The opinion
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 12, 2011 Session
KATHRYN A. DUKE v. HAROLD W. DUKE, III
Appeal from the Chancery Court for Williamson County
No. 33519 Timothy L. Easter, Chancellor
No. M2009-02401-COA-R3-CV - Filed June 1, 2012
In this divorce action, Father appeals certain provisions of the parenting plan, the award of
rehabilitative alimony and award of counsel fees to Wife, and the finding that he was in
criminal contempt. Mother appeals the valuation and division of marital assets, the failure
of the court to require that payments to Mother be secured, rulings with reference to certain
pre-trial matters, and the classification of alimony. We remand the case for further
consideration of the amount of Father’s annual contributions into the children’s educational
accounts; we affirm the judgment in all other respects.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in
Part; Case Remanded
R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,
J R., J., joined. P ATRICIA J. C OTTRELL, P.J., M.S., filed an opinion dissenting in part.
Jacqueline B. Dixon and James L. Weatherly, Jr., Nashville, Tennessee, for the Appellant,
Harold W. Duke, III.
Helen Sfikas Rogers and Lawrence James Kamm, Nashville, Tennessee, for the Appellee,
Kathryn A. Duke.
OPINION
P ROCEDURAL H ISTORY
Kathryn A. Duke (“Mother”) and Harold W. Duke, III, (“Father”) were married on
October 12, 1991; they are the parents of three children who were 11, 9 and 7 at the time of
the institution of this proceeding. Father is a physician who is the owner of Emergency
Services Network, a business engaged in the operation of emergency departments in
hospitals. Mother is trained and previously worked as a registered nurse; since the birth of
the first child on November 11, 1995, she has not had employment outside the home. Mother
initiated this action on May 2, 2007 by filing a complaint for legal separation on grounds of
irreconcilable differences and inappropriate marital conduct; she amended the complaint to
seek a divorce and by adding Father’s substance abuse as a ground. Father counterclaimed,
seeking a divorce on grounds of irreconcilable differences and inappropriate marital conduct.
After what was clearly a contentious process, a six day trial was held.1 The court thereafter
entered decrees granting Mother a divorce on the ground of inappropriate marital conduct;
naming Mother primary residential parent; valuing and dividing the marital assets; awarding
Mother rehabilitative alimony of $8,000 per month for eight years; finding Father guilty of
two counts of contempt; and awarding Mother $309,167.25 in counsel fees.
Both parties appeal certain aspects of the court’s rulings. Father articulates his issues
as follows:
1. Whether the trial court erred in failing to award Mr. Duke equal parenting
time with the minor children under the parenting plan.
2. Whether the trial court erred in ordering Mr. Duke to contribute to
educational trusts for the children.
3. Whether the trial court erred in awarding Mrs. Duke rehabilitative alimony
of $8,000 per month for eight years.
4. Whether the trial court erred in awarding Mrs. Duke a portion of her
attorneys fees.
5. Whether the trial court erred in finding Mr. Duke guilty of two counts of
criminal contempt.
Mother states her separate issues thusly:
1. The trial court erred in not awarding Ms. Duke any of her attorney fees,
expert witness fees, discretionary costs, and private investigator expenses.
2. The trial court abused its discretion by impeding the discovery process to
the point that marital assets remained concealed throughout the pendency of
this action.
3. The trial court abused its discretion when it did not uniformly and/or
correctly enforce its scheduling orders, which resulted in prejudice to the wife.
4. The trial court erred in failing to correctly value Emergency Services
Network, PLLC, which resulted in an inequitable division of assets.
1
The record consists of a 3206 page technical record, 30 transcripts of proceedings and 205 trial
exhibits.
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5. The trial court erred when it did not secure its award of alimony or
installment payments due the wife under the division of assets with liens
against Husband’s property or with life insurance.
Mother also contends that the court did not err in awarding alimony, but that the award
should have been alimony in futuro.
A NALYSIS
I. Parenting Time
Appellate courts are reluctant to second-guess a trial court’s determination regarding
parenting schedules. Adelsperger v. Adelsperger, 970 S.W.2d 482, 485 (Tenn. Ct. App.
1997). It is not the role of the appellate courts to “tweak [parenting plans] . . . in the hopes
of achieving a more reasonable result than the trial court.” Eldridge v. Eldridge, 42 S.W.3d
82, 88 (Tenn. 2001). Inasmuch as decisions regarding parenting schedules often hinge on
subtle factors, such as the parent’s demeanor and credibility during the proceedings, a trial
court’s decision regarding a permanent parenting plan will be set aside only when it “falls
outside the spectrum of rulings that might reasonably result from an application of the correct
legal standards to the evidence found in the record.” Id. We review the trial court’s factual
findings de novo upon the record, accompanied by a presumption of correctness, unless the
evidence preponderates otherwise. Tenn. R. App. P. 13(d). When the trial court makes no
specific findings of fact, we review the record to determine where the preponderance of the
evidence lies. Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn. 1997).
The residential parenting schedule adopted by the court designates Mother as the
primary residential parent and provides that the children will spend 285 days per year with
her and 80 days per year with Father. Father contends that he should have been awarded
equal parenting time and focuses on the evidence of and the court’s findings relative to five
factors in that regard: (1) the strength, stability and nature of the children’s relationships with
each parent; (2) the willingness and ability of each parent to facilitate the child’s relationship
with the other parent; (3) the character, physical and emotional fitness of each parent; (4) the
stability, continuity and predictability in each parent’s household; and (5) each parent’s
employment schedule.
Tenn. Code Ann. § 36-6-404 requires that a final decree entered in a divorce case
involving minor children include a permanent parenting plan and that the plan include a
residential parenting schedule. In determining the schedule, the court is to consider the
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factors at Tenn. Code Ann. § 36-6-404(b).2 In setting a residential parenting schedule no one
factor will predominate over another and, in making parenting decisions, the paramount
concern of the trial court must be the welfare and the best interest of the children. See Tenn.
Code Ann. § 36-6-401(a). As we consider Father’s argument, therefore, we resist the
invitation to carve out the particular factors designated by Father; rather, we look at how the
trial court’s consideration of each of those factors is supported by evidence and is consistent
with the court’s findings relative to the factors not specifically identified by Father.
The final decree included numerous findings of fact relevant to parenting issues,
particularly findings relative to Father’s history of involvement with drugs. While Father
takes issue with the court’s reliance on specific evidence rather than what he argues is
contrary evidence, we have reviewed the record and determined that the court’s factual
findings are supported by a preponderance of the evidence.3
In adopting the residential parenting schedule, the court also discussed at length the
factors at Tenn. Code Ann. § 36-4-404(a); the court found some of the factors to be balanced
between Father and Mother, some which favored Father, some which favored Mother, and
some which were neutral. It is clear that the court weighed Father’s drug use and issues
related thereto heavily as it considered the parenting plan issues. Specifically, the court held:
The character and physical and emotional fitness of each parent as it relates to
each parent’s ability to parent or the welfare of the child weighs in favor of
Wife. Husband is an addict who needs to admit it and start addressing a
serious plan of recovery. Until he does, the Court has concerns that he will
continue to exercise poor judgment, such as driving with the children while he
is under the influence. Husband, like many addicts, has a propensity for
stubbornness, arrogance, blame-shifting, resistance to authority and is unable
to keep promises. This conduct puts the parties’ children at risk.
2
Father bases his contention that the court erred with regard to the parenting schedule on the factors
enumerated at Tenn. Code Ann. § 36-6-106(a); the trial court, however, applied the factors at Tenn. Code
Ann. § 36-6-404(b) in setting the parenting schedule. There is little substantive difference between the two
sets of factors. See Cain v. Cain, No. M2006-02250-COA-R3-CV, 2008 WL 2165963, at *5-6 (Tenn. Ct.
