Opinion
2015 CA 1119
04-27-2016
TERESA WALLNER CABALLERO v. DAVID FERNANDO CABALLERO
Robert C. Lowe David M. Prados Melanie C. Lockett New Orleans, Louisiana Attorneys for Appellant, David F. Caballero R. Ray Orrill, Jr. W. Christopher Beary Alex L. M. Ducros New Orleans, Louisiana and H. Michael Aaron Baton Rouge, Louisiana Attorneys for Appellee, Teresa Wallner Caballero
NOT DESIGNATED FOR PUBLICATION On Appeal from the The Family Court In and for the Parish of East Baton Rouge State of Louisiana
Trial Court No. 172009, Div. A The Honorable Pamela M. Baker, Judge Presiding Robert C. Lowe
David M. Prados
Melanie C. Lockett
New Orleans, Louisiana Attorneys for Appellant,
David F. Caballero R. Ray Orrill, Jr.
W. Christopher Beary
Alex L. M. Ducros
New Orleans, Louisiana
and
H. Michael Aaron
Baton Rouge, Louisiana Attorneys for Appellee,
Teresa Wallner Caballero BEFORE: WHIPPLE, C.J., WELCH, AND DRAKE, JJ. DRAKE, J.
David Fernando Caballero (Caballero) appeals a judgment partitioning the community property of his marriage to Teresa Wallner Caballero (Wallner). For the following reasons, we affirm the judgment of the trial court.
FACTS AND PROCEDURAL HISTORY
Caballero and Wallner were married on March 20, 2004, and their community property regime was terminated on December 11, 2009, as a consequence of their divorce. Prior to the marriage, Caballero owned, as separate property, a 100% interest in Prime Acquisitions, L.L.C. (Prime). During the existence of the community regime, on November 9, 2004, Caballero formed Home Servicing, L.L.C. (Home). The initial members of Home were Manhattan Capital Advisors, Inc. (Manhattan), Southshore Capital Company, Inc. (Southshore), and Prime. Caballero testified that Home was formed because two of his investor friends, David Tobin of Manhattan and Joe Runk of Southshore, wanted him to exclusively devote his time, knowledge, and skill to investing their money. The trial court noted in its written reasons dated September 23, 2014, "there would have been no distributions, earnings, or otherwise [from Home] without Mr. Caballero." Brenda Catalanatto, the certified public accountant who performed the accounting functions for Wallner and Caballero, personally, and Home between 2004 and 2009, testified that 99% of Caballero's time between 2004 and 2008 was devoted to the generation of revenue for Home.
Prime began as FF Funding, L.L.C. with Caballero being the sole owner. Caballero changed the name of FF Funding, L.L.C. to Prime on November 9, 2004, but he remained the sole owner.
First, Wallner asserted a reimbursement claim for one-half of the increase in the value of Prime, which she alleged was attributable to Caballero's uncompensated labor during the community. Caballero argues that he could not have been undercompensated because Prime received distributions from Home in the amount of $1,822,352.00 during the marriage and he was paid $499,000.00 in salary from Home. Caballero claims that he used his labor, industry, and skill to generate profits through Prime, and also received a salary from Home, 56.80% of which was owned by Prime. Caballero claims that his income consisted of both distributions from Prime and a salary from Home.
Although the trial court states in its original written reasons that Wallner asserted a reimbursement claim for one-half of the increase in the value of Home, the reimbursement claim actually refers to the increase in the value of Prime, and the trial court's judgment following the new trial took into consideration the value of Prime's interest in Home (Prime owned 56.8% of Home), not the value of Home.
Both parties refer to Wallner Exhibit 57 with regard to the salary of Caballero. However, the record contains no Exhibit 57. This court deduces that the parties are referring to a chart, which the parties agreed was correct, contained in Bench Book II, Tab I-3, based on the testimony in the record. The chart shows that Caballero received no salary from Home for the years 2004, 2005, and 2006. He received $19,000.00 in 2007; $240,000.00 in 2008; and $240,000.00 in 2009, for a total or $499,000.00.
Wallner claims that profits disbursed by Home were distributed to Prime, its member, based on its percentage of ownership as per Home's operating agreement, not based on Caballero's labor, industry, and skill, and that Caballero received a management level salary from Home for only two of the five years of the community totaling $499,000.00. She asserts that the salary Caballero received was below the market average. Therefore, Wallner made a claim for reimbursement owed the community for the undercompensation of Caballero.
Second, Caballero asserted a claim for reimbursement based on sale proceeds of his separate property, which he claims were used to satisfy community obligations. Prime initially owned a 50% interest in Home. Prime's ownership in Home fluctuated between 2007 and 2008. In 2007, Prime and Manhattan redeemed Southshore's 25% interest for $100.00 plus distributions of $477,000.00. Thereafter, Prime owned 66.67%) of Home and Manhattan owned 33.33%. In 2008, Prime sold a 5% ownership interest in Home to Stratedge, Inc. (Stratedge), a Florida corporation, for $20,000.00 per share or $100,000.00 and a 4.87% ownership interest to Michael Cawthon for $60,000.00 per share or $292,000.00. As a result, Prime's ownership interest in Home was reduced from 66.67% to 56.80%. Caballero claims that the $100,000.00 received from the Stratedge sale was distributed to him and used to satisfy community obligations. He also claims that the funds received from the Cawthon sale was used for community obligations.
Both parties refer to a 4.87% ownership interest of Home being sold to Cawthon. The Act of Sale shows that Cawthon purchased a total of 7.5% of Home—2.5% from Manhattan and 5% from Prime. Caballero testified to these percentages. Ms. Catalanatto explained that the total paid by Cawthon was $450,000.00, and $292,121.00 was Prime's portion, which is 4.8686 and rounds to 4.87%, the percentage to which the parties refer.
Third, Caballero claims reimbursement for a fund, Home Performing Fund I (Home Performing), that he asserts is his separate property, rather than community property as classified by the trial court. Caballero claims that after Prime received $292,121.00 in sales proceeds from the Cawthon sale, Prime loaned $200,000.00 to Home and received a promissory note. Caballero claims the loan was repaid to Prime. Prime issued a $100,000.00 check to Caballero on July 24, 2008. On July 24, 2008, there was a $100,000 deposit into the personal checking account of Caballero and Wallner. On July 24, 2008, Caballero wrote a $100,000.00 check to Home Performing. Caballero claims that the remainder of the Cawthon funds, $92,000.00, were distributed to the community and used to benefit the community. Caballero asserts that the community benefitted greatly from the ownership of his separate property, Prime, which he claims supports his assertion that he was not undercompensated.
Finally, at issue is a series of draws Caballero made from the community's home equity line of credit (HELOC) in the amount of $343,494.53, including $90,000.00 in loans made to his brother, Rick Caballero, which Wallner claims was used for separate obligations of Caballero. Caballero claims this money was paid back to the community, and Wallner claims there is no evidence of such repayment. Therefore, Wallner asserted reimbursement claims from the HELOC totaling $343,494.53, after stipulating that $30,000.00 of the $90,000.00 in loans to Rick Caballero had been repaid.
Both parties refer to a spreadsheet created by Tami Barnes regarding the HELOC as Wallner Vol. 1, Tabs 26 and 27. While there are labels for Tabs 26 and 27, there are no documents. There does appear to be a spreadsheet labeled Bench Book II, Tab H-2.
Although Wallner addresses in brief the purchase of a Porsche Cayenne S, Caballero does not assign as error or brief any issue regarding the trial court's ruling pertaining to this vehicle. Therefore, this issue is not before this court and will not be addressed. Under Rule 2-12.4 of the Uniform Rules of the Louisiana Courts of Appeal, the court may consider as abandoned any specification or assignment of error that has not been briefed, and accordingly, we will not address those purported assignments of error.
