Opinion
1 CA-CV 21-0249 FC
04-05-2022
In re the Matter of: ROBERT B. RIDDLE, Petitioner/Appellee/Cross-Appellant, v. CYNTHIA F. RIDDLE, Respondent/Appellant/Cross-Appellee.
Canterbury Law Group LLP, Scottsdale By Jonathan P. Ibsen, Matthew Stephen Hilscher Counsel for Petitioner/Appellee/Cross-Appellant Hallier & Stearns PLC, Phoenix By Angela K. Hallier Co-Counsel for Respondent/Appellant/Cross-Appellee Jones, Skelton & Hochuli PLC, Phoenix By Eileen Dennis GilBride Co-Counsel for Respondent/Appellant/Cross-Appellee
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. FN2017-093397 The Honorable Adele Ponce, Judge
Canterbury Law Group LLP, Scottsdale
By Jonathan P. Ibsen, Matthew Stephen Hilscher
Counsel for Petitioner/Appellee/Cross-Appellant
Hallier & Stearns PLC, Phoenix
By Angela K. Hallier
Co-Counsel for Respondent/Appellant/Cross-Appellee
Jones, Skelton & Hochuli PLC, Phoenix
By Eileen Dennis GilBride
Co-Counsel for Respondent/Appellant/Cross-Appellee 1
Judge Samuel A. Thumma delivered the decision of the Court, in which Presiding Judge Maria Elena Cruz and Judge Michael J. Brown joined.
MEMORANDUM DECISION
THUMMA, JUDGE:
¶1 Cynthia F. Riddle (Wife) and Robert B. Riddle (Husband) appeal and cross-appeal several aspects of the decree dissolving their marriage. Because the record was insufficient to support a business valuation reflected in the decree, that ruling is vacated and remanded for further consideration. In all other respects, the decree is affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 Wife and Husband were married in 1988, separated in 2008 and Husband served Wife with a petition for dissolution in August 2017. They own a community property business, Riddle Merchandising, Inc., which consists of two retail stores. Wife has lived with Dr. Jeffrey Lowy since the parties' separation in 2008. Wife and Lowy jointly owned various real property and a business called Accident Medical Intervention Group (AMIG).
¶3 Husband, Wife and Lowy own a Scottsdale house as tenants in common. The superior court awarded Husband's 25% interest in this house to Wife and ordered that she pay him $214,500. The court denied Wife's claim that Husband had to reimburse her for expenses a joint tenant would normally have to pay for the house.
¶4 The parties owned a community life insurance policy with a cash value of around $166,000. Because Wife had transferred that policy to Lowy, the court ordered her to pay Husband $83,342.55 for his share. The court found Husband had no interest in a 52nd Avenue house that Wife and her adult daughter jointly own. The court also rejected Wife's request for indefinite spousal maintenance of $9,000 per month. 2
¶5 The court found Wife owned a 25% interest in AMIG, not 100% as Husband claimed. Accepting the valuation of Husband's expert, the court ordered Wife to pay Husband $113,125 for his share of her interest in AMIG.
¶6 Both parties timely appealed. This court has jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-120.21(A)(1) and -2101(A)(1)(2022).
Absent material revisions after the relevant dates, statutes and rules cited refer to the current version unless otherwise indicated.
DISCUSSION
I. Wife Has Shown No Error in the Court's Denial of Her Reimbursement Claim Related to the Scottsdale House.
¶7 The record shows Wife and Lowy intended to buy the Scottsdale house together, but Husband refused to sign a disclaimer deed. As a result, the builder listed Husband and Wife as the owners on the original warranty deed. Then, Husband and Wife transferred ownership to Husband, Wife and Lowy as tenants in common. Although disputed, Husband claims he agreed to take a 25% interest if he had no financial obligation.
¶8 The Scottsdale house is titled 25% to Husband, 50% to Wife and 25% to Lowy. Wife and Lowy live there together. The court ordered Wife to pay Husband $214,500 for his 25% interest, based on a stipulated value of the house. The court rejected Wife's claim that Husband should reimburse her for the down payment and other expenses that she and Lowy paid for the house. Although finding no written agreement specifying the parties' obligations, the court concluded that this award was "equitable under these unusual circumstances." The allocation of property is reviewed for an abuse of discretion. Bell-Kilbourn v. Bell-Kilbourn, 216 Ariz. 521, 523 ¶ 4 (App. 2007).
