Suther v. Suther

• Decision Date: 13 April 1981
• Docket Number: No. 7789-9-I,7789-9-I
• Citation: 627 P.2d 110,28 Wn.App. 838
• Court: Washington Court of Appeals
• Parties: Richard SUTHER, Appellant, v. Suzanne P. J. SUTHER, Respondent.

Page 838

28 Wn.App. 838

627 P.2d 110

Richard SUTHER, Appellant, v. Suzanne P. J. SUTHER, Respondent.

No. 7789-9-I.

Court of Appeals of Washington, Division 1.

April 13, 1981.

Reconsideration Denied May 14, 1981.

Short & Cressman, David R. Koopmans, Seattle, for appellant.

Jonson & Jonson, Bernice Jonson, Seattle, for respondent.

RINGOLD, Judge.

Mr. Suther appeals from portions of a decree dissolving his marriage. The issues presented are essentially factual, or relate to the trial court's exercise of Richard and Suzanne Suther were married on April 15, 1955, when Richard was 19 and Suzanne 16 years old. They separated on July 28, 1977, and trial of the present action began on March 26, 1979. Four children, two emancipated by the time of trial, were born to the Suther union. The two younger children, ages 15 and 17 at the time of trial, live with Mrs. Suther.

its discretion. We find no error in the trial court's determinations and therefore affirm.

Mr. Suther had various jobs through the years, none very remunerative, until in 1967 he started a mechanical contracting business with his brother-in-law, Alvin Pride. The initial capitalization in Pride & Suther, Inc., a close corporation, was $4,000 for which Pride and Suther each received 20 shares of stock. The firm has done especially well in the last 5 years largely because of its involvement in Alaska during the construction of the Alaska pipeline. At the time of trial Mr. Suther received from the corporation $4000 per month gross salary, plus a substantial bonus at the end of each fiscal year. The amount of the bonus depends upon the profitability of the corporation over the year. For 1978 Mr. Suther's income, including bonus, was $120,000. Mr. Suther also participates in the corporate pension plan and profit sharing trust.

At the time of trial there was a stock retirement agreement in effect among the shareholders of Pride & Suther, Inc., i. e., Pride and Suther and their wives, that provided right of first refusal to the corporation, and a right to second refusal to the remaining shareholders in the event of any transfer of corporate shares. The price of the stock as offered to the corporation or stockholders was to be book value, no consideration being given to good will. ¹ At trial Because of marriage Mrs. Suther did not finish high school and did not develop any particular job skills, although she had worked as a retail sales clerk at various times. Since 1976 Mrs. Suther had attended Bellevue Community College on a part-time basis seeking a degree. Her plans at trial were to pursue a degree in marketing at the University of Washington. From the time of the separation up to trial Mrs. Suther had been seeing a psychiatric social worker who testified at trial that Mrs. Suther was gradually beginning to be reconciled to the dissolution and should be able to function normally within about 6 months. The trial court awarded Mrs. Suther maintenance of $2000 per month for 5 years.

evidence of the value of the corporation's stock ranged from its discounted book value, $123,234, to a value taking into account the firm's capitalized earnings, goodwill, and value as a going concern, $517,000. The trial court found the total value of the shares to be $400,000, or $200,000 for the stock owned by the Suthers.

After the separation Mr. Suther expended approximately $11,000 on repairs to the family home.

The trial judge's overall property valuation and distribution is reflected in the table below:

                                                  Awarded To Or  Awarded To Or
                                  Net Fair        To Be Paid By  To Be Paid By
                                  Market Value    Husband        Wife
                                  ------------    -------------  --------------
                Family
                  Residence       $ 132,770                      $ 132,770
                Household
                  furniture &amp
                  furnishings         6,623                          6,623
                Stock & Bond
                  U.S. Dev.  Co.     14,500       $  7,250           7,250
                Cash                  3,319                          3,319
                Commercial
                  Bldg. 50%          72,063         72,063
                Boat & Trailer        8,000          8,000
                Profit Sharing
                  Trust              40,805         40,805
                Pension Plan          6,438          6,438
                20 Shares Stock
                  Pride & Suther    200,000        200,000
                Commercial
                  Checking Acct.        628            628
                                  --------------  -------------  --------------
                                  $ 485,146      $ 335,184       $ 149,962
                

B. Equalizing Promissory Note:

                                                 $ (92,611)      $  92,611
                                                  -------------  --------------
                

