Skrabak v. Skrabak

SALMON, Judge. On November 30, 1994, the Circuit Court for Washington County granted Gwendolyn Skrabak, appellee, an absolute divorce from James Skrabak, appellant. The divorce judgment provided her with a monetary award of $210,000, an award from an individual retirement account of $82,000, and indefinite alimony in the amount of $3,250 per month. Dr. Skrabak, appellant, filed a Motion to Alter or Amend Judgment on December 12, 1994, which the trial court denied.

This timely appeal followed, in which appellant presents six questions for our resolution. We have rephrased those questions as follows: I. Did the trial court err in allowing appellee’s expert to utilize the “excess earnings” method to determine the value of appellant’s business?

II

Did the trial court err in its determination of the value of institutional goodwill in appellant’s business?

III

Did the trial court err by including appellant’s business accounts receivable in both valuing marital property and determining amount of alimony? ⁶³⁸ IV. Did the trial court err in its application of Md.Code (1984, 1991 Repl.Vol.), § 8-205(b) of the Family Law Article (“FL”)? V. Did the trial court err by awarding post-judgment interest on amounts of the property settlement that were not presently due and payable?

VI

Should the trial court’s alimony award be vacated? For the reasons set forth below, we shall vacate the monetary and alimony awards. FACTS Appellant and appellee married on May 22, 1976 in Morgan-town, West Virginia. At that time, appellant was a graduate student studying biology at West Virginia University; appellee was a waitress.

Appellant decided to go to medical school instead of finishing his graduate program. He began in January 1979 in Grenada, transferring to the West Virginia School of Osteopathic Medicine in August 1979. Internships took appellant to Pennsylvania, Georgia, and Michigan. In 1983, Mrs. Skrabak enrolled in and later completed a nursing program in Michigan, becoming a certified licensed practical nurse.

Dr. Skrabak graduated from medical school in 1986 with a specialization in anesthesiology and took a position in Hagerstown, . Maryland, with Joseph Wilson, M.D. In 1989, Dr. Wilson offered Dr. Skrabak a partnership, which he accepted. In July 1991, however, Dr. Skrabak went into practice for himself. During the family’s summer vacation in 1991, Dr. Skrabak talked with his wife about separating.

The marriage had suffered from a variety of problems from its inception, none of which are relevant here. Dr. Skrabak left the family home on October 7, 1991. Mrs. Skrabak filed for divorce in October 1992 on the grounds of adultery and voluntary separation. Appellee had a child from a prior relationship, Heath, who was adopted by appellant at some point during the marriage.

Dr. and Mrs. Skrabak had three children together: James ⁶³⁹ Nathan, born January 16, 1979; Rebecca Ann, bom July 1, 1980; and Jonathan Paul, born August 28,1981. Dr. Skrabak began a relationship with a 20-year-old in August of 1991, which developed into a sexual relationship in September or October of that year. After that ended, he began a relationship with a 19-year-old and, about a year later, broke that off and entered a relationship with another 19-year-old, Amy Newcomer. At the time of the trial, he was living with Ms. Newcomer and his son, James Nathan.

In December 1992, Dr. Skrabak was approached by three certified registered nurse anesthetists (“CRNAs”), who asked whether he was interested in retaining their services as full-time employees. Dr. Skrabak agreed to hire them and entered into oral contracts with each. He later hired a fourth fulltime CRNA. He incorporated his sole proprietorship and began practicing as James A. Skrabak, D.O., P.A., on January 1,1993.

Trial testimony focused on Dr. Skrabak’s anesthesiology practice. A parade of witnesses testified that the surgeons at Washington County Hospital viewed appellant with high professional regard. There was testimony that cases are referred to anesthesiologists by the surgeons, most of whom prefer one or another based on personal rapport or professional reputation. Three of the surgeons at the hospital referred all or most of their cases to Dr. Skrabak.

There was also testimony that several surgeons preferred to refer their cases at random to the various anesthesiologists in the area. Two witnesses testified that appellant was called upon to perform the anesthesia in many of the most difficult cases at the hospital. Finally, there was testimony that hospital staff frequently recommended him to their own families. Each party called a certified public accountant to testify as an expert in valuing Dr. Skrabak’s practice.