¶9 Wife and Lowy asserted that they spent about $900,000 to buy and improve the Scottsdale house. The funds for the down payment came in large part from AMIG as well as Wife and Lowy's joint bank accounts. Wife and Lowy then made mortgage, insurance and tax payments, and paid for substantial improvements. Wife argues that, under co-tenancy law, she is entitled to reimbursement for these payments. 3
¶10 As a general rule, "[w]hen one joint tenant expends sums to benefit the other joint tenant . . . the paying joint tenant is entitled to reimbursement." Bowart v. Bowart, 128 Ariz. 331, 337 (App. 1980); see also Valladee v. Valladee, 149 Ariz. 304, 309 (App. 1986); In re Marriage of Berger, 140 Ariz. 156, 161 (App. 1983). This general joint tenancy rule applies to married couples. Valladee, 149 Ariz. at 309 . "However, before a tenant can claim a right to such contribution, it must appear that there existed a common obligation or liability among the cotenants at the time the contributing tenant made the expenditure or incurred the obligation." Id.
¶11 Husband argues the parties orally agreed that he would have no financial responsibility for the Scottsdale house. Wife counters that any such oral agreement violates the statute of frauds. See A.R.S. § 44-101(6). The superior court acknowledged that there was no written agreement, but found it was equitable under the "unusual circumstances" of this case to award Husband an offset for his 25% interest.
¶12 Reimbursement is an equitable doctrine, and "the recovery should be just and equitable under all the circumstances." Berger, 140 Ariz. at 163; see also Toth v. Toth, 190 Ariz. 218, 221 (1997) (joint tenancy property is to be divided equitably in a dissolution); Morga v. Friedlander, 140 Ariz. 206, 209 (App. 1984) ("contribution is an equitable doctrine"). Whether the purported oral agreement violated the statute of frauds need not be resolved given the superior court's allocation was made on equitable grounds.
¶13 From the record presented, it does not appear that the joint tenants shared a common obligation or liability. See Valladee, 149 Ariz. at 309. When the parties bought the Scottsdale house, Husband signed the deed of trust stating that he had no financial obligation. Husband and Wife signed a second deed of trust without such limiting language, arguably creating a financial obligation on Husband's part. However, there was no evidence that Wife or Lowy ever asked Husband to contribute to any expenses relating to the house until the divorce trial. Nor did Wife or Lowy consult Husband before making improvements to the house. Furthermore, because Wife and Lowy lived together in the house, it is reasonable to infer that Husband had no access to the property. See Morga, 140 Ariz. at 208-09 (recognizing ouster as a defense to claim for contribution from co-tenant). Finally, Wife used her community earnings from AMIG to pay at least some of the down payment and expenses related to the house. Accordingly, in substance, Husband contributed his share of those community funds. 4
¶14 Given these "unusual circumstances," Wife has not shown that the court abused its discretion in making an equitable division of the Scottsdale house. See Toth, 190 Ariz. at 221; Berger, 140 Ariz. at 163; Morga, 140 Ariz. at 209. Wife's citation to Berger does not compel a different conclusion because the spouse there used her separate funds to improve property the parties held as joint tenants. 140 Ariz. at 163. Accordingly, Wife has shown no error in the denial of her contribution claim.
II. Wife Has Shown No Error in the Superior Court's Allocation of the Life Insurance Policy.
¶15 The superior court found that Wife transferred a community property life insurance policy to Lowy. Because the policy had a cash value of $166,685.11, the court ordered Wife to pay half that amount to Husband. The classification of property as separate or community is a question of law reviewed de novo, while the court's allocation of community property is reviewed for an abuse of discretion. Bell-Kilbourn, 216 Ariz. at 523 ¶ 4.
¶16 Wife testified that she and Lowy bought the life insurance policy as an investment under her name because Lowy did not qualify. Wife does not dispute that she used community funds to buy the policy or that its cash balance was community property. She withdrew money from the policy to help her daughter buy the 52nd Avenue house. Husband then signed a deed disclaiming any interest in the 52nd Avenue house.
¶17 Wife argues that the superior court erred because Husband knew she cashed out a portion of this policy to buy the 52nd Avenue house with her daughter and he signed the disclaimer deed for the 52nd Avenue house. The court, however, did not award Husband any interest in the 52nd Avenue house. Wife erroneously equates the house with the life insurance policy, some funds from which were used to purchase the house. The disclaimer deed for the house did not constitute a waiver of Husband's right to his share of the community insurance policy, a different asset. The court did not err by ordering Wife to repay Husband for his interest in the community policy she transferred to Lowy.
