Opinion
D071998
09-28-2018
In re the Marriage of JIMMY and JANICE LAKDAWALA. JIMMY LAKDAWALA, Appellant, v. JANICE LAKDAWALA, Respondent.
Law Offices of Beatrice L. Snider and John L. Romaker for Appellant. Law Office of Linda Cianciolo and Linda Cianciolo for Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. DN162271) APPEAL from a judgment of the Superior Court of San Diego County, Jeannie Lowe, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed. Law Offices of Beatrice L. Snider and John L. Romaker for Appellant. Law Office of Linda Cianciolo and Linda Cianciolo for Respondent.
I.
INTRODUCTION
Jimmy Lakdawala (Jimmy) appeals from a January 2017 judgment concerning certain reserved issues in a marital dissolution proceeding involving him and Janice Lakdawala (Janice). Jimmy's claims on appeal all pertain to VDP Direct, LLC (VDP), a company owned by the parties as community property.
At a trial in 2013, Jimmy presented expert testimony that VDP had a value of negative $943,000 and Janice presented expert testimony that VDP had a value of $3,889,000. The experts testified that the difference in their opinions as to VDP's value was primarily related to their divergent treatment of intercompany billings between VDP and LAK Advertising, Inc. (LAK), a related company owned by Jimmy as his separate property. In its December 2013 statement of decision, the trial court found that the experts' opinions were "so divergent on the issue of the intercompany billing," that the court was unable to render a decision as to the value of VDP without the assistance of its own expert. Accordingly, in its statement of decision later incorporated into a March 2014 judgment, the trial court stated that it was appointing an expert to assist the court in arriving at a valuation of VDP. The court's expert conducted a lengthy investigation and issued a report in February 2016, analyzing the intercompany billing issue. The expert determined that VDP had a value of $3,170,000 as of June 30, 2013.
In May 2016, Jimmy requested, for the first time, that the trial court order that VDP be sold. After a second trial in June 2016, the court issued a statement of decision denying Jimmy's request. The court determined that a sale of VDP would "not benefit the community" and would "not result in an equal division of the community estate." The court concluded, in the alternative, that it lacked jurisdiction to order the sale of VDP because the 2014 judgment "implied . . . that Jimmy would receive VDP and buy out [Janice's] community interest."
Jimmy's request is not in the record.
In addition, after finding that the trial court's expert had "thoroughly researched and analyzed the intercompany transactions," the court determined that "under Jimmy's management and control the companies [LAK and VDP] engaged in arbitrary billing practices, significantly diminishing the value of VDP over time, failed to have VDP bill for its services and overcharged VDP for what were really LAK's overheard costs . . . ." (Boldface omitted.) The court adopted the court's expert's determination of the value of VDP and "assigned VDP[ to Jimmy] at a value of $3,170,000." The court entered a judgment in January 2017 consistent with its statement of decision.
On appeal, Jimmy contends that the trial court erred in concluding that it lacked jurisdiction to order that VDP be sold. Jimmy also claims that the court erred in electing "not to exercise discretion to determine whether the sale of VDP was a proper means of distributing the community estate." Jimmy maintains that "the court should exercise its discretion to order VDP sold." (Boldface & capitalization omitted.) Jimmy further claims that the record lacks substantial evidence to support the trial court's finding that a sale of VDP would result in an unequal division of the community estate. Finally, Jimmy maintains that the court's "finding that [the court's expert] performed his assignment lacks substantial evidence." (Boldface & capitalization omitted.)
We reject Jimmy's contention that the trial court did not exercise its discretion to determine whether to order the sale of VDP. In its statement of decision, the trial court expressly rejected, on the merits, Jimmy's request that the court order the sale of VDP. We further conclude that Jimmy fails to establish on appeal that the trial court abused its discretion in determining that a sale of VDP would not benefit the community. In light of these conclusions, we need not consider whether the court erred in determining that it lacked jurisdiction to order such a sale or whether the court erred in determining that a sale would result in an unequal division of the community estate. We further conclude that there is substantial evidence to support the trial court's finding that the court's expert performed his assignment. Accordingly, we affirm the judgment.
II.
FACTUAL AND PROCEDURAL BACKGROUND
Jimmy filed a petition for dissolution of marriage in 2010. After an August 2013 trial, the court issued a statement of decision in December 2013 that addressed some of the issues in the dissolution, including certain issues pertaining to LAK and VDP. The court described LAK and VDP as follows:
"LAK is a full service advertising company, providing strategy, creative development, account services as well as project management services to its clients. . . . [¶] VDP provides 'state of the art" digital printing and direct mail services mainly to LAK clients."
The court explained that the parties agreed that VDP was a community asset and that the court was required to determine a "value to place on VDP for purposes of division of the community estate." With respect to the value of VDP, the court noted that the parties had presented evidence on this issue as follows:
"The parties each presented expert testimony and reports as to the value of VDP. Each expert is a highly qualified and respected evaluator and each presented significantly different opinions as to the value of VDP.
"Jimmy's expert, Mr. Brian Brinig, C.P.A., opined that VDP has a negative value of $943,000 as of July 31, 2013, and suggested that Jimmy take VDP at zero value.
"[Janice's] expert, Mr. Tony Yip, C.P.A., prepared three separate reports in the six weeks prior to trial. In the last one, upon which [Janice] relies, Mr. Yip opined VDP had a marital value of $3,889,000, as of December 31, 2012."