App. May 16, 2008); see also Gervais v. Gervais, M2005-01483-COA-R3-CV, 2006 WL 3258228, at *7 n.9
(Tenn. Ct. App. Nov. 9, 2006) (commenting that many of the factors in the two statutes are “identical” and
that there was no issue in that case requiring “reconciliation of any difference.”). Our analysis will be based
on the statute applied by the trial court.
3
We do not find it necessary to quote the specific findings of the court in this regard.
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Significant also in the court’s adoption of the parenting schedule was the following rationale:
The children have demonstrated over the life of this divorce a need for
stability, continuity, and predictability. Meeting these needs favors Wife.
Wife offers a more stable home environment for the children in the marital
residence where the children grew up. Although Husband has the means to
provide a physical structure ever bit as nice (and perhaps more so) as the
marital residence, a nice place to live is not what these children need. They
need clean, sober, drug free, stable parents that can be counted on. The Court
agrees that the current parenting time schedule in place since December 2008
is working best. It is well-established that “children have the best opportunity
to thrive when they live in stable environments.” [citation omitted]. This
schedule appears to be bringing a good measure of stability, continuity, and
predictability to the children, which is supported by the evidence.
We find no abuse of discretion in the court’s approval of the residential parenting schedule.
We are, however, concerned that, in the event Father is able to pursue recovery from
his addiction, as suggested by the court, Mother would contend that his recovery would not
constitute a substantial and material change in circumstance pursuant to Tenn. Code Ann. §
36-6-101(a)(2)(B)4 , since his recovery would be reasonably anticipated. These parties have
demonstrated a willingness and ability to litigate every nuance of every issue and we have
no reason to believe that litigation over the question of whether Father has recovered
sufficiently to increase his parenting time would be any less contentious.
4
A residential parenting schedule, once entered by the court, is res judicata as to the facts in
existence or reasonably foreseeable when the decision was made. Keisling v. Keisling, 196 S.W.3d 703, 719
(Tenn. Ct. App. 2005); Hoalcraft v. Smithson, 19 S.W.3d 822, 828 (Tenn. Ct. App. 1999). A party
petitioning to change an existing custody order must prove both (1) that a material change of circumstances
has occurred and (2) that a change of custody or residential schedule is in the child’s best interest. Kendrick
v. Shoemake, 90 S.W.3d 566, 575 (Tenn. 2002). As to the requirement that the movant show a material
change of circumstances, the Tennessee Supreme Court has stated:
Although there are no bright line rules as to whether a material change in circumstances has
occurred after the initial custody determination, there are several relevant considerations:
(1) whether a change has occurred after the entry of the order sought to be modified; (2)
whether a change was not known or reasonably anticipated when the order was entered; and
(3) whether a change is one that affects the child’s well-being in a meaningful way.
Cranston v. Combs, 106 S.W.3d 641, 644 (Tenn. 2003) (citing Kendrick, 90 S.W.3d at 570).
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The court found that several of the statutory factors either weighed in favor of Father
or were equal between the parties; additionally, as noted, the court had specific concerns
relative to his addiction. Inherent in the court’s statement regarding Father’s plan of recovery
is the reasonable anticipation that, with treatment for his addiction, Father’s parenting time
may be increased. We view Father’s recovery as in the children’s best interest and encourage
him to pursue recovery; in the same way, we encourage Mother to support him in this effort.
The parenting plan we approve in this appeal is res judicata as to the facts presently
existing. The trial court has performed its responsibility to develop a plan that is in the best
interest of the children; in this regard, the court noted that the children “need clean, sober,
drug free, stable parents that can be counted on.” When Father successfully pursues recovery
and seeks to modify the parenting plan, any litigation that unduly delays the court reaching
a plan or modification that is in the children’s best interest should be avoided. The fact that
his recovery is reasonably anticipated is one factor that is required to be considered in
determining whether there has been a material change in his circumstance; that factor,
standing alone, should not prevent the court from granting an otherwise meritorius request.
II. Contribution to Educational Trusts
The court ordered that Father establish an educational trust for each child, into which
he is to contribute $15,000 annually for each of two of the children and $20,000 annually for
the third child. While Father acknowledges the court’s discretion to order that the trust be
established and funded,5 he contends that the amount of yearly contributions results in
balances which are “far in excess of even an expensive education,” inequitable, and beyond
the amounts contemplated by the Child Support Guidelines. He further argues that, since he
had previously established an account for each of the children which is greater than cost of
an education at the University of Tennessee, the children’s post-high school educational
expenses should be paid from that account.
The record shows that Father is the custodian of certain accounts at Stern Agee, which
he referred to as “UTMA, ‘Uniform Transfer to Minor Act’” accounts, in the name of each
of the children which were established prior to the institution of the divorce proceedings.
Although Father testified that the accounts are for the college educations of each child, the
record is not clear that the accounts are limited to that purpose or that the accounts are what
the court intended when it ordered that the educational trusts be established. The order to
establish the educational accounts does not give the basis upon which the amount of the
5
Our Supreme Court in Nash v. Mulle, 846 S.W.2d 803 (Tenn. 1993), held that a court has
discretion, in an appropriate circumstance, to order that such trusts be established.
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annual contribution was determined, and neither party has cited evidence in the record of the
anticipated cost of a college education for the children.
While the trial court acted within its discretion in ordering the accounts established,
the evidence does not support the amount of the annual contributions ordered. Accordingly,
we affirm the decision that Father establish educational accounts for each of the children 6 and
remand the case for the court to further consider the amount of the annual contributions. The
court may also consider the extent to which the UTMA accounts are presently or can be
restricted to provide for the children’s education.
III. Alimony
Appellate courts are disinclined to second-guess a trial court’s decision regarding
spousal support unless it is not supported by the evidence or is contrary to public policy.
Brown v. Brown, 913 S.W.2d 163, 169 (Tenn. Ct. App. 1994). Trial courts have broad
discretion to determine whether spousal support is needed and, if so, the nature, amount, and
duration of support. See Garfinkel v.Garfinkel, 945 S.W.2d 744, 748 (Tenn. Ct. App. 1996).
There are no hard and fast rules for spousal support decisions. Anderton v. Anderton, 988
S.W.2d 675, 682–83 (Tenn. Ct. App. 1998); Crain v. Crain, 925 S.W.2d 232, 233 (Tenn. Ct.
App. 1996). Alimony decisions require a careful balancing of the factors in Tenn. Code
Ann.§ 36-5-121(i); the two most important factors are the need of the disadvantaged spouse
and the obligor’s ability to pay. Varley v. Varley, 934 S.W.2d 659, 668 (Tenn. Ct. App.
1996).
Our legislature has stated a public policy preference for temporary, rehabilitative
spousal support over long-term support. Tenn. Code Ann. § 36-5-121(d)(2). The purpose
of rehabilitative support is to afford the disadvantaged spouse an opportunity to acquire or
enhance job skills, education, or both in order to enable him or her to be self-sufficient.
Smith v. Smith, 912 S.W.2d 155, 160 (Tenn. Ct. App. 1995); Cranford v. Cranford, 772
S.W.2d 48, 51 (Tenn. Ct. App. 1989).7 In Gonsewski v. Gonsewski, 350 S.W.3d 99 (Tenn.
6
We affirm as well that portion of the October 26, 2009 order providing that funds remaining in
either account when each child reaches the age of twenty-five will revert to Father.
7
An award of rehabilitative alimony is authorized at Tenn. Code Ann. § 36-5-121(e)(1), which
defines “rehabilitated” to mean:
[T]o achieve, with reasonable effort, an earning capacity that will permit the economically
disadvantaged spouse’s standard of living after the divorce to be reasonably comparable to
the standard of living enjoyed during the marriage, or to the post-divorce standard of living
(continued...)