The trial court held a partition proceeding on October 13-16, 2013. After the parties submitted post-trial memoranda, the trial court took the matter under advisement, issuing its written reasons on February 28, 2014. The written reasons specified the following, in pertinent part:
(1) The distributions made by Prime to Caballero as a result of the Stratedge and Cawthon sales were community property, so Caballero's claim for reimbursement was denied;
(2) Home Performing was classified as a community asset, and Wallner was entitled to reimbursement for money received by Caballero from Home Performing after the termination of the community property regime, totaling, $41,170.50;
(3) Wallner was owed reimbursement for one-half of nine draws made on the community property HELOC which was used for the separate property of Caballero;
(4) An additional $60,000.00 was added to the above amount to account for an unpaid loan made from the HELOC to Caballero's brother, Rick Caballero;
(5) Caballero was not undercompensated for his labor during the marriage, and Wallner's reimbursement claim was denied.
On April 8, 2014, the trial court rendered its judgment (Original Judgment), which also included the stipulations of the parties as to certain property and ordered Caballero to pay Wallner $65,358.41, which took into consideration all the reimbursement claims.
Wallner filed a timely motion for partial new trial, claiming that the trial court inappropriately held that distributions to Caballero from Prime, which the trial court held was his separate property, were included in the trial court's calculation of Caballero's compensation from Home. Wallner also asserted that even if the $499,000.00 salary Caballero received over five years was taken into consideration, he was undercompensated. A hearing on the motion for new trial was held on July 8, 2014, wherein the trial court granted the motion and orally assigned reasons. The trial court also issued written reasons on September 23, 1014, finding that Caballero's undercompensated labor caused his separate property to increase in value entitling Wallner to reimbursement. On October 10, 2014, the trial court issued an amendment to the written reasons (not the judgment) correcting a typographical error as to the value of Home on December 31, 2009, as $2,991,041.00. The trial court issued an amended judgment to its Original Judgment, ordering Caballero to reimburse Wallner on her undercompensation claim pursuant to La. C.C. art. 2368 in the amount of one-half of the value that his undercompensated labor caused his separate property to increase in the sum of $1,495,520.50. (Amended Judgment). Caballero appeals the Original Judgment and the Amended Judgment.
ERRORS
Caballero claims that the trial court erred in granting Wallner's claim for reimbursement for undercompensation from Home, since he asserts that Home was not his separate property but was owned by Prime; that the trial court incorrectly found that Home had increased in value rather than inquiring whether Prime had increased in value; and that the trial court incorrectly valued Home because Caballero's personal goodwill should have been excluded from the valuation.
Caballero also claims that the trial court erred in denying his claims for reimbursement for one-half of the Stratedge and Cawthon sale proceeds used to satisfy community obligations, since the distributions were proceeds of the sale of assets, not fruit.
Caballero claims that the trial court erred in classifying Home Performing as community property and denying his claim for reimbursement of one-half of his return of principal since Home Performing was acquired with his separate property.
Caballero claims that the trial court erred in awarding Wallner reimbursement for draws on the HELOC because the funds at issue were repaid to the community and that the trial court erred in the calculation of these funds.
Caballero claims that the trial court erred in including $60,000.00 in receivables on loans to Rick Caballero as a community asset and allocating that asset to Caballero because the $60,000.00 had already been repaid. Caballero claims that the parties stipulated that only $30,000.00 of the original $90,000.00 in loans were due.
LAW AND DISCUSSION
Standard of Review
The appellate court's review of factual findings is governed by the manifest error/clearly wrong standard. The two-part test for the appellate review of a factual finding is: 1) whether there is a reasonable factual basis in the record for the finding of the trial court; and 2) whether the record further establishes that the finding is not manifestly erroneous. Mart v. Hill, 505 So. 2d 1120, 1127 (La. 1987). Thus, if there is no reasonable factual basis in the record for the factfinder's finding, no additional inquiry is necessary to conclude there was manifest error. However, if a reasonable factual basis exists, an appellate court may set aside a fact-finder's factual finding only if, after reviewing the record in its entirety, it determines that the finding was clearly wrong. See Stobart v. State, through Dept. of Transp. and Dev., 617 So. 2d 880, 882 (La. 1993).
It is well settled that a trial court has broad discretion in adjudicating issues raised by divorce and partition of the community. A trial judge is afforded a great deal of latitude in arriving at an equitable distribution of the assets between the spouses. Factual findings and credibility determinations made in the course of valuing and allocating assets and liabilities in the partition of community property may not be set aside absent manifest error. Benoit v. Benoit, 2011-0376 (La. App. 1 Cir. 3/8/12), 91 So. 3d 1015, 1019, writ denied, 2012-1265 (La. 9/28/12), 98 So. 3d 838. A reviewing court must keep in mind that if a trial court's findings are reasonable based upon the entire record and evidence, an appellate court may not reverse such findings even if it is convinced that had it been sitting as trier of fact it would have weighed that evidence differently. Housley v. Cerise, 579 So. 2d 973, 976 (La. 1991). The basis for this principle of review is grounded not only upon the better capacity of the trial court to evaluate live witnesses, but also upon the proper allocation of trial and appellate functions between the respective courts. Gray v. Holiday Inns, Inc., 99-1292 (La. App. 1 Cir. 6/23/00), 762 So. 2d 1172, 1174. A trial court's findings regarding the nature of property as community or separate is a factual determination subject to manifest error review. Moise v. Moise, 2006-876 (La. App. 5 Cir. 3/13/07), 956 So. 2d 9, 12.
Caballero asserts that the trial court committed legal errors which interdicted the fact-finding process, and therefore, the de novo standard of review applies. (DC Brief at pp. 14-15). Where one or more legal errors by the trial court interdict the fact-finding process, the manifest error standard is no longer applicable. Evans v. Lungrin, 97-0541 (La. 2/6/98), 708 So. 2d 731, 735. A legal error occurs when a trial court applies incorrect principles of law and such errors are prejudicial. Legal errors are prejudicial when they materially affect the outcome and deprive a party of substantial rights. Pruitt v. Brinker, Inc., 2004-0152 (La. App. 1 Cir. 2/11/05), 899 So. 2d 46, 49, writ denied, 2005-1261 (La. 12/12/05), 917 So. 2d 1084.
For the reasons that follow, we do not find that the trial court applied incorrect principles of law, and therefore, we review this matter under the manifest error standard of review.
Classification of Home as Separate Property
Caballero claims that the trial court erred in granting Wallner reimbursement for one-half of the increase in value of Home attributable to Caballero's uncompensated labor during the community. Caballero relies on the written reasons of the trial court which state:
Prime is Mr. Caballero's separate property. Prime acquired an ownership interest in Home. It is undisputed that Home is not community property. Therefore, the classification of Home must be Mr. Caballero's separate property.
Caballero claims that he owned Prime as separate property, but that Prime owned Home. Caballero argues that the trial court committed error in finding that Home was his separate property. Therefore, he asserts that the trial court's analysis of whether Home increased in value based on his labor and whether Home adequately compensated him is incorrect. Instead, Caballero claims that the trial court should have determined if Prime increased in value and if Prime adequately compensated him.
The separate property of a spouse is his exclusively. Separate property includes property acquired by a spouse prior to the establishment of a community property regime and property acquired by a spouse with separate things or with separate and community things when the value of the community things is inconsequential in comparison with the value of the separate things used. La. C.C. art. 2341. A spouse's undivided interest in property, otherwise classified as separate property under Article 2341, remains his separate property regardless of the acquisition of other undivided interests in the property during the existence of the legal regime, the source of improvements thereto, or by whom the property was managed, used, or enjoyed. La. C.C. art. 2341.1. If the separate property of a spouse has increased in value as a result of the uncompensated labor or industry of either spouse, the other spouse is entitled to be reimbursed from the spouse whose property has increased in value one-half of the increase attributed to the common labor. La. C.C. art. 2368.
