J-S73037-16

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

IN THE SUPERIOR COURT OF
PENNSYLVANIA

ERIC L. BI`|'|'NER
Appellant

LISA D. SMITH

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Appe||ee No. 513 WDA 2016

Appeal from the Order March 9, 2016
In the Court of Common Pleas of Somerset County
Domestic Relations at No(s): 341 Domestic 2014

IN THE SUPERIOR COURT OF
PENNSYLVANIA

LISA D. SMITH

Appe||ee

ERIC L. BI`|_|'N ER

Appellant No. 514 WDA 2016

Appeal from the Order March 9, 2016
In the Court of Common Pleas of Somerset County
Domestic Relations at No(s): 349 Domestic 2014, Pacses No 7461150

BEFORE: FORD ELLIO`|_|', P.J.E., LAZARUS, J., and JENKINS, J.
MEMORANDUM BY JENKINS, J: FILED OCTOBER 24, 2016

Eric Bittner (“Father") appeals at the above caption numbers from an
order sustaining the exceptions of Lisa Smith (“Mother") to a support order
and directing Father to pay monthly child support of $178.37 to Mother.

Although We agree with most of the trial court's analysis, We disagree with

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its conclusion that Father received income from utility payments made by a
corporation in which Father is the majority shareholder. Accordingly, we
reverse and remand for recalculation of Father's support.

Father and Mother married in 1998 and divorced in 2004. Two
children were born during the marriage, both of whom are still minors. The
parties stipulate that they share equal physical and legal custody of the
children.

Mother is employed by the federal Bureau of Prisons, and Father is
employed as a police officer by the City of Brunswicl<, Maryland. Father also
is majority owner of Alice M. Bittner, Inc., (“Alice, Inc."), which runs one bus
route for the Board of Education of Garrett County, Maryland.

On December 10, 2014, Father filed a complaint for support at 341
Domestic 2014. On December 18, 2014, Mother filed a cross-complaint for
support at 349 Domestic 2014.

On February 4, 2015, pursuant to Pa.R.Civ.P. 1910.12, a hearing
officer convened a conference on the cross-complaints. On February 6,
2015, the court dismissed Mother's action at 349 Domestic 2014 without
prejudice. On February 11, 2015, based on the hearing officer's summary,
the court entered an interim order in Father's action at 341 Domestic 2014
directing Mother to pay $319.00 per month in child support and $64.00 per
month in arrears for a total of $383.00 per month. The effective date of the

order was December 10, 2014.

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Mother moved for an evidentiary hearing at both 341 and 349
Domestic 2014. On March 31, 2015, a hearing officer held a de novo
hearing at both caption numbers.

On May 14, 2015, the hearing officer filed a report in Father's action at
341 Domestic 2014 recommending that Mother pay $262.21 per month in
support with an additional $37.79 per month for arrears, for a total of
$300.00 per month; that Father pay the first $250.00 per child per year for
medical bills; and that thereafter, Mother is responsible for 56% of
unreimbursed medical bills and Father is responsible for the remaining 44%.
The hearing officer recommended that the court terminate Mother's action at
349 Domestic 2014 and merge it into 341 Domestic 2014.

On the same date, May 14, 2015, the hearing officer filed a report in
Mother's action at 349 Domestic 2014 incorporating his findings at 341
Domestic 2014 and recommending that 349 Domestic 2014 be terminated.

Later on the same date, the court decreed that Mother's action at 349
Domestic 2014 was “dismissed without prejudice clue to the
recommendations of the hearing officer. The order of court dated 2/6/2015
[at 349 Domestic 2014] shall become the final order." Notably, the
February 6, 2015 order was designated as a “final order” even though it only
dismissed 349 Domestic 2014 without prejudice.

On May 27, 2015, the court entered an order in Father's action at 341

Domestic 2014 that followed the hearing officer's recommendations as to

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Mother's total obligations of $300.00 per month and as to the parties'
responsibilities for medical bills.

On June 15, 2015, Mother filed exceptions to the court's order at 341
Domestic 2014.

On March 9, 2016, following oral argument, the court entered a
memorandum and order at 341 Domestic 2014 sustaining Mother's
exceptions and directing that (1) Father's monthly income was $3,895.96;
(2) Mother's monthly income was $3,539.22; (3) Father's support obligation
was $178.37, with arrearages as appropriate; (4) Mother shall continue to
provide health insurance coverage for the children; and (5) the interim
orders issued on February 11, 2015 and May 26, 2015 were vacated. Stated
more simply, the court vacated the prior orders directing Mother to pay child
support to Father and ordered Father to pay child support to Mother.

On April 7, 2016, Father filed notices of appeal to this Court at both
341 and 349 Domestic 2014. Both Father and the trial court complied with
Pa.R.A.P. 1925.