The court noted that the difference in the parties' experts' opinions as to the value of VDP was primarily related to how the experts treated intercompany billing between LAK and VDP. The court explained the nature of this intercompany billing in part as follows:
"Between 2004 and 2011 the companies each had a separate accounting department that performed meticulous accounting of intercompany billings on a per job basis. These accounting departments have been described as 'often strained.' During this period the companies treated each other as both clients and vendors, invoiced each other for services rendered per job and wrote checks to one another. If LAK billed a client, VDP billed LAK for the printing and mail services it provided to the client. Similarly, if VDP billed the client, LAK billed VDP for the services it provided to the client. [¶] Over time, although LAK continues to do some billing, due to changes in the casino industry, the majority of the billing of the clients has shifted to VDP. [¶] Starting in July 2011, intercompany billings stopped being performed on a per job basis. Instead, a monthly charge was issued. Then in 2012 a decision was made to eliminate VDP's accounting department entirely. LAK's accounting personnel now make a single debit and credit entry, in what has been described as accounting on a 'burdened overhead basis.' [¶] Under the new single entry system LAK billed VDP $1.3 million in 2012, and continues to bill VDP at the rate of approximately $100,000 per month."
The court indicated that it would appoint an expert to assist the court in "determin[ing] the validity of the intercompany billing practices," in assessing the value of VDP. The court also directed that, in determining the value of VDP, the court's expert was to value VDP's equipment at $1,900,810, an amount premised on a revised appraisal of the equipment that was prepared in September 2013.
In a January 2014 statement of decision, the trial court stated that LAK was Jimmy's separate property pursuant to an enforceable premarital agreement.
That same month, the trial court entered a judgment that incorporated these two statements of decision.
Jimmy appealed the judgment. On appeal, Jimmy claimed that the record did not contain substantial evidence to support the trial court's valuation of VDP's equipment, among other claims. In September 2015, this court affirmed the trial court's judgment. (In re Marriage of Lakdawala (Sept. 28, 2015, D065936) [nonpub. opn.] (Lakdawala).)
In March 2014, the court appointed Dennis Pearson, a certified public accountant, to assist the court in determining the value of VDP as of June 30, 2013.
In February 2016, Pearson issued a final report in which he determined that VDP had a value of $3,170,000 as of June 30, 2013.
After receiving Pearson's report, Jimmy requested that the trial court order that VDP be sold.
The trial court held a second trial in June 2016 to determine the value of VDP, among other issues. During the trial, the court heard testimony from Gerry Michael, a certified management accountant retained by Jimmy, and from Pearson, the court's expert, and Brinig, Jimmy's expert who also testified at the August 2013 trial.
The parties stipulated that the court could receive in evidence all testimony of the parties and their experts contained in the official transcript of the 2013 trial.
As discussed in detail in part III.B, post, Pearson testified concerning the methodology, facts, and reasoning behind his valuation of VDP. Among other topics, Pearson testified that Jimmy had provided neither documentation nor a satisfactory explanation for various "markups" that operated to increase LAK's revenue and decrease VDP's revenue in the companies' books. Pearson also testified that LAK had improperly allocated its own overhead to VDP and had improperly recorded certain revenue on its own books that should have been attributed to VDP, instead.
Michael testified that he would characterize VDP as "a trade printer, [i.e.,] a wholesale printer, and [that he] would refer to LAK as a design marketing house." Michael explained that "trade printers are companies that primarily provide print production services for other firms in the industry that maintain the relationship with the end user." Michael testified that it would be common for a creative house, such as LAK, to mark up the prices that it charges the end customer an additional 15 to 25 percent of the amount charged by the trade printer. Michael also stated that he thought that Pearson had improperly "question[ed] the methodology that was used by LAK and VDP to determine markups."
Brining offered various criticisms of Pearson's report, including that Pearson had unfairly transferred too much revenue to VDP from LAK's books and that it was unrealistic for Pearson to expect that a company the size of VDP would have performed internal cost allocation studies in determining how to allocate overhead.
On rebuttal, Pearson reiterated a conclusion that he had set forth in his report, namely, that VDP was not a trade printer. Pearson supported this statement by noting that VDP dealt directly with customers, and that VDP's marketing suggested that VDP offered management and design services—services that Pearson would not expect a trade printer to offer.
After the trial, the court issued a statement of decision in November 2016 denying Jimmy's request that the court order the sale of VDP, and assigning VDP to Jimmy at a value of $3,170,000.
III.
DISCUSSION
A. The trial court did not abuse its discretion in denying Jimmy's request to order the sale of VDP
Jimmy contends that the trial court abused its discretion in "elect[ing] not to exercise [its] discretion to determine whether the sale of VDP was a proper means of distributing the community estate." Jimmy further contends that "the court should exercise its discretion to order VDP sold." (Some capitalization omitted.)
1. The trial court's statement of decision
The trial court's statement of decision states in relevant part:
"JIMMY'S REQUEST TO SELL VDP
"Jimmy did not file his request to sell VDP and divide the proceeds of sale until May 2016, just prior to trial and after Mr. Pearson issued his final report on the value of VDP.
"[¶] . . . [¶]
"Jimmy's counsel argues Jimmy's decision in not wanting VDP now is analogous to a spouse who decides not to request the marital home after the appraisal comes in too high, calling it a reasonable decision
on Jimmy's part to no longer want the business. The analogy is not applicable.
"Here, Jimmy asserted through trial in 2013, and until sometime after February 2016, that he wanted VDP. He has had sole management and control of VDP since the parties' separation, has continued to allow flat monthly unsupported billings of LAK's services and overhead to VDP since 2012, the use of rapidly depreciating highly specialized printing equipment and has had the ability to take shareholder loans from VDP since separation. Jimmy continued to have [Janice] believe he would be taking VDP after the issuance of Mr. Pearson's draft report one year ago. It was not until after issuance of Mr. Pearson's final report in February 2016 that Jimmy indicated he did not want VDP.