Appellee’s expert, Michael Flurie, testified that the corporation was worth $745,000, with tangible assets valued at $480,354 and institutional goodwill valued at $264,646. Mr. Flurie testified that Dr. Skrabak had said in his deposition and in a personal ⁶⁴⁰ interview that cases were all assigned on a rotating basis and this fact contributed significantly to his opinion that the goodwill in the corporation was institutional. Appellant’s expert, D. Scott Beck, testified that Dr. Skrabak’s practice was valued at $416,149, all of which was tangible assets • (shareholder’s equity plus accounts receivable). He then deducted the state and federal income taxes Dr. Skrabak would have to pay were he to sell his practice, yielding a net tangible asset value of $306,214.

Mr. Beck testified that there was no goodwill value in the corporation, stating, “when any doctor can walk into the hospital and set up their practice, why would someone pay a premium for Dr. Skrabak’s practice?” Appellee’s expert, Mr. Flurie, testified on rebuttal that, because cases were not assigned on a rotational basis as he had previously been told, the percentage of institutional goodwill as he had previously calculated it was incorrect. He testified that, because there were five professionals in the practice, Dr. Skrabak and four CRNAs, 20 percent of the goodwill in the corporation, or $50,000, 1 was personal to Dr. Skrabak. He testified that, therefore, the corporation should be valued at $695,000. The trial judge granted Mrs. Skrabak an absolute divorce based on Dr. Skrabak’s adultery.

In a carefully written Memorandum Opinion, he discussed the monetary award. The trial court determined that the total value of the parties’marital property was $987,825. Mrs. Skrabak was awarded $82,000 from Dr. Skrabak’s individual retirement account, in addition to a monetary award of $210,000. Dr. Skrabak was directed to pay Mrs. Skrabak $50,000 from the proceeds of the sale of the family home.

The balance of $160,000 was to be paid in yearly installments of $20,000, “until the entire monetary award, plus any accumulated interest, is paid in full.” Mrs. Skrabak also received a car valued at $8,375; half of the ⁶⁴¹ couple’s federal and state income tax refund, a value of $5,105.50; and the funds in her checking account, $830. The trial judge also determined that the parties’ respective incomes would be unconscionably disparate and awarded Mrs. Skrabak indefinite alimony in the amount of $3,250 per month. Finally, Dr. Skrabak was directed to pay child support for the two children who remained living with Mrs. Skrabak. DISCUSSION I. Did the trial court err in allowing appellee’s expert to utilize the “excess earnings” method to determine the value of appellant’s business?

Appellant contends that this Court has criticized the use of the “excess earnings” method to value goodwill in a professional practice for purposes of determining a monetary award in a divorce case and that, therefore, that method may not be used in Maryland courts. The traditional definition of goodwill is “ ‘the probability that the old customers will resort to the old place.’” Brown v. Benzinger, 118 Md. 29, 35 , 84 A. 79 (1912) (quoting Crutwell v. Lye, 34 Eng.Rep. 129, 134 (ch. 1810)). It is an intangible asset that adds value to a business entity. 2 This ⁶⁴² Court has held that goodwill is a legally protected property right and that “the goodwill of a spouse’s business is to be valued and equitably divided pursuant to the three step marital property analysis.” 3 Strauss v. Strauss, 101 Md.App. 490, 502 , 647 A.2d 818 (1994), cert. denied, 337 Md. 90 , 651 A.2d 855 (1995). The excess earnings method is “[p]erhaps the most common method for valuing goodwill.” Brett R. Turner, Equitable Distribution of Property § 7.07, at 533 (2d ed. 1994). “Under this method, the court first computes the difference between the actual earnings of the business and the earnings of the ‘average’ or ‘reasonable’ business.

This difference is then ‘capitalized,’ or multiplied by some number (the factor) between one and five.” Id. The goodwill value is then added to the value of the sum total of the tangible assets to reach the total value of a particular business. Id. Three decisions by this Court have discussed the excess earnings method as a way to value goodwill.

