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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Manelick v. Manelick (11/22/2002) sp-5642

Manelick v. Manelick (11/22/2002) sp-5642

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.

            THE SUPREME COURT OF THE STATE OF ALASKA

NATALIE B. MANELICK,               )
                              )    Supreme Court No. S-9986
             Appellant,                 )
                              )    Superior Court No.
     v.                       )    3AN-97-6172 CI
                              )
GREGORY A. MANELICK,               )    O P I N I O N
                              )
             Appellee.                  )    [No. 5642 - November
                              22, 2002]
________________________________)

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Rene J. Gonzalez, Judge.

          Appearances:  Peggy A. Roston, Law Office  of
          Peggy  A.  Roston, Anchorage, for  Appellant.
          Maryann  E.  Foley, Law Office of Maryann  E.
          Foley, Anchorage, for Appellee.

          Before:     Fabe,  Chief  Justice,  Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          CARPENETI, Justice.

I.   INTRODUCTION

          I.    In  this  appeal of the superior courts  property

division,   Natalie  Manelick  challenges  the  superior   courts

valuation  of  her medical practice.  Because the superior  court

failed  to make findings as to the marketability of the  goodwill

of  that  practice, we reverse the superior courts  valuation  of

goodwill  and, because the record demonstrates that the  goodwill

was  not marketable, we hold that no value may be assigned to it.

Because both parties agree, we hold that the superior court erred

in  failing to include a debt the parties owed on a piano in  the

property  division  order.  Finally, we hold  that  the  superior

court did not err in assigning a marital car a value of zero.

II.  FACTS AND PROCEEDINGS

     A.   Facts

          On  July 31, 1997 Natalie B. Manelick filed for divorce

from her husband,  Gregory A. Manelick.  Natalie and Gregory were

married  on July 11, 1987, and have three children.  Natalie  and

Gregory  accumulated a substantial amount of property  and  debt,

including  Natalies medical practice, Gregorys military  pension,

and property and related debt in Alaska and Pennsylvania.

          Natalie  started  a  private  medical  practice  as  an

internist in 1989.  Natalie provided her medical services out  of

both her Wasilla medical clinic and Palmer Valley Hospital, where

she  has  hospital privileges.  The value of the medical practice

was hotly contested during the divorce proceedings.

          Gregory was in the military from 1973 until 1992,  when

he   retired  under  a  Voluntary  Separation  Incentive  annuity

program.  Since Gregory earned part of this retirement during the

marriage,  the  portion  earned from  July  11,  1987  until  his

retirement was marital property.

          Natalie and Gregory acquired a house in Palmer, a truck

and  camper,  a  Land  Rover,  and a  piano,  all  of  which  had

outstanding debt.  The parties had $258,000 left to pay on  their

home  mortgage and $44,228 on a home improvement loan.  They also

owed  $39,868  on the truck and camper and $56,000  on  the  Land

Rover.   In  addition,  the  parties owed  the  Internal  Revenue

Service  $1,971.57.  The piano is not recorded on the listing  of

marital  properties but $7,000 is owed on it, even though  it  is

apparently  worth only $3,000.  The marital estate also  includes

an  8.82  acre parcel in Palmer, three horses, personal property,

three large parcels of property in Pennsylvania, and a retirement

account, none of which carries any debt and the division of which

is not at issue on appeal.

     B.   Proceedings

          Trial  was  held  August 30-September  1,  1999  before

Superior  Court  Judge Rene J. Gonzalez.  The parties  put  their

agreement  as  to  child support, custody and visitation  on  the

record  on  August 30, 1999 and the superior court accepted  this

agreement as in the best interests of the children.  The  parties

stipulated to a partial decree of divorce on December  10,  1999,

dissolving the marriage.