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2011), our Supreme Court reiterated the legislative preference and reaffirmed the role of
appellate courts in reviewing an award of alimony.8
The trial court awarded Mother rehabilitative alimony in the amount of $8,000 per
month for a period of eight years. In making the award the court discussed the factors at
Tenn. Code Ann. § 36-5-121(i) and found:
In this case, Wife is forty-one years old and has a bachelor’s degree in
nursing from Vanderbilt University. She worked for seven years as a nurse
prior to becoming a stay-at-home mother. Wife is in good mental and physical
health and has over twenty able working years ahead of her. The parties’
children, ages nine, eleven, and thirteen, are all enrolled full-time in school;
therefore, it is not undesirable for Wife to seek employment outside the home.
The Court awarded Wife substantial assets in the division of the marital estate
in addition to her separate property.
In short, the Court finds that rehabilitation is possible for Wife and
based upon the evidence of this case when weighted against the appropriate
statutory factors for alimony, Wife is in need and Husband has the ability to
pay rehabilitative alimony.
. . . The Court finds that according to the nature of this case and the
circumstances of these parties, such an amount for such a term will achieve the
intended legislative purposes for alimony payments.
Father does not argue that the evidence does not support the court’s finding that Wife can be
rehabilitated; rather, relying on Franklin v. DeKlein-Franklin, No. E2007-00577-COA-R3-
CV, 2008 WL 1901113 (Tenn. Ct. App. April 30, 2008), he contends that, since Mother
received $4,600,702 in assets in the division of marital property, she did not demonstrate a
need for alimony.
7
(...continued)
expected to be available to the other spouse, considering the relevant statutory factors and
the equities between the parties.
Tenn. Code Ann. § 36-5-121(e)(1).
8
“[T]he role of an appellate court in reviewing an award of spousal support is to determine whether
the trial court applied the correct legal standard and reached a decision that is not clearly unreasonable.”
Gonsewski v. Gonsewski, 350 S.W.3d 99, 105 (Tenn. 2011) (citing Broadbent v. Broadbent, 211 S.W.3d 216,
220 (Tenn. 2006)).
-8-
Cognizant of the fact that awards of alimony “hinge on the unique facts of the case
and require a careful balancing of the factors in Tenn. Code Ann. § 36-5-101(d)(1),”
Anderton v. Anderton, 988 S.W.2d 675, 683 (Tenn. Ct. App. 1996), we do not find the
holding in DeKlein-Franklin dispositive of the issue presented here. The trial court in
DeKlein-Franklin awarded transitional alimony9 to the wife who was 64 years old at the time
of the decision. On appeal, this court considered the fact that the wife received marital
property valued at $2,548,530 and separate property of $318,979 as “particularly relevant”
on the issue of whether the wife had demonstrated a need for alimony; we found that there
was no material evidence to support a finding that the wife had a need for any type of
alimony and reversed the award. DeKlein-Franklin , 2008 WL 1901113, at *14. In contrast,
the court in this case made a specific finding that Mother could be rehabilitated, a finding not
challenged by Father. The fact that Mother received substantial marital assets does not
negate the court’s finding that she could be rehabilitated or undermine the purpose of an
award of rehabilitative alimony; it is merely one of the several factors the court considers in
making an award. See Tenn. Code Ann. § 36-5-121(i)(7), (8).
In arguing that the award of alimony should be in futuro, however, Mother contends
that the court’s finding that she can be rehabilitated “is not supported by the facts of this case
and is contrary to the current law on alimony,” and asserts that Father “will continue earning
over $1,000,000 per year while [Mother] working as a nurse will not be able to approach
earnings of even 10% of Husband’s income.”
In considering an award of rehabilitative alimony in accordance with Tenn. Code Ann.
§ 36-5-121(e)(1), the focus is on increasing the disadvantaged spouse’s earning capacity;
inherent in the statutory framework is the expectation that the disadvantaged spouse has
suffered a loss of earning capacity during the marriage and that, with training or education,
the earning capacity of that spouse can be increased. Consistent with the holding of
Gonsewski that alimony in futuro should only be awarded when rehabilitation is not feasible
and long term support is necessary, the fact that Father may earn more than Mother in the
future, when considered with the other statutory factors, fails to support either a conclusion
that rehabilitation is not feasible or that long term support is necessary. See Gonsewski, 350
S.W.3d at 109. The post-rehabilitation standard of living is designated in the statute to be
“reasonably comparable” to that enjoyed by the other spouse; a potential difference in
earnings between the spouses does not, standing alone, support a conclusion that the post-
rehabilitation standard of living is not reasonably comparable. In addition, while it is true
that the disadvantaged spouse’s need and the obligor spouse’s ability to pay are the most
9
An award of transitional alimony is appropriate “when the court finds that rehabilitation is not
necessary, but the economically disadvantaged spouse needs assistance to adjust to the economic
consequences of a divorce. . . .” Tenn. Code Ann. § 36-5-121(g)(1).
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important factors in considering an award, the “need” to be met in considering an award of
rehabilitative alimony is the need to be rehabilitated to increase earning capacity and to be
assisted in the rehabilitation, not a perceived “need” to reach parity with the obligor spouse.
The evidence does not preponderate against the court’s determination that Mother can
be rehabilitated in such a manner that she can return to the workforce at an increased earning
capacity and that, with rehabilitation, her post-divorce standard of living will be reasonably
comparable to the standard of living both parties enjoyed prior to the divorce and that of
Father after the divorce. The award is not contrary to public policy and is within the
discretion vested in the trial court. Neither party has otherwise challenged the amount or
duration of the award of rehabilitative alimony. We affirm the award of alimony in all
respects.
IV. Valuation of Emergency Services Network, PLLC
The court found that the primary marital asset was Emergency Services Network
(“ESN”), a company which provides for the operation of emergency departments in hospitals;
ESN was started by Father in 2003 and is owned 100% by Father and Mother. Adopting the
opinion of Gerald LeCroy, Father’s business valuation expert, the court determined the value
of ESN to be $5.4 million. Mother challenges Mr. LeCroy’s methodology in arriving at the
value, as well as his opinion of value, and argues that ESN’s value is $11.9 Million, as
testified to by her expert, Kurt Myers.
In its Findings of Fact and Conclusions of Law, the trial court explained its adoption
of Mr. LeCroy’s valuation in preference to that of Mr. Myers:
The evidence presented by Myers and LeCroy demonstrates a large
disparity in their respective opinions as to the FMV of ESN. Myers places the
value at $11.9 million while LeCroy values the company at $5.4 million.
In reaching his determination, Myers gave more weight to the income
approach (85%) than the market approach (15%). He gave no weight to the
net asset approach stating that “ESN does not have an intangible value often
found in professional services entities because the intangible value is often
attributed solely to the presence of the professional providing the services.”
Myers observed that Husband provides virtually none of the professional
services. Husband is in the role of CEO who could easily be replaced by a
number of highly qualified individuals in the Nashville employment market.
Husband sees no patients at the emergency room facilities and therefore ESN
has a collection of intangible assets that comprise the intangible value that is
not related to any personal goodwill of Husband, according to Myers.
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In reaching his income approach conclusions, Myers considered many
subjective factors that are accepted in his profession to arrive at a value. These
factors included the capitalized cash flow, the company growth rates, the
company’s ongoing earnings capacity and the determination of capitalization
and discount rates. He reached the conclusion that in employing the income
approach the appropriate capitalization rate that should be used for ESN is
estimated at 18.1 percent.