Because property acquired by the effort, skill or industry of a spouse is community, to the extent that a spouse's labor is producing some benefit, the community ought to share in the profit of that labor. Thus, in the case where a spouse's labor increases the value of a separate asset, the equitable solution is reimbursement for that effort by awarding the non-owner spouse one-half of the increase attributable to the common labor. La. C.C. art. 2368; McClanahan v. McClanahan, 2003-1178 (La. App. 5 Cir. 2/23/04), 868 So. 2d 844, 848, writ denied, 2004-1175 (La. 9/3/04), 882 So. 2d 609. Assets owned by a corporate entity are the property of that entity and are not owned by the shareholders or partners. Such acquisitions by the entity are not community property of the spouses even if the latter are owners of stock or are partners. McClanahan, 868 So. 2d at 848-49 (citing Taylor v. Taylor, 33,959 (La. App. 2 Cir. 11/1/00), 772 So. 2d 891). If a spouse is the principal involved in a company and he or she expended labor on company operations during the marriage for which he was not compensated, the other spouse's remedy is a claim for uncompensated common labor under La. C.C. art. 2368. McClanahan, 868 So. 2d at 849 (citing Taylor, supra; Katherine S. Spaht & W. Lee Hargrave, Louisiana Civil Law Treatise, Matrimonial Regimes, Vol. 16, § 3.11 (2d ed. 1997)).
In order to prove a claim for reimbursement due to an increase in value in separate property as a result of the uncompensated common labor or industry of a spouse pursuant to La. C.C. art. 2368, the claimant spouse must first prove that common or community labor of the spouses was expended on separate property. A spouse should not be permitted to deprive the community of a spouse's earnings that would be community property when that community labor enhances or increase the value of the laboring spouse's separately owned property. If a claim exists because the laboring spouse was either uncompensated or undercompensated, the measure of reimbursement is one-half of the increase attributable proportionately to the uncompensated labor of the spouse. Krielow v. Krielow, 1993-2539 (La. 4/11/94), 635 So. 2d 180, 183. The husband in Krielow devoted all his time and worked solely for a separately owned entity. 635 So. 2d at 184. During the community he did not receive a salary, but was paid "draws" which he reported on a Federal Tax 1099 form rather than a W-2 form used by salaried employees. The evidence was that the draws were low and that the husband was undercompensated. Krielow, 635 So. 2d at 185. The Louisiana Supreme Court determined that once the wife established that the husband's undercompensated community labor enhanced his separate property, the burden shifted to the husband to prove that some of all of the enhancement occurred because of other factors. Krielow, 635 So. 2d at 185.
After the new trial in this matter, the trial court determined that Home was the separate property of Caballero. Caballero claims that Home cannot be his separate property because pursuant to La. R.S. 12:1329, Home is an asset of Prime, not Caballero, individually.
McClanahan, supra, contained issues very similar to the present case. Mr. McClanahan used a legal entity, which was his separate property, McClanahan Contractors, to purchase other property, Sterling Investments, which was owned 50% by McClanahan Contractors and 50% by his daughter from a previous marriage, and Wood River Resorts. The Fifth Circuit determined that Sterling Investments did not constitute community property, but if Mr. McClanahan's labor facilitated an increase in his separate property, the community was due reimbursement for the increase attributable to his labor. McClanahan, 868 So. 2d at 850. The court made this same finding with respect to Wood River Resorts. McClanahan, 868 So. 2d at 851-52. Specifically, the Fifth Circuit stated:
Thus, respecting the legal status of McClanahan Contractors as a separate and distinct legal entity, and the fact that it is not disputed that McClanahan Contractors is the separate property of Mr. McClanahan, the asset [Sterling Investments] cannot be community property. However, to the extent that Mr. McClanahan's separate property has been enhanced by his labor, or that his labor has been uncompensated, during the community, Ms. McClanahan is due reimbursement of one-half the increase in the value of Mr. McClanahan's separate property that is attributable to his labor during the community.
McClanahan, 868 So. 2d at 850.
Similarly, in the present matter, Caballero used his separate property, Prime, to acquire property, Home. Separate property includes property acquired by a spouse with separate things. See La. C.C. art. 2341. The acquired property, Home, is not community property, but the community is due reimbursement for the increase attributable to a spouse's labor. McClanahan, 868 So. 2d at 851. Furthermore, in Moise, 956 So. 2d at 12, the court determined that when separate property was given for ownership in a limited liability company, the limited liability company became Mr. Moise's separate property.
We agree with the trial court that Home cannot be a community asset as it was purchased with the separate property of Caballero, the funds of Prime. However, to the extent that Caballero's separate property has been enhanced by his labor, or that his labor has been uncompensated, during the community, Wallner is due reimbursement of one-half the increase in the value of Caballero's separate property that is attributable to his labor during the community. See McClanahan, 868 So. 2d at 850. Therefore, we find no manifest error on the part of the trial court in ordering reimbursement due to the enhancement in value of Caballero's separate property interest for undercompensated labor during the community.
Undercompensation
Caballero argues that if Home is considered his separate property, the trial court incorrectly determined that he was undercompensated for his common labor by looking to the increase in value of Home, rather than whether Prime increased in value. The community is entitled to reimbursement for the value of community labor used to enhance separate property. La. C.C. art. 2368; McClanahan, 868 So. 2d at 853. Caballero focuses on the written reasons of the trial court, which do discuss the increase in value to Home. As in McClanahan, supra, the trial court in the present case had to determine the value of Home to determine the increase in the value of Prime.
The evidence at the trial was that Prime's interest in Home increased from $2.00 to approximately $60,000.00 per share during the community due to Caballero's efforts; that Caballero was the "driving force" behind Home (of which Prime owned 56.80%); and that the increase in its value was attributable to him. Ms. Catalanatto testified as an expert certified public accountant in the field of business valuation on behalf of Caballero that when Prime sold its interest in Home, it represented an increase in the value of Prime's ownership in Home. John W. Theriot, a certified public accountant, who testified in the field of business valuation on behalf of Wallner, also testified that any increase in Home's value over time was an increase in Prime's value in proportionate share.
The trial court stated in its written reasons dated September 23, 2014, that "Ms. Catalanatto was not retained to perform a business valuation and was not accepted as an expert in such. Mr. Caballero and his various business entities are long time clients of hers. This makes it unlikely that she can be objective and free from conflict as is required by the rules of the American Institute for CPA." The trial court had in fact accepted Ms. Catalanatto as an expert accountant and certified valuation analyst. However, after weighing and evaluating all of the evidence, the fact finder is free to accept or reject the opinions expressed by the experts. Augustus v. St. Mary Parish Sch. Bd., 1995-2498 (La. App. 1 Cir. 6/28/96), 676 So. 2d 1144, 1150. The trial court was also free to consider any bias or conflict of Ms. Catalanatto, who had worked for Caballero and Wallner, personally, and then chose to work for Caballero after the divorce began.
Caballero argues that the evidence at trial showed that he received $499,000.00 in salary from Home and that Prime received $1,822,235.00 in distributions, and therefore, he could not have been undercompensated. Despite the amount of money Caballero received from Home in salary and Prime in distributions, the trial court determined that Caballero had been undercompensated.