          Both   Natalie  and  Gregory  submitted   reports   and

presented  expert  testimony as to the value of Natalies  medical

practice.   Jacquelyn M. Briskey, a certified public  accountant,

served  as  an expert witness for Natalie in valuing her  medical

practice.   Briskey  opined that the fair  market  value  of  the

practice as of December 31, 1998 was $156,497.  Briskeys  opinion

was  based  on  two  methods of valuation: the capitalization  of

excess  earnings  method  and  a  market  approach  method.   The

capitalization  of excess earnings method is  a  method  used  to

value  intangible assets, such as goodwill.  It is done by taking

adjusted net income, as shown by tax returns, and subtracting  an

average  rate  of  return on net assets  (total  assets  -  total

liabilities  =  net  assets).  This amount is  the  total  excess

earnings,  which are then reduced to present value.   The  excess

earnings (intangible assets) are added to the net assets, reduced

to  present  value,  to calculate the fair market  value  of  the

practice.  Briskey opined that under this method Natalies work at

the  hospital must be considered separately from the value of the

practice because she was essentially a part-time employee of  the

hospital,  since her privileges were individual to  her  and  not

transferable.

          Under   the  market  approach,  one  compares   similar

businesses  and  sales to determine the value  of  the  business.

Briskey  testified  that  there  were  no  transfers  of  medical

practices  in  Alaska to compare to Natalies  practice  and  that

other  certified public accountants had stated that doctors  have

walked  away  from  practices because there  was  no  market  for

medical  practices  in this state.  Briskey  testified  that  the

dearth of doctors in the Palmer area allowed a new doctor to come

in  with his or her own equipment and have a full schedule almost

immediately.  Using both methods, Briskey concluded that Natalies

practice was worth only as much as the tangible assets minus  the

practices  liabilities  ($156,497) because  of  the  shortage  of

doctors in the area and the fact that much of Natalies income  is

derived  from her non-transferable privileges that allow  her  to

perform  surgery  at  the hospital.  Briskey calculated  Natalies

salary from her practice to be approximately $146,160.

          Ronald  E. Greisen, also a certified public accountant,

valued the practice for Gregory.  Greisen valued the practice  as

of  July  31,  1997 using the capitalization of  excess  earnings

method.   Greisen valued the tangible assets at $138,733 and  the

intangible assets at $297,000, giving the practice a fair  market

value  of  $435,733.   Greisen credited Natalie  with  a  maximum

salary of $126,410 in 1996.

          The superior court disagreed with Briskeys opinion that

Natalies  income  from work done at the hospital  should  not  be

included in the total gross income of her medical practice.   The

superior  court relied on several facts to support its  position:

Natalie  was not an employee of the hospital, she did not receive

a  W-2  income  statement from the hospital,  her  services  were

billed by her medical office, and payments were paid directly  to

her  office.   Thus,  the  superior  court  found  that  Briskeys

valuation of the practice was too low.

          At  the  same time, the superior court did  not  accept

Greisens  opinion either.  The superior court found that Greisens

computation  of Natalies compensation was too low  and  that  his

computation  of fixed assets was based on incomplete information.

The  superior court found that Natalies salary was $140,000.  The

court  accepted Greisens computation of $138,733 as the  tangible

asset  value,  and the court valued the excess  earnings  of  the

practice  at $221,692 when reduced to present value.   Using  the

capitalization of earnings method, these valuations led to a fair

market value of $360,425.

          Based  on this valuation and the valuation of the other

marital  property,  the superior court then divided  the  marital

estate  in what it considered to be a just and equitable  manner.

Natalie  was awarded the medical practice, the family  home,  the

Land  Rover,  the  truck and camper, the three  horses,  and  the

personal  property in the family home.  Natalie was also assigned

the  debts on these items and the money owed to the IRS.  Gregory

was  awarded  his  military retirement, all of  the  property  in

Pennsylvania,  the  property in Palmer, the  Fidelity  retirement

account,  the  personal  property  in  his  possession,  a  post-

separation  distribution of funds from a joint checking  account,

and  an  increase in credit card debt.  In order to equalize  the

division of marital property, Natalie was ordered to pay  Gregory

$178,063.   Due to the lack of liquidity of Natalies assets,  the

parties were ordered to enter into a reasonable agreement for the

payment of this sum.

