BROOKS v. BROOKS, 121 Conn. App. 659 (2010)

997 A.2d 504
(AC 30140)Appellate Court of Connecticut

Bishop, Gruendel and Schaller, Js.

Syllabus
The defendant appealed to this court from the judgment of the trial court dissolving his marriage to the plaintiff and awarding the plaintiff lump sum alimony in the amount of $1,730,446. The trial court’s lump sum alimony order was based on the court’s finding of the value of real estate and cash held by six family businesses in which the defendant had minority stock interests and the percentage of his interest in each entity, and the defendant was ordered to pay an amount equal to 15 percent of that aggregate amount. The defendant claimed that the trial court improperly equated the value of his interests in the companies with the fair market value of certain real estate held by those companies, and that the court improperly ignored certain factors in determining the value of his interests in those companies, including restrictions on his ability to transfer his shares. Held that the trial court’s lump sum alimony award was an abuse of discretion, that court’s flawed analysis having resulted in a clearly erroneous asset valuation: although the trial court acted within its discretion in applying a fair market value approach in valuing the defendant’s stock interest in the various family companies, that court improperly failed to examine and draw some conclusions regarding the amount a willing buyer would and could pay for the defendant’s shares in those companies; the trial court arrived at its

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determination simply by multiplying the value of each corporation by the percentage of the defendant’s interest and positing the result as the fair market value of his shareholdings, the court made no assessment of the marketability of the defendant’s interest in any of the corporations in which he had a minority interest or the degree of control he maintained by virtue of his minority interest in the companies, and the court failed to note the restrictions on the defendant’s ability to transfer his interests; accordingly, because it was uncertain whether the trial court’s financial awards would remain intact after reconsidering the issue of its lump sum alimony award, a new trial on all financial issues was required.

Argued April 13, 2010

Officially released June 1, 2010[*]

Procedural History
Action for the dissolution of a marriage, and for other relief, brought to the Superior Court in the judicial district of Fairfield, where the defendant filed a cross complaint; thereafter, the matter was tried to the court, Hon. Howard T. Owens, Jr., judge trial referee; judgment dissolving the marriage and granting certain other relief, from which the defendant appealed to this court; there-after, the court, Hon. Howard T. Owens, Jr., judge trial referee, issued an articulation of its decision. Reversed; new trial.

Steven D. Ecker, with whom, on the brief, was Alinor C. Sterling, for the appellant (defendant).

Kenneth J. Bartschi, with whom were Wesley W. Horton
and, on the brief, David Eric Ross, for the appellee (plaintiff).

Opinion
BISHOP, J.

This marital dissolution appeal requires us to consider the correctness of the trial court’s lump sum alimony order where it was expressly based on an asset valuation determined by the court through a flawed process. Because the court expressly premised its valuation of the defendant’s minority stock holdings

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in six limited liability companies solely on the basis of the market value of real estate and cash held by those entities, less attendant mortgages, without regard to his minority shareholder status and the limitations of applicable shareholder buy and sell agreements, the lump sum alimony order cannot withstand appellate scrutiny. Accordingly, we reverse the judgment of the trial court.

The following procedural history and facts are relevant to our discussion of the issues at hand. The plaintiff, Mary Brooks, and the defendant, Scott Brooks, were married in 1993 and have one child who was twelve years old at the time of dissolution.[1] The dissolution trial took place over five days in January and February, 2008. The court heard evidence from both parties, a real estate appraiser and an accountant on behalf of the plaintiff, and several medical professionals regarding the plaintiff’s health status and her employability.

The court heard evidence that the forty-eight year old plaintiff, who does not have a college degree, did not hold employment outside of the household during the course of the marriage. Although the court was not persuaded by her testimony that she suffered from Lyme disease, chronic fibromyalgia and chronic fatigue syndrome, the court found that due to her limited education and lack of work experience outside of the home, she was unlikely to ever generate substantial income. As to the claims regarding her medical condition and attendant impairments, the court concluded in sparse terms that “she is simply tired of the marriage.”

