Lewis v. Tonia D. Lewis.

• Decision Date: 03 February 2011
• Docket Number: No. 2008–CT–01362–SCT.,2008–CT–01362–SCT.
• Citation: Lewis v. Tonia D. Lewis., 54 So.3d 216 (Miss. 2011)
• Parties: Drake L. LEWISv.Tonia D. LEWIS.
• Court: Mississippi Supreme Court

54 So.3d 216

Drake L. LEWIS

v.Tonia D. LEWIS.

No. 2008–CT–01362–SCT.

Supreme Court of Mississippi.

Feb. 3, 2011.

Thomas Wright Teel, Biloxi, attorney for appellant.Dean Holleman, attorney for appellee.EN BANC.

ON WRIT OF CERTIORARI

RANDOLPH, Justice, for the Court:

¶ 1. The Court of Appeals reversed and remanded the equitable distribution of a marital estate, as it found that the chancellor had made manifest errors. See Lewis v. Lewis, 54 So.3d 233 (Miss.Ct.App.2009). We agree with the Court of Appeals that the trial court erred regarding the evaluation and distribution of marital assets, but find that the Court of Appeals erred in its remand instruction. See id. at 239–41, 242–44. Thus, we remand the case to the trial court for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

¶ 2. The Court of Appeals' opinion sufficiently sets out the facts and issues on appeal, which need not be repeated. See id. at 234–35. The Court of Appeals affirmed in part, reversed in part, and remanded for further proceedings. Id. at 239–40, 243–44. Tonia raised two issues in her petition for certiorari: (1) Mississippi caselaw is in direct conflict with the Court of Appeals' remand instruction on the valuation of a business; and (2) the Court of Appeals exceeded its authority, ignored the discretion given to a chancellor, and mistakenly found manifest error in the valuation and treatment of marital assets. This Court granted certiorari. Lewis v. Lewis, 42 So.3d 24 (Miss.2010). We find no error as to issue two and thus address only issue one.

ANALYSIS

¶ 3. Inter alia, the Court of Appeals instructed:

the chancery court should value Legacy using: (1) any real property owned by Legacy; (2) any other property owned by Legacy, such as vehicles or tools; (3) goodwill equity, if any, attributable to Legacy; and (4) any improvements that Legacy owns that are made to real property owned by parties other than Legacy. In making these determinations, the chancery court should consider “that price at which [the business] would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.”Lewis, 54 So.3d at 240 (emphasis added) (quoting Singley v. Singley, 846 So.2d 1004, 1011 (Miss.2002)). Error lies in not completing the above quote, for paragraph eighteen of Singley also unequivocally states “today we join those sister states who prohibit goodwill from inclusion in valuing a business for distribution as marital property in a domestic case.” Id.Singley was followed and further clarified by Watson and Yelverton.See Yelverton v. Yelverton, 961 So.2d 19 (Miss.2007); Watson v. Watson, 882 So.2d 95 (Miss.2004). Thus, Mississippi caselaw prohibits the inclusion of goodwill in valuing a business interest for distribution as marital property. “ ‘[G]oodwill,’ whether ‘personal goodwill’ or ‘business enterprise goodwill’ shall not be included in the valuation of [a car dealership].” Yelverton, 961 So.2d at 29. “[G]oodwill is simply not property; thus it cannot be deemed a divisible marital asset in a divorce action.” Singley, 846 So.2d at 1011. Upon remand, the chancellor should value Legacy ¹ without considering goodwill.

¶ 4. While I expressed a similar concern as raised in Justice Kitchens's dissent (see my dissent in Watson ), that argument has been soundly rejected by this Court. See Watson, 882 So.2d at 111–12 (Randolph, J., dissenting). If Singley lacked clarity, this Court's unanimous holdings in Watson and Yelverton are exceedingly clear and comprehensive. See Yelverton, 961 So.2d at 30; Watson, 882 So.2d at 105–06. To consider goodwill equity contravenes this Court's precedent. Stare decisis demands this result.

¶ 5. At trial, the chancellor was presented with a sizable marital estate. One party provided evidence of dubitable reliability, albeit the best she could muster. The other party was recalcitrant and demonstrated a lack of credibility to the chancellor. The marital estate exceeded $2,000,000 and involved alleged transfers from trusts and section 1031 tax transfers. See 26 U.S.C. § 1031 (2009). A proper evaluation is indeed complex and may well require special knowledge or expertise. The chancellor recognized the complexity, for, after the close of evidence, he stated that each side had given him “way too much” in this “complicated matter financially.” Perhaps a special master skilled in evaluating a business would be of significant assistance. We recognize that reference to a master without the consent of the parties is the exception and not the rule. See Miss. R. Civ. P. 53(c); Trovato v. Trovato, 649 So.2d 815, 818 (Miss.1995). We recognize also that the cost of appointing a special master may be economically prohibitive in most cases. See Crowe v. Smith, 603 So.2d 301, 308 (Miss.1992) (“According to rule 53, the payment of a master is a cost, and thus falls under the ambit of rule 54.”); Miss. R. Civ. P. 53(a), 54(d). Here, where the marital estate is sizable, ownership and valuation are complex, and the evidence presented is of questioned reliability, combined with the litigants' ability to pay, reference to a special master might afford the chancellor significant assistance.²