Caballero testified that he did not initially receive a salary from Home, but began to receive wages after a few years. It is undisputed that Caballero received no salary for the first two years of Home's operation, $19,000.00 for the third year, and $240,000.00 for each of the fourth and fifth years of operation, for a total of $499,000.00. Ms. Catalanatto testified that an appropriate compensation for someone in Caballero's position would be $240,000.00 plus an ownership interest in the company, which Caballero did not have. Ms. Catalanatto also testified as to the average compensation of a chief executive officer (CEO) in the Baton Rouge area and in Louisiana for the years 2005 through 2009 as ranging from $138,160.00-$148,061.00. This information was considered by the trial court in its determination as to Caballero's undercompensation.
Both parties refer to Wallner Vol. 1, Tab 57 which apparently is a chart used during the trial. However, the record contains no Tab 57. An appellate court must render judgment upon the record on appeal and cannot receive new evidence. La. C.C.P. art. 2164; Tranum v. Hebert, 581 So. 2d 1023, 1026 (La. App. 1st Cir.), writ denied, 584 So. 2d 1169 (La. 1991).
With regard to the distributions made from Home to Prime, Tami Barnes, the controller of Home and Prime, testified that Caballero requested that Home distribute to Prime as much money as could be distributed. She testified that Prime would receive its portion of the Home distributions, which would be deposited into the Prime account, and then she would distribute all she could from the Prime account to Caballero.
Caballero argues that he was fully compensated by Home through both his salary and distributions made to him from Prime. The trial court determined that the distributions were paid from Home to Prime, not Caballero. The trial court further noted that Home's operating agreement specified that all distributions were to be made in proportion to its members' ownership percentages. Therefore, the trial court did not consider the distributions made from Home to Prime as compensation to Caballero.
A limited liability company is a distinct juridical person. The personality of a juridical person is distinct from its members. La. C.C. art. 24. A member of a limited liability company has no interest in the limited liability company's property. La. R.S. 12:1329. The trial court noted that Home was not owned by Caballero, but by Prime; therefore, Caballero received no distributions from Home, Prime did. When Home distributed profits to its members, these were paid in proportion to the respective ownership percentages of the members as set forth in the company's operating agreement, not based on the labor of the members.
Caballero quotes portions of the trial court's written reasons of September 23, 2014, and claims they are inconsistent. We do not agree. The trial court states, in pertinent part,
Mr. Caballero expended his labor to increase the value of Home. Based on the trial testimony and evidence, there would have been no distributions, earnings, or otherwise, without Mr. Caballero. His partners put up the money; [h]e provided the knowledge and labor. Mr. Caballero was paid a salary for his labor.
This portion is referring to the $499,000 salary he received over the five years as being undercompensation considering the testimony as to an average CEO in the area. Clearly, the trial court found based on the trial testimony that Caballero was undercompensated by that salary.
The other portion of the trial court's written reasons of September 23, 2014, to which Caballero refers is stated in more detail as,
Further, at the hearing on the motion for new trial and based on the trial testimony and briefs, it is abundantly clear that the distributions from Home to Prime were unrelated to Mr. Caballero's labor. In fact, all of the distributions made by Home to Prime were in proportion to and only contingent upon each respective member's ownership interest regardless of whether any work was done by any member. This equal distribution is in accordance with Home's operating agreement.
This portion is referring to the distributions made from Home to Prime. Clearly, the trial court held that the distributions made by Home to Prime were based on Prime's proportionate interest in Home and did not consider them to be his compensation. The only compensation that the trial court considered was the $499,000.00 salary that he was paid over a five-year period, which based on the evidence, the trial court found to be undercompensation. The trial court specifically stated that "it is improper to consider distributions to Prime as community fruits or compensation."
As noted above, it is well settled that an appellate court cannot set aside a trial court's findings of fact in the absence of manifest error or unless those findings are clearly wrong. Rosell v. ESCO, 549 So. 2d 840, 844 (La. 1989). In order to reverse a fact finder's determination of fact, an appellate court must review the record in its entirety and (1) find that a reasonable factual basis does not exist for the finding, (2) further determine that the record establishes that the fact finder is clearly wrong or manifestly erroneous. Stobart v. State, DOTD, 617 So. 2d 880, 882 (La. 1993).
Caballero claims that the concept of earnings is broader than that used by the trial court and that his benefits and distributions should be included, relying upon Krielow, 635 So. 2d at 185. In Krielow, 635 So. 2d at 184, the Louisiana Supreme Court found that the husband was not paid a salary during the community from a separately owned company, but was instead paid or allowed "draws" from the corporate account of the company whose value was at issue, KBI. The husband reported the income on his federal tax 1099 form rather than the W-2 form usually used by salaried employees. The court determined that the husband was undercompensated, but only considered the "draws" or distributions from the company whose value was at issue, KBI, which was the company that the husband had an interest. Caballero asserts that Krielow stands for the proposition that the trial court must consider his salary and his distributions. In Krielow, the husband was paid directly from his separately owned company. 635 So. 2d at 184. In the instant case, there were no distributions from Home to Caballero. The distributions made from Home were to Prime and were based on ownership percentages, not the amount of labor of Caballero.
We agree with the trial court that the distributions made from Home to Prime should not be considered in determining Caballero's compensation. Additionally, the evidence before the trial court was that the salary paid to Caballero was less than he would have received in the open market for the position he held. After reviewing the record in the present case, we find that a reasonable factual basis exists for the finding that Caballero was undercompensated and the record does not establish that the trial court was clearly wrong.
Valuation of Home
Caballero argues that the trial court erred in valuing Home because it included goodwill attributable to Caballero personally in the valuation of Home, a separate entity. Specifically, Caballero claims that the trial court should have determined the value of Home using the book/net value approach, which excludes Caballero's goodwill, and cites La. R.S. 9:2801.2. At the outset, we note that La. R.S. 9:2801.2 applies to the valuation of community-owned businesses, not separately owned businesses. Therefore, La. R.S. 9:2801.2 has no application to the present case.
The trial court stated in its September 23, 2014 reasons that "[i]n determining the amount of enhancements made to the separate property, any reasonable method may be used, even, in difficult cases, to the extent of averaging the conflicting and exaggerated estimates of witnesses." See Deliberto v. Deliberto, 400 So. 2d 1096, 1101 (La. App. 1 Cir. 1981).
The trial court considered the testimony of the two expert witnesses, Theriot and Catalanatto. Ultimately, the trial court accepted the valuation of Home that Theriot set forth, stating:
The Court will accept the valuation of Mr. Theriot as adjusted and set the value of Home on December 31, 2009[,] at [2,991,041.00]. Ms. Catalanatto was not retained to perform a business valuation and was not accepted as an expert in such. Mr. Caballero and his various business entities are long time clients of hers. This makes it unlikely that she can be objective and free from conflict as is required by the rules of the American Institute for CPA.
The trier of fact is free to accept or reject in whole or in part the testimony of any witness. Commercial Flooring & Mini Blinds, Inc. v. Edenfield, 2013-0523 (La. App. 1 Cir. 2/14/14), 138 So. 3d 30, 40 (citing Rosell 549 So.2d 840, 844 (La. 1989)). Credibility determinations, including the evaluation of and resolution of conflicts in expert testimony, are factual issues to be resolved by the trier of fact, which should not be disturbed on appeal in the absence of manifest error. Commercial Flooring, 138 So. 3d at 40 (citing Hanks v. Entergy Corp., 2006-477 (La. 12/18/06), 944 So. 2d 564, 581). The trial court's choice not to credit Catalanatto's valuation of Home is not error. See Brignac v. Louisiana Farm Bureau Ins. Agency, Inc., 2010-1467 at p. 2 (La. App. 1 Cir. 9/7/11) (unpublished).