EVALUATION OF CORPORATE STOCK

Mr. Suther's primary objection to the trial court's property division relates to the valuation of the community's shares of Pride & Suther, Inc., at $200,000. He contends that the corporation obtained its only business by competitive bidding and therefore has no goodwill. Furthermore, he asserts that the agreement binds the court to value the corporate stock at its book value, excluding goodwill. ²

The Evaluation Evidence

Three experts testified as to the value of the stock. Mr. Prior, testifying on behalf of Mr. Suther, catalogued seven different valuation methods and concluded that the proper formula should be based upon book value. He deduced that the Suthers' interest was $94,796, and then that this figure should be discounted because the 50 percent interest was less than a majority, and because the stock market was depressed. Though aware of the stock retirement agreement, which was admitted into evidence, Prior did not take it into account establishing the stock valuation.

Two experts testified on Mrs. Suther's behalf that the value of the community's shares was $285,000. These experts used a multiple of earnings evaluation approach,

and imputed a value of $380,000 to the company's goodwill.

Goodwill

Valuation of the shares of a closely held corporation presents a difficult problem, calling for the careful weighing of relevant facts, and ultimate exercise of reasoned judgment.

Valuation of stock of a closely held company is an attempt to determine the fair market value of an asset which by definition does not have a fair market value, since a market wherein a willing buyer will meet a willing seller, neither under any compulsion, generally does not exist. The stock of a closely held corporation is as a rule offered for sale only under unusual circumstances. The number of prospects is usually extremely limited. (Tierney, "A New Approach to the Valuation of Common Stock of Closely Held Companies," Journal of Taxation 14 (July 1962).)

As a result, the valuation of the stock of a closely held corporation requires an entirely different approach than the valuation of any other asset. The valuation process has been described as a "matter of judgment and opinion rather than mathematics." Banks, "Present Value and the Close Corporation", 49 TAXES The Tax Magazine, 33, 35 (January 1971). Each case presents a unique factual question, the solution to which is not within the ambit of any exact science. The reasonableness of any valuation depends upon the judgment and experience of the appraiser and the completeness of the information upon which his conclusions are based. Lawinger, "Appraising Closely-Held Stock Valuation Methods and Concepts," 110 Trusts and Estates 816 (October 1971).

Lavene v. Lavene, 162 N.J.Super. 187, 392 A.2d 621, 623-24 (1978).

One of the most troublesome questions regarding such valuation is whether a pecuniary sum should be attributed to goodwill, which our court, quoting J. Story, Partnership § 99 (3d ed. 1850), has characterized as

a benefit or advantage "which is acquired by an establishment beyond the mere value of the capital, stock, funds or property employed therein, in consequence of In re Marriage of Lukens, 16 Wash.App. 481, 483-84, 558 P.2d 279 (1976). The court there observes that "(g)oodwill is most often associated with commercial ventures," and goes on to hold that it may also be a part of the value of a medical practice. Lukens at 484, 558 P.2d 279. See also In re Marriage of Fleege, 91 Wash.2d 324, 588 P.2d 1136 (1979). There is competent testimony here that Pride & Suther, Inc., has goodwill of substantial value. Mr. Suther's argument that the company has no goodwill because it obtains its business only by competitive bidding is not meritorious. First, Mr. Suther's own expert witness's report indicates that only about 60 percent of the company's business is obtained by such bidding, the balance by negotiated contracts. Second, goodwill could be attributable even to a company whose only business was obtained by competitive bidding, since goodwill affects more than a company's ability to attract business, e. g., its bondability and capacity to obtain financing. This court cannot say as a matter of law that Pride & Suther, Inc., has no goodwill. Valuation of the goodwill is a question of fact. In re Marriage of Kaplan, 23 Wash.App. 503, 597 P.2d 439 (1979). The trial court's valuation is based on competent evidence.

the general public patronage and encouragement, which it receives from constant or habitual customers on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices."

Stock Retirement Agreement

Even though the trial court found that Mrs. Suther had signed the agreement she

had never participated in the actual operation of the business, had no financial experience, no real concept of corporate structure or meaning of the Buy and Sell Agreements, did not understand the legal purport thereof, was unable to understand the financial statements, had not seen the financial statements, had not seen the corporation tax returns. Respondent had no independent advice, insufficient knowledge of her Finding of Fact 17. Mrs. Suther was...