Father raises five issues in this appeal, which we re-order for the sake
of disposition:

1. Is the order in [] 349 Domestic 2015 dated May 14, 2015 a
final order to which no appeal was filed?

2. Did the lower court erroneously classify valid corporate
expenditures as personal income of Father and thereby abuse its
discretion and commit an error of law?

3. Did the lower court abuse its discretion and commit an error
of law by attributing as income funds not available to, or

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received by, Father and which [the Bittner corporation] would
have to borrow to pay?

4. Did the lower court commit an error of law when it did not
dismiss Mother's exceptions which improperly contained
allegations of fact and argument instead of setting forth valid
objections precisely and without discussion?

5. Did the lower court abuse its discretion and commit an error
of law when it considered the evidence de novo?

Brief For Father, at 4-5.
Pa.R.Civ.P. 1910.12 provides the procedure used in this support
proceeding. In relevant part, it states:

(b) (1) At the conclusion of a conference attended by both
parties, if an agreement for support has not been reached, and
the conference and hearing are not scheduled on the same day,
the court, without hearing the parties, shall enter an interim
order calculated in accordance with the guidelines and the
parties shall be given notice of the date, time and place of a
hearing. A record hearing shall be conducted by a hearing officer
who must be a lawyer...

(d) The hearing officer shall receive evidence, hear argument
and file with the court a report containing a recommendation
with respect to the entry of an order of support. The report may
be in narrative form stating the reasons for the recommendation
and shall include a proposed order stating:

(1) the amount of support calculated in accordance with
the guidelines;

(2) by and for whom it shall be paid; and

(3) the effective date of the order.

(e) The court, without hearing the parties, shall enter an interim
order consistent with the proposed order of the hearing officer.
Each party shall be provided, either in person at the time of the
hearing or by mail, with a copy of the interim order and written
notice that any party may, within twenty days after the date of
receipt or the date of mailing of the order, whichever occurs

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first, file with the domestic relations section written exceptions

to the report of the hearing officer and interim order.

(f) Within twenty days after the date of receipt or the date of

mailing of the report by the hearing officer, whichever occurs

first, any party may file exceptions to the report or any part

thereof, to rulings on objections to evidence, to statements or

findings of facts, to conclusions of law, or to any other matters
occurring during the hearing

(h) If exceptions are filed, the interim order shall continue in

effect. The court shall hear argument on the exceptions and

enter an appropriate final order No motion for post-trial relief

may be filed to the final order.

Id.

Although the hearing officer's report is entitled to great weight, it is
not binding on the trial court, for the final responsibility of determining child
support rests with the court. McNaughton v. McNaughton, 603 A.2d 646,
648 (Pa.Super.1992). Even if the hearing officer accepts the parties'
testimony, the trial court remains free to accept or reject the parties'
testimony. Thomson v. Thomson, 519 A.2d 483, 488 (Pa.Super.1986).
This Court's review is limited to determining whether the trial court's
decision was an abuse of discretion. McNaughton, 603 A.2d at 648.

Father first argues that the May 14, 2015 order in 349 Domestic 2014
was a “final order" that required Mother to file exceptions at this caption
number, and since Mother only filed exceptions at 341 Domestic 2014, she
waived all issues presently in dispute. We disagree.

The court's May 14, 2015 order dismissed 349 Domestic 2014 “without

prejudice" based on the “recommendations of the hearing officer." This

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language demonstrates the court's decision to follow the hearing officer's
recommendation to merge 349 Domestic 2014 into 341 Domestic 2014.1
Following merger, only one case remained as the repository for all issues
between the parties - 341 Domestic 2014 - so it was only necessary for
Mother to file exceptions to the support order in 341 Domestic 2014. She
did just that by filing timely exceptions on June 15, 2015.

We consider Father's second and third arguments on appeal together,
for they raise the same objection. Father contends that the trial court
abused its discretion by determining that Father received additional income
for support purposes from four items that Alice, Inc. listed as deductions on
its tax return: utilities, rent, office and auto expenses.

The trial court properly determined that Alice, Inc.'s tax deductions for
rent, office expenses and auto expenses constituted additional income to
Father. We disagree, however, with the court's decision that Alice, Inc.'s
payment of utilities constituted additional income to Father.

In its March 9, 2016 memorandum, the trial court explained its

support calculations as follows:

 

1 The May 14, 2015 order states incorrectly that the February 6, 2015 order
is the “final order" in 349 Domestic 2014. The February 6, 2015 order was
not a “final” order, because: (1) it dismissed 349 Domestic 2014 without
prejudice, see Pa.R.A.P. 341(b) (final order “disposes of all claims and all
parties"); and (2) the May 14, 2015 order occurred later in time and
superseded the February 6, 2015 order by providing an additional remedy,
the merger of 349 Domestic 2014 into 341 Domestic 2014.