Caballero relies on several other cases to claim that the goodwill used in the valuation of Home is personal to him and not an asset of Home. See Gill v. Gill, 39,406 (La. App. 2 Cir. 3/9/05), 895 So. 2d 807 (where an accountant's goodwill was not an asset of the corporation); Preis v. Preis, 94-442 (La. App. 3 Cir. 11/2/94), 649 So. 2d 593, 596, writs denied, 94-2939 and 94-2942 (La. 1/27/95), 649 So. 2d 392 (where valuation of attorney's stock in law corporation properly excluded value of goodwill); McCarron v. McCarron, 498 So. 2d 1139 (La. App. 3 Cir. 1986), writ denied, 501 So. 2d 233 (La. 1987) (where physician's goodwill was not an asset of the corporation); and Depner v. Depner, 478 So. 2d 532 (La. App. 1 Cir. 1985), writ denied, 480 So. 2d 744 (La. 1986) (where physician's goodwill was not an asset of the corporation). We find these cases distinguishable as they all involved community-owned businesses and "professional" corporations rather than commercial businesses. See Godwin v. Godwin, 533 So. 2d 1009, 1010 (La. App. 1 Cir. 1988), writ denied, 537 So. 2d 1165 (La. 1989) (distinguishing Depner and McCarron). The statute and cases cited by Caballero all involve community-owned businesses and are not applicable in the present matter. The trial court's acceptance of Mr. Theriot's valuation of Home, which included goodwill, was a reasonable valuation method. See Deliberto, 400 So. 2d at 1101.
Caballero also claims that the methodology used by Theriot in his valuation of Home showed a lack of due diligence and alleged that Theriot excluded two sales of Home's membership interest in 2008 because "it did not fit his theory" and excluded Home's income from its worst year. Theriot testified that he considered all of the prior sales, but that Caballero had stated in his deposition that one of the sales was indicative of the value of Home and that two sales were discounted in value to get two individuals involved in the company.
Theriot testified as to his value of Prime's interest in Home and provided a business valuation report. Ms. Catalanatto testified that she was not retained to perform a business valuation.
Additionally, with regard to the amounts Theriot used for the income of Home, the trial court stated, "[e]liminating either a year with high profits [2009] or one with low profits [2008] will result in a value that is too [sic] low on the one hand or exaggerate it, on the other." The trial court specifically noted:
Mr. Theriot was asked to add 2008 back into the Capitalization of Earnings Method and recalculate the value of Prime's interest in Home. Once 2008 was included, Mr. Theriot testified that the value of Prime's interest in Home is $2,991,041. Ms. Catalanatto was likewise asked to include 2009 in the Capitalization of Earning Method and once this was done she stated that the value of Prime's interest in Home was $1,958,336....The Court will accept the valuation of Mr. Theriot as adjusted and set the value of Home on December 31, 2009 at $1,958,336.
From the written reasons, it is clear that the trial court did not reimburse Wallner for the increase in the value of Home, as is argued throughout Caballero's brief, but used the evidence to determine "Prime's interest in Home." The trial court specifically noted that Theriot weighed different approaches to value Home and determined that "Prime's 56.8% [interest was] $3,094,447." The trial court then had Theriot add back the year 2008, which he had excluded, and "Theriot testified that the value of Prime's interest in Home [was] $2,991.041." The trial court permitted a reimbursement of one-half the value of the increase of Caballero's 56.8% interest in Prime. Therefore, the trial court's determinations are very similar to those in McClanahan, supra, wherein Sterling Investments was owned 50% by McClanahan Contractors, Mr. McClanahan's separate property, and 50% by his daughter. Ms. McClanahan was due reimbursement of one-half the increase in the value of Mr. McClanahan's separate property that was attributable to his labor during the community. McClanahan, 868 So. 2d at 850. The increase in Sterling Investments during the community belonged 50% to Mr. McClanahan's daughter and 50% ($44,500) to McClanahan Contractors, of which Mr. McClanahan owned 85%. Mr. McClanahan's separate property increased in value by $37,825.00, and thus the community was due reimbursement of one-half the value of Mr. McClanahan's 85% interest in McClanahan Contractors, or $18,912.50.
Given that the trier of fact is free to accept or reject in whole or in part the testimony of any witness, we cannot say that the trial court's acceptance of the methodology used by Theriot, which the trial court noted was adjusted to include the income of all the years involved, was in error. See Commercial Flooring, 138 So. 3d at 40; see also, Brignac, 2010-1467 at p. 2.
Stratedge and Cawthon Sales
Caballero assigns as his second error that the trial court improperly denied his claim for reimbursement for one-half of the Stratedge and Cawthon sales proceeds, pursuant to La. C.C. art. 2365, which he claims were used to satisfy community obligations, or $135,208.60. Caballero argues that Prime's sales proceeds are "products" of his separate property, rather than "fruits," entitling him to reimbursement since the proceeds were distributed to the community. La. C.C. arts. 488 and 551. "Products" derive from another thing as a result of a diminution in its substance, and "fruits," derive from another thing without diminishing its substance. La. C.C. arts. 488 and 551. Fruits of a spouse's separate property are community property and products of a spouse's separate property remain separate property. Caballero argues that the sale of Prime's ownership interest in Home diminished the substance of Prime.
The particular facts of these sales are discussed in the "Facts and Procedural History" section of this opinion and will not be repeated here.
As stated previously, the trial court's determination of what is community property as opposed to what is separate property is a finding of fact subject to manifest error review. Moise, 956 So. 2d at 12. If a reasonable basis exists in the record for the trial court's finding, no error has occurred. Stobart, 617 So.2d at 882.
Things in the possession of a spouse during the existence of a community regime are presumed to be community; however, that presumption can be rebutted by proof that the thing is separate property. La. C.C. art. 2340. Pursuant to La. C.C. art. 2338, community property includes:
[P]roperty acquired during the existence of the legal regime through the effort, skill, or industry of either spouse; property acquired with community things or with community and separate things, unless classified as separate property under Article 2341; property donated to the spouses jointly; natural and civil fruits of community property; damages awarded for loss or injury to a thing belonging to the community; and all other property not classified by law as separate property.
Louisiana Civil Code article 2341, defines separate property in part as:
[P]roperty acquired by a spouse prior to the establishment of a community property regime; property acquired by a spouse with separate things or with separate and community things when the value of the community things is inconsequential in comparison with the value of the separate things used[.]
The natural and civil fruits of separate property produced during the existence of the community property regime are community unless a spouse reserves them as his separate property in a declaration made by authentic act or an act under private signature duly acknowledged. La. C.C. art. 2339.
The trial court found that since Prime owned the interest in Home, not Caballero individually, Prime's sale of a portion of its interest in Home was not a sale of Caballero's interest in Prime. The trial court further found that Caballero's interest in Prime was not diminished by the Stratedge and Cawthon sales and that Caballero was not entitled to reimbursement, even though these funds were used to satisfy community obligations. The trial court also determined that the proceeds of the sale of Prime's interest in Home to Stratedge and Cawthon were community property, rather than separate property to which Caballero was entitled to reimbursement.
We disagree with the trial court's classification of the proceeds of the sale of Prime's interest in Home as being community property. The testimony and evidence at trial established that: (1) Prime was Caballero's separate property; (2) Prime owned an interest in Home; (3) Prime's ownership interest in Home reduced from 66.67% to 56.8% following the sale of Prime's interest in Home to Stratedge and Cawthon; (4) the diminution in Prime's ownership in Home directly diminished the substance of Prime; and (5) Caballero used a portion of the sale proceeds to satisfy community obligations. The proceeds of the sale belonged to Prime, Caballero's separate property, and undisputedly were payment for the sale (in part) of Prime's interest in Home. See Curtis v. Curtis, 2007-392 (La. App. 3 Cir. 11/7/07), 969 So. 2d 1277, 1279, writ denied, 2007-2347 (La. 2/1/08), 976 So. 2d 722. Therefore, the sale proceeds were not "fruits," but were derived from the diminution of Prime's "substance." Caballero was entitled to reimbursement for one-half of the sales proceeds because those proceeds were used to satisfy community obligations. See La. C.C. art. 2365.
