess earnings method] shouldn't be used." On the other hand, Mr. Bodkin...
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