Pellom v. Pellom

• Decision Date: 02 December 2008
• Docket Number: No. COA08-113.,COA08-113.
• Court: North Carolina Court of Appeals
• Parties: Gary L. PELLOM, Plaintiff v. Beverley M. PELLOM, Defendant.

669 S.E.2d 323

Gary L. PELLOM, Plaintiff v. Beverley M. PELLOM, Defendant.

No. COA08-113.

Court of Appeals of North Carolina.

December 2, 2008.

Appeal by plaintiff from a judgment entered 12 December 2006 by Judge Ann E. McKown in Durham County District Court. Heard in the Court of Appeals 25 August 2008.

Burton & Ellis, PLLC, by Alyscia G. Ellis, Durham, for plaintiff-appellant.

Lewis, Anderson, Phillips & Hinkle, PLLC, by Susan H. Lewis and Beth P. Von Hagen, Chapel Hill, for defendant-appellee.

HUNTER, Judge.

Gary L. Pellom ("plaintiff") and Beverley M. Pellom ("defendant") were married on 30 December 1972 and physically separated on 9 June 2004. A complaint for equitable distribution, inter alia, was filed on 7 February 2005. The parties divorced on 1 September 2005. An equitable distribution judgment was entered 12 December 2006 in Durham County District Court. The court held that defendant was entitled to 54% of the couple's net assets and ordered plaintiff to pay a distributive award in the amount of $839,964.32. Plaintiff appeals from the judgment. After careful review, we vacate in part, affirm in part, and remand for further proceeding.

On appeal, the two property interests in dispute are plaintiff's 11.11% ownership interest in Durham Anesthesia Associates, P.A. ("DAA"), and the parties' 25% ownership interest in Fitness Docs, Inc. ("Fitness Docs"). Plaintiff's expert valued DAA at $183,000.00, while defendant's expert valued the business at $1,267,000.00. The trial court accepted the valuation proposed by defendant's expert. There is no dispute as to the value of Fitness Docs.

All assignments of error in the case relate to equitable distribution of property; therefore, the standard of review is abuse of discretion. Our State Supreme Court has held:

It is well established that where matters are left to the discretion of the trial court, appellate review is limited to a determination of whether there was a clear abuse of discretion. A trial court may be reversed for abuse of discretion only upon a showing that its actions are manifestly unsupported by reason. A ruling committed to a trial court's discretion is to be accorded great deference and will be upset only upon a showing that it was so arbitrary that it could not have been the result of a reasoned decision.

White v. White, 312 N.C. 770, 777, 324 S.E.2d 829, 833 (1985) (internal citations omitted).

In conformity with the standard of review, this Court will not "second-guess values of marital ... property where there is evidence to support the trial court's figures." Mishler v. Mishler, 90 N.C.App. 72, 74, 367 S.E.2d 385, 386, disc. review denied, 323 N.C. 174, 373 S.E.2d 111 (1988). We will now address plaintiff's multiple arguments in turn.

A.

Plaintiff first argues that the trial court erred in using the defense expert's valuation of DAA as the method was not sound nor properly applied to the facts at issue. Specifically, plaintiff alleges that in his use of the income approach, discounted cash flow method, defendant's expert, Mr. Pulliam, used an incorrect figure for the "`normalized' income" of plaintiff. This figure is relevant since it is compared to similarly situated physicians to calculate the value of plaintiff's interest in DAA. "The accuracy of [the income] approach depends significantly upon the accuracy of the `average' statistics used in the comparison." Carlson v. Carlson, 127 N.C.App. 87, 93, 487 S.E.2d 784, 787 (1997) (citation omitted).

Mr. Pulliam used a figure of $525,000.00 as plaintiff's "`normalized' income," which plaintiff claims was improperly based on his 2003 income alone-the highest salary he received between 1999 and 2005. The record shows that plaintiff's income was steadily rising between 1999 and 2003.<sup>1</sup> Plaintiff is correct in stating that Mr. Pulliam's report does not take into account plaintiff's 2004 and 2005<sup>2</sup> earnings. Mr. Pulliam's report is "[a]s of June 9, 2004," the date the parties separated. This Court has held, "`[i]n valuing a marital interest in a business, the task of the trial court is to arrive at a date of separation value which "reasonably approximates" the net value of the business interest.'" Fitzgerald v. Fitzgerald, 161 N.C.App. 414, 419, 588 S.E.2d 517, 521 (2003) (citations omitted; emphasis added). Mr. Pulliam properly valued the business at the date of separation with the data he had at the time.

