Johnson v. Johnson, 870241-CA

• Decision Date: 08 March 1989
• Docket Number: No. 870241-CA,870241-CA
• Citation: 771 P.2d 696
• Parties: Janet Sue JOHNSON, Plaintiff and Appellant, v. Val Budge JOHNSON, Defendant and Respondent.
• Court: Utah Court of Appeals

Page 696

771 P.2d 696

Janet Sue JOHNSON, Plaintiff and Appellant, v. Val Budge JOHNSON, Defendant and Respondent.

No. 870241-CA.

Court of Appeals of Utah.

March 8, 1989.

Stephen W. Farr (argued), Farr, Kaufman, & Hamilton, Ogden, for plaintiff and appellant.

Neil B. Crist (argued), Hansen, Crist & Spratley, Bountiful, for defendant and respondent.

Before BILLINGS, GARFF and JACKSON, JJ.

OPINION

JACKSON, Judge:

Appellant, Mrs. Johnson, seeks reversal or readjustment of the property division, alimony, and child support awarded to her upon divorce. We affirm the trial court's disposition of property, and reverse and remand the alimony and child support awards for further consideration.

Appellant's brief does not cite to the record in support of her Statement of Facts, as required by our rules. See R. Utah Ct.App. 24(a). Respondent's brief has a Statement of the Case, containing facts, but no Statement of Facts. Appellant provides little analysis and cites no authority supporting her claim that the "proper" method of valuation of Dr. Johnson's interest in a professional corporation was that used by her expert. On the other hand, Dr. Johnson asserts that Utah appellate cases reject her expert's valuation method. But, in the cases he cites--Dogu v. Dogu, 652 P.2d 1308 (Utah 1982), Olson v. Olson, 704 P.2d 564 (Utah 1985), and Petersen v. Petersen, 737 P.2d 237 (Utah Ct.App.1987)--the method of valuing a party's interest in a professional corporation was not at issue. Nevertheless, with this caveat, we undertake disposition of the appeal.

The parties married in 1966, following Dr. Johnson's first year of medical school. Mrs. Johnson had a Bachelor's Degree in business. While he was in medical school, she worked, thereby supplying $14,000 to the marriage. He earned about $3,500 during that time. His parents paid for tuition and books. During his one-year internship, both worked. After 1970, she did not work outside the home. The parties have three children. After twenty years of marriage they separated, having enjoyed an affluent standard of living. They stipulated to an equal division of real and personal property, yielding $428,000 for her and $428,000 for him. Each party received over $200,000 of income-producing personal property. The parties reserved for court determination the following: (1) whether she was entitled to an award of one-half his medical license as property; (2) the value of his ownership interest in Associates of Pathology, a professional corporation; and (3) whether she was entitled to a lump sum award of one-half of his income between separation and divorce. We turn now to these property issues and will treat the alimony and child support issues thereafter.

First, should we overturn Petersen v. Petersen, 737 P.2d 237 (Utah Ct.App.1987), and Rayburn v. Rayburn, 738 P.2d 238 (Utah Ct.App.1987), and hold that a professional license or degree is property subject to division upon divorce? We choose not to overrule those decisions and reaffirm that neither the professional degree nor the license is property, for the reasons stated in those opinions.

Second, did the trial court err when it found the value of Dr. Johnson's ownership interest in Associates of Pathology to be $14,521?

We will not disturb the lower court's findings unless they are clearly erroneous or we are convinced a mistake has been made. Utah R.Civ.P. 52(a); Western Kane County Spec. Serv. Dist. No. 1 v. Jackson Cattle Co., 744 P.2d 1376 (Utah 1987). The lower court issued a detailed Memorandum Decision and adopted a number of specific findings based thereon. The court found:

13. That the articles of incorporation of defendant's employer, the Associates of Pathology, are actually little more than a partnership at will.

14. That the buy-out agreement fixed the buy-out figure as a proportional share of fixed assets.

15. That there is no fixed contract of employment with the hospitals served by the aforesaid corporation; it is a going rate situation.

16. That each doctor within the aforesaid professional corporation bills the hospital and/or the other clients for services rendered and the money is eventually divided equally.