LeCroy relied principally upon the income approach and net asset value
method. After considering the capitalized earnings method he concluded that
the appropriate capitalization rate to be used for ESN is 26.8 percent. As a
result of his calculations, LeCroy concluded that the income approach rendered
a value of $5.5 million.
In applying the net asset value method, LeCroy found the significant
intangible assets of ESN to include the emergency services agreements with
three hospitals, employment agreements with physicians, physician assistants,
and nurse practitioners and internally developed software. Excluding the
goodwill of Husband from ESN, he found the net asset value method rendered
a value of $5.3 million.
In reaching his final estimated value of ESN, LeCroy stated that the
most significant risk to a hypothetical buyer of ESN is the likelihood of loss
of services of existing management and the absence of an employment or non-
compete agreement with Husband. LeCroy averaged the two methods (the net
asset value approach and the income approach), and concluded the FMV of
ESN to be $5.4 million.
The court then proceeded to discuss the differences in each expert’s methodologies and
calculations of value and concluded:
After a careful consideration of the Myers and LeCroy reports, as well
as the Wolff opinion of the two reports,10 the Court finds that the blend of the
10
Laroy Wolff, Jr., is a business valuation expert engaged by Husband to review and analyze the
valuations of the business performed by Mr. Myers and Mr. LeCroy and to “describe which report was more
representative of the fair market value of the Company and state reasons and/or differences between the
reports that led to my decision.” After reviewing the reports, as well as other related information, including
the depositions of Mr. Myers and Mr. LeCroy, Mr. Wolff opined:
Based on my readings of both reports, I believe that the value of the Company as
calculated by Mr. LeCroy is more representative of the fair market value of the Company
as of April 30, 2008. I believe that Mr. Myers’ calculation of the fair market value of the
Company as of April 30, 2008 is substantially overstated. As noted in sections above, I
(continued...)
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income approach and the net asset approach as applied by LeCroy to the
unique circumstances of ESN is the appropriate formula to reach a FMV of
this asset. Although he does not have the professional goodwill a treating
physician would have in his practice of medicine, a willing buyer could not
ignore the ties, or professional/personal goodwill, of Husband to the ongoing
success of ESN. Husband’s future relationship with the company, among
other things, creates a unique circumstance that would devalue ESN to a
hypothetical buyer. York v. York, 1992 WL 181710 (Tenn. Ct. App. March 20,
1992).
In Inzer v. Inzer, No. M2008-00222-COA-R3-CV, 2009 WL 2263818 (Tenn. Ct. App.
July 28, 2009), this Court discussed valuation of a business entity as a marital asset as well
as the standard of review we apply to a trial court’s valuation:
The value of marital property is a question of fact. Owens v. Owens, 241
S.W.3d 478, 486 (Tenn. Ct . App. 2007). As fact finder, the trial court is free
to place a value on a marital asset that is within the range of the evidence
presented. Wallace v. Wallace, 733 S.W.2d 102, 107 (Tenn. Ct. App .1987).
A trial court’s valuation and distribution of a marital asset will therefore be
given great weight on appeal and will not be overturned unless the evidence
preponderates against those findings or they are inconsistent with the factors
outlined in Tenn. Code Ann. § 36-4-121(c). Owens, 241 S.W.3d at 486;
Kinard v. Kinard, 986 S.W.2d 220, 231 (Tenn. Ct. App.1998).
The subject business is a limited liability corporation, a type of entity that is
akin to a closely held corporation for purposes of valuing it as a marital asset.
Powell v. Powell, 124 S.W.3d 100, 104 (Tenn. Ct. App. 2003). While there
are several acceptable methods used to calculate the value of a corporation, it
is particularly important in this case to note that “determining the value of a
closely held corporation is not an exact science. . . .” Wright v. Quillen, 909
S.W.2d 804, 809 (Tenn. Ct. App. 1995) (citing Wallace, 733 S.W.2d at 107).
10
(...continued)
believe Mr. Myers, among other things, did not fully consider the implication of the risk of
the contracts in his calculations. I also believe he did not consider the reasonableness of
$10,465,000 of calculated intangible asset value given that the contracts are cancellable with
[sic] 180 days without cause, cancellable immediately in certain circumstances, subject to
forced amendment, tied to Dr. Duke personally and non-transferable without permission
from the facility (which they do not have to give) and the fact that Dr. Duke does not have
a noncompete/employment agreement with the company and is under no obligation to sign
a noncompete/employment agreement.
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Our Supreme Court recognized three of these methodologies: (1) the market
value method, (2) the asset value method, and (3) the earnings value or
capitalization of earnings method. Blasingame v. Am. Materials, Inc., 654
S.W.2d 659, 666 (Tenn.1983), superceded on other grounds by Tenn.Code
Ann. § 47-8-102 (1992 Repl. & Supp.1998).
Inzer, 2009 WL 2263818 at *4.11
The evidence of value of ESN, as well as the methodologies employed by the
evaluators, was conflicting. As articulated by Mother in her brief on appeal, Mr. Myers
utilized different methodologies and factors in reaching his valuation; he also expressed his
opinion relative to deficiencies in Mr. LeCroy’s valuation analysis. The income and net asset
approaches utilized by Mr. LeCroy have been approved by our Supreme Court, and the
earnings and expense figures used by him are supported by competent evidence; he was
cross-examined relative to many of the matters Mother argues on appeal. The trial court
accepted his testimony in preference to that of Mr. Myers. Considering the entire record, the
evidence does not preponderate against the opinion of value expressed by Mr. LeCroy. The
value set for ESN by the trial court was within the range of values presented by the experts;
consequently, the court did not err in determining the value of ESN to be $5.4 million.
Mother also contends that the trial court’s adoption of Mr. LeCroy’s valuation led to
an inequitable division of assets; she does not explain this contention other than with
reference to her contentions regarding the valuation, which we have discussed above. After
determining the value of ESN, the court divided the asset equally. We find no error in this
regard.
11
The methodologies were distinguished as follows:
The market value method establishes the value of the share on the basis of the price for
which a share is selling or could be sold to a willing buyer. This method is most reliable
where there is an established market for the stock. The asset value method looks to the net
assets of the corporation valued as a ‘going concern,’ each share having a pro rata value of
the net assets. The net assets value depends on the real worth of the assets as determined by
physical appraisals, accurate inventories, and realistic allowances for depreciation and
obsolescence. The investment value method relates to the earning capacity of the
corporation and involves an attempt to predict its future income based primarily on its
previous earnings record.
Inzer, 2009 WL 2263818, at *4 (citing Blasingame v. Am. Materials, Inc., 654 S.W.2d 659, 666 (Tenn.
1983)).
-13-
V. Contempt
Mother sought both civil and criminal contempt against Father for seven alleged acts
of disobedience to a court order; the court found Father guilty of two counts of criminal
contempt. Relying on McPherson v. McPherson, No. M2003-02677-COA-R34-CV, 2005
WL 3479630 (Tenn. Ct. App. Dec. 19, 2005), Father contends that the court’s conduct of
civil and criminal contempt proceedings simultaneously rendered the contempt proceeding
“fundamentally flawed,” thereby violating his constitutional right against self-incrimination,
and that the findings of criminal contempt should, accordingly, be vacated.
