Opinion ID: 2621325
Heading Depth: 3
Heading Rank: 1

Heading: The Superior Court Erred by Overvaluing Natalie's Medical Practice at $360,425.

Text: 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 court's 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 Natalie's 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 Greisen's computation of fixed assets is questionable as it is based on incomplete information. Nonetheless, the court used Greisen's figure for the tangible asset value in which the fixed asset figure was one component. Because the superior court acknowledged that Greisen's figures were questionable and did not attempt to obtain a more accurate figure, it was error to use these figures. We therefore adopt Briskey's valuation, $156,497, of the net assets.
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 court's 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 Natalie's 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 Natalie's practice was a special case really because she's got income in there that really isn't comparable to other internal medicine or other practices of this nature. Briskey went on to state that if you are trying to compare [Natalie's] 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 Briskey's conclusion that the income from Natalie's work at the hospital should not be included in the excess earnings analysis. Greisen testified that Briskey's conclusion that Natalie's work at the hospital was separate from her practice was a fiction because, in reality, all of Natalie's 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 court's determination of goodwill based on the capitalization of excess earnings method and qualified expert testimony. [17] Because Natalie is not contesting Greisen's qualifications as an expert witness and there was ample testimony by Greisen to allow the superior court to find that Greisen's evaluation was sound, the trial court did not clearly err in determining that the practice possessed goodwill. Therefore, we uphold the superior court's finding that the practice had goodwill.
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 practice's goodwill was not marketable. Briskey testified that she talked with several CPA's 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 I'm a doctor and wait for the patients to come, they're 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 Natalie's 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 practice's 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 court's 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 practice's 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 Natalie's 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 Briskey's 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.