"During these two and one-half years each party incurred substantial additional costs for Mr. Pearson, as well as individually for their own experts and attorneys.
"Jimmy now argues VDP should be sold to permit the parties to equally share in the possible tax consequences. The argument is not persuasive as the court did not receive any evidence regarding the tax consequences of sale.
"The specific reasons for the delay in issuance of Mr. Pearson's final report on VDP were not offered into evidence. However, at one of the several Family Resolution Conferences held pending completion of Mr. Pearson's Report, this court was advised that in November 2014 Jimmy had, through his counsel, unilaterally instructed Mr. Pearson to stop his work on VDP until after the [Court of Appeal] issued its decision.[] Both counsel were ordered to immediately tell Mr. Pearson to resume his work as the only issue regarding VDP pending on appeal was the value this court had placed on VDP['s] equipment.
"Unlike the spouse who at time of trial is surprised on the higher than expected value placed on the marital home, Jimmy knew at the 2013 trial the range of value between the two experts, a negative -$943,0000 to Mr. Yip's opinion of $3,889,000. Given that Mr. Pearson was tasked with consulting with both experts and the fact
his calculation as to VDP's value also includes an equipment value of $1,900,810, Mr. Pearson's Report was a reasonably foreseeable outcome.
"Jimmy's argument that he no longer wishes to work the extended hours necessary for him to run VDP is not credible.
"Jimmy has provided evidence there is a current and competitive market to sell the business. Jimmy's expert Gerry Michael, C.P.A., testified VDP is marketable, and the market for printing business like VDP is better now than in 2013. However, Mr. Michael described the process of selling VDP as one which would include possibly salvaging the printing equipment. Jimmy has previously testified the resale value of printing equipment is usually 10% of the original purchase price.
"Jimmy's actions in delaying his request to sell VDP, if granted now, would not benefit the community. A sale now would not result in an equal division of the community estate.
"The value of VDP does not include any goodwill. Only a book value has been placed on VDP and nearly two thirds of the value is equipment. [Janice] points out the similarity to the decision in the Winn case wherein the husband was assigned a business at book value that he did not want and ordered to pay Wife an equalizing payment. In re Marriage of Winn (1979) 98 Cal. App. 3d 363 [(Winn)].
"Lastly, the court did not reserve jurisdiction to award VDP or to order it sold. It was implied by the terms of the 2013 Judgment that Jimmy would receive VDP and buy out [Janice's] community interest. If Jimmy had not requested to purchase [Janice's] interest in VDP, a request supported by [Janice], this court would not have required any additional expert testimony. VDP would simply have been ordered sold and the sale proceeds equally divided between the parties. The court retained jurisdiction with respect to this asset only for purposes of receiving further evidence with which to determine its value. Accordingly . . . this court does not have jurisdiction to now modify the Judgment. Jimmy's request is denied. Jimmy is assigned VDP at a value of $3,170,000."
The trial court was referring to our prior decision, Lakdawala, supra, D065936.
The trial court's judgment states in relevant part:
"The Court finds that [Jimmy's] delayed request to sell VDP for the purpose of its division would not benefit the community . . . ."
2. Governing law and standard of review
Under Family Code section 2550, the trial court must divide the community estate of the parties equally. "[T]rial courts possess broad discretion to determine the manner in which marital property is divided in order to accomplish an equal division." (In re Marriage of Cream (1993) 13 Cal.App.4th 81, 88 (Cream).)
Section 2500 provides in relevant part, "[I]n a proceeding for dissolution of marriage or for legal separation of the parties, the court shall, either in its judgment of dissolution of the marriage, in its judgment of legal separation of the parties, or at a later time if it expressly reserves jurisdiction to make such a property division, divide the community estate of the parties equally."
Unless otherwise specified, all subsequent statutory references are to the Family Code.
"One or more of the following methods of division may be used: (1) in kind, (2) asset distribution or cash out, (3) sale and division of proceeds, or (4) conversion to tenancy in common where the sale of the family home is deferred pursuant to section 4700.10." (Cream, supra, 13 Cal.App.4th at p. 88, italics added.) "The asset distribution or cash out method involves distributing one or more community assets to one spouse and other community assets of equal value (which may include an equalizing promissory note) to the other. When . . . this method is used, . . . the court [has] the responsibility to fix the value of assets and liabilities in order to accomplish an equal division." (Ibid.)
The asset distribution or cash out method is authorized by Family Code section 2601, which provides: "Where economic circumstances warrant, the court may award an asset of the community estate to one party on such conditions as the court deems proper to effect a substantially equal division of the community estate." Under this provision, "trial courts have . . . in many cases allotted the family business to the husband, requiring him to compensate the wife for her share in the community . . . ." (Winn, supra, 98 Cal.App.3d at p. 366.)
One treatise outlines the reasoning behind such allocations in gender neutral terms, "[W]here only one spouse is capable of operating the business, it is appropriate to award the business to him or her, rather than sell it off to a third party or order an in-kind division in favor of a spouse whose lack of experience could impede the businesses' success." (Hogoboom & King, Cal. Practice Guide: Family Law (The Rutter Group 2007) [¶] 8:1053, p. 8-359.)
In this case, the trial court found that "Jimmy has had sole management and control of [VDP] since the parties' separation in September 2010." According to Jimmy, "Janice does not have much experience in the printing business."