The court also heard testimony that the fifty year old defendant, a college graduate, is engaged in the real estate business with his father and his brother. As to

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the defendant’s financial condition, and in regard to the defendant’s income, the plaintiff adduced evidence that the defendant receives an annual gross salary of $165,000 and, in addition, he has periodically received quarterly dividends of $29,000 and an annual bonus in the range of $3000 to $4000.[2]
These payments are in addition to periodic distributions he has received on the occasion of the sale or refinancing of an asset by one or more of the limited liability corporations in which he has an interest.[3]

Much of the evidence adduced at trial concerned the defendant’s interests in various family businesses. The defendant holds noncontrolling interests in six closely held entities: Westfair, Inc.; Westbrook, Inc.; Brooks, Torrey Scott, Inc.; Milford Realty Corporation; Liberty Rock Realty, LLC; and Granite National Realty, LLC.[4] The companies are engaged in either leasing, or in the case of Brooks, Torrey Scott, Inc., leasing and managing, commercial real estate. As its principal asset, each business holds a piece of commercial real estate that is leased to various business tenants.

As to the defendant’s interests in these parcels of real estate, the plaintiff offered the testimony of Patrick J. Wellspeak, a commercial real estate appraiser to

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value the properties owned by corporations in which the defendant had shareholdings but, significantly, not to value the defendant’s interest in these entities. Wells-peak testified that he utilized the market value approach in formulating his appraisal of the real estate held by the limited liability corporations in which the defendant had an interest. Doing so, he concluded that the aggregate fair market value of the properties, as of August 23, 2006, was $61,100,000.[5] The report prepared by Well-speak and admitted into evidence indicated that his report was confined to real estate values and that “[i]t is likely that this is only the first issue to be addressed as there are issues relating to outstanding debt and the valuation of the stock which is beyond my expertise.” In response to questioning by the defendant, Wellspeak reiterated that his expertise did not extend to the valuation of stock in a closely held corporation or the value of a person’s interest in such a corporation. In short, the record is plain that Wellspeak testified only as to the real estate values of the properties held by the limited liability corporations in which the defendant had minority interests and he disclaimed any ability to value the defendant’s shareholdings in the companies that owned the real estate he had appraised.

Also testifying at the behest of the plaintiff was David Gallagher, a certified public accountant who had provided accounting services to the parties and to the businesses in which the defendant had interests. Through Gallagher, the plaintiff introduced into evidence the parties’ federal tax returns for several years and federal tax returns and financial statements for several years for the six limited liability corporations in which the

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defendant had shareholdings. Additionally, the plaintiff introduced a personal financial statement prepared by the Gallagher firm for the defendant as of March 1, 2005. Although none of the documents presented by the plaintiff states a fair market value for the defendant’s stock in any of the businesses in which he has an interest, his financial statement posits $449,000 as the net book value of his investments in these closely held businesses as of December 31, 2004.

On the defendant’s financial affidavit dated January 21, 2008, he reflects the aggregate value of his investments in closely held businesses to be $408,000, part of his total gross assets valued at $1,026,947.74. In addition to his financial affidavit, the defendant produced evidence bearing on the fair market value of his stock in Brooks, Torrey Scott, Inc., Westfair, Inc., and West-brook, Inc., consisting of stock buyback agreements, each one of which requires any shareholder who wishes to convey his stock to first offer it to the corporation for repurchase at book value.[6]
Each agreement includes a statement expressing a mutual desire to maintain family ownership of the stock in the corporation and a shared concern that the “introduction of non-family stockholders would tend to disrupt the harmonious relationships which have traditionally existed. . . .” Although these agreements, dating back to 1993, had recently been renewed, there was no evidence that their ongoing existence and effect had any connection to the pending marital dissolution action or that they were based on any factor other than the shareholders’ mutual business judgments regarding the best interests of the involved corporations and their desire that the Brooks family continue to own and operate them.

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In formulating its financial orders, the court determined that, based on its consideration of all of the statutory factors, “neither lifetime nor any very extended alimony is warranted.” The court awarded the plaintiff, as unallocated alimony and child support, the sum of $6000 per month for a period of time not to exceed eight years, with the amount and duration not subject to modification except upon remarriage or pursuant to General Statutes § 46b-82 (b). The court also awarded the plaintiff, as lump sum alimony, the sum of $1,730,446, due and payable within sixty days from the date of judgment. The court’s lump sum alimony order was based on the court’s finding of the value of real estate and cash held by the six limited liability corporations in which the defendant had minority stock interests and the percentage of his interest in each entity.[7] The court then ordered that the husband pay to the wife an amount equal to 15 percent of that aggregate amount.[8] Both the plaintiff and the defendant

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sought reconsideration of the court’s decision, which was denied, and the defendant timely filed this appeal challenging only the court’s lump sum alimony award.