The finding of contempt in McPherson came in the course of a hearing on several
post-trial motions and petitions in which the trial court addressed the father’s child support
arrearage and the father’s alleged failure to comply with other provisions of the marital
dissolution agreement and prior court orders. Following the hearing, the court found the
father to be in civil contempt and sentenced him to ten days in jail; the court also ordered that
he remain in jail after the ten day sentence until he complied with certain conditions. On
appeal, this Court reversed the judgment of contempt based on procedural defects in the
contempt proceeding. Of particular relevance to the case at bar is the following language:
The procedure the trial court used to impose this criminal contempt sanction
was procedurally defective. Ms. McPherson’s April 2003 petition did not state
whether she was seeking to hold Mr. McPherson in criminal contempt, civil
contempt, or both. The trial court did not see to it that Mr. McPherson
received notice as required by Tenn. R. Crim. P. 42(b), and the record contains
no evidence that Mr. McPherson was afforded the presumption of innocence
or informed of his privilege against self-incrimination. These omissions,
together with the absence from the trial court's August 22, 2003 order of an
affirmative finding that Mr. McPherson had the ability to make the required
payments and willfully failed to do so, require that the portion of the judgment
sentencing Mr. McPherson to serve a mandatory ten-day sentence be vacated.
The trial court committed another error that undermines the portion of its
judgment imposing civil contempt sanctions against Mr. McPherson. The trial
court, in effect, was conducting a civil contempt proceeding and a criminal
contempt proceeding simultaneously. We have pointed out that such
proceedings are fundamentally flawed and should be avoided because of the
significant differences in the respective burdens of proof and the procedural
rights accorded to the persons accused of contempt. Cooner v. Cooner, No.
01A01-9701-CV-00021, 1997 WL 625277, at *6-7 (Tenn. Ct. App. Nov. 14,
1997) (No Tenn. R. App. P. 11 application filed). Criminal and civil contempt
-14-
proceedings should be tried separately. Freeman v. Freeman, 147 S.W.3d at
243-44. The trial court's failure to separate the proceedings prejudiced Mr.
McPherson. Accordingly, the portion of the judgment finding Mr. McPherson
in civil contempt must be vacated as well.
McPherson, 2005 WL 3479630 at *5 (footnote omitted). McPherson disapproved of the trail
court’s considering civil and criminal contempt simultaneously and cautioned that the
proceedings should be tried separately; we did not, however, find that the trial court’s joinder
of the claims reached the level of constitutional infirmity. After determining that the
procedure used to impose the jail term as a sanction was in fact a criminal contempt
proceeding, we vacated the judgment in the absence of proof that the father had been
afforded certain constitutional protections to which he was entitled.
As in McPherson, we do not find a violation of Father’s constitutional rights arising
from the joinder of civil and criminal contempt claims. Unlike McPherson, however, the
record before us shows that Father was fully advised of his rights attendant to being charged
with criminal contempt, of the factual basis of the charges and that he suffered no prejudice
from the joinder. On May 30, 2008 Mother filed a document styled “Wife’s Supplemental
and Amended Complaint for Legal Separation or Divorce and Petition for Civil and/or
Criminal Contempt.” In the document, Mother made specific factual allegations relative to
Father’s asserted violation of the parenting plan and dissipation of marital assets and
requested that he be held in criminal contempt. Accompanying the pleading was the notice
required by Tenn. R. Crim P. 42(b). On September 11, 2008, Mother filed a document styled
“Wife’s Supplemental and Second Amended Complaint for Legal Separation or Divorce and
Petition for Civil and/or Criminal Contempt,” in which additional factual allegations relative
to Father’s closing of a line of credit, making derogatory comments about Mother in the
presence of the children, and harassment of Mother were made; again Mother requested that
Father be held in criminal contempt.12 Father does not assert on appeal that the notice was
inadequate or that the evidence does not support the finding of contempt, only that the court
erred in considering criminal and civil contempt in the same proceeding.13 Under the facts
12
The record contains a Tenn. R. Crim. P. 42 notice which was filed on August 8, 2008. It is not
clear why the notice was filed before the Second Amended Complaint.
13
In his Reply Brief, Father contends that “[i]n conducting the civil and contempt trials
simultaneously with the divorce proceeding, the trial court violated Mr. Duke’s fundamental constitutional
right against self-incrimination.” While any particular concern Father had to the joinder of the contempt
hearing with the divorce proceeding was not raised in his principal brief, we agree with Mother and hold
that, under the unique circumstances of this case, the failure of Father to object at the pre-trial conference
or in the course of trial amounted to a waiver of his right to self-incrimination.
-15-
presented in this case, we find no error in the manner in which the court considered the civil
and contempt allegations.
VI. Attorneys Fees
In ruling on Mother’s application for an award of fees and expenses, the trial court
held in pertinent part:
Husband has spent $838,844.81 in attorney’s fees and expenses to pay
for this divorce litigation. . . . These funds came from ESN’s coffers. Wife has
expended $910,677 in attorney’s fees and expenses . . . Wife is seeking
reimbursement for her fees and expenses from Husband.
Husband’s fees and expenses included $200,936.26 to Kraft CPAs for
the preparation of two audits (Exhibits 142, 143, and 144). Additionally,
Husband’s fees and expenses included $19,574.04 for mediation cost. These
expenses benefitted both parties and should be shared expenses. Husband’s
true individual fees and expenses, which were paid from ESN proceeds, are
therefore $618,334.51.
***
Clearly, Husband has the ability to pay all or a portion of Wife’s fees
and expenses. The Court has previously found Wife to be the economically
disadvantaged spouse.
However, wife does not lack sufficient funds to pay her attorney’s fees
and expenses since the Court awarded her substantial assets in the division of
the marital estate including $800,000.00 in cash and $15,833.33 plus 6%
interest per annum per month for ten years from the division of ESN.
Likewise, the payment of Wife’s attorney’s fees and expenses would not
require her to deplete her considerable separate financial resources since it is
undisputed that she has two SunTrust stock accounts with combined assets
totaling $694,003.
The Court finds that the fair answer to Wife’s request for attorney’s fees
and expenses is to require Husband to within 30 days of entry of the Final
Decree reimburse Wife $309,167.25 which represents half of the monies
Husband removed from ESN funds as his true individual fees and expenses in
pursuit of this divorce action. While it is true that Husband’s conduct caused
the breakup of this marriage, both parties contributed to the especially
protracted litigation. [fn. 11] While Husband was initially dishonest about his
affair, Wife continued to needlessly conduct laborious and expensive discovery
after Husband admitted his transgressions. [fn. 12] For his part, Husband, in
addition to initially being untruthful, refused to concede or stipulate to grounds
-16-
for this divorce, resulting in a needlessly elongated final hearing. As a result,
each party should be required to pay their own cost and fees from their more
than sufficient post divorce liquid assets. Eldridge v. Eldridge, 137 S.W.3d.
1 (Tenn. Ct. App. 2002).
[fn. 11.] A review of the Clerk and Master’s Case Management System
Docket Handler indicates that the parties filed numerous pre-trial motions
resulting in some 82 pre-trial Orders many of which were presented to the
Court in the form of competing Orders. The pre-trial motions filed included
over two dozen pre-trial motions to compel, quash, contempt and sanctions
during the months leading up to the final hearing. The vast majority of the
pre-trial filings were the Wife’s.
[fn. 12.] Husband admitted his affair with Lineberger in May of 2008.
Father contends that, because the trial court found that Mother had adequate resources
to pay her attorneys fees, it erred in awarding her a portion of her fees. Mother argues that
the $309,167.25 awarded to her was not an award of fees but, rather, constituted an
equalization of the division of the marital assets.14 Mother further argues that she should
have been awarded the total of her attorney and expert witness fees, costs and expenses of
$910,667.
An award of attorneys fees in a divorce action constitutes alimony in solido. Yount
v. Yount, 91 S.W.3d 777, 783 (Tenn. Ct. App. 2002); Wilder v. Wilder, 66 S.W.3d 892, 894
(Tenn. Ct. App. 2001); Herrera, 944 S.W.2d at 390; Houghland v. Houghland, 844 S.W.2d
619, 623 (Tenn. Ct. App. 1992); Storey v. Storey, 835 S.W.2d 593, 597 (Tenn. Ct. App.