The trial court committed manifest error in concluding that the proceeds received from the sales to Stratedge and Cawthon were not Caballero's separate property used on community obligations, and therefore, that no reimbursement was owed. We reverse that portion of the judgment and render judgment that Caballero is entitled to one-half of the Stratedge and Cawthon cash sales proceeds used to satisfy community obligations, or $135,208.60.
Home Performing Fund I, LLC
Caballero claims the trial court erred in classifying Home Performing (Home Performing) as community property and denying his claim for reimbursement, since he alleges Home Performing was acquired with his separate property. Caballero claims that the sales proceeds from the Cawthon sale are his separate property, which was used to purchase an interest in Home Performing. Therefore, he asserts that Home Performing is his separate property, not community property. As a result, Caballero asserts that the trial court erred in denying his claim for one-half of the distributions of principal and principal investment gain made by Home Performing used to satisfy community obligations. Caballero received a total of $19,808.23 in distributions from Home Performing. Therefore, he claims he is entitled to reimbursement under La. C.C. art. 2365 in the amount of $9,904.12.
The facts at the trial were that Prime sold Cawthon its 4.87% interest in Home for $292,121.00 and received the funds on May 21, 2008. The next day, Prime loaned $200,000.00 to Home and a promissory note was executed. Caballero claims the $200,000.00 loan was repaid to Prime. On July 23, 2008, Prime wrote a check to Caballero for $100,000.00.
Ms. Catalanatto testified that the $100,000.00 represented payment on the $200,000.00 loan to Home. She also testified that the $100,000.00 was deposited into Prime's checking account, and that Prime wrote a $100,000.00 check to Caballero, which was deposited into the joint checking account of Caballero and Wallner on April 28, 2008. On April 29, 2008, $100,000.00 was paid on the HELOC. On July 23, 2008, there was a $100,000.00 check written from the joint checking account to Home Performing. Ms. Catalanatto explained that of the $200,000.00 loan that went to Home, $100,000.00 came back to Prime, and from Prime, it went to Caballero's personal checking account. The check to Home Performing came from Caballero's personal checking account.
Community property comprises property acquired during the existence of the legal regime through the effort, skill or industry of either spouse; property acquired with community things or with community and separate things; property donated to the spouse jointly; natural and civil fruits of community property; damages awarded for loss or injury to a thing belonging to the community; and all other property not classified as separate property by law. La. C.C. art. 2338. Natural and civil fruits of a spouse's separate property are also community property. La. C.C. art. 2339. Things in the possession of the community during the existence of the community are presumed to be community property. La. C.C. art. 2338, This presumption is rebuttable upon a showing by a preponderance of the evidence the separate nature of property brought into the community. Talbot v. Talbot, 2003-0814 (La. 12/12/03), 864 So. 2d 590, 600.
As the trial court noted, Home Performing was acquired with a check for $100,000.00 from a community checking account on July 23, 2008. Because Home Performing was acquired during the community regime, it is presumed to be a community asset. La. C.C. art. 2338. Although Caballero attempted to trace the funds used, in an effort to support his claim that the funds were separate assets which remained separate, the trial court found that the funds used were community property as fruits of Caballero's labor. La. C.C. art. 2339.
In Ross v. Ross, 2002-2984 (La. 10/21/03), 857 So. 2d 384, 397, the Louisiana Supreme Court concluded that renewal commissions received by Mr. Ross during the existence of the community property regime were the result of his effort, skill and industry exerted during the community regime, and therefore, were community property. The trial court in the present matter concluded that the sale proceeds earned by Prime, were also the result of Caballero's effort, skill and industry during the community regime. Ms. Catalanatto testified that Cawthon bought into the Home business due to Caballero's experience and knowledge in the industry. We find there is a reasonable basis in the record for the trial court to have concluded that Home Performing was acquired with community funds. Therefore, the trial court did not commit manifest error in denying the claim for reimbursement of Caballero with regard to Home Performing.
Home Equity Line of Credit
Caballero claims that the trial court erred in awarding Wallner reimbursement for numerous draws made on the couple's HELOC during the marriage, because any entitlement for reimbursement was extinguished by the return of funds to the community. Caballero also claims that the trial court erred in its calculation which included draws that benefitted the community rather than his separate property.
In June of 2005, during the community, a HELOC was opened. The trial court found that some of the funds were deposited into the community account and other funds were loaned to Prime and Home. Wallner claimed that $343,494.53 was disbursed from the community for the benefit of Caballero's separate property. She sought reimbursement for one-half of this amount. Caballero asserted that all the draws on the HELOC were presumed community obligations or had either benefitted the community or been reimbursed to the community. Caballero relies on La. C.C. art. 2361 to assert that money borrowed on the HELOC during the marriage is presumed to be a community obligation. He further relies on Thibodaux v. Thibodaux, 577 So. 2d 758, 760 (La. App. 1 Cir. 1991), for the proposition that any entitlement to reimbursement contained in La. C.C. arts. 2364 and 2366 is extinguished upon repayment to the community.
The original claim of Wallner was for $410, 666.45. The claim was reduced to $380,402.51. After testimony at the trial, Wallner adjusted the claim again to $343,494.53, which included fourteen payments. Five of those payments totaling $90,000.00 were to Rick Caballero and are dealt with in the following section. The remaining nine payments totaling $253,494.53 are at issue in this section. --------
Tami Barnes, Home's accountant, created a spreadsheet wherein she attempted to trace the source of the disputed funds paid into the HELOC and the uses for the funds withdrawn. The amounts at issue were the following nine draws:
| 1. | 6/29/05 | $99,419.12 | Pay off line of credit to Britton &Koontz used to buy properties forPrime; |
| 2. | 1/20/06 | $26,575.41 | First Financial Funding; |
| 3. | 5/26/06 | $5,000.00 | Prime Loan; |
| 4. | 4/11/07 | $6,500.00 | Prime Loan; |
| 5. | 10/16/07 | $3,000.00 | Prime Loan' |
| 6. | 3/19/08 | $4,000.00 | Prime used to pay off son's truck; |
| 7. | 3/26/08 | $50,000.00 | Home Loan; |
| 8. | 1/2/09 | $24,000.00 | Prime Loan; |
| 9. | 4/27/09 | $35,000.00 | Home for purchase of a BMW. |
| Total: | $253,494.53 |
Except as provided in article 2363, all obligations incurred by a spouse during the existence of a community property regime are presumed to be community obligations. La. C.C. art. 2361. In order to rebut this presumption, Wallner had to prove such debts were not incurred for the benefit of the community. In determining whether she met this burden, the trial court had to examine the uses to which the borrowed money was put. Biondo v. Biondo, 1999-0890 (La. App. 1 Cir. 7/31/00), 769 So. 2d 94, 108. A separate obligation of a spouse includes one incurred by that spouse during the existence of the community property regime that is not for the common interest of the spouses or for the interest of the other spouse. La. C.C. art. 2363. If community property is used during the community to satisfy a separate obligation of a spouse, the other spouse is entitled to reimbursement for half of the amount of value that property had at the time it was used. La. C.C. art. 2364.
Caballero argues that Barnes testified that several of the disputed draws were used as loans to the entities to purchase property that generated additional revenue for the community, thereby benefitting the community. Barnes testified that all the loans were repaid to the community, except that she was unable to trace the First Financial Funding loan. Caballero argues that the evidence establishes that payments were made to the HELOC in excess of the total draws itemized in dispute, so that the community actually received $324,812.51.