III. STANDARD OF REVIEW

          I.   The superior court has broad discretion in fashioning a

property  division.1  The valuation of available  property  is  a

factual  determination that should be reversed  only  if  clearly

erroneous.2  A finding of fact is clearly erroneous when  we  are

left with a definite and firm conviction that the trial court has

made a mistake.3

          We  will  reverse the superior courts determination  of

what  property is available for division only if we find an abuse

of  discretion  based on our review of the entire  record.4   The

superior courts equitable allocation of property is also reviewed

under an abuse of discretion standard.5  We review the denial  of

a  motion  for  reconsideration for an abuse of discretion.6   We

will  find  an abuse of discretion only when we are left  with  a

definite  and  firm conviction that the trial court  erred  after

reviewing the whole record.7

IV.  DISCUSSION

     A.   The   Superior  Court  Erred  by  Overvaluing  Natalies
          Medical Practice at $360,425.
          
          1.   The superior court erred in undervaluing the tangible assets
               of the practice at $138,733.
               
          0.   In Wanberg v. Wanberg,8 we explained that division of

marital assets involves a three-step process: (1) the trial court

determines  what specific property is available for distribution;

(2) the court then determines the value of this property; and (3)

the court decides what allocation is most equitable.9  In Merrill

v. Merrill,10 we held that the trial court must make sufficiently

detailed  and  explicit findings to give the  appellate  court  a

clear  understanding of the basis of the trial  courts  decision,

and  to  enable it to determine the ground[s] on which the  trial

court reached its decision. 11

          Natalie  argues  that,  in total,  the  superior  court

overvalued  her medical practice.  But her complaint  as  to  the

valuation  of the tangible assets by the superior court  is  that

the court selected a value that was too low.  Natalie argues that

the  superior court erred when it found that the tangible  assets

of  the practice had a fair market value of $138,733, rather than

the  $156,497  figure  that  her expert  testified  to.   Natalie

asserts that, since Greisen used the list of assets found in  the

tax returns for 1992-1996 and looked to no other source, his list

of  assets  was inaccurate and, therefore, so was his  valuation.

In  contrast, Briskey relied on three separate sources  to  value

the  fixed  assets: the list from the tax returns,  a  list  from

Natalies  bookkeeper,  and a list prepared  by  Natalie  herself.

Briskey stated that she primarily relied on the list prepared  by

Natalie.

          The   superior   court   acknowledged   that   Greisens

computation  of fixed assets is questionable as it  is  based  on

incomplete  information.  Nonetheless, the court   used  Greisens

figure  for  the  tangible asset value in which the  fixed  asset

figure   was   one   component.   Because  the   superior   court

acknowledged that Greisens figures were questionable and did  not

attempt  to  obtain a more accurate figure, it was error  to  use

these  figures.  We therefore adopt Briskeys valuation, $156,497,

          of the net assets.

          2.   The superior court did not err in finding that the practice
               has goodwill as calculated by the capitalization-of-the-excess-
               earnings method.
               
          Natalie  argues that the superior court erred  when  it

found that the practice had goodwill value.  She claims that  the

practice  actually had no value beyond its tangible  assets.   In

Moffitt v. Moffitt,12 we held that the valuation of goodwill is a

two-step  process.13  First, the trial court must decide  whether

good will exists.14  Second, if the superior court determines that

goodwill  exists, it then must determine whether  the  good  will

could  actually  be sold to a prospective buyer.   If  the  trial

court determines either that no good will exists or that the good

will  is  unmarketable, then no value for  good  will  should  be

considered  in  dividing  the marital assets.15   To  be  clearly

erroneous,  a  superior courts findings of fact with  regards  to

goodwill must be entirely unsupported by the record.16

          Here,  the  superior  court heard  testimony  from  two

experts: Briskey and Greisen.  Briskey stated in her report  that

Natalies   revenue  from  hospital  procedures  should   not   be

considered  in  valuing the practice because Natalie  was  really

acting  as  a part-time employee of the hospital, her  privileges

were  individual to her and not transferable, and the  privileges

were renewable at the discretion of the hospital every two years.