1992). Such an award is to be based on a consideration of the factors set forth at Tenn. Code
Ann. § 36-5-121(i) and is appropriate when the spouse seeking them does not have adequate
funds to pay his or her legal expenses. Moreover, the spouse need not use assets provided
for future income in the division of marital property to pay the legal expenses. Koja v. Koja,
42 S.W.3d 94, 98 (Tenn. Ct. App. 2000). The award “is conditioned upon a lack of resources
to prosecute or defend a suit in good faith.” Fox v. Fox, 657 S.W.2d 747, 749 (Tenn. 1983).
Accordingly, a spouse with adequate property and/or income is not entitled to be
compensated for his or her attorney’s fees and expenses. Wilder, 66 S.W.3d at 895; Koja,
42 S.W.3d at 98; Lindsey v. Lindsey, 976 S.W.2d 175, 181 (Tenn. Ct. App. 1997);
Houghland, 844 S.W.2d at 623–24; Ingram v. Ingram, 721 S.W.2d 262, 264 (Tenn. Ct. App.
14
We decline to engage in semantics as to whether the court’s award was an equalization of marital
assets rather than an award of fees; we determine only whether the court’s action was in conformity with the
law.
-17-
1986). Because an award of attorney fees lies in the discretion of the trial court, we will not
reverse an award absent an abuse of that discretion. Owens v. Owens, 241 S.W.3d 478, 495
(Tenn. Ct. App. 2007). A trial court abuses its discretion when the evidence does not support
the court’s decision, when the court applies an incorrect legal standard, or when it reaches
a decision that contravenes logic or employs reasoning that causes an injustice to the
complaining party. Id. at 496.
Tenn. Code Ann. § 36-5-121(i)(8)15 and the “catchall” provision at § 36-5-121(i)(12)16
authorize the court to consider the fact that Father used marital assets to pay his fees in
making the award to Mother. It was appropriate and equitable to require Father to reimburse
Mother for her fees and expenses based on the amount of marital funds he spent for the same
purpose.
As to Mother’s request for an award of attorneys fees, the court found that, in light
of the division of the marital estate as well as her separate property, Mother had sufficient
funds and would not be required to deplete her separate resources in order to pay the fees.
In its findings and conclusions relative to the division of assets and liabilities, the court found
Mother’s separate property to be $694,003, held in two accounts at SunTrust Bank. On
Mother’s motion to alter or amend to include certain debts in the division, the court amended
the order dividing marital assets to assign $506,891 in debt to SunTrust Bank to Mother;
Mother testified she incurred the debt to pay her attorneys fees.17 Mother contends that these
15
Tenn. Code Ann. § 36-5-121(i)(8) provides:
(i) In determining whether the granting of an order for payment of support and maintenance
to a party is appropriate, and in determining the nature, amount, length of term, and manner
of payment, the court shall consider all relevant factors, including:
***
(8) The provisions made with regard to the marital property, as defined in § 36-4-121;
16
Tenn. Code Ann. § 36-5-121(i)(12) provides:
(i) In determining whether the granting of an order for payment of support and maintenance
to a party is appropriate, and in determining the nature, amount, length of term, and manner
of payment, the court shall consider all relevant factors, including:
***
(12) Such other factors, including the tax consequences to each party, as are necessary to
consider the equities between the parties.
17
This was the only debt the parties had. In its order assigning the debt to Mother, the court noted:
(continued...)
-18-
findings were “incorrect” and that she effectively depleted her separate assets because she
was “required” to borrow against those assets in order to pay her fees. The evidence does
not preponderate against the trial court’s findings. Mother received assets valued at
$3,906,669.00 in the court’s division of marital property; these are funds sufficient to pay her
fees without recourse to her separate assets. While Mother takes issue with the court’s denial
of her application, the facts in support of the court’s action are supported by the record.
Considering the entire record in this case, the court did not abuse its discretion in
awarding Mother $309,167.25 for the reasons stated in its order; neither did it abuse its
discretion in denying Mother’s application for an award of fees and expenses totaling
$910,667.
VII. Securing Alimony and Installment Payments
In her amended motion to alter or amend the division of assets, Mother requested that
Father be ordered to maintain life insurance to secure his monetary obligations to her18 or that
the obligations be otherwise secured; the court denied her request. Mother contends that, in
light of Father’s “history of substance abuse, and the long-term nature of the payouts for both
alimony and the division of assets, the Trial Court erred in failing to secure these
obligations.”
Tenn. Code Ann. § 36-5-121(l)19 provides:
(l) To secure the obligation of one party to pay alimony to or for the benefit of
the other party, the court may direct a party to designate the other party as the
beneficiary of, and to pay the premiums required to maintain, any existing
policies insuring the life of a party, or to purchase and pay the premiums
required to maintain such new or additional life insurance designating the
other party the beneficiary of the insurance, or a combination of these, as the
court deems appropriate.
17
(...continued)
“The Court remains satisfied that this additional assignment of debt to Wife results in a fair and equitable
division of the parties’ assets and liabilities.”
18
In addition to paying Mother $8,000 per month in rehabilitative alimony for eight years, the court
ordered that Father compensate Mother for her interest in ESN at the rate of $15,833.33 per month for ten
years.
19
This statute was formerly Tenn. Code Ann. § 36-5-121(k) but, as a result of the passage of 2011
Tennessee Laws Pub. Ch. 119, was recodified effective April 25, 2011.
-19-
Inasmuch as the statute provides that the court “may” require insurance to secure an award
of alimony, we review the court’s decision under the abuse of discretion standard.
We have reviewed the transcript of the hearing on both parties’ motions to amend the
final decree. The court considered the argument of both counsel and determined that
“enough is enough.” In light of the substantial assets awarded both parties, as well as the
amount of life insurance covering Father which was awarded Mother, we are not persuaded
that the court abused its discretion in denying the request that Father’s obligations be
otherwise secured.
VIII. Discovery Matters
Mother contends that the trial court abused its discretion by “impeding the discovery
process,” as a result of which marital assets were allowed to be concealed by Father and that,
as a consequence, all marital asserts were not divided. In her brief, Mother cites three orders
of the trial court as demonstrating the court’s abuse of discretion. The first order was entered
June 3, 2008, following a hearing on Mother’s motion for an independent audit of ESN and
its related entities; the second was entered September 29, 2008, on a motion Mother filed
seeking certain business records; the third was entered October 27, 2008, to quash subpoenas
duces tecum issued by Mother.
The standards applicable to this Court’s review of lower courts’ determination of
discovery matters was set forth in Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010)
as follows:
Because decisions regarding pretrial discovery are inherently discretionary,
they are reviewed using the “abuse of discretion” standard of review. The
abuse of discretion standard of review envisions a less rigorous review of the
lower court's decision and a decreased likelihood that the decision will be
reversed on appeal. It reflects an awareness that the decision being reviewed
involved a choice among several acceptable alternatives. Thus, it does not
permit reviewing courts to second-guess the court below . . . or to substitute
their discretion for the lower court's. . . . Discretionary decisions must take the
applicable law and the relevant facts into account. An abuse of discretion
occurs when a court strays beyond the applicable legal standards or when it
fails to properly consider the factors customarily used to guide the particular
discretionary decision. A court abuses its discretion when it causes an
injustice to the party challenging the decision by (1) applying an incorrect legal
standard, (2) reaching an illogical or unreasonable decision, or (3) basing its
-20-
decision on a clearly erroneous assessment of the evidence. To avoid result-
oriented decisions or seemingly irreconcilable precedents, reviewing courts
should review a lower court's discretionary decision to determine (1) whether
the factual basis for the decision is properly supported by evidence in the
record, (2) whether the lower court properly identified and applied the most
appropriate legal principles applicable to the decision, and (3) whether the
lower court's decision was within the range of acceptable alternative
dispositions. When called upon to review a lower court's discretionary
decision, the reviewing court should review the underlying factual findings
using the preponderance of the evidence standard contained in Tenn. R. App.
