Jacoby v. Jacoby

• Decision Date: 31 December 2014
• Docket Number: CAAP–12–0000083.,Nos. CAAP–11–0000583,s. CAAP–11–0000583
• Citation: 134 Hawai'i 431,341 P.3d 1231
• Court: Hawaii Court of Appeals
• Parties: Nicoleta JACOBY, Plaintiff–Appellee/Cross–Appellant, v. Bennett JACOBY, Defendant–Appellant/Cross–Appellee.

134 Hawai'i 431

341 P.3d 1231

Nicoleta JACOBY, Plaintiff–Appellee/Cross–Appellant,

v.Bennett JACOBY, Defendant–Appellant/Cross–Appellee.

Nos. CAAP–11–0000583

CAAP–12–0000083.

Intermediate Court of Appeals of Hawai‘i.

Dec. 31, 2014.

As Corrected March 24, 2015.

Michael S. Zola, Kailua–Kona, on the briefs, for Defendant–Appellant/Cross–Appellee.

Peter Van Name Esser, Honolulu, Ira Leitel, Kamuela, on the briefs, for Plaintiff–Appellee/Cross–Appellant.

NAKAMURA, Chief Judge, LEONARD and GINOZA, JJ.

Opinion of the court by LEONARD, J. Defendant–Appellant/Cross–Appellee Bennett Jacoby (Bennett ) appeals from an April 14, 2011 Family Court of the Third Circuit (Family Court ) Order Re: Divorce Trial (Order ) and a July 5, 2011 Decree Granting Absolute Divorce and Awarding Child Custody (Divorce Decree ) that dissolved Bennett's marriage with Plaintiff–Appellee/Cross–Appellant Nicoleta Jacoby (Nicoleta ).¹ Nicoleta cross-appeals from the Divorce Decree.

Bennett raises sixteen points of error, arguing the Family Court erred, inter alia, in its valuation of Bennett's intellectual property (IP ) for his capital contribution, its deviation from marital partnership principles and waiver of Nicoleta's equalization payment, its permanent alimony² and child support awards, and its requirement that Bennett maintain life insurance in an amount far greater than necessary to give reasonable security for his support obligations.

On cross-appeal, Nicoleta raises three points of error, challenging the Family Court's decision to: (1) include an automatic termination clause for her permanent alimony upon her cohabitation; (2) include Bennett's tax-free disability earnings as "Monthly Gross Income" on the Child Support Guidelines (CSG ) worksheet; and (3) not award her one-half of Bennett's future disability benefits, if we conclude that the Family Court erred by awarding Nicoleta permanent alimony or by waiving her equalization payment.

I. BACKGROUND

On December 9, 2008, Nicoleta filed a complaint for divorce against Bennett.

On February 18, 2009, the parties filed a Stipulation of the Parties Re: Temporary Custody, Visitation, Support, and Other Matters (Pre-trial Stipulation ). Bennett and Nicoleta agreed temporarily to joint legal and physical custody of their two minor children and set forth temporary terms and conditions of their joint custody.

On October 12, 2009, Bennett filed a motion for a pre-trial determination regarding whether his future disability benefits are marital property subject to equitable distribution. No separate order was filed.³

Bennett and Nicoleta's divorce trial was held on November 12, 13, 19, and 27, 2009. The date of the conclusion of the evidentiary portion of the trial (DOCOEPOT ) was November 27, 2009. Nicoleta and Bennett both testified at trial, and each called an expert to testify about the value of Bennett's IP.

Nicoleta testified that she was born in Romania in 1969, and in 1985, she had surgery to remove an arteriovenous malformation in her brain

. Following surgery, she was paralyzed on her "whole right side." When she came to the United States in 1990, she was still experiencing weakness in her right leg and hand.

Nicoleta stated that she met Bennett in California around May 1992, and they moved in together in June 1992. Nicoleta was twenty-three years old and Bennett was thirty-one years old at the time. Bennett was separated, but not yet divorced, from his former wife (Mary Ann ) when he began living with Nicoleta. Nicoleta worked at Bennett's periodontist clinic in California, but Bennett did not pay her. She believed that they had a joint bank account, and she reported that Bennett had been "paying for everything."

Nicoleta and Bennett were married on June 12, 1993 (date of marriage, DOM ), and Nicoleta continued to work in Bennett's office thereafter. Their son was born in June 1995, and their daughter was born in January 1997.

In late 1997, Nicoleta was diagnosed with multiple sclerosis

(MS ). Nicoleta reported that she underwent steroid treatments, which caused numbness.

The family moved to Hawai‘i in May 1998. Bennett and Nicoleta purchased a home in August 1998. Nicoleta testified that she continued to have MS flare-ups, which required steroid treatments. She continued to consult with her neurologist in California until 2007, and she also saw a neurologist in Hawai‘i.

