Herbert v. Joubert

COURTNEY R. HERBERT v. GUY R. JOUBERT

Record No. 1384-17-4

COURT OF APPEALS OF VIRGINIA

AUGUST 14, 2018

UNPUBLISHED

Present: Judges Beales, Decker and AtLee

Argued at Richmond, Virginia

MEMORANDUM OPINION^* BY JUDGE MARLA GRAFF DECKER

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY

Randy I. Bellows, Judge¹

Scott A. Surovell (Tanisha M. Harris; Mark A. Barondess; Surovell Isaacs & Levy PLC; Funk & Bolton, PA, on briefs), for appellant.

Lawrence D. Diehl (Barnes & Diehl, P.C., on brief), for appellee.

Courtney R. Herbert (the wife) appeals a final order resolving equitable distribution issues in the course of her divorce from Guy R. Joubert (the husband). She contends that the circuit court erroneously determined how much of the increase in value of the husband's interest in a particular business was marital property. She argues that the court misapplied the burden of proof and that the evidence and the court's findings fail to support its determination that only a portion of the increase was marital property. For the reasons that follow, we affirm the circuit court's decision. Additionally, we deny the parties' respective requests for attorney's fees and costs incurred on appeal.

I. BACKGROUND²

The parties were married in 2007. Prior to the marriage, the husband co-founded a company called Resonant Legal Media (RLM), which created "visual design[s] and trial technology for use in litigation." The parties separated in 2015 and sought a divorce and equitable distribution. They agreed to a valuation date for RLM of December 31, 2015, at which time the husband owned 30% of the company. It was undisputed that the husband's share of RLM was his separate property when the parties married. It was also undisputed that the husband made significant contributions of personal efforts to RLM during the course of the marriage and that his interest in the property substantially appreciated in value. However, the parties disputed the extent to which the husband's personal effort caused the value to increase and, accordingly, how much of the increase in the value of RLM should be classified as marital property.

A. Key Testimony of Expert Witness Harold Martin

The husband hired Harold Martin, a certified public accountant, to determine the increase in value of the husband's interest in RLM due to the personal efforts of the husband and wife. Martin testified that in order to calculate this figure, he "used . . . a residual approach." Martin "start[ed] with 100[%] appreciation" and "then looked at" two components: (1) market forces and (2) the efforts of third parties. He explained that "whatever is leftover [sic] after allocating to those two components would be attributable to" the personal efforts of the husband and wife.³

Martin provided detailed testimony about the market forces he considered, including the volume of patent litigation, the primary field to which RLM provided services. Based upon those considerations, he opined that market forces accounted for 48% of the total appreciation in value of the company between 2008 and 2014. The judge sustained an objection to the calculations as speculative.

Martin performed a second set of calculations that were based solely on the personal efforts of RLM's principals and did not include any impact from market forces. As to these personal efforts, Martin elaborated that he examined two major factors, control and management contributions.

Regarding the factor of control, he considered the various ownership percentages. Undisputed evidence established that the husband owned a 30% interest in the company and that his three partners owned the remaining 70% interest. Regarding the factor of management contributions, Martin looked to the various owners' supervisory responsibilities and their recruitment of new employees. He also considered the owners' contributions to the direct generation of revenue.

The evidence showed that the husband shared supervisory duties in roughly equal proportions with two of the other three owners. According to Martin, all of RLM's principals helped grow the company by "recruiting key professional staff." Additionally, the husband and his partners all originally contributed to the growth in value of the company through their direct marketing efforts. In later years, however, the husband's role shifted to managing the company's financial department and overseeing operational matters.

Martin further testified regarding the husband's generation of revenue for RLM and its impact on the company's increase in value. He calculated that the husband's partners held ownership interest of 70% and generated 77% of the company revenue, averaging those figuresto conclude that 73.5% of the increase in value of the husband's interest was due to the efforts of third parties and the remaining 26.5% was attributable to the husband's personal efforts.