Wallner argues that there was no indication that the payments to Britton & Koontz, Prime, or First Financial were ever repaid. Prior to testifying that all the loans were repaid, Barnes testified that she was unable to trace all of the funds which were paid to Britton & Koontz as being repaid to the community. She also testified as to funds being used to pay off properties owned by Prime, Caballero's separate property. Barnes admitted that although she thought the $5,000.00 loan to Prime was paid back embedded in a much larger check, that it was not included in her spreadsheet. Barnes testified that the $6,500.00 and $3,000.00 checks were taken from the HELOC and loaned to Prime. A $4,000.00 check to Prime was used to pay off Caballero's son's truck. $50,000.00 was paid to Home; $24,000.00 to Prime; and $35,000.00 to Home to purchase a BMW.
Although Barnes testified at one point that all the loans were repaid to the HELOC, Prime's ledger shows that only three of the payments ($5,000.00, $3,000.00, and $50,000.00) were designated as loans from Caballero on books of Prime. The only loan repayment from Prime to Caballero through the termination of the community on December 11, 2009, was a payment on March 9, 2009, in the amount of $150,000.00. The $150,000.00 was a distribution to Caballero resulting from Prime's interest in Home being sold to Cawthon, which this court determined was the fruit of Caballero's separate property, and therefore, belonged to the community.
Home's ledger is also devoid of any repayments to either Prime or Caballero. Given that the trier of fact is free to accept or reject in whole or in part the testimony of any witness, the trial court had a reasonable basis to determine that community funds were used on the separate property of Caballero. See Commercial Flooring, 138 So. 3d at 40. Credibility determinations, including the evaluation of and resolution of conflicts in expert testimony, are factual issues to be resolved by the trier of fact, which should not be disturbed on appeal in the absence of manifest error. Commercial Flooring, 138 So. 3d at 40. The trial court's choice not to credit Barnes's testimony that all of the disputed funds used on Caballero's separate property is not error given the other evidence in the record. See Brignac v. Louisiana Farm Bureau Ins. Agency, Inc., 2010-1467 at p. 2 (La. App. 1 Cir. 9/7/11) (unpublished).
Caballero also argues that the trial court erred in including the $99,419.12 used to pay off the Britton & Koontz line of credit and the $4,000.00 to pay off his son's vehicle in the amount which was community property used on separate property. Barnes testified that approximately $41,547.00 of the $99,419.12 balance was loaned to Prime to purchase assets. She also testified that the $4,000.00 was used to pay off Caballero's son's truck. Caballero claims this should be considered a gift, not subject to reimbursement. See La. C.C. art. 2349.
Barnes actually testified that she would have provided documentation if the $41,547.00 had been used to purchase assets for Prime, but she was unable to locate such. Catalanatto testified that any loans to the separate companies or repayments should have been designated on the general ledger, and they were not. Therefore, the trial court had a reasonable factual basis to determine that the $41,547.00 was not a loan repayment.
Barnes testified that she did not know who owned the truck or why it was paid off by Prime. Therefore, the trial court had a reasonable factual basis to determine that the truck was the separate property of Caballero since the check was actually paid to Prime.
We find no manifest error in the trial court's determination that Wallner was due reimbursement in the amount of $51,747.27 for one-half of the amount of community funds used to pay Caballero's separate debts.
Loan Balance to Caballero's Brother
During the community, in 2007, Caballero loaned his brother, Rick Caballero, $90,000.00. Caballero testified that his brother repaid $60,000.00 to the community, and that checks for those amounts were deposited into the community checking account. Caballero asserted that the parties stipulated that the disputed amount was only $30,000.00. He claims that since Wallner did not dispute this amount, the trial court erred in including the $60,000.00 in the reimbursement amount.
The trial court determined that the parties stipulated that $30,000.00 was part of the community property and the issue was whether the remaining $60,000.00 was due the community. In its original reasons for judgment, the trial court stated:
In addition to the above there are five draws on the community HELOC totaling $90,000[.00] for loans to Rick Caballero, Mr. Caballero's brother. Ms. Barnes, Controller at Home and Prime, testified that there is no documentation indicating that any of these funds have been repaid.
Upon careful scrutiny of this claim the court finds that the accounts receivable of $90,000.00 should be classified as an asset of the community. This money is still due to the community. The parties have already stipulated to $30,000.00 of this amount. The [c]ourt will add an additional $60,000.00 as an asset of the community and allocate this asset to Mr. Caballero in the partition. (Emphasis Added).
After testifying that there were five checks totaling $90,000.00 written to Rick Caballero, Ms. Barnes testified that she had no documentation showing any of the monies to Rick Caballero being repaid; she did not know if he repaid any of the funds; and that very few of the deposits were itemized so that they could be traceable. Caballero also testified that the bank statements did not identify any repayments from Rick Caballero.
Because a reasonable factual basis exists to support the trial court's conclusion that $60,000.00 paid from community funds to Rick Caballero had not been repaid, we affirm the trial court's inclusion of this as an accounts receivable in the community assets.
CONCLUSION
For the foregoing reasons, we reverse that portion of the judgment which denied David Caballero reimbursement for one-half of the Stratedge and Cawthon cash sales proceeds used to satisfy community obligations and render judgment herein awarding Caballero one-half of the Stratedge and Cawthon cash sales proceeds used to satisfy community obligations, or $135,208.60. In all other respects we affirm the Original Judgment, as amended by the Amended Judgment, partitioning the community property of David Caballero and Teresa Wallner. Costs of this appeal are assessed to one-half to David Caballero and one-half to Teresa Wallner.
REVERSED IN PART; AFFIRMED IN PART. WELCH, J., concurring in part and dissenting in part.
While I agree with the majority opinion with respect to its disposition on the Stratedge and Cawthon sales and on all but one of the issues involving the draws on the Home Equity Line of Credit, I disagree with the majority opinion in all other respects. Most importantly, I believe that both the trial court and majority legally erred with respect to Ms. Wallner's claim for reimbursement under La. C.C. art. 2368 for an increase in value of Mr. Caballero's separate property. In addition, in adjudicating Ms. Wallner's claim under this article, I believe the trial court and the majority erroneously considered the value of Home Servicing, L.L.C., which is not owned by Mr. Caballero, and that the appropriate asset which should have been evaluated under this claim was Prime Acquisitions, L.L.C., which was owned by Mr. Caballero and was undisputedly his separate property.
First and foremost, with respect to Ms. Wallner's claim for reimbursement under La. C.C. art. 2368, the Louisiana Supreme Court stated in Salley v. Salley, 95-0387 (La. 10/16/95), 661 So.2d 437, 438 and Krielow v. Krielow, 93-2539 (La. 4/11/94), 635 So.2d 180, 183, that a claimant spouse under La. C.C. art. 2368 has the burden of proving: (1) the property is separate, (2) the property increased in value, and (3) the increase in value was based on the uncompensated or under compensated labor of the other spouse; thereafter, the burden then shifts to the other spouse to prove that the increase in value was due to factors other than the uncompensated or undercompensated labor. See also La. C.C. art. 2368 (providing in part that "if the separate property of a spouse has increased in value as a result of the uncompensated common labor or industry of the spouses" the other spouse is entitled to reimbursement").
In this case, the trial court found and the majority opinion discusses (1) the classification of Home as Mr. Caballero's separate property (which I disagree with for reasons set forth below); (2) Mr. Caballero's undercompensation from Home (which I also disagree with for reasons set forth below); and (3) that Home increased in value because of Mr. Caballero. However, completely absent from the trial court's factual findings (or reasons for judgment) and from the majority opinion is any discussion or resolution of the issue of whether Home increased in value based on or as a result of Mr. Caballero's purported undercompensation from Home, as required by La. C.C. art. 2368 and the jurisprudence from the Louisiana Supreme Court interpreting that article. I believe that the failure of both the trial court and the majority to address this necessary element of Ms. Wallner's burden of proof under La. C.C. art. 2368 was legal error.