As a threshold matter, we set forth our standard of review. “An appellate court will not disturb a trial court’s orders in domestic relations cases unless the court has abused its discretion or it is found that it could not reasonably conclude as it did, based on the facts presented. . . . In determining whether a trial court has abused its broad discretion in domestic relations matters, we allow every reasonable presumption in favor of the correctness of its action. . . . In reviewing the trial court’s decision under [the abuse of discretion] standard, we are cognizant that [t]he issues involving financial orders are entirely interwoven. The rendering of judgment in a complicated dissolution case is a carefully crafted mosaic, each element of which may be dependent on the other.” (Internal quotation marks omitted.) Gervais v Gervais, 91 Conn. App. 840, 843-44, 882 A.2d 731, cert. denied, 276 Conn. 919, 888 A.2d 88 (2005).

“In distributing the assets of the marital estate, the court is required by [General Statutes] § 46b-81 to consider the estate of each of the parties. Implicit in this requirement is the need to consider the economic value of the parties’ estates. The court need not, however, assign specific values to the parties’ assets. . . . In assessing the value of the assets that comprise the marital estate, the trial court functions as the trier of fact.

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The trial court has the right to accept so much of the testimony . . . as [it] finds applicable. . . . [It] arrives at [its] own conclusions by weighing the opinions of the appraisers, the claims of the parties, and [its] own general knowledge of the elements going to establish value, and then employs the most appropriate method of determining valuation. . . . In selecting and applying an appropriate valuation method, the trial court has considerable discretion. . . . The trial court’s findings will be overturned only if it misapplies, overlooks, or gives a wrong or improper effect to any test or consideration which it was [its] duty to regard.” (Citations omitted; internal quotation marks omitted.)Bornemann v. Bornemann, 245 Conn. 508, 531-32, 752 A.2d 978 (1998).

At the outset of our analysis, we note that, as a general proposition, “the trial court need not necessarily specify a valuation method used. Nor is the court required to set forth specific factors that were considered in arriving at that determination.” South Farms Associates Ltd. Partnership v. Burns, 35 Conn. App. 9, 18, 644 A.2d 940, cert. denied, 231 Conn. 912, 648 A.2d 157 (1994). Here, however, the court indicated that it was employing the fair market approach to valuation, an approach with which the defendant took no issue. The question, therefore, is not whether the court utilized a correct approach to valuation, but whether the court’s analysis in using the fair market approach was clearly erroneous. In this regard, the defendant contends that the court improperly equated the value of his interests in the companies with the fair market value of the real estate held by those companies. The defendant claims, as well, that, in determining the value of his interests in the corporations, the court ignored three critical factors, namely: the lack of a ready market for closely held interests; his lack of control of the business entities;

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and the restrictions on his ability to transfer his shares as evidenced by the buyback agreements pertaining to three of the businesses. We agree.

An assessment of fair market value requires the fact finder to determine “the price that would probably result from fair negotiations between a willing seller and a willing buyer, taking into account all the factors, including the highest and best or most advantageous use, weighing and evaluating the circumstances, the evidence, the opinions expressed by the witnesses and considering the use to which the premises have been devoted and which may have enhanced its value.” (Internal quotation marks omitted.)Commissioner of Transportation v. Towpath Associates, 255 Conn. 529, 556-57, 767 A.2d 1169 (2001). Our case law instructs us to be broadly inclusive when considering the admissibility of factors that reasonably might influence a property’s fair market value. See Northeast Ct. Economic Alliance, Inc. v. ATC Partnership, 272 Conn. 14, 32, 861 A.2d 473 (2004). “Fair market value . . . involves a question of fact. . . . As with other questions of fact, unless the determination by the trial court is clearly erroneous, it must stand.” (Citations omitted.)Turgeon v. Turgeon, 190 Conn. 269, 275-76, 460 A.2d 1260 (1983).