Martin also performed a third set of calculations, in which he considered market forces, the personal efforts of others, and the husband's personal efforts. He concluded that the husband's personal efforts accounted for 14% of the increase.

B. The Circuit Court's Ruling

In a letter opinion dated March 30, 2017, the judge found, "[a]fter full consideration of all the evidence presented at trial," that the increase in value of the husband's separate property interest in RLM between the date of marriage and the date of the evidentiary hearing was $2,212,730. He noted Martin's opinion that 48% of the increase in value of the husband's interest during the marriage resulted from passive factors, including market forces and patent litigation. However, the judge rejected that opinion and found that the husband's evidence as a whole was insufficient to establish the extent to which market forces and other passive factors contributed to the increase in value of his share of the company. Accordingly, the judge held that the husband failed to meet his burden on the subject of market forces and other passive factors, and he refused to reduce the presumption that 100% of the increase was marital based on those factors. At the same time, the judge found that Martin's conclusion that the husband's personal efforts "contributed to only 14% of the increase" was "materially understated."

The judge next considered the evidence regarding the impact of active factors—the personal efforts of the husband and others. He found that Anthony Canzanella, a co-owner of RLM, "was attempting to help [the husband] . . . during his testimony at trial." Nevertheless, the judge did not reject Canzanella's testimony in its entirety, specifically finding that he did not slant his testimony "nearly to the extent implied by [the wife's] counsel during his cross-examination." The judge further found the husband's testimony "generally credible" in theportion of the hearing involving his own contributions toward the increase in value of RLM. He noted, however, that the husband "did not differentiate between the extent of his contribution to RLM in comparison to the contribution[s] of others."

The judge then evaluated the testimony of expert witness Martin on the subject of the husband's personal efforts. He noted that Martin "relie[d] principally on the direct generation of revenue figures" provided by the husband. The judge also pointed out that the husband, who had previously been the company's "primary rainmaker," took on a more managerial role in 2011 and his direct revenue production declined as a result. He rejected Martin's theory that this change in duties and the associated reduction in direct revenue generation negatively impacted the amount of the increase in value that was attributable to the husband's efforts. The judge reasoned that the principals of RLM obviously "agreed that the company would be better served by [the husband's] taking on more managerial and [fewer] revenue producing responsibilities." He further noted that the husband served as managing partner during a time when RLM's workforce doubled and it "became the largest company in its industry." Additionally, the judge disagreed with Martin's position that the husband's personal efforts had "no effect on the appreciation of the non-operating assets of RLM."

The judge concluded his assessment of Martin's testimony by again rejecting Martin's opinion regarding the impact of market forces on the increase in value of the company during the relevant period. However, he expressly distinguished Martin's opinion regarding the husband's personal efforts, making clear that he did not reject Martin's testimony on that subject.⁴

Finally, the judge analyzed the evidence in conjunction with the relevant case law in an effort to correctly determine the impact of the evidence on the calculation of the percentage ofthe marital share. He noted that four managers controlled RLM and that the husband's "proportionate" share of the business was 30%. The judge ruled that the husband's proportionate ownership share should govern the classification issue and, accordingly, "that 30% of the husband's share of the increase in value of the company" was marital property. Based on the evidence, he calculated the total "increase in value" as $2,212,730.⁵ Although the judge specifically stated his ruling that only 30% of that sum was the marital share of the increase, he inserted the full figure of $2,212,730 in a chart in the letter opinion listing the "marital assets" that each party had in his or her possession for purposes of effecting the equitable distribution, indicating that it represented the "RLM Value Increase" that was marital property.

C. Motions for Clarification and Reconsideration

The husband filed a motion for clarification due to clerical error, indicating that the circuit court erred in listing the full $2,212,730 as marital property rather than 30% of that sum. At the hearing on that motion, the judge agreed that he had made a mathematical error in the chart of marital assets. Consequently, he issued an amended letter...