Opinion ID: 2633636
Heading Depth: 6
Heading Rank: 1

Heading: The Odom Company

Text: We first discuss Bill's interests in the Odom Company. The superior court did not reach the second and third elements of the doctrine of active appreciation because it found that the Odom Company had not increased in value during the marriage. At trial, Bill presented evidence from two experts to explain that the Odom Company, and by extension his interests in the company, had not increased in value. Although she bore the burden of proof and was aware that the valuation of assets would be an issue in the division of assets upon divorce, Carey presented no experts to counter the testimony of Bill's experts at trial. And although Carey claims that her cross-examination of Bill's experts was sufficient to impeach their testimony, the trial court did not find her evidence to be credible. Carey now challenges the superior court's application of the doctrine of active appreciation. In the alternative, she disputes the findings of Bill's experts and points to other economic indicia to claim that the Odom Company did increase in value. Because the superior court was correct in its application of the doctrine of active appreciation, we affirm the superior court's finding that the Odom Company did not increase in value. Carey's first approach is to challenge the superior court's interpretation of the doctrine of active appreciation. She makes two arguments: (1) that inflation should not be taken into account when determining whether an asset has appreciated in value; and (2) that any asset that is actively managed satisfies the active appreciation test whether or not it has increased in value. Neither claim is in accord with our decisions in this area. First, Carey argues that adjustments for inflation or other passive economic factors should not be taken into account when determining the value of an asset. Instead, she argues that the proper test is fair market value. Thus, an asset worth $80 ten years ago and $116 today should be considered to have appreciated by $36. [38] But this argument is not in accord with our practice, which is to take into account inflation and purchasing power of the dollar. In Brooks v. Brooks , for example, we defined passive appreciation as appreciation that occurs without any significant contribution being made toward that increase by either spouse (i.e. inflation or other economic factors beyond the spouse's control). [39] Carey's second argument, that any asset that is actively managed satisfies the active appreciation test, whether or not it has increased in value, is also not in accord with Alaska law. Carey argues that the superior court misunderstood the doctrine of active appreciation because it is the causal element, rather than value, that ought to be key to the discussion. In essence, Carey argues that the fact that the share price of the Odom Company fluctuated over time or did not fall even further in value by the time of separation is due to the active efforts of Bill and his brothers. Carey cites to Brooks [40] for the proposition that passive appreciation can only occur in the absence of any active marital efforts. Under her theory, the only way for there not to have been active appreciation in an asset, whether or not the asset had objectively increased in value, would be for the asset to sit idle for the duration of the marriage. But Carey's approach conflates the elements of the test for active appreciation and misreads Brooks. The test requires that the value of the asset have actually increased before the discussion may turn to whether that increase was due to active or passive forces. In Brooks, for example, the fact that the asset had increased in value had already been determined [41] and we were concerned with determining whether the appreciation in value was due to passive forces or to active efforts on the part of the spouse. [42] Most recently, in Hanson v. Hanson, we made it clear that the trial court must first determine whether the asset increased in value before proceeding with the other elements. [43] This approach is in accord with decisions from other jurisdictions, which also require that it first be determined whether the asset increased in value before moving to the other parts of the test. [44] The doctrine of active appreciation cannot take into account the fluctuations of an asset's value through time. Turner illustrates this principle when he notes that if a $100,000 business increases in value to $150,000 during the marriage because of active efforts, but then drops back in value to $100,000 by the time of separation due to market forces, then there is simply no marital interest to divide. [45] Turner does not suggest that marital contributions be parsed such that an increase in one year be compared to a decrease in another or examined as to whether they stopped the business from further plummeting in value. In Foster v. Foster, we acknowledged that the spouse had made improvements to the property. [46] But because those improvements were all in a state of disrepair by the time of trial, there was no evidence that his efforts had added to the fair market value of the property, and we thus affirmed the trial court's denial of an award based on the value of the work he performed. [47] In