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Alice, Inc. is an Internal Revenue Code, Subchapter C
corporation which [] contract[s] to provide bus services to the
Garrett County Board of Education. Father owns one bus and
runs one bus route for Garrett County.

Father owns 80% of Alice, Inc.'s stock, the other 20% being
treasury stocl<. [Under Maryland law, Alice, Inc.'s state of
incorporation,] [t]reasury stock is ‘stock which is authorized and
issued but not outstanding.' Valerino v. Little, 490 A.2d 756,
761 (Md. Ct. Spec. App. 1985). In other words, Father owns
80% of Alice, Inc.'s stocl<, and Alice, Inc. itself owns the other
200/0.

Father, as President of the corporation, is [its] only officer. The
company has three employees: one bus driver and two bus
aides. Father runs Alice, Inc. out of his house. He sometimes
uses his personal Visa credit card to purchase parts for the
bus[,] and Alice, Inc. reimburses him. Father also allows the
business to use his own personal vehicle. As Father operates the
bus out of his home, Alice, Inc. also pays him sums for, among
other things, electricity the bus uses while stored at Father's
home and ‘the rent', which Father denies constitutes income.

Alice, Inc. has allegedly paid no dividends or other distributions
to Father because ‘[t]here's no funds [sic].' Father claims Alice,
Inc. is unprofitable, i.e., that it loses money, however, he
maintains it ‘[t]o carry it on for my children just like my
grandfather had it for someone in the family to pass down.' As
the testimony illustrates:

Q: You want to pass down an unprofitable company?

A: Yes, sir.

Q: Why would - if you're losing money on it every year,
why wouldn't you shut it down and save yourself money?
A: Because it's more about - it's been in the family and it's
what I've done growing up and it's what I continue to do.

We believe that because Father is the sole (apart from Alice, Inc.
itself) shareholder of the corporation; [because] he co-mingles
corporate money with his personal credit card; [because] he
operates the business out of his own home; and [because] he
pays himself rents, it is appropriate in this instance to pierce the
corporate veil and attribute the income of the corporation to
Father. Commonwealth ex rel. Maier v. Maier, 418 A.2d

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558, 560-61 (Pa.Super.1980) (holding, in context of spousal
support, ‘because appellant [defendant-husband] is the sole
stockholder of [two companies] and determines his own salary,
this is an appropriate case for piercing the corporate veil and
considering the income of those corporations in determining
appellant's earning capacity'); see also Heisey v. Heisey, 633
A.2d 211, 213 (Pa.Super.1993) (stating, vis-a-vis child and
spousal support, ‘normally, the court should pierce the corporate
veil to determine if a spouse's ability to pay support is enhanced
by advantages owing to ownership or membership in a
corporation') (citing Pacella v. Pacella, 492 A.2d 707
(Pa.Super.1985)).

We must examine then the corporate income tax return of Alice,
Inc. to determine the corporate income that is available to
Father for purposes of support. This inquiry requires us to train
our focus on corporate cash flow; not just the income
calculations made for purposes of determining corporate
taxation. In other words,

income must reflect actual available financial resources
and not the often times fictional financial picture which
develops as the result of depreciation deductions taken
against... income as permitted by the federal income tax
laws. Otherwise put, ‘cash flow' ought to be considered
and not federally taxed income.

Heisey, 633 A.2d at 212, citing McAuliffe v. McAuliffe, 613
A.2d 20, 22 (Pa.Super.1992). Said otherwise, depreciation and
depletion expenses ‘should be deducted from gross income only
when they reflect an actual reduction in the personal income of
the party claiming the deductions.' Labar v. Labar, 731 A.2d
1252, 1255 (Pa.1999) (internal citations omitted). Our directive
is clear: we examine Alice, Inc.'s tax return, and wherever a
deduction is not linked to an actual cash outlay, we must factor
it back into Alice, Inc.'s income.

We note, first of all, that Father submitted no supporting
documentation apart from Alice, Inc.'s tax return. According to
the 2014 federal tax return, Alice, Inc. received gross receipts of
$84,498. However, after figuring in all of its deductions, the
corporation ended up claiming a taxable income of -$57,864.
Father indicated that from the corporate receipts, the
corporation paid him $7,011 in rents, which amount must be

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added back to corporate income. The corporation also paid
Father $1,630 for ‘office' and $2,251 in utilities. Keeping in
mind, again, that Father operates this business out of his home,
these amounts for office and utility expenses too must be added
back to the corporate income.