The trial court addressed plaintiff's allegation in the judgment. The court found that "Mr. Pulliam based his projection on the best information he had at the time he prepared his report." The fact that Mr. Pulliam's projection did not prove completely accurate between the time of the report and the time of trial is not sufficient reason to find an abuse of discretion by the trial court in accepting the expert's opinion.

Upon reviewing the record, we find the trial court's findings of fact regarding plaintiff's "normalized income" were based on competent evidence presented by Mr. Pulliam. Therefore, we find no error as to this portion of the valuation.

B.

Plaintiff also argues that Mr. Pulliam's income figure for a "similarly situated anesthesiolgist [sic]" was incorrectly calculated and the trial court abused its discretion in utilizing it to form the distributive award. The figure accepted by the trial court was $275,000.00, putting plaintiff in the 75th percentile in compensation.

Plaintiff asserts that Mr. Pulliam was not justified in relying on the 2003 version of the Medical Group Management Association ("MGMA") physician compensation data for anesthesiologists since the 2004 version was available at the time of his report, but he does not claim that the 2004 version would have changed the outcome. In fact, the report shows that Mr. Pulliam made a note that the "2004 MGMA corroborates with 73%." Even if it would have been better practice to use a more recent version, accepting figures based on the 2003 report does not rise to an abuse of discretion on the part of the trial court.

Plaintiff further argues that there was a simple math error such that 84% rather than 70% should have been used as the percentage representing compensation for production. The testimony that is quoted in plaintiff's brief is taken out of context. Mr. Pulliam did say at trial that he divided thirty-seven weeks (the number of weeks plaintiff would work if he took all fifteen weeks of vacation allotted to him) by forty-four weeks (the number of weeks the 50th percentile anesthesiologists work). When the questioning attorney called his attention to the fact that the result is .84, not .70, he stated that he thought those were the right numbers, but that he was unsure and would have to check his report.

In fact, the report shows that Mr. Pulliam placed plaintiff in the 75th percentile in compensation. He then took multiple factors into account, such as clinical hours worked and retirement benefits, and calculated $394,000.00. He then multiplied $394,000.00 by .70 since .70 is between the estimated portion of compensation in MGMA attributable to a compensation range of 60% to 80%. The result is $275,800.00, which was rounded down to $275,000.00. There was no math error that we can ascertain.

Plaintiff also argues that Mr. Pulliam, like Mr. Strange, should have placed plaintiff in the 90th percentile of compensation, instead of the 75th percentile, based on the number of procedures performed by DAA and the corresponding MGMA statistics. As the trial court notes, the MGMA data shows that nationwide the 75th percentile physicians performed an average of 1,153 procedures per year, and the 90th percentile performed 1,400 per year. DAA performed approximately 20,000 procedures per year, or 2,000 per physician. The trial court found that the MGMA, and Mr. Strange, did not take into account how many of these procedures were actually performed by certified registered nurse anesthetists ("CRNAs"). The MGMA does not account for this factor because under the laws of most states, CRNAs are not allowed to perform these procedures. In fact DAA had thirty-one CRNAs, as compared to eleven physicians, performing procedures that were attributed to the practice's overall performance figure of 20,000. The trial court did not err in refusing to accept Mr. Strange's analysis as it determined that the statistics Mr. Strange relied on were not appropriate under the facts of this case.

We find that $275,000.00 as the figure used for a "similarly situated anesthesiolgist [sic]" was based on competent evidence and there was no abuse of discretion on the part of the trial court.

C.

Next, plaintiff argues that the method of valuing DAA was calculated using post-date of separation active efforts. This argument is without merit as the trial court properly notes that Mr. Pulliam "based his valuation on a projection of Dr. Pellom's future income based on his past income.... There is no evidence that Mr. Pulliam used any information concerning Dr. Pellom's post-D.O.S. [date of separation] earnings...." This Court has found it proper to value a business at "the price which an outside buyer would pay for it taking into account its future earning capacity[.]" Poore v. Poore, 75 N.C.App. 414, 420, 331 S.E.2d 266, 270, disc. review denied, 314 N.C. 543, 335 S.E.2d 316 (1985). Mr. Pulliam was taking into account future earning capacity in order to properly value plaintiff's current interest.

Plaintiff takes issue with Mr. Pulliam's assumption that plaintiff will continue to work for DAA until he reaches the age of sixty, however, in determining the value of plaintiff's interest in DAA, Mr. Pulliam needed a limitation on the future earnings figure and plaintiff's retirement from DAA served that purpose. The trial court did not abuse its discretion in accepting that explanation as it is based on a reasoned approach to valuing a business.

D.

Plaintiff's final argument with regard to the valuation of DAA is that the trial court...