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COURT OF APPEALS DECISION DATED AND RELEASED November 27, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-2534
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT II
In re the Marriage of:
RALPH C. STAYER,
Petitioner-Appellant-
Cross Respondent,
v.
CATHARINE B. STAYER,
Respondent-Respondent-
Cross Appellant.
APPEAL and CROSS-APPEAL
from a judgment of the circuit court for Sheboygan County: GARY LANGHOFF, Judge. Affirmed in part; reversed in part and
cause remanded with directions.
Before Brown, Nettesheim
and Snyder, JJ.
PER
CURIAM. Ralph C. Stayer appeals and Catharine B. Stayer
cross-appeals from the judgment of divorce.
The dispositive issues are: (1)
Ralph's challenge to the trial court's refusal to enforce the parties'
postnuptial agreement (PNA) after concluding that it was procedurally and
substantively unfair to Catharine; and (2) Catharine's challenge to the
valuation of Ralph's Johnsonville Foods, Inc., stock. We reverse on the appeal because we conclude that the trial court
should have enforced the PNA. On the
cross-appeal, we affirm the trial court's valuation of the Johnsonville stock.
Ralph and Catharine were
married in 1970. Ralph worked in his
family business, Johnsonville Foods.
Catharine taught occasionally but was primarily a homemaker. On December 31, 1986, the parties entered
into a postnuptial agreement to classify the bulk of their current assets as
separate property in light of the then-recently enacted Wisconsin Marital
Property Act. The parties were represented by separate counsel. Catharine disclosed assets valued at
$3,448,885, the bulk of which was proceeds from the sale of her stock in her
family's business, the Bemis Manufacturing Company. After tax liability on the stock sale, Catharine's net estate was
$2,846,558 as of December 31. Ralph
declared assets worth $2,494,719, including Johnsonville stock which he
estimated was worth $1,325,000 as of December 31.
During the divorce,
Catharine argued that Ralph did not fairly and reasonably disclose his
financial status at the time they entered into the PNA because he inaccurately
valued his Johnsonville stock. She
presented expert testimony that the value of Ralph's interest in Johnsonville
Foods was $2,591,000 as of the date of the PNA. Ralph presented expert testimony that the fair market value of
his stock at that date was $1,454,000, some $129,000 more than he stated in the
disclosure accompanying the PNA.
The trial court
considered several factors in declining to enforce the PNA. First, it found that the parties ignored
specific provisions of the agreement, such as the agreed-upon allocation of
family living expenses, and generally handled their financial affairs as they
had prior to the agreement. Second, in
January 1989, the parties' home was destroyed by fire and they decided to build
a new home. During this period, Ralph
was heavily involved in business activities and Catharine oversaw construction
of the multi-million dollar home. She
used $1.7 million of her separate property to cover construction expenses. Third, the court found that the value of
Catharine's assets was approximately the same at the divorce as at the time of
the PNA. Ralph's assets, however, had
increased substantially. Notably, Ralph's
Johnsonville stock was now worth between $7.5 and $15 million.
The court found that
Ralph's valuation of the Johnsonville stock for the PNA was not based on a
specific formula or a generally accepted valuation method. While the estimate may have been fair, the
court concluded that it was not reasonable under the circumstances. The court found that Catharine's financial
disclosure was highly accurate because it was based upon the recent sale of her
Bemis Manufacturing Company stock. In
light of the accurate financial picture offered by Catharine, it was not
reasonable for Ralph to provide a less accurate financial picture. Therefore, the court concluded that the PNA
was procedurally unfair to Catharine.
Turning to the issue of
substantive fairness, the court cited the following factors. First, the Johnsonville stock had increased
from approximately $5000 to $9000 per share at the time of the PNA to
approximately $24,000 to $50,000 per share at the time of the divorce. The court found that this large increase was
"totally unanticipated by the parties." Second, the parties ignored some of the PNA's provisions,
particularly the allocation of family living expenses to be paid from their
separate property. Third, when the
parties entered the PNA, neither anticipated that Catharine would substantially
deplete her separate property to build a new residence. The court concluded that the PNA was
substantively unfair to Catharine and declined to enforce it.[1] Ralph appeals.
When dividing property
in a divorce, § 767.255(3)(L), Stats.,
directs the trial court to consider:
Any
written agreement made by the parties before or during the marriage concerning
any arrangement for property distribution; such agreements shall be binding
upon the court except that no such agreement shall be binding where the terms
of the agreement are inequitable as to either party. The court shall presume any such agreement to be equitable as to
both parties.[2]
An agreement is
inequitable under § 767.255(3)(L), Stats.,
if any of the following requirements are not met: (1) each spouse has made a fair and reasonable disclosure to the
other of financial status; (2) each spouse has entered into the agreement
voluntarily and freely;[3]
and (3) the substantive provisions of the agreement dividing the property upon
divorce are fair to each spouse. Button
v. Button, 131 Wis.2d 84, 89, 388 N.W.2d 546, 548 (1986). The first two requirements of procedural
fairness must be evaluated at the time the agreement was executed. Id. The last requirement of substantive fairness is assessed at the
time of the agreement's execution and, if circumstances have significantly
changed since the agreement, at the time of divorce. Id. The
burden of showing that the agreement is inequitable is upon the spouse
challenging the agreement. Id.
at 93-94, 388 N.W.2d at 550. A
determination of inequitableness requires the circuit court to exercise its
discretion based upon the facts and the applicable law. Id. at 99, 388 N.W.2d at
552. However, whether Ralph's
disclosure was reasonable presents a question of law which we review independently
of the trial court's determination. See
Wassenaar v. Panos, 111 Wis.2d 518, 525, 331 N.W.2d 357, 361
(1983).