Section 2552 provides in relevant part:
"For the purpose of division of the community estate upon dissolution of marriage or legal separation of the parties, except as provided in subdivision (b), the court shall value the assets and liabilities as near as practicable to the time of trial."
3. Application
As is made plain in the quoted portion of the trial court's statement of decision, and in its judgment, the trial court clearly and expressly rejected on the merits Jimmy's request that the court order the sale of VDP. Accordingly, we reject Jimmy's contention that the court failed "to determine whether the sale of VDP was a proper means of distributing the community estate." The court did determine whether to order a sale of VDP, and denied Jimmy's request to order the sale, for the reasons set forth in the court's statement of decision.
Since Jimmy fails to acknowledge in his brief that the trial court did exercise its discretion to deny his request to order a sale of VDP, it necessarily follows that he has failed to demonstrate that the trial court abused its discretion in denying such a request.
In any event, for the reasons stated below, the trial court reasonably determined that a sale of VDP would not benefit the community given Jimmy's delay in requesting a sale of the company, and the events that had occurred in the interim. The record indicates that, in March 2014, the court ordered the court's expert to "utilize a valuation date of June 30, 2013 for purposes of his assignment related to the value of [VDP]." Given that the parties had a trial on the value of VDP in the fall of 2013, such order constituted a reasonable exercise of the court's discretion to determine the value of VDP "as near as practicable to the time of trial." (§ 2552.) Thus, a sale of VDP in 2016 or 2017 would not necessarily have resulted in the community receiving the value that VDP had as of June 2013. This is particularly true since the court explained that Jimmy had "sole management and control of VDP," since the parties' separation in 2010. During that period, the court found that Jimmy had mismanaged VDP by "engag[ing] in arbitrary billing practices" that had "significantly diminish[ed] the value of VDP. . . ." Accordingly, the court did not abuse its discretion in determining that granting Jimmy's request to sell VDP "would not benefit the community" given his delay in making such a request and his mismanagement of the company in the interim.
In its November 2016 statement of decision, the court stated that Jimmy had not requested a sale of VDP until May 2016, and that at "[a] trial in 2013 it was Jimmy's unopposed request to retain [VDP] and buy out [Janice's] interest."
Further, the court was not required to accept Michael's testimony that, given the improvement of the national economy, VDP was likely worth more in 2016 than it was worth in 2013. This is particularly so given ample evidence in the record from which the trial court could have reasonably determined that Michael had limited knowledge of VDP. For example, Michael testified that he had not reviewed "any financial records" of VDP, (italics added) that he had no familiarity with the manner by which VDP and LAK shared expenses in their books, and that he had not read the valuations of VDP performed by the parties' experts in anticipation of the 2013 trial.
In addition to the trial court's finding that a sale of VDP would not benefit the community given Jimmy's delay in requesting such a sale and the interim events, the trial court's citation of Winn, supra, 98 Cal.App.3d 363, also supports the court's denial of Jimmy's request. In Winn, the trial court found that the value of a community property business was $15,000. (Id. at p. 365.) The $15,000 value was based on the "goodwill value [of the business] to [the husband]." (Id. at p. 367.) The business, however, had "no salable value to another." (Ibid.) The trial court awarded the business to the husband, and ordered him to give the wife a note in the amount of $7,500. (Id. at p. 365.) The Winn court rejected the husband's contention that "rather than force him to purchase [the business] at one-half of [$15,000], it should have been sold—although admittedly any sale would have been for zero—and the nonexistent price been divided equally." (Ibid.) The Winn court concluded that the trial court had properly exercised its discretion to award the business to the husband, and "to compel him to pay for what he retains." (Id. at p. 367; accord In re Marriage of Honer (2015) 236 Cal.App.4th 687, 697 [approving expert's use of valuation of the business based upon " 'the economic value of the business to the spouse retaining it, and who will continue to operate it in the future' "].) In this case, the trial court could have reasonably determined that, much like the community business in Winn, the value of VDP was significantly greater to Jimmy than if it were sold as an independent business on the open market, given the interrelated nature of VDP and LAK. In sum, the trial court provided sound reasons for its denial of Jimmy's request to order the sale of VDP.
Moreover, even if we were to assume that, by claiming that "the court should exercise its discretion to order VDP sold," (some capitalization omitted) Jimmy intends to argue that the trial court abused its discretion in refusing to order the sale of VDP, we would not be persuaded. None of the arguments that Jimmy offers in support of this contention demonstrates that the trial court abused its discretion in denying his request to order such a sale. First, Jimmy suggests that his lack of "ability to pay" for VDP supports the conclusion that VDP should not be sold. However, he fails to cite any authority demonstrating the legal relevance of this factor or to identify evidence in the record establishing his inability to pay for VDP.
Jimmy acknowledges that "[his] income is undetermined." We also note that the trial court's judgment does not resolve all of the issues in the case, and specifically, does not specify the terms of an equalization payment from Jimmy to Janice, given the court's assignment of VDP to Jimmy, to compensate her for her one-half interest in VDP.
Jimmy also cites a case stating that the asset distribution and cash out method of allocating the community estate in a marital dissolution proceeding is an exception to the general rule of equal in kind division. (See In re Marriage of Brigden (1978) 80 Cal.App.3d 380, 391 (Brigden).) The Brigden court noted, however, that the Legislature recognized that departure from in kind division would be appropriate in allocating "an ongoing family business" since " '[i]t could well be destructive to award each spouse a half interest therein.' " (Id. at p. 392.) Thus, the trial court clearly did not abuse is discretion in departing from the default rule of "distribution in kind" in assigning VDP to Jimmy.