¶ 6. “[W]here the finding to be made is of a complex, technical, non-legal nature, a person other than an attorney ... may be appointed....” Miss. R. Civ. P. 53(b). Any issue may be referred to a special master with the consent of the parties. Under Mississippi Rule of Civil Procedure 53(c), reference without the consent of the parties would require a finding by the chancellor of exceptional conditions. The chancellor is in the best position to make the determination of whether the conditions in this case are sufficiently exceptional to warrant the appointment of a special master. Should the chancellor discern that exceptional conditions exist, he may specify or limit the authority of a special master in the order of reference. See Miss. R. Civ. P. 53(d).

CONCLUSION

¶ 7. Upon remand, the chancellor shall cause the marital assets to be reevaluated consistent with the instructions of this opinion and those of the Court of Appeals, with the exception of considering goodwill equity.

¶ 8. THE JUDGMENTS OF THE COURT OF APPEALS AND THE CHANCERY COURT OF HARRISON COUNTY ARE AFFIRMED IN PART AND REVERSED IN PART. THIS CASE IS REMANDED TO THE CHANCERY COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION.

WALLER, C.J., CARLSON AND GRAVES, P.JJ., LAMAR AND CHANDLER, JJ., CONCUR. KITCHENS, J., DISSENTS WITH SEPARATE WRITTEN OPINION. DICKINSON, J., CONCURS IN PART AND DISSENTS IN PART WITH SEPARATE WRITTEN OPINION. PIERCE, J., NOT PARTICIPATING.KITCHENS, Justice, dissenting:

¶ 9. I respectfully dissent from the majority's holding that goodwill may never be used as a factor in evaluating a business interest. I further note that this Court should decline to limit the discretion of the trial court regarding the appointment of a special master where, as here, the issue is not before this Court and the opinion of the Court of Appeals provides sufficient direction to the chancellor upon remand. Because the Court of Appeals did not err, its decision should be affirmed with respect to all issues.

¶ 10. The case law of this state has dealt with goodwill mainly in the context of valuing a professional practice and not a business enterprise jointly held by husband and wife. Singley v. Singley, 846 So.2d 1004 (Miss.2002), and its progeny are not applicable to the case at hand. While stare decisis likely bars reconsideration of whether goodwill may be used to value a professional practice in the property division phase of a divorce, it would be inequitable to hold that goodwill should not be taken into consideration where the marital asset is a business enterprise that either does not depend on the personal and irreplaceable efforts of one spouse or where the enterprise is jointly held by the spouses either as a partnership or as an incorporated entity. Furthermore, any distribution of the marital estate involving the business assets necessarily should take into account the personal goodwill attributable to each of the spouses to whatever extent, if any, that each participated in the operation of the enterprise and in the proportion to which value accrued to the enterprise as the result of their respective efforts. To say categorically that an evaluation of goodwill is prohibited could create a result that is inequitable to one of the parties.

¶ 11. The business asset in dispute is an enterprise founded by Drake and Tonia Lewis during the course of their marriage to develop residential real estate.³ Lewis v. Lewis, 54 So.3d at 236–37, ¶ 9 (Miss.Ct.App. Dec.8, 2009). The parties held the incorporated entity in equal shares and bought and sold numerous tracts of real property, with some of the parcels held by separate legal title by one or the other of the parties. Id. Tonia filed a complaint for divorce in 2006; Drake never filed a responsive pleading. Id. at 235, ¶ 4.

¶ 12. After the parties separated, Drake engaged in a course of conduct that included the diversion of corporate assets for his own use. Drake eventually set up Legacy Builders as a sole proprietorship during the litigation and operated that business using corporate assets. Drake failed to respond fully to Tonia's demands for discovery with respect to the value of the various assets. Ultimately, the trial court made its ruling largely on the basis of documentation that Tonia had submitted and which she acknowledged was necessarily incomplete and out of date. Id. at 238–39,¶ 18. Drake's only submission on the record regarding Legacy's value was his testimony that it was essentially worthless. The chancellor assigned Legacy a value of $1,148,270 and awarded it entirely to Drake as part of a judgment that...