The trial court ruled
that Ralph did not make a reasonable disclosure of his financial status at the
time the parties entered the PNA. We will
address this procedural fairness issue first.
The trial court found
that Ralph vaguely recalled referring to the Stockholders Agreement in 1986
when he valued his Johnsonville stock.
Ralph testified that he arrived at $1,325,000, his best estimate of the
value of his Johnsonville stock, after valuing the company in light of the
Stockholders Agreement[4]
which required Ralph to offer his shares first to the company and restricted
the sale of shares to parties not subject to the Stockholders Agreement. Ralph's valuation did not contemplate any
scenario in which the stock would be sold to parties outside the Stockholders
Agreement.
Catharine testified that
she did not know how Ralph valued the Johnsonville stock but accepted his
figure because she trusted him to tell the truth. Catharine testified that at the time of the PNA negotiations, she
had recently concluded the redemption of her Bemis stock and "was pretty
well knowledgeable because of this on how you value, how difficult it is to
value stock in a privately, closely-held family company." Catharine understood that a range of values
was possible. The parties agreed at the
time the PNA was drafted that Catharine's estate was larger than Ralph's, but
that Ralph's assets would probably increase over time. Catharine, who had separate counsel, made no
independent effort to confirm Ralph's valuation of his stock even though she
understood the difficulty in arriving at such a value.[5] However, she did not expect to see the
dramatic growth in Johnsonville that occurred after the parties signed the
PNA. Although she believed the PNA was
equitable at the time she signed it, she came to believe that Ralph did not
fairly and reasonably disclose the value of his Johnsonville stock and that the
PNA did not serve the purpose for which it was intended: to assure that the parties' estates were
relatively equal.
We disagree with the
trial court that simply because Catharine's valuation of her estate was more
precise, Ralph's disclosure was unreasonable.
An agreement can be fair and reasonable even where one party does not
seek an independent appraisal of an asset.
See Gardner v. Gardner, 190 Wis.2d 216, 231, 527
N.W.2d 701, 705-06 (Ct. App. 1994).
"The purpose of a fair and reasonable disclosure is to guard
against the possibility that ‘[a] party might not have entered into the
agreement had she or he known the facts.'" Id. at 232, 527 N.W.2d at 706 (quoted sources
omitted).
The facts were known to
Catharine at the time of the agreement.
She had separate counsel and was familiar with the difficulties
associated with valuing a closely-held corporation. The PNA treated as separate property the appreciation of assets
deemed separate property under the PNA.
Ralph's largest asset was stock.
Catharine's largest assets were cash and investment accounts. It was possible that the value of Ralph's
stock would increase faster than Catharine's investments. The framework of the agreement was clear to
the parties.
Catharine argues that
Ralph was obligated at the time of entry into the PNA to value the Johnsonville
stock without considering the Stockholders Agreement. We disagree. The Stockholders
Agreement was an appropriate consideration.
Absent certain circumstances, Ralph was not free to sell his stock in
the marketplace and this had an adverse impact on its value. The trial court recognized this when it
accepted the opinion of Ralph's expert, John Emory, that the Stockholders
Agreement limits the marketability of Ralph's minority stake in the company and
depresses the shares' value.
Finally, a de minimis
failure to disclose will not invalidate an agreement. Schumacher v. Schumacher, 131 Wis.2d 332, 338, 388
N.W.2d 912, 914-15 (1986). Here,
Ralph's expert's valuation is $129,000 more than the value Ralph offered in
1986, a small percent of Ralph's total net estate. Increasing Ralph's $1.3 million stock valuation by $129,000 still
yields Ralph a smaller estate than Catharine on the date of the PNA.
We turn to the trial
court's conclusion that the PNA was substantively unfair to Catharine. There is no question that changes occurred
within the marriage which had significant financial consequences. However, these changes—the dramatic increase
in the value of Ralph's interest in Johnsonville, for example—were anticipated
by the PNA.
The destruction of the
parties' home and replacement by a substantially more expensive home did not
render the PNA substantively unfair.
Catharine testified that the multi-million dollar home "just kind
of got out of hand ...." She
acknowledged that the house is overbuilt for the community and that she and
Ralph knew they would never recover the cost of constructing the house. While Catharine invested a substantial
amount of her separate property in the home, the balance of the cost was
financed by an $800,000 loan upon which Ralph has made payments. Furthermore, the house is classified marital
property under the PNA. Finally, the
PNA contemplated that the parties might change their residence during the
course of the marriage.