Briskey  testified  that Natalies practice  was  a  special  case

really  because  shes  got  income  in  there  that  really  isnt

comparable to other internal medicine or other practices of  this

nature.   Briskey  went on to state that if  you  are  trying  to

compare  [Natalies] practice with other practices,  you  have  to

extract   that  other  income.   Because  Briskey  would  extract

revenues  from  procedures  done at the  hospital,  her  analysis

concluded  that  the  practice would actually  have  a  net  loss

instead of net income.

          Greisen  disagreed  with Briskeys conclusion  that  the

income  from Natalies work at the hospital should not be included

          in the excess earnings analysis.  Greisen testified that Briskeys

conclusion  that Natalies work at the hospital was separate  from

her  practice was a fiction because, in reality, all of  Natalies

activities comprised one practice.  Greisen believed that Briskey

used  a  novel  approach that he had never  seen  before  in  the

medical profession, even though it is common for doctors to  have

several locations of practice.

          Based on this evidence, the superior court came to  the

conclusion that Natalie was not an employee of the hospital,  she

received  no  compensation from the hospital,  and  her  practice

billed  and received all payments for procedures Natalie  did  at

the  hospital.   We  have upheld a trial courts determination  of

goodwill  based  on the capitalization of excess earnings  method

and   qualified  expert  testimony.17   Because  Natalie  is  not

contesting Greisens qualifications as an expert witness and there

was  ample  testimony by Greisen to allow the superior  court  to

find that Greisens evaluation was sound, the trial court did  not

clearly  err in determining that the practice possessed goodwill.

Therefore,  we  uphold  the  superior  courts  finding  that  the

practice had goodwill.

          3.   The superior court erred in finding that the practices
               goodwill was marketable.
               
          Natalie argues that the superior court erred in valuing

her  practice above the fair market value of the tangible  assets

because  the goodwill is personal to her and she would be  unable

to  sell  the  practice for anything more than the value  of  the

tangible  assets.   Because there is more demand  for  physicians

than there are physicians to meet the demand, Natalie argues that

there is no reason for a physician wishing to open a practice  in

the  Wasilla/Palmer  area to buy an existing  practice.   Natalie

argues  that  a  new  doctor merely has to obtain  equipment  and

office  space  and  open the office doors  to  have  a  full-time

practice, so there is no reason for a physician to pay extra  for

goodwill.

          Natalie  presented evidence at trial that the practices

          goodwill was not marketable.  Briskey testified that she talked

with  several CPAs in the Anchorage area  who indicated that they

did  not  know of any recent sales of medical practices.  Briskey

also stated that she was told of two doctors who walked away from

their  practices after they were unable to find buyers.   Briskey

spoke  with the doctor who now shares the practice with  Natalie,

Dr.  Cooney.  According to Briskey, Dr. Cooney stated that  there

was  no  reason  for  her  to  buy into  the  practice.   Natalie

testified  that  she  was able to convince Dr.  Cooney  to  share

office  space  with  her by providing free office  space  to  Dr.

Cooney  for four months and then requiring only one-third of  the

rent for another two months before Dr. Cooney started paying one-

half of the rent.

          Natalie  also  testified  that  the  region  where  she

practices  is  under-served and that she had been trying  to  get

another  physician into her practice almost since she started  in

1989 but that because there was so much demand for doctors in the

area, no one would buy into her practice.  Natalie testified that

she had 6,000 patients, that she had not been taking new patients

for  the  last several years, and that any internist  would  only

have  to buy some equipment and open the office doors to  have  a

practice.

          In  response to this Alaska-specific evidence,  Gregory

offered  only  evidence  based on a  nationwide  scale.   Greisen

testified  that a physician coming to practice without  having  a

practice and if their alternative was hanging their sign out that

says  Im  a doctor and wait for the patients to come, theyre  not

going to make the average salary of [$]126,410.  Greisen admitted

that  he  did  not have any market data on medical  practices  in

Alaska,  but  used nationwide data to determine the marketability

of  Natalies practice.  Greisen also admitted that he was unaware

of any practices that had been sold in the area.  Greisen offered

no  other  testimony  as to the marketability  of  the  practices

goodwill.