P. 13(d) and should review the lower court's legal determinations de novo
without any presumption of correctness.
Lee Med., Inc., 312 S.W.3d at 524–25 (internal citations omitted).
As an initial matter, our review of the various discovery orders shows that the court
ruled on motions filed relative to matters which counsel for the parties could not resolve
between themselves; indeed, Mother does not complain that any discovery matter was not
ruled on by the court. The fact that the court may not have ruled in Mother’s favor on any
particular discovery motion does not lead to a conclusion that the court “impeded” discovery
in any respect. As noted earlier, the record in this case shows that this was—to put it
mildly—a contentious case; nowhere is this more apparent than in discovery matters. The
parties availed themselves of the full panoply of discovery devises and the record is replete
with motions befitting of the vigor with which this case was litigated. We have reviewed the
record and have the utmost of confidence that the trial court addressed Mother’s discovery
concerns in a manner consistent with the letter and spirit of the rules governing discovery.
Mother complains that the court struck certain provisions of the June 3 order (which
her counsel had prepared) and the effect of the court’s action “render[ed] both the business
and the personal audits virtually impotent.” The June 3 order, with the language stricken by
the court, stated:
This matter came on to be heard on May 27, 2008, before the Honorable
Timothy Easter, upon Plaintiff’s Motion for an Independent audit, statements
of counsel for the parties, and the entire record in this cause, from all of which
the Court finds as follows:
The parties announced an agreement as follows in regard to the
independent audit of Emergency Services Network, PLLC: Emergency
Services Network, PLLC and all related affiliates (hereinafter ESN) shall
undergo an independent financial statement audit in accordance with Generally
-21-
Accepted Auditing Standards (hereinafter GAAS) to be performed as soon as
possible by the accounting firm Kraft CPAs, PLLC. The audit will cover the
time period of January 1, 2005, through a date as current as possible in 2008
to be determined by the auditor, and if time permits, the audit will cover the
entire time period during which Emergency Services Network, PLLC has
operated. The financial statements should be presented in accordance with
Generally Accepted Accounting Principles (GAAP). The purpose of the
independent financial statement audit will be to provide the parties’ respective
business valuation experts with audited financial statements and to determine
any irregularities and the auditor will not place a value on ESN or any related
affiliate. The auditor’s work and report shall be completed on or before July
15, 2008. The report shall be released to counsel for both parties
simultaneously who shall provide it to their respective experts. The February
22, 2008 scheduling order is modified to provide that all expert witness reports
and disclosures will be provided to opposing counsel by July 22, 2008, and
prior to the mediation set for July 23, 24 and 25, 2008. The auditors will be
subject to the Agreed Protective Order previously entered in this matter. The
cost of the audit shall be paid from marital funds. The expert discovery
deposition of Jerry LeCroy (Husband’s expert) which is currently scheduled
for July 2, 2008 at 9:30 a.m., is rescheduled to August 6, 2008, at 9:30 a.m.
The expert discovery deposition of Kurt Myers (Wife’s expert) which is
currently scheduled for July 3, 2008 at 9:30 a.m., is rescheduled to August 7,
2008, at 9:30 a.m. The February 22, 2008 scheduling order is modified to
reflect these dates.
In regard to the request for an audit of Defendant’s personal accounts
contained in Plaintiff’s Motion for Independent Audit, the Court finds that
such Motion is well taken and is hereby granted as to both parties, with both
parties’ individual and joint personal accounts and finances to undergo an
audit by Kraft CPAs, PLLC, to provide an accounting of income and expenses
and to determine whether there are funds that cannot be accounted for
from January 1, 2007 through a date as current as possible in 2008 to be
determined by the auditor. Wife’s separate assets which are held in trust are
not subject to this audit, pending further orders of the Court. The audit report
on the parties’ personal accounts shall be completed and provided to opposing
counsel by July 15, 2008, and the costs of the personal audits shall be paid
from marital funds.
The order states that it reflected the agreement on Mother’s motion for an independent
audit of ESN announced to the court on the date of hearing; there is no explanation for the
-22-
court’s striking of the language.20 We have reviewed the transcript of the May 27 hearing,
however, and note the following colloquy between counsel and the court:
MS. ROGERS [Counsel for Mother]: And we have an agreement that
there will be an audit of the books of the corporation by Kraft brothers; that the
auditors will have until July 15 to submit their audit report; that our valuation
experts will then have their reports ready by July 23 which is when we are
going to mediation. And we have bumped the deposition dates for our
valuation experts to after the mediation if we’re unsuccessful at mediation.
THE COURT: So that takes care of the motion for an audit?
MS. ROGERS: No. Because I have also asked for a motion to
personally audit Dr. Duke’s accounts, and he is not agreeing to that part of the
motion.
***
MS. ROGERS: . . . All right. Now, my next motion is for the audit of
Dr. Duke’s personal returns. And, Your Honor, my client did - -
THE COURT: This is the one you have some partial agreement on?
MS. ROGERS: Right. They have agreed to an audit of the business, but
they have not agreed to an audit of Dr. Duke’s personal - - of Dr. Duke’s
personal returns. Let me hand, if I could, to the Court - - this is something that
I have done. I’m not an accountant or an expert, but I’ve just done it to try and
understand Dr. Duke’s method and what he has done in his bank accounts. Dr.
Duke’s income in 2006 was 3.7 million and last year was 1.9 million. I have
gone through his bank statements from May of 2007 when this divorce was
filed through April 2008.
And Dr. Duke will tell you, he operates in cash. And when I’m talking
about cash, I’m talking about large amounts of cash. He pays Dr. David
McMillan, the parenting coordinator in this case, in cash. He pays his electric
bill in cash months in advance. And so what we have, if you’ll look at this,
Your Honor, is in the 11 months that this case has been pending, Dr. Duke has
spent $985,000. And when I say he’s done that, you know, some of it did go
to my client. My client gets $8,000 a month. But every time Dr. Duke - - and
you’ll see that in the first set where it says “withdrawals and debits,” but then
Dr. Duke every time he makes a withdrawal for her withdraws 8,000 in cash.
And then he has all of these various online transfers that he makes. And so we
really - - you know, in a normal case, I would say it’s certainly - - auditing
20
In his Reply Brief, Father contends that the order as submitted by Mother’s counsel “was not
reflective of the agreement announced at court” and that Mother’s counsel “expanded the parties’
agreement.”
-23-
someone’s personal accounts and trying to find out what’s gone on would not
be very productive. But in this case, I think we’re talking about fairly
substantial amounts of money. Dr. Duke has, you know, either in - - it’s
somewhere in some other account or someone is holding it for him or
something. Something doesn’t add up here. And it doesn’t take a genius to
look at these numbers and withdrawals to understand that something is just not
right here.
***
THE COURT: The Court is going to grant the motion, but it is going
to be a mutual order that both parties submit to a personal audit on the returns.
And it seems to make sense that Kraft Brothers do this as well since they’re
doing the other. I want both parties to cooperate with that personal audit on
their returns. Can you prepare that order please, Ms. Rogers?
The order, as modified by the court, reflected the agreement announced in court, as well as
requiring the parties’ individual returns to be audited.
The colloquy also shows that Mother put her concerns regarding the marital funds,
which she contended were not being accounted for due to Father’s reliance on cash
transactions, before the court. Counsel for Father also addressed the court in response to
Mother’s argument. The June 3 order reflects that the audits were to be provided to the
parties and their expert witnesses and there is no complaint that any information was lacking
for Mother’s expert to express an opinion on any matter. The record does not support
Mother’s contention that the court abused its discretion in striking the particular language.