The corporation also claimed $3,574 in ‘auto expenses.' There
was no evidence to explain what these ‘auto expenses' were for,
but they are listed separately from fuel, contract labor,
insurance, supplies, repairs and maintenance, taxes and
licenses, and depreciation relating to the purchase of a new bus.
Because no evidence has been provided to explain what these
‘auto expenses' were, and eliminating the other categories
leaves us unable to imagine what these expenses could have
been for, we must add this amount back to corporate income.

Because of the specificity of the remaining deductions,[z] we are

satisfied that they approximate actual cash expenditures which

were necessary for the continued operation and smooth running

of the business. Labar, 731 A.2d at 1257.

By adding the foregoing amounts back to corporate income, and

then attributing those amounts to Father, Father's monthly

income is increased from $2,667.97 per month to $3,895.96 per

month.
Memorandum, at 5-8 (citations to record omitted).

In support cases, where tax returns do not reflect actual earnings, we
have approved various methods to calculate earnings figures that accurately
mirror a party's real wealth. See, e.g., Maier, 418 A.2d at 560-61 (where

supporting spouse is sole stockholder of corporation and determines his own

salary, court may pierce corporate veil and use corporate income as basis for

 

2 These deductions included, inter alia, Father's business expenses for fuel,
contract labor, insurance, supplies, repairs and maintenance, and taxes and
licenses.

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determining earning capacity); Commonwealth v. Miller, 198 A.2d 373,
375 (Pa.Super.1964) (where supporting spouse is self-employed, net
income, as it appears on income tax forms, is not “infallible" measure of real
wealth; although certain items “may have been proper deductions under the
income tax law consideration must be given in a support case to those
deductible expenditures which improve the defendant's standard of living”;
court properly added back portion of depreciation deduction in calculating
amount of support owed); Commonwealth ex rel. Gutzeit v. Gutzeit, 189
A.2d 324, 326-27 (Pa.Super.1963) (in determining supporting spouse's
earning capacity, court should consider not only salary paid by wholly owned
corporation but all prerequisites provided by corporation).

Father asserts that his corporation's tax return accurately depicts his
level of income, but the trial court concluded that four deductions on the
return -- rent, office space, auto expenses, and utilities - did not reflect
actual diminution of Father's income. We review each deduction seriatim.

Rent: Alice, Inc. took a deduction for paying monthly rent to Father for
the school bus. Because Father received the rental payments, they
constituted income to Father for support purposes.

Office: Alice, Inc. paid Father for the use of an office in Father's
residence. Like rent, this constitutes income to Father for support purposes.

Auto expenses: In the trial court's opinion, Father's failure to itemize

$3,574.00 in auto expenses indicated that Father double-counted these

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expenses by including them in one or more other categories (e.g., fuel,
contract labor, insurance, supplies, repairs and maintenance, taxes and
licenses, and depreciation relating to the purchase of a new bus). We
conclude that this was a proper exercise of the court's discretion.
Experience teaches that auto expenses are relatively simple to itemize, so
Father's failure to take this step casts doubt on the veracity of this rather
substantial deduction.

Uti/ities: Father claimed that he used utilities in his house both for
residential purposes and as a source of electricity for his school bus, which
he parked in the driveway. Father testified he paid for all utilities, whether
they were for residential purposes or for the bus. N.T., 3/31/15, at 44-45
(testimony before hearing officer). No evidence conflicted with this
testimony.

We see a distinction between Alice, Inc.'s payment for utilities and
Alice, Inc.'s aforementioned payments for rent and office expenses. Alice,
Inc.'s payments to Father for rent and office expenses were income to
Father, because they went into his wallet. Alice, Inc.'s payment for utilities
was not income to Father, because it merely reimbursed him for his own
out-of-pocket expenses. Therefore, we direct the trial court to recalculate
Father's child support obligation by excluding Alice, Inc.'s utility payment

from Father's income.

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In his fourth argument on appeal, Father complains that Mother
improperly included argument and “rambling allegations" in her exceptions
to the May 27, 2015 order. Brief For Father, at 17. Father has waived this
argument by failing to specify the argument or allegations in his brief.
Moranko v. Downs Racing LP, 118 A.3d 1111, 1117 n. 3 (Pa.Super.2015)
(failure to develop issue in meaningful way in appellate brief constitutes
waiver).

In his final issue, Father argues that the lower court abused its
discretion by considering the evidence de novo. We pointed out above that
de novo review is permissible, for even if the hearing officer accepts the
parties' testimony, the trial court remains free to accept or reject the parties'
testimony. Thomson, 519 A.2d at 488.

For these reasons, we affirm the trial court's order in part and reverse
ih part for further proceedings limited to determination of the amount of
utility payments that Father made and the corresponding adjustment to his
support payments.

Affirmed in part and reversed in part; case remanded for proceedings

consistent with this memorandum. Jurisdiction relinquished

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Judgment Entered.

 

J seph D. Seletyn, Es .
Prothonotary

Date: 101 2412016

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