Shewbart v. Shewbart

• Decision Date: 10 December 2010
• Docket Number: 2090702.
• Citation: 64 So.3d 1080
• Parties: Beverly Renee SHEWBARTv.John Michael SHEWBART.
• Court: Alabama Court of Civil Appeals

64 So.3d 1080

Beverly Renee SHEWBART

v.John Michael SHEWBART.

2090702.

Court of Civil Appeals of Alabama.

Dec. 10, 2010.

Gary L. Jester of Jester & Jenkins, Florence, for appellant.Eddie Beason of McDowell, Beason & Hamilton, P.C., Russellville, for appellee.MOORE, Judge.

This is the second time these parties, Beverly Renee Shewbart (“the wife”) and John Michael Shewbart (“the husband”), have been before this court. ¹ In Shewbart v. Shewbart, 19 So.3d 223 (Ala.Civ.App.2009) ( “ Shewbart” ), the wife appealed from the trial court's July 10, 2008, judgment of divorce. In that judgment, the trial court divided the parties' marital property, assigning a value of $14,000 to the parties' business, known as John Shewbart d/b/a Swamp John's Restaurant & Catering, and awarded the wife one-half of that value. The wife appealed, asserting that the trial court had erred in its valuation of the business and by failing to award her alimony.

This court reversed the trial court's judgment as to the property division and the failure to award alimony, concluding that, in valuing the business, the trial court had failed to consider the consistent income stream derived from the business. Shewbart, 19 So.3d at 232. We remanded the cause “for the trial court to determine the fair-market value of the sole proprietorship, taking into consideration all of its assets, and to then consider that value in fashioning an equitable division of the marital property.” 19 So.3d at 233. We also instructed the trial court to reconsider, in light of any new property division it entered on remand, whether the wife was entitled to an award of alimony. Id. We affirmed all other aspects of the trial court's judgment.

On February 25, 2010, the trial court conducted another evidentiary hearing. At that hearing, in addition to taking further testimony from the husband and the wife, the trial court heard the testimony of Carter Norvell, a certified public accountant with expertise in business valuations who had been hired by the wife. Norvell stated that, in his opinion, the income-approach method was the most appropriate way to value the parties' business and that he had calculated a value for the business under the income-approach method using two different sources of information.

Norvell first relied on information obtained from the husband's 2006 and 2007 federal income-tax returns. He calculated the earnings of the business before any deductions were taken for interest, taxes, depreciation, or amortization (generally referred to as “EBITDA”), averaged the EBITDA obtained for those two years, and then applied a multiple of four to arrive at an estimated value of the business as an ongoing enterprise.² Using that income-approach method, Norvell valued the business at $191,376.³

Norvell then calculated the value of the business by considering the husband's deposition testimony, in which the husband testified that he withdrew $1,500 per week from the business as his salary. Norvell multiplied that $1,500 weekly salary by 50 weeks (allowing two weeks a year as vacation), which provided a total annual net income of $75,000; to that annual net income, Norvell applied a multiple of four to arrive at an estimated value of the business of $300,000.

Norvell explained his decision to apply a multiple of four in his valuation as follows:

“I used a multiple of four, which I feel ... is conservative. Businesses, traditionally, are valued anywhere from ... maybe a low of three up to ... a number quite a bit higher. We have had businesses sell for multiples of 10 or 12 before but those are a little bit unusual.”

Responding to the trial court's request for further information regarding the multiple to be applied in the valuation, Norvell stated:

“It is ... a judgment call, basically ... on the side of the valuation analyst. And you just, you take everything into consideration as far as a business, how it's run, you know, things of that nature and apply a multiple to the net earnings of that business to try to come up with a fair estimate of the—what the value of that business is.”

Norvell admitted that his decision to use a multiple of four could be considered arbitrary.

Norvell also acknowledged that the husband's 2008 income had not been provided to him and that the 2008 data was more relevant than the 2006 and 2007 data in determining the value of the business. Norvell admitted that the economy in the United States had suffered a downturn in the last several years and that a downturn in the economy could negatively impact the husband's income. Norvell, however, testified that he had no indication that the economy had, in fact, impacted the husband's income.