17. That the market place has provided substitute or new doctors. New doctors come in substantially in the same position as the doctors leaving said corporation. The rates charged by each pathologist are identical to the others and there is no specific reward for seniority or length of service.

18. That the value of defendant's interest in the Associates of Pathology, a professional corporation, is $14,521.00.

19. That one of the flaws in plaintiff's calculation of the value of defendant's medical degree is the assumption that the defendant's income would increase each year by a fixed percentage.

Mrs. Johnson's experts prepared four different valuations of the business, and then chose one. They summarized their methods as a computation of the difference in Dr. Johnson's earning power when compared to other pathologists in general, that is, the present value of his extra earning power over the balance of his career. That amount would be the "market price" that a willing buyer would pay to replace Dr. Johnson in the corporation. The chosen valuation method measured extra earning power for the previous four years compared to the average pathologist and adjusted for inflation. That comparison showed each member of the business earns about $50,000 more than the average of pathologists in the United States. They determined how much someone would pay for the opportunity to step into that position. They considered that extra earning power Dr. Johnson would enjoy by continuing to earn more than average, then applied five as a capitalization rate--which they considered conservative. Finally, the amount computed was discounted by one-third to a buyer because each member has a minority interest. An adjustment for a buyer's tax considerations was also applied. This method or process yielded $154,997 as the "fair market value" of Dr. Johnson's share of Associates of Pathology.

On cross-examination, Mrs. Johnson's experts stated that the $82,000 average pathologist's income which they used was for the year 1982 and they were not sure whether the figure included contributions to pension and profit-sharing plans. On redirect, they stated they "believed" all comparative numbers were with all associated benefits.

Dr. Johnson's expert identified the following problems with the foregoing methodology: (1) The marketplace had recently provided a buyer for Dr. Eason's interest who had paid no consideration for excess earnings. (2) The business sold services to primarily one purchaser, St. Benedict's Hospital, and over the last three years the hospital had unilaterally reduced payments by $72,000 by eliminating a Medical Directorship held by the business. (3) He calculated the pathologists' current income to be below the U.S. average, so no excess earnings existed. (4) The government pathologist salary figures excluded pension and profit-sharing payments. (5) Her experts used hospital and Health Maintenance Organization data, while this is a specific practice in Ogden, Utah. National averages tend to distort the value of highly specialized practices. On cross-examination, he concluded that the market value was what had actually been paid in arms-length transactions, and that $14,521 (the total value divided by four corporation shareholders) was all Dr. Johnson could receive under the buy-out agreement.

The capitalization formula used by Mrs. Johnson's primary expert to compute the fair market value of the Associates of Pathology stock yielded a substantial amount for intangible assets, i.e., goodwill. However, the trial court did not find his testimony credible and did not accept his stock valuation. On the other hand, the doctor's expert relied on a recent sale of the corporate stock in which a new doctor had paid a price that did not include any value of goodwill. Instead, the price was calculated in accordance with the buy-sell agreement negotiated by Dr. Johnson and other shareholders, in which Dr. Johnson had contracted away any right to share in the business's goodwill, if any existed. Cf. Hertz v. Hertz, 99 N.M. 320, 657 P.2d 1169 (1983) (trial court's valuation of law firm goodwill restricted by nonfraudulent professional shareholder agreement valuing goodwill at $1.00). There was no evidence this agreement was entered into to deprive Mrs. Johnson of her share of marital property. Thus, the trial court adopted the valuation by Dr. Johnson's expert, who did not include any value for goodwill.

This court has recently held that goodwill can exist in a professional practice. See Sorensen v. Sorensen, 769 P.2d 820 (Ct.App.1989). There, the majority recognized the existence of goodwill in a solo dental practice. The dissent recognized that goodwill may exist, under a narrower definition, in some professional business organizations, but not in Dr. Sorensen's particular practice.

We find substantial evidence in the record supporting the business value finding of the court. The finding is therefore not clearly erroneous and we are not convinced a mistake has been made. Moreover, the trial court made specific findings concerning the credibility of the expert witnesses:

4. That plaintiff's expert witnesses lack credibility regarding the values placed on defendant's interest and stock with the Associates of Pathology and regarding the value of...