Here, the record reflects that the court made no assessment of the marketability of the defendant’s interest in any of the corporations in which he has a minority interest. Rather, the court expressly arrived at its determination simply by multiplying the value of each corporation by the percentage of the defendant’s interest and positing the result as the fair market value of his shareholdings. Although the court has leeway in determining the value of assets in a marital dissolution, a market value approach to valuation, nevertheless, necessarily requires an examination of the marketability of the asset being appraised. Accordingly, in determining the fair market value of the defendant’s

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stock interests, the court was required to examine and draw some conclusions regarding the amount a willing buyer would and could pay for the defendant’s shares in the various family companies.[9] The record in this instance reflects that the court made no attempt to conduct such an analysis and rejected the notion that the defendant’s interests were limited to book value simply on the basis that to do so would “simply not do justice.” Nevertheless, evidence adduced at trial shows that the defendant had only minority interests in each of the six entities and the buyback agreements of three of those entities restrict the owner of the stock from selling, assigning or in any way transferring that stock without first offering it to the company to be bought back at book value. In its decision, the court made no mention of the marketability of the defendant’s shares or the degree of control he maintains by virtue of his minority interests in the companies. Nor did the court note the restrictions on the defendant’s ability to transfer his interests. Thus, although the court was within its discretion to apply the market value approach in valuing the defendant’s interest in the various companies,

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the court’s flawed analysis resulted in clearly erroneous valuations.[10]

In reaching our conclusion, we recognize that when a party neglects to provide to the court information regarding the value of his or her assets, that person cannot later complain about the court’s valuation. See Bornemann v. Bornemann, supra, 245 Conn. 535-36. But that teaching is not implicated in this case. Here, the defendant provided the court with three shareholder agreements that require him to sell his stock back to the respective corporations at book value. Importantly, there was no evidence that those agreements were executed for purposes of the divorce proceedings or that they were otherwise the product of collusion or fraud on the plaintiff. Rather, the evidence regarding these agreements showed that they were simply long-standing business arrangements meant to keep the businesses

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in family hands. Additionally, throughout the plaintiff’s presentation of evidence, the defendant vigorously objected to the plaintiff’s introduction of the appraisals of the real estate as evidence of the value of his shares in the businesses pointing out to the court that the value of real estate held by the corporations could not simply be equated with the value of each corporation and that the defendant’s interest in each corporation could not be determined simply by employing a mathematical formula.[11]
Indeed, at the outset of his testimony, Wells peak, the plaintiff’s real estate appraiser, stated that he was not attempting to value the defendant’s stock interest, commenting instead that he was performing merely the initial step in the valuation and that there would have to be more analysis to determine the value of the defendant’s minority share interest.[12] Before the close of the plaintiff’s case, the defendant again brought to the court’s attention his view that the plaintiff had not established evidence of the value of his shareholdings and indicated that he was not going to present his expert on valuation because, he believed, the plaintiff had presented no valuation testimony for him to rebut. Upon hearing this, and in response to the plaintiff’s concerns that the defendant was not going to present valuation testimony beyond the terms of the buyback agreements, the court offered the plaintiff a reasonable opportunity to call the defendant’s rebuttal witness her-self at a later date in order to put on evidence of the value of the defendant’s minority interests. From the record, it is plain that the plaintiff never took that opportunity.

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Although the court has a broad latitude in determining both the method of asset evaluation to employ and the manner in which the court conducts its evaluation, the court is, nevertheless, required to follow some reasonable path in arriving at its asset value determination. Where, as here, the court employs a patently erroneous methodology, its results cannot stand. On the basis of the foregoing, we conclude that the court’s asset valuation was clearly erroneous and therefore, its lump sum alimony award was an abuse of discretion. As noted previously, financial orders in dissolution proceedings have been characterized as “resembling a mosaic, in which all the various financial components are carefully interwoven with one another.” (Internal quotation marks omitted.)Finan v. Finan, 287 Conn. 491, 509, 949 A.2d 468 (2008). Because it is uncertain whether the court’s financial awards will remain intact after reconsidering the issue of its lump sum alimony award consistent with this opinion today, the entirety of the mosaic must be refashioned. See Gershman v. Gershman, 286 Conn. 341, 351-52, 943 A.2d 1091 (2008).

Accordingly, a new trial on all financial issues is required. See id., 352.

The judgment is reversed and the case is remanded for a new trial.

In this opinion the other judges concurred.