¶18 Wife also has not shown that Husband had no interest in the life insurance policy because Lowy "took ownership" of it in September 2016. The policy was a community asset. By transferring it to Lowy, Wife deprived the community of the asset. Wife has shown no error in the allocation of the life insurance policy. 5
III. Wife Has Shown No Error in the Denial of Her Request for Spousal Maintenance.
¶19 Wife requested indefinite spousal maintenance of $9,000 per month. The superior court found that, although Wife qualified for spousal maintenance under A.R.S. § 25-319(A), an award was not warranted after considering the factors in A.R.S. § 25-319(B). That spousal maintenance ruling is reviewed for an abuse of discretion. Gutierrez v. Gutierrez, 193 Ariz. 343, 348 ¶ 14 (App. 1998).
¶20 Wife challenges the finding that she can work to support herself. Although Wife is 70-years old and lacks a college degree, she testified that she had "done accounting all her life," was equally responsible for the continued success of the community retail stores and had done bookkeeping for AMIG. To be sure, these two businesses no longer generate income to Wife because the court awarded the retail business to Husband and AMIG was ceasing operations. But the court could conclude that Wife's experience in the retail business and bookkeeping provides marketable skills. Nor had Wife tried to find other employment, so the court properly could conclude her claim that she could not work was speculative.
¶21 Wife argues that the record does not support the finding that she has sufficient property to support herself. Wife argues there was no evidence that her property produced income, and she should not have to sell those assets to support herself. The court included the Flagstaff house in finding that Wife has sufficient property to support herself under § 25-319(A)(1), but when considering § 25-319(B)(9), it found that Wife received other property and has "significant financial resources." Thus, the court did not rely solely on the Flagstaff house in concluding that Wife had sufficient property to support herself.
¶22 Wife owns the 52nd Avenue house with her daughter, the Scottsdale house, the Flagstaff house valued at more than $577,000 and a South Dakota property valued at $125,000. She also received three retirement accounts valued at more than $110,000. Husband received assets with a similar value. See A.R.S. § 25-319(B)(5). The Flagstaff house is Wife's second home, and it is reasonable to infer that it could produce either rental income for Wife or proceeds if sold. Wife has not shown that the court abused its discretion by determining that the Flagstaff house could generate income to Wife. 6
¶23 Although Husband received the community business and its continuing income stream, the court found that Wife and Lowy will continue to operate a successful business together as they have for the past several years. Wife argues that the record does not support this finding. Although Wife apparently does not own an interest in Lowy's new business, Wife conceded that she could work there, it just would not pay as much as AMIG had paid her. The court's determinations of witness credibility and the weight to give conflicting evidence are entitled to great deference. Id. at 347-48 ¶ 13. Viewed in the light most favorable to upholding the decree, the record shows that spousal maintenance was not mandated. Hurd v. Hurd, 223 Ariz. 48, 52 ¶ 19 (App. 2009).
IV. Ownership in, and Valuation of, AMIG.
¶24 Wife and Lowy started AMIG while she was married to Husband. As Lowy explained, AMIG accepts clients referred from personal injury attorneys and coordinates their medical care with various medical providers who have contracts with AMIG. AMIG then gathers medical treatment and billing information for the attorney. Once the litigation ends, AMIG pays the medical providers and collects its fee. This process means that AMIG may be paid its fee up to two years after it begins providing services.
¶25 In October 2015, nearly two years before Husband filed this action, Lowy stopped operating as AMIG and started a new company, Injury Specialists, that performs the same services. At that time, Wife also sold her interest in AMIG to Lowy for $60,000. The court found that Wife owned 25% of AMIG, rejecting Husband's claim that she owned 100% of the company. Both parties provided an expert valuation of AMIG. Wife's expert valued AMIG at between $42,000 and $112,000; Husband's expert valued it at $905,000. Adopting Husband's valuation, the court ordered Wife to pay Husband $113,125 for his share of her interest in AMIG.
A. Wife's Interest in AMIG.
¶26 Husband argues that the evidence does not support the court's finding that Wife owned 25% of AMIG. This court reviews this property allocation for an abuse of discretion. Bell-Kilbourn, 216 Ariz. at 523 ¶ 4.
¶27 Husband relies on the AMIG tax returns in which Wife claimed 100% ownership of AMIG. AMIG's operating agreement, however, shows that Wife owns 25% and Lowy owns 75%. Lowy also testified that Wife owned 25% of AMIG. Wife explained that she listed herself as the sole 7 owner on the tax returns to distinguish that, as between her and Husband, AMIG was her property and Husband owed no taxes for AMIG.