          We have held that if the superior court determines that

goodwill  exists  it then must determine whether  the  good  will

could actually be sold to a prospective buyer.18  Where no market

exists  for goodwill, it should be considered to have no value.19

Here, the superior court made no findings regarding whether there

was  actually a market for the goodwill of the practice.  Because

the  trial court did not make sufficiently detailed and  explicit

findings to give the appellate court a clear understanding of the

basis of the trial courts decision, and to enable it to determine

the ground[s] on which the trial court reached its decision, 20 we

must reverse its valuation of goodwill.

          The   superior  court  failed  to  make  any   findings

regarding  the marketability of the practices goodwill.   Because

Natalie offered substantial evidence that the goodwill would  not

be  marketable and Gregory failed to counter that evidence  on  a

regional  scale in terms of the Wasilla/Palmer area, or  even  in

terms  of Alaska as a whole, the superior court clearly erred  in

determining  that  Natalies  practice  had  a  value  beyond  its

tangible    assets.    Therefore,   because   Natalie   presented

substantial evidence that her practice had no marketable goodwill

and  Gregory  presented no substantial evidence to the  contrary,

the  superior court should have adopted Briskeys opinion that the

practice  had  no value beyond the value of its net  assets.   We

thus hold that the practice has a fair market value of $156,497.

     B.   The Superior Court Erred in Failing To Include the Loan
for the Piano       in the Property Distribution.

          Natalie argues that the superior court erred in failing

to  include  the loan for the piano on the list of liabilities.21

Gregory  agrees  that the property distribution order  should  be

amended to include the $7,000 piano debt.  To that must be  added

a  $3,000  credit  (reflecting the pianos fair market  value)  to

Natalies  net  property value, giving a net loss  to  Natalie  of

$4,000.   On  remand, we direct the superior court to  amend  the

property order to reflect this change.

     C.    The  Superior Court Did Not Err in Valuing  the  Range
     Rover at Zero       Value instead of a Negative Value.

          Natalie  asserts that it was clear error to assign  the

Range  Rover  a value of $56,000 when she presented  evidence  at

trial  that  the  car was worth only $45,000.   Instead,  Natalie

argues  that the superior court should have assigned  the  car  a

negative  value  of $11,789.12, the value of the  car  minus  the

balance  on the car loan as of December 5, 1996.  Gregory  argues

that,  since  the  Range Rover was purchased  only  eight  months

before  trial,  the superior court was within its  discretion  in

using  the promissory note to value both the Range Rover and  the

balance  of  the debt instead of requiring more information  from

the parties or accepting Natalies testimony of the value.

          The  valuation of marital property  is  a  factual

determination  which  will not be set  aside  unless  it  is

clearly erroneous. 22  The superior court used the promissory

note  and  the balance of the debt on the car to  value  the

car.  Natalie testified that the car was worth about $45,000

at  the  date  of  separation.   Natalie  offered  no  other

evidence of the value of the car.  Specifically, Natalie did

not  offer any expert testimony or documentation as  to  the

value  of  the  Range Rover and neither did Gregory.   Also,

neither  party  offered any evidence of the balance  on  the

loan  as  of the date of trial.  The superior court was  not

required  to  procure its own evidence on the value  of  the

Range  Rover.   We  hold  that the superior  court  did  not

clearly  err  in  adopting  the  value  reflected   on   the

promissory  note  instead of relying on Natalies  testimony.

We affirm the superior courts valuation of the Range Rover.

