Cronan v. Cronan, 2024

In this Supreme Court of Rhode Island appeal of a divorce case decision from the family court, the supreme court, among other decisions, held that the marital estate was properly distributed, the husband’s interest in the medical imaging business was properly valued, and the magistrate had a comprehensive discussion of the statutory factors enumerated in R.I. Gen. Laws § 15-5-16.1(a). The supreme court affirmed the decision of the magistrate of the family court.

Facts.

A trial for this case began in October 2021. Five witnesses, including the parties, testified at trial. The plaintiff, John Cronan, presented Paul St. Onge, CPA, to testify as to the value of the plaintiff’s premarital assets. According to the document St. Onge had prepared for the plaintiff, his long-time client, “[the plaintiff’s] funds totaled $1,755,506.34 on June 30, 2006, prior to his marriage to defendant.” The wife objected to the document as not being the best evidence, but rather a statement from Prudential (holder of the 401(k) assets) would be the best evidence. That record was not available by the trial date. St. Onge testified that his records were a true business record and he had derived the statement from his computer records as of the 2006 date. The magistrate allowed the statement to be entered as a full exhibit but allowed a paper statement from Prudential to be entered if received. Such a record was never produced. The plaintiff also called a witness to testify as to the wife’s needs for alimony.

The defendant, Laurie Cronan, then called John E. Barrett Jr., CPA/ABV. Barrett was to testify to valuations as of June 30, 2021, and June 30, 2006, for the husband’s equity interest in Rhode Island Medical Imaging. Barrett outlined the documents, including financial statements and tax returns, that he had reviewed in arriving at his opinions. The plaintiff’s counsel indicated that he would not challenge the values Barrett determined but rather whether those values or Rhode Island Medical Imaging’s shareholder agreement would be controlling. Barrett testified that he used the fair market value (FMV) standard of value commonly used in Rhode Island for divorce purposes. “In his opinion, the fair market value for plaintiff’s 2.1 percent equity interest in RIMI as of June 30, 2021, was approximately $1,229,000.” On cross-examination, Barrett affirmed that, for purposes of the agreement, the husband’s equity interest was worth $366,200 as of Dec. 31, 2020. Barrett also affirmed that his value was an estimate. (Editor’s note: Under the AICPA BV Standards, VS100 as of Feb. 13, 2024, all valuation conclusions are estimates of value. Actual value cannot be known. All fair market values are hypothetical. This admission was the answer to a “parlor trick” question by the husband’s counsel.)

Barrett also agreed that a nonowner physician would be allowed to buy a 2.1% interest at $366,200. Also, he indicated that the agreement did not require the sale of the stock in any particular manner. The seller could find an outside party that might be willing to pay more. Prior to the trial, the wife filed a motion to preclude the plaintiff from contending the value of his interest in Rhode Island Medical Imaging should be in accordance with the agreement. She noted that, in a prior divorce, the plaintiff had “litigated the exact same question” involving the plaintiff and his former wife and that the trial justice there “rejected plaintiff’s claim and valued Dr. Cronan’s interests in the business without regard to the shareholder redemption agreements.” The magistrate here declined the motion “because of factual differences that exist today [with regard to the plaintiff’s first marriage] [and] because application of the doctrine [of collateral estoppel] would be inherently unjust.”

The magistrate noted that the plaintiff was about to retire and a sale or merger of Rhode Island Medical Imaging would unlikely impact his value. Further, the agreement was binding as to how much the plaintiff will receive when he retires and sells. He, therefore, determined the value of the plaintiff’s interest in Rhode Island Medical Imaging at $366,200.

Issue of collateral estoppel.

The wife argued that collateral estoppel should apply to the determination of the value of the plaintiff’s interest in the equity of Rhode Island Medical Imaging because the issue was litigated in the plaintiff’s prior divorce. In that trial, in 1999, the trial justice used the FMV of Rhode Island Medical Imaging rather than the agreement. “The defendant also argues that evidence plaintiff presented to establish the value of RIMI was unreliable because it did not establish the fair market value of the practice.” As to collateral estoppel, the supreme court noted that:

Subject to situations in which application of the doctrine would lead to inequitable results, collateral estoppel is applied when: “(1) the parties are the same or in privity with the parties of the previous proceeding; (2) a final judgment on the merits has been entered in the previous proceeding; and (3) the issue or issues in question are identical in both proceedings.” (Foster-Glocester Regional School Committee)

“To avoid unfairness, courts have declined to apply collateral estoppel in situations in which the doctrine would lead to an inequitable result.” (Casco) The magistrate found that collateral estoppel did not apply because factual differences exist today and the application would be inherently unjust. The prior decision was 22 years ago, and there was a greater possibility that the practice would be sold or merged during the plaintiff’s work years. He is now 71 and planning to retire at the end of the year when his contract with Brown University expires. There was far less likelihood a sale or merger would now impact the value of his interest in Rhode Island Medical Imaging. The magistrate did not err in not applying collateral estoppel and concluding that to do so would be unjust.

Valuation of the plaintiff’s shares in Rhode Island Medical Imaging.

Justices in family court have broad discretion in the division of marital property. The defendant submitted that the magistrate abused his discretion by valuing the Rhode Island Medical Imaging shares under the agreement and that the proper value was the $1,229,000 FMV Barrett determined. “The general magistrate determined that the shareholder agreements ‘are clear in that, to perpetuate the corporation, provisions were made for the disposition of shares of stock among shareholders upon death, retirement or withdrawal from employment’ and that those agreements ‘set the buy in/buy out price.’” The agreement was a binding agreement, and to use the FMV would result in a likely windfall to the wife since the plaintiff was unlikely to receive that amount.

The supreme court was satisfied that the magistrate did not misconceive the relevant evidence as to the valuation of the plaintiff’s Rhode Island Medical Imaging shares at $366,200. Other issues, such as the value of premarital assets and the question of alimony, were discussed and also affirmed in the opinion.