In Prahinski v. Prahinski, 75 Md.App. 113 , 540 A.2d 833 (1988), aff'd, 321 Md. 227 , 582 A.2d 784 (1990), we stated in dicta: When only a capitalization of excess earnings method of evaluation is applied to a professional practice, the value ⁶⁴³ determined, characterized as “professional goodwill,” represents nothing more than an entity’s future earning capacity; it is not necessarily an asset that may be sold, transferred, or assigned.... The capitalization of excess earnings approach, therefore, according to Professor Parkman, The Treatment of Professional Goodwill in Divorce Proceedings, 18 Fam.L.Q. 213 (1984), does nothing more than place “a value on an individual’s reputation, which is something possessed by everyone.” Id. at 132, 540 A.2d 833 (citations omitted). In Hollander v. Hollander, 89 Md.App. 156 , 597 A.2d 1012 (1991), this Court, again in dicta, expounded on its view of the excess earnings method: Because the issue has not been preserved, we do not determine the correctness of utilizing a capitalization of excess earnings method of valuating a dental business. We note, however, the approach of Delaware, Missouri, Utah, and Wisconsin in rejecting the consideration of future earning capacity as a sole measure of goodwill....

Id. at 174 n. 8, 597 A.2d 1012 . Finally, this Court stated, also in dicta, in Strauss, supra, Although we refrained [in Hollander ] from delving into the details of the trial court’s methodology used to create a goodwill value, we did provide some guidance for future cases. First, we distinguished goodwill from future earnings capacity.... To this end, we discouraged one common analysis used to measure goodwill, the excess earnings method, because the value arrived at under this calculation “represents nothing more than an entity’s future earning capacity.” Id. at 505 n. 3, 647 A.2d 818 .

Thus, this Court has never stated that the capitalization of excess earnings method is completely inappropriate for use in ⁶⁴⁴ Maryland courts. We have merely stated that we discourage its use as the sole method to value goodwill. 4 Appellee’s expert did not solely use the capitalization of excess earnings method in arriving at his valuation of the anesthesiology practice’s goodwill. Mr. Flurie testified that he used two methods to determine the total value of Dr. Skrabak’s anesthesiology practice. He first determined the value of the practice’s tangible assets by adding shareholder’s equity to the accounts receivable (discounted by 69 percent for uncollectability).

Next, he determined the value of the goodwill of Dr. Skrabak’s practice using the “excess earnings method.” Mr. Flurie stated that he then weighed the tangible assets value by 30 percent and the excess earnings value by 70 percent in order to arrive at a “blended value” of $745,000. Because Mr. Flurie did not rely solely on the capitalization of excess earnings method to value goodwill, appellant’s argument fails. 5 ⁶⁴⁵ II. Did the trial court err in its determination of the value of institutional goodwill in appellant’s business? Appellant argues that any goodwill in James A. Skrabak, D.O., P.A., was based on Dr. Skrabak’s personal reputa ⁶⁴⁶ tion and, therefore, was not property subject to equitable distribution.

Appellant contends that there was no evidence upon which appellee’s expert could base his opinion that 80 percent of the goodwill in appellant’s anesthesiology practice was institutional, that is, “true” goodwill. Appellant also argues that the trial judge’s determination that 50 percent of the goodwill had nothing to do with appellant’s reputation was equally groundless. A spouse is “entitled to have true goodwill, as distinguished from future earnings, considered as any other property acquired during the marriage.” Prahinski, supra, 75 Md. App. at 130 , 540 A.2d 833 . 6 In order for the business’s goodwill to be considered marital property, “it must be an asset having a separate value from the reputation of the practitioner.” Prahinski v. Prahinski, 321 Md. 227, 239 , 582 A.2d 784 (1990). In determining the value of a business’s goodwill for the purpose of an equitable distribution of assets upon divorce, a court “should ascertain first, whether in the particular case there exists a personal component, and secondly, if it does exist, determine the value of the personal component in the initial computation so that it can subsequently be excluded from the total valuation for purposes of fashioning an appropriate award.” Strauss, supra, 101 Md.App. at 507 , 647 A.2d 818 . ⁶⁴⁷ Using this analysis, appellant’s expert, Mr. Beck, testified that the corporation had no goodwill apart from Dr. Skrabak’s personal reputation.

