In re Marriage of McTiernan and Dubrow

• Decision Date: 28 October 2005
• Docket Number: No. B161255.,B161255.
• Citation: 35 Cal.Rptr.3d 287,133 Cal.App.4th 1090
• Court: California Court of Appeals Court of Appeals
• Parties: In re the MARRIAGE OF John McTIERNAN and Donna DUBROW. John McTiernan, Appellant, v. Donna Dubrow, Appellant.

35 Cal.Rptr.3d 287

133 Cal.App.4th 1090

In re the MARRIAGE OF John McTIERNAN and Donna DUBROW.

John McTiernan, Appellant, v. Donna Dubrow, Appellant.

No. B161255.

Court of Appeal, Second District, Division 8.

October 28, 2005.

Kolodny & Anteau, Stephen A. Kolodny, Lauren S. Petkin and James L. Keane for Appellant John McTiernan.

Dapeer, Rosenblit & Litvak and William Litvak for Appellant Donna Dubrow.

FLIER, J.

John McTiernan (husband) and Donna Dubrow (wife) both appeal from a judgment in the dissolution of their marriage. Their appeals raise distinct issues. Husband primarily challenges the trial court's determination that there existed goodwill in his business as a motion picture director, and that all of the $1.5 million of goodwill constituted community property. Husband also contests a ruling that he must reimburse wife's share of profits that were lost after husband sold certain community securities without her consent, and in violation of the automatic injunctive order imposed upon commencement of the proceedings. (Fam.Code, § 2040, subd. (b).)

In her appeal, wife contends that the court abused its discretion by limiting her postdissolution spousal support to two years, and by characterizing several months of pendente lite payments as community property distributions rather than temporary support. Wife also asserts that the judgment should be modified to preserve jurisdiction over support beyond the two-year period. Finally, wife contends that the court abused its discretion by reducing husband's obligation to pay wife's attorney fees, by reason of an irrelevant and inaccurate reckoning of her postdissolution estate.

We find merit in husband's contention that there is no goodwill in his career as a motion picture director. We also find merit in wife's contentions regarding the duration of spousal support and retention of jurisdiction. We reverse the judgment as to those elements, and affirm it in all other respects.

FACTS

The parties were married in November 1988. They separated in July 1997, and husband commenced this proceeding the following month. The matter was extensively litigated, including 21 days of trial, conducted between June 1999 and June 28, 2000. The court's 34-page statement of decision was filed August 23, 2000, and the judgment under review was entered on August 28, 2002. At that time, husband was 51 years old and wife was 59.

The evidence showed that, during and after the marriage and to some extent before, husband was a very successful motion picture director, commanding six- to high seven-figure compensation per film, and having to his credit such blockbusters as Die Hard (20th Century Fox 1988), The Hunt for Red October (Paramount Pictures 1990), and The Thomas Crown Affair (Metro-Goldwyn-Mayer 1999). Wife also pursued a career in motion picture production, and before the marriage she was earning $195,000 a year as a production company executive. She produced several films during the marriage, while accompanying husband in his directorial pursuits. The trial court found that during the eight and three-quarter years of marriage before separation, husband had earned approximately $15 million, and wife had earned about $1 million. Predictably, the parties' community estate was substantial, as was the scale of their lifestyle.

Because the issues raised on these appeals largely involve distinct factual and legal bases, we will state the facts relevant to each issue in conjunction with its discussion. We proceed to consideration of the issues.

I. HUSBAND'S APPEAL

A. Professional Goodwill

1. The Trial Court's Ruling and Husband's Contention on Appeal

The trial court found that husband "is a motion picture director who has achieved exceptional success in that field. His success is dependent upon his personal skill, experience and knowledge, and the Court finds that, in that respect, the profession which he practices is similar to that of an attorney, physician, dentist, accountant, editor, architect, or any other professional who has established a successful professional practice, with quantifiable expectation of future patronage, based upon his or her personal skill, experience and knowledge."

The finding that husband has achieved exceptional success as a motion picture director is based for the most part on testimony presented by Arthur De Vany, Ph.D., an economist who is a professor in the Department of Economics of the Institute of Mathematics and Behavioral Sciences at the University of California, Irvine. The trial court found that the "evidence presented by Dr. De Vany was persuasive . . . that Petitioner [husband] has developed an earning capacity and reputation in his profession as a motion picture director which greatly exceeds that of most persons involved in that profession and that Petitioner commands a premium for his services. [¶] In addition, the evidence established that Petitioner can reasonably expect to continue to enjoy said premium. In other words, he has expectation of continued patronage at his prior level of compensation."