Jimmy acknowledges in this brief, "The proceedings indicate that Jimmy and Janice could not work together."
Jimmy's contention that In re Marriage of Rives (1982) 130 Cal.App.3d 138 (Rives) supports reversal is also unpersuasive. In Rives, the Court of Appeal concluded that a trial court abused its discretion in awarding a business to a husband because the trial court's valuation of the business included an "inordinately high valuation of the 'goodwill' . . . which failed to take into consideration proper factors such as the husband's advanced age and desire to retire." (Id. at p. 157.) The Rives court reasoned:
"By [the trial court's] award husband received physical assets valued . . . at $39,185, and an intangible goodwill valued at $50,815. Even accepting wife's expert's excessive potential production and income figures, it would take husband nearly four years of working in the business to earn back that goodwill without regard to taxes or discounting to present value. It would take substantially longer if historical production figures were considered and longer still if tax rates and present value considerations were applied. At the time of trial husband was nearly 67 years old and had been trying to retire for several years. To force upon him the requirement that he continue to work for many more years in order to realize his share of the community property was unjust and unreasonable, particularly where wife was allowed to receive and enjoy her share immediately." (Id. at p. 156.)
Rives is clearly distinguishable. Unlike in Rives, the trial court's valuation of VDP "does not include any goodwill." (Italics added.) In addition, unlike in Rives, the trial court found that "Jimmy's argument that he no longer wishes to work the extended hours necessary for him to run VDP is not credible."
Jimmy's contention that the "price is too high" (capitalization omitted) for a cash out distribution is similarly unpersuasive. In support of this claim, Jimmy performs a "breakeven" analysis patterned after that provided in the quotation above from the Court of Appeal in Rives. Specifically, Jimmy argues that, using Pearson's report, "the value determined for VDP is twelve times its annual profit for 2012," and "25 times earnings," for 2013. Jimmy argues that "devoting all of VDP's earnings to acquiring a fifty percent interest would take at least six to seventeen years to break even." To begin with, the Rives court was examining the amount of time it would take the husband to recoup the value of the goodwill portion of the business. The Rives court explained that the expert valued the intangible goodwill of the business in that case at an amount significantly higher than its physical assets. In this case, as noted above, the trial court's valuation of VDP included no value for goodwill and Jimmy's breakeven analysis fails to mention that $1,900,810 of the $3,170,000 in value that Pearson attributed to VDP pertained to VDP's fixed assets.
Jimmy's breakeven analysis is also unpersuasive since VDP's year to year earnings as reported in Pearson's report were highly variable. For example, while in 2012, VDP had $254,262 in adjusted earnings, in 2011, VDP had $1,265,487 in earnings. Using the 2011 earnings figure, Jimmy's breakeven point (i.e., the date by which VDP's earnings would constitute 50 percent of its full $3,170,000 value) would be a little over a year. In short, Jimmy's breakeven analysis does not demonstrate that the trial court abused its discretion in denying his request to order the sale of VDP.
Jimmy also draws an analogy to the Uniform Partnership Act (Corp. Code, § 16100), and broadly asserts, "[a]bsent extraordinary circumstances, when neither spouse wants an asset or cannot afford it, liquidation and distribution should provide the remedy." Jimmy acknowledges that he "found no published family law case so holding." We decline to adopt any such holding in this case. With respect to Jimmy's contention that a party to a dissolution proceeding should not be awarded an asset that the party does not want, the Winn court rejected husband's "unique theory that the trial court lacked power to require a husband, without his consent, to be the purchaser of his wife's community property." (Winn, supra, 98 Cal.App.3d at p. 365.) With respect to Jimmy's suggestion that he cannot "afford" VDP, as discussed above, he has not demonstrated that he is unable to pay for the company.
Finally, Jimmy argues that case law indicating that the parties' emotional attachments to a family business is a reason not to order the business sold to a third party is "fundamentally irrelevant" in a case such as this where neither party wants the business. This argument is unpersuasive since there is nothing in the trial court's statement of decision that indicates that the trial court declined to order the sale of VDP out of a concern for the parties' emotional attachments to the business.
Accordingly, we conclude that the trial court did not abuse its discretion in denying Jimmy's request to order the sale of VDP. B. There is substantial evidence to support the trial court's finding that Pearson performed his assignment
As noted in part I, ante, in light of our conclusion that the trial court did not abuse its discretion in denying Jimmy's request to order the sale of VDP, we need not consider the trial court's determinations that it lacked jurisdiction to order such a sale and that a sale would not result in an equal division of the community estate.
Jimmy claims that "the [trial court's] finding that Pearson performed his assignment lacks substantial evidence." (Some capitalization omitted.)
1. Factual and procedural background
a. The trial court's appointment of Pearson to assist the court in the valuation of VDP
In its December 2013 statement of decision, the trial court indicated that it would appoint an expert to assist it in valuing VDP, as follows:
"The court finds that the opinions of Mr. Brinig and Mr. Yip are so divergent on the issue of the intercompany billing that it is unable to render a decision on the value of VDP without the assistance of its own expert. To decide otherwise would cause an inequitable result.
"The court's expert shall determine the validity of the intercompany billing practices by conferring with both Mr. Yip and Mr. Brinig and performing his/her own independent analysis.
"The court has concerns due to the sole management and control that Jimmy has had over both companies since the parties' separation in September 2010, the elimination of VDP's accounting department and the change in intercompany billing practices that has occurred. Have these changes caused VDP to be subsumed by LAK? If the court's expert concludes the 'synergy' between these two companies is now such that an independent value cannot be attributed to VDP through a standard family law business evaluation process, a
determination of the value of the community interest in VDP shall be performed and provided to the court.