valuing assets upon divorce, it is a settled principle that the asset is valued on a date certain, even if the vagaries of market forces might cause the value of the asset to be unusually high or low on that date. [48] Therefore, Carey's attempt to dispute the superior court's rejection of the applicability of the doctrine of active appreciation must fail. In the alternative, Carey challenges Bill's experts' determination that Bill's interests in the Odom Company had not increased in value. At trial, Bill presented the testimony of Dr. Richard Parks, who qualified as an expert economist and who compared the value of the shares of the Odom Company at the time of marriage to that at the time of separation. The initial share price was an average of a price of $80 used in a minority redemption transaction in 1990 and a price of $89.64 used in a buy-out of the fourth Odom brother in 1992. [49] The final share price of $116 was based on valuation undertaken by the company's independent advisor, T.S. Leung, on March 31, 2002 (the Leung Report). [50] Dr. Parks's comparison found no real increase in the value of the company and determined instead that the company had failed to keep pace with inflation and had far underperformed as compared to several industry and stock market standards. The Odom Company lost money in 1998, 1999, 2000, and 2001. Bill also presented the testimony of Ronald Greisen, who was qualified as an expert, to explain to the court issues of federal taxation, accounting, and business valuation. Carey now claims that it was error for the superior court to rely on the $116 share price in its findings because the Leung Report should be considered inadmissible hearsay. But no objection on this basis was raised at trial. And even if hearsay, the report could be used as a basis for expert opinion. [51] Moreover, the superior court did not itself use that number but merely referred to it when describing the process by which Bill's expert valued the company. Carey also argues that she disputed the price of $116 by showing that the book value of the shares was listed as $158 per share. But she did not call a witness to explain why book value should indicate fair market value. Instead, Bill's expert repeatedly explained that the accounting entry of historical book value had nothing to do with the fair market value of [Bill's] minority and unmarketable shares of the Company. Carey offered no other evidence as to the connection between book value and fair market value to contradict Bill's expert. Therefore, the superior court had no evidentiary basis for selecting the method which [the expert] had rejected. [52] In the alternative, Carey argues that certain facts that were before the superior court are in themselves prima facie indicators of an increase in value. She points particularly to the increase in Bill's income during the marriage and the increase in the Odom Company's gross revenues. [53] But the cases relied upon by Carey do not support her contention that these facts, standing alone, are sufficient to require a finding of appreciation in value. [54] For example, in Harrower v. Harrower , it was only because neither party presented any evidence of asset value that we concluded it was reasonable to infer that stock would appreciate over a period of thirty years. [55] But in this case, evidence of the value of Bill's interests in the Odom Company was squarely before the court and both of Bill's experts were qualified as experts by the superior court. And in Schmitz v. Schmitz , we used the fact that the revenue of the separate business increased during the period of marriage to infer that the value of the business may have increased during the marriage, [56] but we did so because the financially disadvantaged spouse claimed that she was financially unable to hire an expert due to inequitable conduct on the part of her former husband and, moreover, because she had alerted the superior court to her predicament prior to trial. [57] In this case, in contrast, there is no evidence that Bill obstructed Carey's attempts to value the Odom Company. Bill provided Carey with documents pertaining to the company's finances as well as a summary of asset values. But she did not ask for a continuance to develop a valuation of the Odom Company. Although Carey argues now that she did not have the financial wherewithal to present evidence of asset values, there is no evidence in the record that Carey requested extra attorney's fees to pay for an independent valuation of the company or other assets owned by Bill. [58] Instead, there is evidence that Bill paid for Carey's attorney's fees. In sum, it was Carey's responsibility to bring forth evidence to show that Bill was wilfully obstructing her access to company documents or to request aid in the event that the cost of an appraiser was too heavy for her to bear. But the superior court found that Carey upon whom the burden of proof fell, offered no competent evidence as to the fair market value of Bill's interests in the company. We have held that it is the duty of the parties, not the court, to ensure that all necessary evidence is presented at trial in divorce proceedings and that a party who fails to present sufficient evidence may not later challenge the adequacy of the evidence on appeal. [59]