Opinion ID: 1059334
Heading Depth: 1
Heading Rank: 13

Heading: Evidence Tracing JMHI's Assets

Text: The defendants argue that the Commonwealth's accounting, on which the chancellor relied, was flawed and did not account for the separate income attributable to JMHC and JMHJV. They also contend that JMHI did not have an ownership interest in the hospital or in its underlying land, and that the Commonwealth failed to trace JMHI's assets into the Beauregard Building, the HGV lease, and the INOVA transactions. The defendants also assert that the chancellor erred in rejecting their accounting, which they claim properly identified their separate personal assets. In response, the Commonwealth argues that its evidence was sufficient to meet its burden of tracing JMHI's assets and of establishing the amount of its intangible assets. We agree with the Commonwealth. We consider the parties' arguments in the context of the chancellor's March 1997 order, which provided the framework for his determination of the amount of JMHI's assets. As stated above, in that order the chancellor directed the defendants to submit a full and complete accounting of all [JMHI's] assets and liabilities that ... shall disclose all rents, issues, profits, accretions, and benefits, tangible and intangible, which have accrued therefrom. In response to the chancellor's directive, the defendants submitted Cobb's accounting, which did not satisfy these requirements identified by the chancellor. Instead, Cobb attempted to place a value on the charity through the use of hypothetical dissolution dates of 1975, 1982, 1992, and 2005. This methodology was a complete departure from that used by the Commonwealth's accountant, Wilson, who structured his accounting of JMHI's assets in accordance with the requirements stated in the chancellor's decree. The chancellor's decision to reject Cobb's approach was supported by Wilson's testimony. Wilson explained that Cobb's approach was not a fiduciary accounting because Cobb did not attempt to determine what actually had occurred with regard to JMHI's assets and liabilities, but merely made estimations regarding JMHI's value on certain dates. Wilson indicated that the use of this approach was unsound because JMHI was never liquidated and, thus, any valuation information was merely hypothetical in nature. Based on this evidence, we conclude that the chancellor did not err in rejecting Cobb's valuation approach. We also hold that the chancellor did not err in accepting the Commonwealth's evidence tracing JMHI's assets. First, Vella's testimony supported the chancellor's award of the real property, including the improvements, to the Commonwealth. Vella, an expert in real property and title issues, stated that JMHI owned the Berman Parcel, which was also known as the Beauregard Street Parcel. In addition, she stated that JMHI owned a 65% undivided interest in the entire portion of land comprising Hopkins Parcels 1 and 2, as well as a parcel of land that overlapped Hopkins Parcels 1 and 2. Vella also testified that JMHI owned the beneficial interest in the hospital building and also owned all structures and improvements built on Hopkins Parcels 1 and 2 and the Berman Parcel. These buildings included the Beauregard Building, which was built partly on the Berman Parcel. Second, Wilson's accounting testimony and supporting documentary evidence satisfied the Commonwealth's burden of tracing JMHI's other assets. This evidence established that the primary value of the hospital derived from its operating license, which Wilson described as the engine that propelled the charity. Wilson testified that because the hospital operated as a going concern until the time of the 1994 INOVA Agreement, the hospital license generated many financial opportunities that Wilson identified as belonging to JMHI, rather than to the defendants and their for-profit entities. These opportunities included the 1982 HGV lease and the INOVA transactions. As stated above, Wilson determined that the value of JMHI's assets, excluding the real property and improvements, subject to the constructive trust totaled $26,372,438 as of June 30, 1999. He also concluded that an additional $24,703,145 will accrue to the benefit of the constructive trust under the terms of the 1994 INOVA Agreement. Thus, we conclude that the evidence accepted by the chancellor adequately traced JMHI's assets, including the amount of its intangible assets.