"The court's expert shall incorporate the value placed on the VDP equipment by the revised appraisal performed by Mr. Marcos Pigrom of Desmond, Marcello & Amster, dated September 16, 2013. . . . The revised value of the VDP equipment, including vehicles, is $1,900,810.
"[¶] . . . [¶]
"Each party is ordered to cooperate with the court's expert. The court reserves jurisdiction to allocate the cost of the evaluation between the parties and to determine a value of VDP for purposes of division of the community estate.
"If the parties are unable to agree upon the selection of the court's [Evidence Code section] 730 expert, the court will decide this issue at a properly noticed ex parte hearing."
In March 2014, the court incorporated its statement of decision into a judgment. That same month, the court entered an order providing that Pearson, a certified public accountant, would act as the court's expert under Evidence Code section 730 and that he would "utilize a valuation date of June 30, 2013 for purposes of his assignment related to the value of [VDP]."
The court's November 2016 statement of decision indicates that the parties stipulated to the trial court's appointment of Pearson as the court's expert.
b. Pearson's report
In February 2016, Pearson issued a report regarding the value of VDP. At the outset of his report, Pearson outlined the information that he had reviewed in preparing his report:
"I have reviewed volumes of documents, records, accountings, QuickBook files, etc. I have undertaken numerous conference calls with the parties and the forensic accountants. And I have requested both parties and their experts to provide various information, which I have reviewed."
Pearson noted that Jimmy and Yip, Janice's expert, disagreed on several major issues with respect to how to value VDP. One of the primary points of disagreement was whether LAK had improperly shifted revenue from VDP to LAK. Pearson described the manner by which this revenue shifting occurred as follows:
"Mr. Yip believes that between 2007 and 2011 revenues of 20% or more were shifted from VDP to LAK without any justification. . . . It is true, based upon my review of the invoices provided and the QuickBook files, that between 2007 and 2011 LAK included a markup in the services that VDP provided. For example, if VDP issued an invoice for programming services to a customer in the amount of $2,350, LAK would issue VDP an invoice for $470. The same would hold true if LAK billed a customer for services VDP provided. It would mark-up those services by 20% or more."
Pearson explained that he asked Jimmy what the reason was for these markups. Jimmy explained that he considered VDP to be a trade printer and that he would "set a fair market trade price for VDP's work and would mark-up the trade price accordingly." Pearson stated that he disagreed with Jimmy's assessment that VDP was a trade printer. Rather, Pearson stated that, based upon his review of various documents, he agreed with Yip that VDP operated as a "stand[-]alone, variable data printer and direct mail business" that dealt directly with customers. Thus, Pearson found that the purported economic rationale for LAK's markup of VDP's services was not legitimate. Pearson also stated that Jimmy had failed to provide any documentation or reasoned explanation for VDP's "trade price," beyond Jimmy's statement that the pricing was based on his experience.
The court heard evidence that a trade printer primarily provides print production services for other firms that maintain the relationship with the customer seeking such services.
Pearson also agreed with Yip that VDP had materially underbilled LAK for services it had rendered to LAK over a period of several years. In addition, Pearson found that VDP had allocated overhead expenses on its books for payroll costs in an unreasonable manner and that the "allocating [of] various employee costs" was done "rather randomly." Pearson concluded that "there appears to be no corroborating documentation to support, what appears to be, a rather arbitrary LAK imposed mark-up on VDP and an arbitrary allocation of overhead expenses."
Based on these findings, Pearson reassessed the value of VDP. Specifically, Pearson's report includes a "Statement of Assets and Liabilities," in which he concluded that, after making adjustments for the intercompany billing practices discussed above, VDP's assets exceeded its liabilities by $3,169,576. Based on this finding, Pearson concluded that VDP had an estimated value of $3,170,000 as of June 30, 2013. Pearson's report includes a series of tables supporting his revised statement of assets and liabilities.
c. Pearson's trial testimony
At the June 2016 trial, Pearson testified concerning his report. In explaining his methodology in compiling the report, Pearson stated that he first determined that VDP and LAK are separate companies and that he could value VDP as a stand-alone business. In explaining the basis for this decision, Pearson noted that the two companies file separate tax returns, prepare separate financial statements, have separate bank accounts and use different letterhead. He explained that, in making this determination, he had spoken with Yip, Brinig, VDP's president, VDP's Controller, and the parties. Pearson also read declarations, transcripts, and a prior judgment in the case, and reviewed VDP's financial statements. Pearson noted that Jimmy believed that VDP was a separate business from LAK.
Pearson then determined the validity of the intercompany billing practices of the two entities. In conducting this analysis, he engaged in extensive discussions with Yip and Brinig, as well as with Jimmy and various VDP personnel. He also reviewed numerous letters, e-mails, and documents.
In determining VDP's value, Pearson explained that he had made two types of adjustments to the parties' experts' determinations of VDP's value—those pertaining to intercompany billing transactions between the LAK and VDP and those pertaining to the allocation of overhead between the two companies. With respect to intercompany billing transactions, Pearson explained that LAK would routinely "markup" the billings of VDP by approximately 20 percent. According to Pearson, Jimmy was unable to provide any documentation to support the legitimacy of these markups, which led Pearson to conclude that the markups were arbitrary. Pearson also explained that he determined that VDP had underbilled LAK for services rendered by VDP. This determination was based on an examination of VDP's and LAK's books, which revealed that significant amounts of revenue for the types of services performed by VDP appeared on LAK's books rather than on VDP's. Pearson also stated that, beginning in 2012, LAK began allocating a percentage of its payroll to VDP in amounts that were arbitrary and unsubstantiated.