Nicoleta testified that her illness impacted her employment. In 1999, she worked part time at Hualalai Academy for its after-school program from about 2:30 to 5:00 p.m., five days a week. However, she had to quit "because after a while, my numbness and my MS was flaring up, and I had to go to the hospital to have the IV steroids." In 2005, she tried to work with Bennett as his assistant when he started "working on the charity van, ... but I did not last." She worked for less than a week before her MS caused her to quit. At the time of trial, she felt that she was unable to work because "[m]y shoulder hurts. My arm—I cannot be on the computer too long.... I'm very tired."

Nicoleta also testified that she has optic neuritis

, which might cause her to go blind. In April 2009, she was diagnosed with brain hemorrhaging and must have an annual CT scan "to watch that aneurysm that broke that is in my brain." She stated that, in May 2009, she was "diagnosed with carpal tunnel syndrome, the nerve on my left hand, my good hand, ... the nerve is damaged" and that her left shoulder problems require surgery. Nicoleta's medical problems require numerous medications that are very costly. Even with insurance, Nicoleta testified that she spent about $885 per month for her medications.

At DOCOEPOT, Nicoleta was receiving about $5,500 per month in alimony and $1,970 per month in child support. Nicoleta requested that Bennett maintain his $1.5 million life insurance policy, which he had initiated during their marriage.

Nicoleta further testified that the climate, single-story design, and pool at the parties' marital residence helped her cope with her MS. If Nicoleta does go blind, the familiarity with the house would be "very good for [her]" because she knows "how to get around [the house] and everything." However, she stated that the upkeep of the house is costly.

Bennett testified that he married Mary Ann around May 1989. In December 1992, a judgment of divorce from Mary Ann was filed in California, and he signed a marital termination agreement or agreement incident to divorce (AITD ). The AITD included a $10,000 settlement payment to Mary Ann to "sign off on" his IP or "in effect release any claims that she might have to an interest in it."

Bennett testified that his IP stemmed from the ideas that resulted in his periodontal endoscope, which utilized fiber optics to allow dentists to view beneath teeth without surgery, and which came to him in 1987. Bennett's attorney filed patent applications for his ideas. Bennett created a successful working prototype in late 1992, and used it on patients in late 1992 or early 1993. Bennett testified that "a tremendous amount of development" occurred between when Mary Ann released claims on his IP in December 1992, and the DOM in June 1993. Thus, "what I brought into the marriage with Nicoleta was different from what Mary Ann signed off on." His patent allowance was issued in February 1993, two months after the AITD and four months before DOM.

At DOCOEPOT, Bennett was receiving disability payments in the amount of about $16,334 per month, tax-free. Bennett's disability insurance policy provides for five-percent annual increases. Bennett testified that he paid annual premiums for the policy during his marriage to Nicoleta, until his premiums were waived when he was found to be disabled after a diagnosis of myofascial pain dysfunction syndrome

following a 1996 surfing accident.

At DOCOEPOT, Bennett was earning about $1,500 per month working part-time as a periodontist. He was also receiving about $1,000 per month in royalties from his invention until December 2011, and about $9,000 per month from various investments.

Bennett testified that the expenses for Bennett, Nicoleta, and their two children from January 2007 to June 2008, averaged $9,348 per month.

Both parties offered expert testimony on the value of Bennett's IP asset. Bennett's valuation expert was Gary Kuba (Kuba ). Nicoleta's expert was Christian Tregillis (Tregillis ).

Kuba valued Bennett's periodontal endoscopy

device patent applications as of DOM at $4,648,000. To arrive at his valuation, Kuba "ultimately relied on ... a projection prepared by Wendell Ebling [ (Ebling ) ], who was the president of a company back in 1993 called Bioview, who had dental sheaths among other products." Kuba explained his basic valuation model as follows:

You start off with cash flows. What's the expected cash flows? You apply a discount rate to it. Cash flows divided by this discount rate gives you what the value is, so it's pretty straightforward.

You're dealing with two variables. If cash flows go higher and the discount rate is constant, you get a higher value. If the cash flows remain the same, the discount rate goes down, you get a higher value. Conversely, if the discount rate goes up, you get a lower value. So, you know, the fundamentals is [sic] pretty straightforward. We're dealing with two variables here.

Kuba used Ebling's projected cash flow and a twenty percent discount rate. Kuba said "there's no evidence that I'm aware of" that indicated that Ebling's projections were inflated. However, he acknowledged that Ebling's projections may have been "overinflat[ed]" to "entice" Bennett into a partnership. Kuba acknowledged that "the only relevant person that we were able to talk to was [Bennett]" because Ebling had since passed away.

Kuba based the twenty percent discount rate "on what's called a capital asset pricing model." He explained how this model arrives at a discount rate. Kuba's arrival at a twenty percent discount rate "widely varies" from Tregillis's.

Kuba explained...