Norvell also acknowledged that, at the time he performed his valuation, he had been unaware that the husband worked 70 to 80 hours per week in the business. Norvell agreed that, if the husband's net income for 2008 had been $14,352, as represented, and the husband had worked 70 to 80 hours a week to earn that amount, Norvell would have placed a different, presumably lower, value on the business. Norvell also testified that he had been unaware that the business was located in a facility owned by the husband's sister and rented by the husband; Norvell testified that the location of the business was relevant to its value.

On March 23, 2010, the trial court entered an amended divorce judgment, stating:

“1. The Court heard evidence concerning the value of the sole proprietorship. It is not an easy proposition to put a value on a business such as Swamp John's. It is largely a one-man organization that's value is greatly determined by how many hours are put in by the owner. The sole proprietorship does not own the property where it is located. The Court had already divided the value of the equipment of the business between the two parties.

“2. The Court is left to determine the future earning capacity of the business. The Court is persuaded to use the income approach as the model to determine the value of the business. The Court has averaged the last three years income as reported on the tax forms. The income figure is the number before depreciation. These were $47,726.00 for 2006, $42,901.00 for 2007, and $14,352.00 for 2008. The three year average is $34,993.00.

“3. The Court will then take the average of $34,993.00 and multiply by two. The Court finds the multiple of two is appropriate based on the testimony of Carter Norvell, who described the income approach. The Court uses the multiple of two instead of a number such as four because of the long hours of the business and what the Court feels is a realistic value in the local economy. This produces a value of $69,986.00. One-half of this number is $34,993.00. The Court subtracts $7,000.00 for what it already allocated to the [wife] for her interest in the equipment and vehicles of the business. This produces the value of $27,993.00, which is still owed to the [wife]. The Court will round this figure to $28,000.00.

“4. The Court ORDERS the [husband] to pay the amount of $28,000.00 to the [wife] for her one-half interest in the business. The [husband] shall pay the amount of $400.00 a month for seventy (70) months to equal the total of $28,000.00.

“5. All other provisions of the Divorce Decree are adopted as fully set out.”

The wife again appeals.⁴

Analysis

On appeal, the wife asserts that the trial court failed to follow this court's mandate on remand; that the judgment entered by the trial court on remand was against the great weight of the evidence and, thus, exceeded the trial court's discretion; that the trial court's valuation of the business was the result of a miscalculation; and that the trial court committed reversible error in failing to award her alimony.

Business Valuation

We first address the wife's argument that the trial court failed to follow this court's mandate on remand. In Ex parte Alabama Power Co., 431 So.2d 151, 155 (Ala.1983), the supreme court, quoting 5 Am.Jur.2d Appeal and Error § 991 (1962), stated:

“ ‘It is the duty of the trial court, on remand, to comply strictly with the mandate of the appellate court according to its true intent and meaning, as determined by the directions given by the reviewing court. No judgment other than that directed or permitted by the reviewing court may be entered.... The appellate court's decision is final as to all matters before it, becomes the law of the case, and must be executed according to the mandate, without granting a new trial or taking additional evidence....’ ” As stated above, in Shewbart, supra, we remanded the cause “for the trial court to determine the fair-market value of the sole proprietorship, taking into consideration all of its assets, and to then consider that value in fashioning an equitable division of the marital property.” 19 So.3d at 233. We also instructed the trial court to reconsider, in light of any new property division entered, whether the wife was entitled to an award of alimony. Id.

On remand, the trial court conducted a hearing and received evidence for the purpose of determining the value of the business. The trial court then entered a judgment addressing the value of the business in light of the evidence presented at that hearing. The trial court divided the remaining marital asset and, although it did not expressly address the issue, it implicitly denied the wife's claim for alimony. In light of the hearing held on remand, the issues considered at that hearing, and the language of the trial court's judgment, we must conclude that, on remand, the trial court complied with this court's mandate in Shewbart, supra.

The wife next asserts that the trial court erred in valuing the business. The judgment indicates that the trial court accepted Norvell's opinion that the “income-approach” method should be used to assess the value of the business. As explained by Norvell, under that method, the evaluator first determines the EBITDA average of the...