As described in part III.B.1.b, ante, Pearson's report explained the nature of a markup. In cases in which VDP would invoice a customer, LAK would issue a second invoice to VDP for approximately 20 percent of the customer's invoice. In cases in which LAK would invoice the customer for services performed by VDP, LAK would issue an invoice to the customer for an amount at least 20 percent higher than the amount VDP would charge LAK.
After conducting this analysis, and making the adjustments described above, Pearson concluded that VDP had a value of $3,170,000.
d. The trial court's statement of decision
In its statement of decision, the trial court expressly found that Pearson had performed the assignment that the court had given him:
"The court finds Mr. Pearson performed the tasks as assigned to him. Specifically, he thoroughly researched and analyzed the intercompany transactions and then provided numerous opportunities for input from Mr. Brinig, Mr. Yip, Jimmy, Tom Miller, the Controller [of VDP] and a number of others involved in the process. Mr. Pearson then made appropriate adjustments by eliminating arbitrary markups and unsupported allocation of overhead charged to VDP, added back an under allocation of income to VDP and then computed and charged VDP with an allocation of overhead to VDP based on the company's revenue. Mr. Pearson made these adjustments to Mr. Yip's and Mr. Brinig's determinations of member's equity, included the court's finding of value of the VDP equipment and calculated a value for VDP at $3,170,000 as of June 30, 2013.
"The court finds Mr. Pearson provided a thorough, well-reasoned and comprehensive report. The court accepts and incorporates his findings and calculations as to the value of VDP as of June 30, 2013."
The trial court specifically rejected Jimmy's critiques of Pearson's report:
"Jimmy had a standing objection through trial that Mr. Pearson performed a business valuation of VDP. He did not. Mr. Pearson performed an analysis of the intercompany transactions, not a
business valuation. According to testimony, he then used the opinions of the two experts who had previously performed business evaluations. Accordingly, Jimmy's standing objection is overruled.
"Jimmy argues Mr. Pearson did not perform his assignment as an Evidence Code Section 730 expert in that Mr. Pearson did not believe part of his assignment was to determine whether VDP had been subsumed by LAK. This argument misinterprets Mr. Pearson's assignment. VDP from its inception has been a stand-alone business entity. Jimmy testified to the measures taken to keep the two business as separate entities at trial in 2013.
"At the conclusion of trial in 2013, this court had concerns based on what had occurred since the parties' 2010 separation under Jimmy's sole management and control. Starting in 2011, the per invoice billing between the two companies had been eliminated, and by January 2012, VDP accounting staff charged with intercompany invoice billing had also been eliminated. Instead, a flat monthly charge of $100,000 per month had been imposed by LAK on VDP. The court questioned whether its expert could actually value VDP separately from LAK at that point. This was an alternative assignment to the court's expert, not an order to analyze. In performing his assignment, Mr. Pearson reviewed the necessary documents, the transcript from the 2013 trial, conferred with [Janice], Jimmy, their attorneys, the Controller, Mr. Brinig and Mr. Yip and then concluded VDP could be valued as a separate stand[-]alone company."
The trial court also found that Pearson had reasonably relied on Jimmy's failure to provide information with respect to the validity of the companies' intercompany billing practices in performing his analysis:
"Jimmy also challenges Mr. Pearson's opinion as to the validity of the intercompany billing practices because Mr. Pearson did not conduct independent research on the practice of markups in the printing industry. The court does not find Mr. Pearson thus failed in his assignment. Instead, Mr. Pearson gave Jimmy, the [VDP] Controller, Tom Miller, Jimmy's expert and the accounting staff numerous opportunities to provide information as to the basis of the markups placed on VDP by LAK. Jimmy repeatedly failed to provide justification for the billing practice.
"At trial in 2013 Jimmy convincingly testified as to his vast knowledge of the printing industry practices. Accordingly it was reasonable for Mr. Pearson to require Jimmy to provide support for how the markups were calculated. Jimmy's only response to Mr. Pearson's numerous inquiries was that he used his experience to set the price. Nothing more was provided. Mr. Pearson thus concluded the various markups were arbitrary."
The court explained at length its reasons for adopting Pearson's analysis of VDP, including Pearson's adjustments to the assets and liabilities of the company. Included among the court's findings was the following:
"While under Jimmy's management and control the companies engaged in arbitrary billing practices, significantly diminishing the value of VDP over time, failed to have VDP bill for its services and overcharged VDP for what were really LAK's overhead costs, including 100% of several executive salaries. These were appropriate adjustments by Mr. Pearson."
Finally, the court adopted Pearson's determination that VDP was worth $3,170,000.
2. Governing law and standard of review
Evidence Code section 730 provides in relevant part:
"When it appears to the court, at any time before or during the trial of an action, that expert evidence is or may be required by the court or by any party to the action, the court on its own motion or on motion of any party may appoint one or more experts to investigate, to render a report as may be ordered by the court, and to testify as an expert at the trial of the action relative to the fact or matter as to which the expert evidence is or may be required."
"The weight and credence to be given an expert's testimony is a question for the trier of fact." (Bloxham v. Saldinger (2014) 228 Cal.App.4th 729, 738 (Bloxham).) Therefore, the Court of Appeal does "not reweigh expert opinions on appeal." (California Pines Property Owners Assn. v. Pedotti (2012) 206 Cal.App.4th 384, 389.)