In reviewing this necessary element of Ms. Wallner's claim, I note that the record before us contains absolutely no evidence that Home, or Prime, increased in value because Mr. Caballero was undercompensated for his labor. To the contrary, all of the evidence in the record establishes otherwise—that Home and Prime increased in value solely because of Mr. Caballero's reputation, knowledge, experience and contacts (i.e., because of his goodwill). In other words, the record establishes that Mr. Caballero's separate property increased in value due to factors other than the uncompensated labor of Mr. Caballero. Therefore, Ms. Wallner was not entitled to reimbursement under La. C.C. art. 2368 because she failed to meet her burden of proving, in accordance with that article, that Mr. Caballero's separate property increased because he was undercompensated. To the extent that the trial court's reasons for judgment can be interpreted otherwise, that factual finding was manifestly erroneous because there is no factual basis in the record for the finding and the record establishes that it is clearly wrong. Accordingly, the judgment of the trial court granting Ms. Wallner's motion for new trial and awarding Ms. Wallner this reimbursement claim should be reversed, and the majority erred in affirming that decision of the trial court.
Furthermore, in addressing this claim, I believe that both the trial court and majority have inappropriately classified Home as Mr. Caballero's separate property. The separate property at issue that should have been addressed or considered was Prime—not Home. The record reveals that Home was a limited liability company formed by Prime, Manhattan Advisors, Inc. and Southshore Capital Company, Inc. While Mr. Caballero personally owned, as his separate property, a 100% interest in Prime, he held absolutely no interest in either Manhattan Advisors or Southshore Capital. Under Louisiana corporate law, Home cannot be classified as either community property or the separate property of Mr. Caballero because it is not owned by Mr. Caballero in any way. See McClanahan v. McClanahan, 2003-1178 (La. App. 5th Cir. 2/23/04), 868 So.2d 844, 849. An ownership interest in Home is an asset of Prime. Assets owned by a corporate entity are the property of that entity and are not owned by the shareholders or partners; such acquisitions by the entity are not community property of the spouses even if the latter are owners of stock or are partners. McClanahan, 868 So.2d at 848. In order to classify Home as Mr. Caballero's separate property, as the trial court and the majority have done, the corporate veil would have to be pierced and the record before us contains no basis for doing so. See McClanahan, 868 So.2d at 849. Therefore, both the majority and the trial court erred in classifying Home as Mr. Caballero's separate property. The separate property that should have been addressed by both the trial court and this court in evaluating Ms. Wallner's claim under La. C.C. art. 2369, was Prime, which again, happened to own, as an asset, an interest in Home. Thus, the proper inquiry was whether Mr. Caballero's separate property, i.e. Prime, increased in value because Mr. Caballero was undercompensated for his labor or industry. See McClanahan 868 So.2d at 849. Because both the trial court and the majority failed to consider the correct legal issue, the trial court's judgment and the majority opinion are erroneous as a matter of law.
In considering this issue and in determining whether Mr. Caballero was undercompensated, I believe that the trial court and the majority should have considered not only Mr. Caballero's salary from Home, which was $499,000.00 over 5 years, but they should have also considered the distributions from Prime that Mr. Caballero received, which was $1,822,235.00 over 5 years. Notably, both Mr. Caballero's salary and his distributions from Prime were community property. Therefore, when the total amount received by the community is considered, i.e., $2,321,235.00, based on the evidence in the record, it would be both unreasonable and clearly wrong to say that Mr. Caballero was undercompensated for his labor because the undisputed evidence in the record establishes that this sum is more than he would have received in the open market for the position that he held.
The fact that some of Mr. Caballero's compensation may have come directly as a salary from Home, while other compensation may have come in the form of corporate distributions from Prime, the only issue is whether Mr. Caballero was adequately compensated for his labor; and if not, whether his separate property increased in value because of that undercompensated labor. The evidence reflected that Mr. Caballero received a salary from Home and that Home's profits were distributed to the three corporate owners, including Prime. Prime then distributed those funds to Mr. Caballero and those funds went directly into the community and were spent by the community. Both the trial court and the majority determined that it was inappropriate to consider the distributions from Prime because the distributions from Home to Prime were based on its members' ownership percentages and were unrelated to the amount of labor by Mr. Caballero. However, I respectfully disagree. Although the distributions from Home to Prime were indeed based on Prime's ownership percentage in Home, 100% of Home's distributions to its members were attributable to Mr. Caballero's labor. The undisputed evidence in the record revealed that without Mr. Caballero's labor, there would have been no distributions by Home to its members. Therefore, the amount of distributions Home made to Prime was directly related to Mr. Caballero's labor. And because Prime made distributions to Mr. Caballero and thus, to the community, I believe those funds are properly considered in determining whether Mr. Caballero was adequately compensated for his labor. Therefore, the judgment of the trial court should be reversed on this issue and the majority has erroneously failed to do so.
With regard to Mr. Caballero's claim for reimbursement regarding Home Performing Fund I, L.L.C. (Home Performing), for the same reason that Home cannot be classified as either community or separate property, but rather was an asset of Prime formed with proceeds Prime received from the sale to Cawthon, I believe that the trial court and the majority have erred in classifying this asset as a community asset. The trial court's decision to classify this asset as a community asset was based on its determination that the funds used to form Home Performing—i.e., the proceeds Prime received from the sale of part of its interest in Home to Cawthon, were community funds because they were "fruits" of Prime. However, the majority reversed the trial court's determination in this regard, (with which I agree) and specifically held that the proceeds of the sale were a "product" of Prime, not a "fruit," and therefore, were Mr. Caballero's separate property. Accordingly, the trial court's judgment with respect to Home Performing must also be reversed and the majority's decision to likewise not reverse the judgment of the trial court on this issue is internally inconsistent with its ruling on the proceeds Prime received from the sales to Statedge and Cawthon.
Insofar as the trial court and the majority awarded Ms. Wallner reimbursement for certain draws on the Home Equity Line of Credit, I agree with the majority opinion except with respect to the draw of $4,000 for the truck given to Mr. Caballero's son. The record established this expense was clearly intended as a gift or a donation to Mr. Caballero's son from the community, which was certainly commensurate with the economic position of the parties at the time it was made. See La. C.C. art. 2349. As such, Ms. Wallner was not entitled to reimbursement for this expense and this portion of the judgment of the trial court should be reversed.
Lastly, I disagree with the trial court and the majority opinion with regard to the loan balance to Mr. Caballero's brother. The record reflects that Ms. Wallner and Mr. Caballero submitted a written stipulation that the remaining sum owed on that loan was $30,000. This stipulation constituted a judicial confession pursuant to La. C.C. art. 1853 and has the effect of waiving evidence as to the subject of the admission. See Crawford v. Deshotels, 359 So.2d 118 (La. 1978). Although a judicial confession may be revoked on the ground of error of fact, Ms. Wallner never moved to revoke that confession. Instead, the trial court apparently modified the judicial confession based on the testimony of Ms. Barnes that she couldn't find any evidence regarding repayment of the loan by Mr. Caballero's brother. The trial court's decision to modify, on its own motion, a judicial confession with respect to the amount owed to the community by Mr. Caballero's brother was erroneous as a matter of law. Therefore, the judgment of the trial court should be amended to reflect the loan balance/community receivable from Mr. Caballero's brother in the stipulated amount of $30,000.
For all of the above and foregoing reasons, I respectfully concur in part and dissent in part.