In framing a
substantively fair PNA, "the parties should consider the circumstances
existing at the execution of the agreement and those reasonably
foreseeable." Button,
131 Wis.2d at 97, 388 N.W.2d at 551.
Here, the parties did so. It was
reasonably foreseeable that the value of the Johnsonville stock would increase
and the parties would acquire a new residence during the marriage.
In sum, we conclude that
the trial court misused its discretion when it vitiated the PNA because its
reasons for doing so are not supported by the law governing the procedural and
substantive fairness of postnuptial agreements. Having so held, we need not address Ralph's other appellate issue
challenging the trial court's treatment of the appreciated value of the
Johnsonville stock. We remand this
matter to the trial court with directions to enforce the PNA. The trial court may revisit any issues of
property division or maintenance affected by enforcement of the PNA.
On cross-appeal,
Catharine challenges the trial court's valuation of the Johnsonville stock for
purposes of property division in the absence of an enforceable PNA. Although we have upheld the PNA which
provides that the stock and its increase in value are Ralph's separate
property, the trial court may still consider the stock's value in dividing the
parties' non-separate property and determining maintenance. See §§ 767.255(3) and 767.26, Stats.
However, we need not address Catharine's other issues relating to the
consequences for the marital estate of appreciation of the Johnsonville stock
because the PNA declares appreciation to be separate property. Because we have upheld the enforceability of
the PNA, these issues are moot.
We will not disturb the
trial court's valuation of a closely-held corporation unless that finding is
clearly erroneous. See Schorer
v. Schorer, 177 Wis.2d 387, 396, 501 N.W.2d 916, 918-19 (Ct. App.
1993). The trial court assesses the
weight and credibility of the expert testimony, and where there is conflicting
testimony the trial judge is the ultimate arbiter of the credibility of the
witnesses. Id. at 396-97,
501 N.W.2d at 919. If the trial court
accepts the testimony of one expert over that of another, and the first expert's
testimony is sufficient to support the trial court's conclusion, the trial
court must be sustained. Id.
at 397, 501 N.W.2d at 919. Trial courts
are not required to accept a particular method of valuation. Id. at 399, 501 N.W.2d at
920. However, fair market value must be
determined and that depends upon the credibility of the expert and the methods
and approaches employed by him or her in valuation. Id.
The trial court heard
two experts. Emory, Ralph's expert,
valued the Johnsonville stock at $7,307,495.
Todd Mueller, Catharine's expert, set the value at $15,185,290. The trial court found that Mueller valued
Ralph's stock based upon a hypothetical sale of the entire company, while Emory
based his value upon a hypothetical sale of only Ralph's interest in the
company, thereby reflecting that Ralph held a minority stake and that his stock
is subject to a Stockholders Agreement which depresses the stock's value by
restricting marketability to outside third parties. The court found Emory's valuation more credible because he
considered relevant factors and his opinion was "rooted in an analysis
which considers salient, pragmatic components and works to a cogent,
well-reasoned conclusion."
The court rejected
Mueller's valuation for a number of reasons.
First, Mueller virtually ignored the Stockholders Agreement and premised
the value of the stock on Ralph's de facto control of the business. The court found that while Ralph functions
as chief executive officer, he does not have a controlling interest in the
corporation. Second, Mueller based his
valuation on a supposition that all of the company's stock would be sold at one
time. However, the court found that
neither Ralph nor any of his family members were interested in selling the
company.
The trial court's
findings regarding the experts' valuations are not clearly erroneous. The trial court was charged with assessing
the credibility of the witnesses and found Emory to be more credible than
Mueller.
Catharine criticizes the
trial court for finding that the Stayer family was not interested in selling
Johnsonville, pointing to a 1993 negotiation with the Sara Lee Corporation to
sell Johnsonville. The trial court
inferred from the fact that the transaction with Sara Lee was not completed
that the Stayers did not desire to sell Johnsonville. Furthermore, members of the Stayer family testified that they
were not interested in selling the company.
We must accept a reasonable inference drawn from credible evidence by a
trier of fact. Id. at
397, 501 N.W.2d at 919.
Having held in Ralph's
appeal that the trial court erred in declining to enforce the PNA, we reverse
and remand to the trial court with directions to enforce the PNA. In light of this holding, the trial court
may revisit issues of property division and maintenance which will be affected
by our holding that the PNA is enforceable.
On the cross-appeal, we affirm the trial court's valuation of Ralph's
Johnsonville stock in accord with the Emory opinion.
By the Court.—Judgment
affirmed in part; reversed in part and cause remanded with directions.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.
[2] We refer to the 1993-94 statutes. The text of this provision of the statutes has not changed since the parties entered their PNA. The number of the statute was changed from § 767.255(11), Stats., to § 767.255(3)(L) by 1993 Wis. Act 422.
[3] There does not appear to be any issue regarding the voluntary and free nature of Catharine's assent to the PNA. Accordingly, we will not address this factor.