The trial court detailed the facts upon which these conclusions were based. Among these facts are that husband is ranked No. 13 among 1,058 motion picture directors in cumulative box office revenues during 1985-1996, No. 8 in terms of gross domestic revenues produced by movies he directed, and No. 1 in terms of production budgets entrusted to his control. Husband does not contest the trial court's conclusion that all of this boils down to the fact that he has, in the trial court's words, "elite professional standing."

The trial court determined the value of husband's goodwill by means of the "excess earnings" approach. It has been noted that the "excess earnings" method is a method that is commonly used to determine the value of the goodwill in a professional practice. (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2005) ¶ 8:1445.) Broadly put, the excess earnings approach is predicated on a comparison of the earnings of the professional in question with that of a peer whose performance is "average."¹ Using this method with some modifications, the trial court determined that husband's goodwill at the time of separation was $1.5 million.

Husband contends that he does not possess an asset that can be properly classified as goodwill. Relying on In re Marriage of Rives (1982) 130 Cal.App.3d 138, 153, 181 Cal.Rptr. 572, and In re Marriage of Aufmuth (1979) 89 Cal.App.3d 446, 460-462, 152 Cal.Rptr. 668,² among other cases, husband points out that skill, reputation and experience are not community property. Husband contends that the goodwill found to exist in this case is in reality nothing other than his skill, reputation and experience.

2. The Issue Defined

The trial court found that husband has a "quantifiable expectation of future patronage." Future, or continued, public patronage is one essential aspect of goodwill. "The `good will' of a business is the expectation of continued public patronage." (Bus. & Prof.Code, § 14100.) However, there is more to goodwill than expectation of continued patronage. "The good will of a business is property and is transferable." (Bus. & Prof.Code, § 14102, italics added.)

Since the goodwill of a business is property (Bus. & Prof.Code, § 14102), the question is: What is the meaning of "a business" in the definition of goodwill?

There are two possible answers.

One answer is that the term "a business" also includes "a person doing business." This is the interpretation that the trial court adopted in this case.

The other answer is that "a business" refers to a professional, commercial or industrial enterprise with assets, i.e., an entity other than a natural person.

There are three reasons why the second answer is the better one. First, it conforms to the historical understanding of goodwill. Second, the plain text of Business and Professions Code sections 14100 and 14102, which, in this respect, have not been amended since their enactment in 1872, speaks of "a business," and not of natural persons. Third, interpreting the term "a business" as it appears in Business and Professions Code sections 14100 and 14102 to refer to a professional, commercial or industrial enterprise with assets ensures that the interest that is divided as goodwill is "property," as "property" is defined by law.

3. The Historical Understanding of "a Business"

The precursors of Business and Professions Code sections 14100 and 14102 were Civil Code sections 992 and 993, which were enacted in 1872 as part of the Civil Code.³ Contemporaneously with the enactment of the California Civil Code in 1872, and as of the closing decades of the 19th century, the courts spoke of goodwill as an incident of an existing business; goodwill did not exist in the abstract, apart from a business. "Undoubtedly, good will is in many cases a valuable thing, although there is difficulty in deciding accurately what is included under the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of being disposed of independently." (Metropolitan Bank v. St. Louis Dispatch Co. (1893) 149 U.S. 436, 446, 13 S.Ct. 944, 37 L.Ed. 799.)⁴

California decisions echoed this view, rejecting that goodwill attaches to the shares of stock. "It would be strange to predicate good-will as pertaining to or extending to an abstraction, to an `artificial being, invisible, intangible, and existing only in contemplation of law.'" (Spring Valley W.W. v. Schottler (1882) 62 Cal. 69, 118, cited with approval in Merchants' Ad-Sign Co. v. Sterling (1899) 124 Cal. 429, 432, 57 P. 468.)⁵ The courts spoke of the fact that goodwill was not separable from the physical assets of the business that generated the goodwill. (E.g., Russell v. Russell (1918) 39 Cal.App. 174, 176-177, 178 P. 307; Ward-Chandler Bldg. Co. v. Caldwell (1935) 8 Cal.App.2d 375, 378, 47 P.2d 758.) This led...