Mikalacki v. Rubezic

This Arizona divorce appeal affirmed the trial court’s acceptance of a calculation of value the wife’s expert, Brendan Kennedy, offered to determine the value of the couple’s law firm awarded to the husband in the trial. The husband appealed other nonvaluation issues related to the divorce, which the trial court affirmed. Those will not be covered in this digest.

Background. 

After six years of marriage, the wife (Gordana Mikalacki) petitioned for dissolution from the husband (Dragan John Rubezic). The wife and the husband were business partners and sole members of the Rubezic Law Group. The trial court held a two-day trial on contested issues.

Among other things in the decree, specific to the appeal and to this digest, the trial court “awarded Husband the firm as his sole and separate property and ordered him to pay Wife one-half of the firm’s equity.” The husband appealed the division of the firm, the valuation thereof, and the trial court’s acceptance of a calculation of value in determining the value of the firm.

Division of the firm. 

The husband contested the trial court’s valuation of the firm, arguing that the trial court should not have accepted a calculation of value the wife’s expert, Brendan Kennedy, offered. The husband also argued that the trial court did not make sufficient findings as a predicate for its valuation. In determining fair market value, the trial court may rely on a testifying expert’s opinion, and challenges to the expert go to the weight of the evidence, not admissibility. Because the trial court was in the best position to assess and resolve conflicting evidence, “we accept its factual findings absent clear error.”

Kennedy testified that he used various approaches to value the firm. He used the information the wife provided and his independent analysis of comparable businesses, providing an opinion that the firm was worth $269,000. The husband’s counsel “thoroughly” cross-examined Kennedy, but the husband did not offer any competing expert value. “Husband opined that the firm had a value of only $161,000 because Wife left the firm after June 7, 2019, and took several clients with her.” The trial court found the husband’s testimony not credible and accepted the $269,000.

While accepting both Kennedy’s qualifications and admission to testify, the husband alleged deficiencies in Kennedy’s opinion and said the trial court should have discounted his value. First, the husband said Kennedy’s opinion was deficient because the trial court accepted a calculation of value report rather than “an opinion of value report.” The appeals court noted that, although a calculation of value was not the “gold standard,” it was not unacceptable (Larchick v. Pollack). In other words, the fact-finder need not discount an expert’s opinion because he did not consider every process and procedure that would be included had he conducted a fuller valuation. Here, the husband’s counsel had ample opportunity to challenge the methodologies and conclusions Kennedy arrived at. Deciding which conflicting methodology and valuation to rely on was within the trial court’s discretion. Accordingly, the trial court did not abuse its discretion by accepting the calculation of value.

The husband argued Kennedy’s valuation was deficient because he considered only information the wife provided. The appeals court noted that the husband refused to disclose financial information timely as the governing procedural rules require. “It is unavailing that he now complains that Wife’s expert did not consider the information he refused to produce.”

The husband also argued that the valuation date Kennedy used of June 7, 2019, which was the date that the wife petitioned for a dissolution, was inappropriate. The appeals court noted that the trial court has broad discretion in choosing an appropriate valuation date. The trial court’s selected date occurred shortly before the wife’s departure from the firm and, thus, did not take that fact into account, including the reduction in value due to her leaving. However, the appeals court noted that Kennedy acknowledged that the goodwill of the firm was largely due to the name recognition and acceptance in the community of the husband’s last name. Thus, the appeals court rejected this objection to the valuation date.

Finally, the husband argued that Kennedy failed to explain various adjustments in his report adequately. However, the appeals court again noted that the husband’s counsel had ample opportunity in cross-examination to challenge methodologies and adjustments in the report.

In conclusion, the appeals court found no abuse of discretion in the trial court’s ruling on the valuation of the firm.