Appellee’s expert, Mr. Flurie, testified that any goodwill in the anesthesiology practice was institutional, that is, not dependent on Dr. Skrabak’s reputation. On rebuttal, Mr. Flurie revised his opinion to state that, because there were five professionals in the practice, “in considering how much professional goodwill for Dr. Skrabak there would be, I considered one-fifth or 20 percent to be appropriate.” The testimony at trial showed that most cases are referred to anesthesiologists by surgeons. Dr. Skrabak apparently had an excellent reputation as an anesthesiologist. At least three surgeons at Washington County Hospital referred all or most of their cases to Dr. Skrabak.

Several surgeons would distribute their referrals on a random or evenly divided basis, giving the next case to whomever was next in line. Other surgeons would request Dr. Skrabak for their most complicated cases. Finally, there was testimony that some staff members at the hospital recommended that their families and friends request Dr. Skrabak. In sum, there was plenty of evidence to show that at least some of the goodwill held by his practice was based on Dr. Skrabak’s personal reputation.

The problem lies in determining how much. Mr. Flurie testified that his valuation of the practice’s goodwill was based on an assumption that Dr. Skrabak would continue in the practice with the new anesthesiologist for a year in order to introduce him to the surgeons. In fact, Mr. Flurie’s testimony indicates that he felt Dr. Skrabak would be required to stay on after a sale “if he wants to ... get top value.” This testimony contradicts the notion that any goodwill was institutional. See Prahinski, supra, 75 Md.App. at 134 , 540 A.2d 833 (stating that goodwill is based on personal reputation if it depends on the continued presence of a particular individual).

Further, Mr. Flurie’s original opinion that all goodwill was institutional was based on the fact that Dr. Skrabak had told him he got his referrals on a purely rotational basis. Mr. Flurie assumed that, were Dr. Skrabak to leave, ⁶⁴⁸ the corporation would continue to receive a fair number of cases. This is the converse of goodwill. Appellant’s expert testified that no institutional goodwill, was generated by the CRNAs employed by Dr. Skrabak.

These anesthesiology nurses actually administer the anesthesia, although an anesthesiologist must be available in the hospital to supervise them. The four CRNAs were not under written contracts and, therefore, Dr. Skrabak could not guarantee that they would remain if he sold his practice. There was testimony that at least one surgeon who referred all of his cases to Dr. Skrabak would not continue to do so if another anesthesiologist took over the business. “ ‘[A]n expert’s opinion is of no greater probative value than the soundness of his reasons given therefor will warrant.’ ” Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 741 , 625 A.2d 1005 (1993) (quoting Surkovich v. Doub, 258 Md. 263, 272 , 265 A.2d 447 (1970)). The facts upon which the expert bases his opinion must elevate that opinion “ ‘above the realm of conjecture and speculation, for no matter how highly qualified the expert may be in his field, his opinion has no probative force unless a sufficient factual basis to support a rational conclusion is shown.’ ” Id.

(quoting State Dep’t of Health v. Walker, 238 Md. 512, 520 , 209 A.2d 555 (1965)). This Court’s job on appeal “is not to re-weigh expert testimony, but to assure that there is an adequate foundation for the opinion rendered below.” Strauss, supra, 101 Md.App. at 506 , 647 A.2d 818 . In this case, Mr. Flurie’s opinion as to the worth of institutional goodwill had no value because the facts upon which it was based simply do not support his opinion. We see no soundness of reason for Mr. Flurie to divide the value of the practice’s goodwill equally between the five “professionals.” There is no logical basis, other than guesswork and speculation, to give the four CRNAs an equal amount of goodwill as that held by the doctor who employs and supervises them.

Further, there is no connection between the value given Dr. Skrabak’s practice and what a real person seeking to enter this field would pay. Why pay more for goodwill if any practice will be assigned a significant number of cases on a ⁶⁴⁹ rotational basis and if there is no guarantee the four admittedly excellent CRNAs will stay? Appellee’s expert testified that he weighed the value he had calculated using the tangible assets method by 30 percent and the value he had calculated using the capitalization of excess earnings method by 70 percent, and “blended” these numbers to come up with his opinion. He testified that the net asset value is the bottom line figure, that’s the lowest that it would be.

