Marriage of Knight, In re

• Decision Date: 08 September 1994
• Docket Number: No. 17076-1-II,17076-1-II
• Citation: 880 P.2d 71,75 Wn.App. 721
• Court: Washington Court of Appeals
• Parties: In the MARRIAGE OF Judy Z. KNIGHT, Appellant, and Jeffrey Knight, Respondent.

Page 721

75 Wn.App. 721

880 P.2d 71

In the MARRIAGE OF Judy Z. KNIGHT, Appellant and Jeffrey Knight, Respondent.

No. 17076-1-II.

Court of Appeals of Washington Division 2.

Sept. 8, 1994.

Douglas James Kaukl, Pendergrass and Kaukl Inc Ps, Puyallup, for appellant

Douglass Alan North, Maltman, Reed, North, Ahrens & Malnati, Seattle, Tonya J. Gisselberg, Monroe, Laurason Taylor Hunt, Bellevue, Mary Louise Gaudio, Mary L. Gaudio Inc., Bellevue, for respondent.

SEINFELD, Judge.

Judy Z. Knight appeals from a judgment in favor of her former husband, Jeffrey M. Knight. The trial court awarded Jeffrey Knight $792,000, an amount equal to one-half the value of the goodwill of Judy Knight's business, Ramtha Dialogues. It also awarded him attorney's fees. Jeffrey Knight cross appeals. We reverse in part and affirm in part.

FACTS

Judy and Jeffrey Knight married in 1984 and separated in the fall of 1988. At a meeting in December 1988, the parties reached a property disposition agreement. In April 1989, they signed a "Separation and Property Agreement" (Agreement) memorializing the December 1988 oral agreement. In turn, the June 1989 decree dissolving the marriage incorporated the Agreement.

The Agreement purported to list and distribute all of the community's property and property rights. On the list was "Ramtha Dialogues, including all copyrights, royalties, trademarks, patents or license agreements which may exist". Ramtha Dialogues was a business established to market items related to Ramtha, an invisible personage. Judy Knight described Ramtha as a 35,000-year-old warrior from the lost continent of Atlantis, with god-like qualities. Judy Knight claimed to communicate with the spirit of Ramtha and, in essence, to be his agent on earth, spreading his teachings through her public speaking and writing.

The Agreement awarded to Judy Knight as her separate property "[a]ll interest in and ownership of Ramtha Dialogues and the efforts under Ramtha, including all copyrights, royalties, trademarks, patents or license agreements which may exist or shall exist". The parties warranted that they had not concealed any material assets, but they also agreed that

In the event that it shall be subsequently determined that any material asset or property right, presently owned by the parties, has not been disclosed or disposed of herein, such asset or property right shall be vested in the parties as equal tenants in common.

The Agreement further provided that the Knights owned as separate property "[t]hose properties acquired by the parties ... since the date of separation."

In March 1992, Jeffrey Knight moved, pursuant to CR 60(b), CR 60(e), and RCW 4.72.060, for a partial vacation of the dissolution decree. He alleged that Judy Knight, through her spiritual activities, had exerted undue influence over him to compel his participation in the Agreement. He also contended that she had deliberately concealed various items of personal property that she acquired after separation and that she had misrepresented facts related to another of the community's businesses, Messiah Arabian Stud, Inc.

Following a lengthy evidentiary hearing on the motion, the trial court entered detailed findings describing the information available to the parties about the value of their assets, along with a history of the parties' relationship and the circumstances of the making of the Agreement. The trial court concluded that Judy Knight did not exert undue influence over Jeffrey Knight, that she did not commit any form of fraud, and that there was no basis to provide Jeffrey Knight the relief he sought.

However, the trial court concluded, sua sponte, that the parties failed to dispose of an asset--the goodwill of Ramtha Dialogues. It found:

At the time the parties orally agreed to their Property Settlement Agreement, the Knights did not consider Ramtha Dialogues as having a value ¹ , but Mr. Knight did believe that Mrs. Knight was capable of producing approximately $3,000,000.00 income per year. Neither of the parties regarded Ramtha Dialogues as having an intrinsic goodwill value. Neither of the parties are accountants and were not aware of the concept of ....

goodwill. Neither of the parties attempted to conceal from the other a value attributable to the goodwill of Ramtha Dialogues.

11. When the parties met in December, 1988 and essentially entered into an oral agreement to divide their assets and liabilities, although they were aware they owned the corporation and distributed the same, they did not consider nor were they aware of the asset of the goodwill of the Ramtha Dialogues business. Therefore, the Court finds that the parties did not distribute this asset either in the oral agreement, their separation agreement, or their Decree of Dissolution....