V.   CONCLUSION

          Because the superior court failed to make findings

as  to the marketability of the goodwill of Natalies medical

practice, we REVERSE its conclusion concerning the value  of

the   practice.   Because  the  evidence  allows  no   other

conclusion,  we  hold that the practice  had  no  marketable

goodwill. We adopt the net asset value of $156,497.  Because

the piano debt was not included in the property division, we

REMAND  this  issue  so that the court may  amend  the  list

accordingly.  We AFFIRM the superior courts valuation of the

Range Rover.

          On  remand  the court should adjust  the  property
division  in  accordance with this opinion.   If  the  court
decides  to continue to divide the parties property equally,
the  equalizing  payment due Gregory from  Natalie  will  be
approximately $74,099.23  If the court determines that it is
no  longer just to divide the parties property equally,  the
court  is  authorized to make adjustments  in  the  property
division  supported  by appropriate  findings  of  fact  and
conclusions of law.

_______________________________
     1    Edelman v. Edelman, 3 P.3d 348, 351 (Alaska 2000).

     2     Berry  v. Berry, 978 P.2d 93, 95 (Alaska 1999) (citing
Cox v. Cox, 882 P.2d 909, 913-14 (Alaska 1994)).

     3    Dingeman v. Dingeman, 865 P.2d 94, 96 (Alaska 1993).

     4    Berry, 978 P.2d at 95.

     5    Id.

     6     Harrelson  v.  Harrelson, 932 P.2d  247,  250  (Alaska
1997).

     7    Morgan v. State, Dept of Revenue, 813 P.2d 295, 297 n.4
(Alaska 1991).

     8    664 P.2d 568 (Alaska 1983).

     9    Id. at 570.

     10     368 P.2d 546 (Alaska 1962).

     11    Id. at 548 (quoting Irish v. United States, 225 F.2d 3,
8  (9th Cir. 1955)); see also Alaska R. Civ. P. 52(a) (stating in
pertinent  part [i]n all actions tried upon the facts  without  a
jury  or  with an advisory jury, the court shall find  the  facts
specially and state separately its conclusions of law thereon . .
. .).

     12    749 P.2d 343 (Alaska 1988).

     13    Id. at 347.

     14    Id.

     15    Id.

     16    Id.

     17     See  Miles v. Miles, 816 P.2d 129, 131 (Alaska  1991)
(stating that the trial court used an accepted method of business
valuation,  capitalization  of  excess  earnings,  to   determine
whether  goodwill  exists.  Based on the  testimony  of  Williams
expert  witness,  Ronald Griesen, the superior court  found  that
Miles  & Associates possessed no goodwill value.  Because Greisen
was  qualified  as an expert in business valuation,  we  find  no
error  in  the  courts  acceptance of his  testimony.  (citations
omitted)).
     18    Moffitt, 749 P.2d at 347.

     19    Miles, 816 P.2d at 131.

     20     Merrill  v. Merrill, 368 P.2d 546, 548 (Alaska  1962)
(quoting Irish v. United States, 225 F.2d 3, 8 (9th Cir.  1955));
see  also Alaska R. Civ. P. 52(a) (stating in pertinent part [i]n
all  actions  tried  upon the facts without a  jury  or  with  an
advisory jury, the court shall find the facts specially and state
separately its conclusions of law thereon . . . .).

     21     See Lacher v. Lacher, 993 P.2d 413, 421 (Alaska 1999)
(stating [w]hen dividing property between divorcing parties,  the
trial   court   must  distribute  all  assets   acquired   during
marriage.).

     22     Sloane  v. Sloane, 18 P.3d 60, 64 (Alaska  2001)
(quoting  Musser  v.  Johnson, 914 P.2d 1241,  1242  (Alaska
1996)).

     23      Calculated  by  deducting  from  Natalies   net
recovery,  $613,243,  the over-valuation  of  her  practice,
$203,928 ($360,425 - $156,497) and the net negative value of
the  piano,  $4,000,  for a new net  recovery  of  $405,315.
This,  when  added  to  Gregorys net recovery  of  $257,117,
represents the total net marital property.  A 50/50 division
would  thus  be  $331,216 [($405,315 +  $257,117)/2].   This
exceeds Gregorys net recovery by $74,099.