And I feel that the excess earnings value is more indicative but I don’t want to give a hundred percent weight to that; so I weighted those two results, 30 percent for the net asset value and 70 percent for the excess earnings value. If there is a basis for choosing those weights, it was not shown on this record. Generally, the value of a corporation is determined by placing a value on each of the component assets of the business and adding the numbers together. Turner, supra, § 7.07.

Those assets “fall into three classes: tangible assets, liabilities, and goodwill.” Id. Mr. Flurie’s “blending” of numbers that measure two different types of assets, tangible and intangible, flies against reason. “[T]he trial judge need not accept the testimony of any expert.” Quinn v. Quinn, 83 Md.App. 460, 470 , 575 A.2d 764 (1990). The trial judge in this case did not accept either expert witness’s opinion as to what amount of goodwill was attributable to Dr. Skrabak personally. Instead, the trial judge found that 50 percent of the goodwill in the practice was based on Dr. Skrabak’s personal reputation, valuing the practice at $612,677.

The court stated in its Memorandum Opinion: It is uncontradicted that the defendant has a good reputation at the hospital and is viewed by some physicians as the most competent practitioner to handle difficult procedures. However, the fact that his CRNAs also enjoy an excellent reputation in the medical community cannot be disputed.... Because of the reputation of his CRNAs, the ⁶⁵⁰ defendant’s industrious office staff, as well as the apparent ability of the Corporation, excluding the defendant, to operate smoothly, efficiently and satisfy the needs of various surgeons and patients, the Court must conclude that organizational goodwill exists. ... The Court has been convinced that the Corporation would continue to be assigned a significant number of cases on a rotation basis regardless of the defendant’s reputation.

The Court finds that the CRNAs would remain with the Corporation with its internal smooth running structure under the supervision of an interested, competent anesthesiologist. Therefore, the Corporation will continue to earn income and thereby have value exclusive of the defendant’s participation. ... [Institutional goodwill consists of 50% of the total intangible asset. This seems appropriate additionally because Mr. Flurie noted in his testimony that he assumed the defendant would continue with the Corporation even after it was transferred. In non-jury cases, this Court must assume the truth of all evidence tending to support the findings of the trial court, and may simply inquire “whether there is any evidence legally sufficient to support those findings.” Weisman v. Connors, 76 Md.App. 488, 500 , 547 A.2d 636 (1988).

We can find no evidence in the record to support the trial judge’s conclusion that 50 percent of the goodwill held by appellant’s practice was institutional and, therefore, marital property. The trial judge apparently attempted to correct Mr. Flurie’s improperly founded opinion and just as arbitrarily made up a number. This was clearly erroneous. See In re Marriage of Sedlock, 69 Wash.App. 484 , 849 P.2d 1243, 1250 (1993) (reversing and remanding trial judge’s apportionment of goodwill as coming “out of thin air”).

If appellee can produce an expert on remand who has an adequate evidentiary basis for an opinion as to the percentage ⁶⁵¹ of goodwill value attributable to the corporation itself as opposed to Dr. Skrabak’s personal reputation, the trial judge may consider the testimony. Otherwise, he may not.

III

Did the trial court err by including appellant’s business accounts receivable in both valuing marital property and determining amount of alimony? Appellant argues that the accounts receivable in his corporation represent his future stream of income, which should only be counted toward determining the amount of alimony and child support he is able to pay. Appellant contends that the trial judge erred by looking at the accounts receivable in determining the value of his corporation, which was used to determine what monetary award was appropriate. The short answer to this argument is that appellant put an expert witness on the stand at trial, Mr. Beck, who used the accounts receivable himself to form the basis of his opinion of the value of Dr. Skrabak’s corporation.

The doctrine of estoppel by admission bars such an argument. See Van Royen v. Lacey, 266 Md. 649, 651-52 , 296 A.2d 426 (1972) (quoting Cave v. Mills, 7 H. & W. 927 (Court of Exchequer) (“A man shall not be allowed to blow hot and cold, to claim at one time and deny at another.”)). Even if the argument was not barred, it is without merit. Appellant points to five states that have allegedly held that accounts receivable cannot be part of the valuation of the marital assets and the determination of alimony.

A close reading of the cases cited by appellant, and subsequent cases in those jurisdictions, convinces us that they do not clearly