The trial court, relying extensively on the valuation process used by Jeffrey Knight's expert appraiser, valued the goodwill at $1,584,000 as of the date of entry of the dissolution decree. It awarded the goodwill to Judy Knight, and awarded a judgment to Jeffrey Knight for half its value or $792,000. In addition, the trial court awarded Jeffrey Knight attorney's fees of $125,000 and costs of $24,160.05. The judgment required Judy Knight to make monthly payments, and set interest on the unpaid declining balance at the rate of 6 percent per annum.

In her appeal, Judy Knight asserts that the trial court erred by concluding that she and Jeffrey Knight had failed to distribute Ramtha Dialogues's goodwill and by awarding Jeffrey Knight one-half of the value of the goodwill. She also challenges the attorney's fees award.

In his cross appeal, Jeffrey Knight asserts that the trial court erred in its choice of the date of valuation for the goodwill of Ramtha Dialogues, in its use of a judgment interest rate below the statutory interest rate, and in its failure to partition several assets left undistributed by the dissolution decree. He also requests attorney's fees on appeal.

GOODWILL OF RAMTHA DIALOGUES

Judy Knight contends that she and Jeffrey did not overlook Ramtha Dialogues's goodwill. ² Rather, she argues, the parties each had extensive information about the business when they negotiated their Agreement, and they intended that the Agreement embrace all aspects of the business.

Professional goodwill is the expectation of continued public patronage. In re Marriage of Hall, 103 Wash.2d 236, 239, 692 P.2d 175 (1984). ³ It is an intangible asset of a business, and is subject to division in a marriage dissolution. Paul R. Berney and Stanley J. Garstka, Accounting Concepts and Applications 165 (1984); Carl L. Moore and Robert K. Jaedicke, Managerial Accounting 24-25 (1972); Hall, at 238-39, 692 P.2d 175. Nonetheless, "[g]oodwill is unidentifiable apart from a business and cannot be disposed of separately from the enterprise as a whole." Martin A. Miller, Comprehensive GAAP ⁴ Guide 21.05 (1991). See also Financial Accounting Standards Board, Accounting Standards § 160.113 (1993).

The existence of goodwill is a question of fact. In re Marriage of Kaplan, 23 Wash.App. 503, 505, 597 P.2d 439 (1979). Here, two professional appraisers testified at trial regarding the value of Ramtha Dialogues and its goodwill. Substantial evidence supports the trial court's finding that Ramtha Dialogues had goodwill.

However, based on our review of the record, of all the trial court's findings, of the nature of goodwill, and of the language used by the Knights in the Agreement, we conclude that the evidence does not support the trial court's finding that the parties overlooked the asset of goodwill. To place this in context, we note that the trial court found that Jeffrey Knight "was fully aware of the parties' financial status, including assets and liabilities, and with that knowledge entered into negotiations with Mrs. Knight for a property settlement." The trial court found that Jeffrey Knight also considered the impact of personal factors in negotiating the property settlement.

These factors are the same factors that the trial court identified as affecting the value of the goodwill: e.g., "the unique nature of the business, adverse publicity, Mr Knight's known HIV status, the parties' belief that Mrs. Knight had a potential to contract HIV, [and] Mrs. Knight's unique relationship as channeler for Ramtha".

In addition, the trial court found that Jeffrey Knight was capable of making his own informed decisions, and made those decisions based on a considered evaluation of the available information. It found that Jeffrey Knight was aware of the projected income of Ramtha Dialogues. It further found that Jeffrey Knight "expressed to his wife [a] belief that her channeling activities were fraudulent." Finally, the trial court found that Jeffrey Knight, with full knowledge of the financial details and personal details necessary to value the business of Ramtha Dialogues, believed that Ramtha Dialogues did not have a value.

The above findings of the trial court are inconsistent with its additional finding that the parties overlooked the goodwill component of the business. Rather, they show that the parties intended to distribute the entire business to Judy Knight.

The language of the agreement itself is also inconsistent with the trial court's finding that the parties failed to dispose of the entire business. The Agreement stated:

Wife shall receive ... as her sole and separate property ...:

....

(b) All interest in and ownership of Ramtha Dialogues and the efforts under Ramtha, including all copyrights, royalties, trademarks, patents or license agreements which may exist or shall exist

[.]

This comprehensive language does not simply award Ramtha Dialogues to Judy Knight. It also awards all interest in and ownership of "the efforts under Ramtha" to her. "Effort", as used in this context, means "the product or result of expenditure of energy". Webster's Third New International Dictionary 725 (1969). This term...