¶28 This court defers to the superior court's resolution of such conflicting evidence. Hurd, 223 Ariz. at 52 ¶ 16. Viewing the evidence in the light most favorable to affirming the superior court's decision, the record supports that ruling. In re Marriage of Molloy, 181 Ariz. 146, 152 (App. 1994). On this record, Husband has shown no error.
B. Valuation.
¶29 Wife argues that Husband's valuation of AMIG was flawed because it assumed AMIG was an ongoing business, continuing to take new cases, when the trial evidence showed it has not been taking new cases for several years. "The valuation of assets is a factual determination that must be based on the facts and circumstances of each case." Kelsey v. Kelsey, 186 Ariz. 49, 51 (App. 1996). In considering Wife's argument that the record does not support the court's valuation, the evidence is viewed in the light most favorable to upholding the decision. Molloy, 181 Ariz. at 152. The superior court explained that it found Husband's valuation more reasonable than Wife's valuation "based, in large part on the significant profit AMIG was generating, over $200,000 per year, at times over $300,000 per year, and the expected cash earnings from the business." (Emphasis added.)
¶30 The valuation date for AMIG was August 2017, when Husband served Wife with the petition for dissolution. Wife argues the trial evidence was insufficient for the court to rely on Husband's valuation of $905,000, because AMIG stopped taking clients in October 2015 (nearly two years earlier) when Lowy formed a new company providing similar services. Husband's expert testified that, in 2016 and the first half of 2017, AMIG had income and paid owner's compensation to Wife. His corresponding report showed that AMIG had gross billings of $1.5 million in 2016 and more than $700,000 in the first half of 2017. The court also found that Wife received income from AMIG after she sold her interest to Lowy.
¶31 The trial record shows, however, that starting in late 2015, Lowy referred all new clients to Injury Specialists, not AMIG. AMIG continued to receive income after that time, because it takes up to two years to get paid. But Husband did not dispute that AMIG no longer had any new clients to generate income after Lowy formed his new company in late 2015. 8
¶32 The trial record shows that, in October 2015, Wife sold Lowy her interest in AMIG for $60,000, suggesting a valuation of $240,000 at about the same time Lowy decided to stop referring clients to AMIG. Husband's expert stated he was not provided reliable financial information from and after July 2016. Husband's expert also acknowledged that, for what information he was provided for 2017, the figures showed a drop in revenues over the previous two years. He was unsure if he knew that Lowy had started a new company in 2015, but admitted that it would impact his valuation if AMIG did not continue to have new clients. Husband's expert later learned that Lowy was reporting revenues through Injury Specialists (not AMIG), but he was not asked to update his valuation of AMIG based on that information. By contrast, Wife's valuation recognized that because Lowy had formed a new company in 2015, AMIG had no source for new revenues.
¶33 This trial evidence is particularly significant given the basis for Husband's expert's opinion of the valuation of AMIG. Although requested, AMIG did not provide reliable information that allowed Husband's expert "to analyze the most recent twelve months" before the valuation as of August 2017. The valuation provided relied equally on a capitalization of earnings method (using a projected estimated cash flow based on prior years ending in 2016) and a guideline transaction method (based on prices paid for comparable companies, which also included projected revenues).
¶34 The undisputed evidence showed that, after Lowy formed Injury Specialists in late 2015, AMIG generated no revenue from new business. Instead, AMIG collected fees from existing clients and added no new clients to produce any future income. Although AMIG had significant past earnings, there was no evidence that similar earnings would continue after Lowy formed Injury Specialists in late 2015. Because one of the "'basic foundation[s]'" of the court's valuation was incorrect, on this record, it cannot stand. Kelsey, 186 Ariz. at 52. For these reasons, the valuation of AMIG adopted in the decree is not supported by the trial record. That valuation, therefore, is vacated and remanded for further consideration of the value of Wife's interest in AMIG. Given this resolution, the court need not address the argument that Husband's expert mischaracterized the nature of AMIG's business. 9
CONCLUSION
¶35 The finding that AMIG had a value of $905,000 is vacated and this matter is remanded for further consideration of the appropriate value of AMIG. In all other respects, the decree is affirmed. Wife requests an award of attorneys' fees under A.R.S. § 25-324, arguing that Husband's appeal is frivolous and that he has greater financial resources. In the exercise of this court's discretion and after considering the parties' financial resources and the reasonableness of their positions, Wife's request for an award of attorneys' fees on appeal is denied. Wife is, however, awarded her taxable costs incurred on appeal contingent upon her compliance with ARCAP 21. 10