In People v. ConAgra Grocery Products Co. (2017) 17 Cal.App.5th 51 (ConAgra), the Court of Appeal outlined the follow principles of law governing appellate challenges to an expert's opinion:
" ' "The chief value of an expert's testimony in this field, as in all other fields, rests upon the material from which his opinion is fashioned and the reasoning by which he progresses from his material to his conclusion; . . . it does not lie in his mere expression of conclusion." ' [Fn. omitted.] [Citation.] 'Where an expert bases his conclusion upon assumptions which are not supported by the record, upon matters which are not reasonably relied upon [by] other experts, or upon factors which are speculative, remote or conjectural, then his conclusion has no evidentiary value. [Citations.] In those circumstances the expert's opinion cannot rise to the dignity of substantial evidence. [Citation.] When a trial court has accepted an expert's ultimate conclusion without critical consideration of his reasoning, and it appears the conclusion was based upon improper or unwarranted matters, then the judgment must be reversed for lack of substantial evidence.' [Citation.] 'If [the expert's] opinion is not based upon facts otherwise proved, or assumes facts contrary to the only proof, it cannot rise to the dignity of substantial evidence.' " (Id. at p. 83.)
" 'Substantial evidence' is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value. [Citations.] . . . Inferences may constitute substantial evidence, but they must be the product of logic and reason. Speculation or conjecture alone is not substantial evidence. [Citations.] . . . [¶] The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record." (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651-652.)
3. Application
Pearson, a certified public accountant and court appointed expert, provided a comprehensive written report in which he summarized his methodology and findings and included detailed tables supporting both his ultimate determination of VDP's value as well as the basis upon which he reached that determination. In addition, Pearson testified at trial in detail as to the research he performed in preparing his report, and explained the grounds upon which he had made adjustments to the parties' experts' reports. Far from providing a "mere expression of conclusion" (ConAgra, supra, 17 Cal.App.5th at p. 83), Pearson explained, in exhaustive detail, both the sources of information on which he based his findings and the reasoning that he employed in reaching his determination of the value of VDP. The trial court had an ample evidentiary basis upon which to conclude, as it did, both that "Pearson performed the tasks as assigned to him," and that "Pearson provided a thorough, well-reasoned and comprehensive report."
Jimmy raises several contentions in support of his claim that there is not substantial evidence to support the trial court's finding that Pearson performed his assignment. None is persuasive.
With respect to the "markup" issue, Jimmy contends that Pearson's determination that LAK's markups were invalid was without basis because Pearson lacked information concerning the printing industry. Jimmy maintains that Michael's testimony that it was customary for a "design house" to mark up the printing services of a "trade printer" before billing a customer, required a finding that LAK's markups were legitimate. The trial court specifically found that it was reasonable for Pearson to require that Jimmy provide documentation supporting the legitimacy of the markups. It was up to the trial court to consider Pearson's methodology and determine the weight to accord his testimony. (Bloxham, supra, 228 Cal.App.4th at p. 738.) We also note that while Michael testified that the markups were common among trade printers and that VDP was a trade printer, Pearson concluded, and the trial court specifically found, that VDP was not a trade printer. Jimmy does not challenge this finding on appeal, which is supported by substantial evidence in any event. The trial court's finding that VDP is not a trade printer provides an additional basis for the trial court's acceptance of Pearson's determination that LAK's markups were not legitimate.
Jimmy also argues that Pearson's assignment required that Pearson perform an audit to determine the legitimacy of the intercompany billings. There is nothing in the trial court's 2013 statement of decision or in the 2014 judgment appointing Pearson that required that he perform an audit. Further, the trial court could reasonably find that, in light of Pearson's detailed description of the methods he employed, he adequately examined the intercompany billing issue.
With respect to Pearson's determination that LAK had improperly allocated VDP's revenue on its books, Jimmy faults Pearson for treating LAK's ledger as representing a "literal" description of the revenue earned, rather than a "convenient" one. Pearson explained that the revenue recorded was for the type of services provided by VDP and that VDP representatives offered no satisfactory explanation as to why this revenue was recorded on LAK's books. In light of this testimony, the trial court could reasonably find that Pearson's examination of LAK's accounting ledger reflected printing revenue that should have been attributed to VDP, not to LAK.
Finally, Jimmy's presents an undeveloped argument concerning the trial court's finding that VDP underpaid rent to Golden Girl, LLC, a business owned almost entirely by the community. Jimmy fails to present a coherent legal argument with appropriate record citations. For example, without citation or explanation, Jimmy argues, "Mr. McCurdy[] opined that under one method, VDP underpaid its rent to Golden Girl by at least $22,000." Accordingly, we deem Jimmy's argument in this regard forfeited. (See Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852 [" 'Issues do not have a life of their own: If they are not raised or supported by argument or citation to authority, [they are] . . . waived.' [Citation.] It is not our place to construct theories or arguments to undermine the judgment and defeat the presumption of correctness. When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived' "].)
The court explained that it had previously determined that the community owned 99 percent of Golden Girl. This court affirmed that determination in Lakdawala, supra, D065936.
Although Jimmy's brief fails to provide any description of McCurdy's involvement in the case beyond this single sentence, the trial court's statement of decision explains that the trial court appointed McCurdy as a special master to examine rents owed to Golden Girl. --------
Accordingly, we conclude that there is substantial evidence to support the trial court's finding that Pearson performed his assignment.
IV.
DISPOSITION
The judgment is affirmed. Jimmy is to bear costs on appeal.
AARON, J. WE CONCUR: HUFFMAN, Acting P. J. HALLER, J.