The motion upon which the September 29 order was based requested that Father be
compelled to provide business records for Emergency Physicians of Portland, LLC, “RTI
reports for Skyline, Gateway and Jennie Stuart,” and the May, June and July 2008 financial
statements for ESN for purposes of completing the audit referenced in the June 3 order. The
September 29 order required Father to provide, on a monthly basis, information which
comprised the monthly ESN financial statements report. Again, the record does not contain
any evidence that the information provided was lacking in any respect relative to the issues
in the case; specifically, there is no basis in the record for us to conclude that the information
ordered to be provided did not show the “real numbers” of ESN.21
21
Records relative to Skyline, Gateway and Jennie Stuart were the subject of the October 27 order.
-24-
The October 27 order was entered on motions to quash the subpoenas issued to ESN,
Mark Green and Robert Moskowitz22 ; in granting the motions, the order held that “the
discovery requested by Plaintiff would be cumulative, duplicative and unduly burdensome
and expensive.” At the hearing on the motions, the court ruled:
THE COURT: - - Mr. Welborn on behalf of the company, ESN, I’m
satisfied that my previous ruling was sufficient to give Ms. Rogers at least
enough to create a finding that the discovery provisions of Rule 26 have been
met and any additional information would just be cumbersome and duplicative
and unreasonably burdensome. So the motions to quash are granted as well.
I’m satisfied that the experts that have already had their fingers in this
pie have sufficient information to give the Court an idea of the valuation or if
that valuation is somehow flawed based upon irregularities either at Portland
or anywhere else that you want to try to point out at trial, Ms. Rogers.
And, then again, I may get to the end of the proof and say, You know,
you were right back in October when you made the suggestion of a special
master. And I’ll cross that bridge then. I’m just afraid now, though, because
of the delay and the cost involved that it’s not a good idea.
So, to repeat, just so we’re clear, Mr. Wellington [sic], your motion to
quash those two subpoenas is granted.
Your motion for special master in the form of David Wood, of Lattimer,
Black & Cain, is denied.
But, Mr. Wellington [sic], you and ESN need to make sure those
monthly reports still get in the hands of Ms. Rogers, the monthly reports that
we talked about back in September.
All right. Mr. Wellington [sic], can you prepare your order?
The order also provided that “per the agreement by Dr. Duke and ESN at the hearing, ESN
will produce to Plaintiff until the trial of this matter monthly reports from RTI for the
Skyway, Gateway and Jenny Stuart facilities.”
The main marital asset was ESN and the orders referenced above were designed to get
the best financial information to the appropriate people to value that asset. There was no
abuse of discretion in the court’s handling of the discovery leading to the valuation of ESN
and its related entities.23
22
Mark Green was the Chief Operating Officer of ESN and Robert Moskowitz was the ESN Medical
Director. The motions to quash their subpoenas had been filed by Attorney Joseph Welborn.
23
Mother argues that the court quashed the subpoenas pursuant to Tenn. R. Civ. P. 26.02, governing
(continued...)
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Mother argues that at least $3,823,663 in marital funds was unaccounted for at the
time of trial. In reaching this figure, Mother takes the parties’ after tax income for the years
2004–2008 of $6,437,005 and reduces that amount by what she asserts is the total value of
marital assets of $1,958,542, four years of support at $8,000 per month paid by Father to
Mother, and the children’s tuition for years 2003–2004 through 2008–2009. We do not agree
that the difference in the referenced figures, standing alone, proves or even suggests that
marital assets were being concealed and Mother has failed to articulate a logic to lead us to
that conclusion. The figures upon which Mother bases her argument include years prior to
the institution of the divorce proceeding, are speculative and are based, in large part, on facts
and assumptions not reflected in the record. The record does contain substantial testimony
and argument of counsel for both parties relative to the spending proclivities of Mother and
Father (both prior to and during the divorce proceeding), the substantial tax liability Father’s
high income generated, the children’s school tuition and other expenditures. Further, the trial
court considered Mother’s contention that Father dissipated marital assets and found that
Father dissipated $22,05924 ; Mother does not assign specific error with the court’s finding
and order that Father pay Mother that amount.
The trial court did not abuse its discretion in its handling of discovery matters.
IX. Scheduling Matters
Mother contends that the trial court abused its discretion when it did not uniformly
and/or correctly enforce its scheduling orders; specifically, she complains that the court erred
in excluding the testimony of David Wood, an accountant who was engaged by Mother to
review the valuation reports, work papers and depositions of Mr. LeCroy and Mr. Myers and
render an opinion on the valuation of ESN.
At a hearing on Mother’s motion to use Mr. Wood as an expert witness held on March
3, 2009, the court heard arguments of both counsel and ruled as follows:
THE COURT: Basically the Court’s main concern on all of these
experts is that they have properly - - they were properly disclosed to the
23
(...continued)
discovery scope and limits, rather than Tenn. R. Civ. P. 45.07. We find no error in the court exercising its
general supervisory authority under Rule 26.02(1) to quash the subpoenas, which accompanied notices of
depositions of the persons subpoenaed.
24
In its ruling on the issue of dissipation of marital assets, the court gave due consideration to
Father’s lack of credibility.
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opposing side, the opposing side was given an opportunity to take whatever
discovery they wanted to take, including depositions.
And based upon the statements that have been made here this afternoon
regarding the two experts in question, both David Wood and LeRoy Wolfe, the
court is satisfied that at least in the case of Mr. Wolfe there have been - - there
has been no violation of any discovery deadline order. So the motion in limine
and to quash husband’s expert witness report of LeRoy Wolfe, Jr., is denied
and Mr. Wolfe will be allowed to testify and tell the court whatever it is he
thinks his expertise merits and the court will give it whatever weight, if any,
the court thinks its entitled.
Based upon statements made by counsel, the court is satisfied that the
proposed expert David Wood was not disclosed and properly - - failed to meet
the discovery schedule previously imposed by the court and so, therefore, the
court is going to exclude the testimony of David Wood. So that motion - - to
clarify - - I hope I’ve clarified it. I’ll be clear as I can. He’s not going to
testify.
The three experts that I anticipate hearing from, therefore, will be
Gerald LeCroy, Kurt Myers, and LeRoy Wolfe, and those will be the three that
the court is satisfied has met all the discovery, scheduling deadlines, and are
properly ready to be presented to the court for their testimony and for the court
to give it whatever weight that it might. So you have got three. That should
be more than enough, I would think. . . .
The court entered an order memorializing the ruling.
Tennessee's trial courts possess broad discretionary authority to control their dockets
and the proceedings in their courts, Hessmer v. Hessmer, 138 S.W.3d 901, 904 (Tenn. Ct.
App. 2003), and reviewing courts will second-guess the exercise of such discretion only
when the court has acted unreasonably, arbitrarily, or unconscionably. Hodges v. Attorney
Gen., 43 S.W.3d 918, 921 (Tenn. Ct. App. 2000). The court’s ruling relative to Mr. Wood
was made in furtherance of its adherence to the scheduling order. Prior to ruling that Mr.
Wood would not be able to testify, the court determined that Mother would have a witness
to testify as to the valuation of ESN. The court also considered the arguments Mother makes
on appeal. We find no abuse of the court’s discretion in its exclusion of Mr. Wood as an
expert witness.
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CONCLUSION
For the foregoing reasons, we remand the case for further consideration of the amount
of Father’s annual contributions into the children’s educational accounts; in all other respects
the judgment of the court is AFFIRMED.
______________________________________
RICHARD H. DINKINS, JUDGE
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