                                  COURT OF APPEALS OF VIRGINIA


Present: Judges Kelsey, Haley and Beales
Argued at Chesapeake, Virginia


JOSEPH WAYNE SCOTT
                                                              MEMORANDUM OPINION * BY
v.     Record No. 2422-06-1                                   JUDGE JAMES W. HALEY, JR.
                                                                  DECEMBER 18, 2007
JOAN A. SCOTT


                  FROM THE CIRCUIT COURT OF THE CITY OF SUFFOLK
                              Westbrook J. Parker, Judge

               Barry Kantor (Christie, Kantor, Griffin & Smith, on brief), for
               appellant.

               Kenneth A. Moreno (Kershner & Moreno, on brief), for appellee.


       Joseph Wayne Scott (“husband”) appeals from an equitable distribution order, arguing

1) that the trial court erred in valuing husband’s accounting practice at $145,200 and finding

90% of the practice to be marital property subject to equitable distribution; and 2) that the trial

court erred in ordering him to pay some of his wife’s attorney’s fees. For the reasons that follow,

we find no reversible error and affirm the judgment of the trial court.

                                    STATEMENT OF FACTS

       Husband married Joan A. Scott (“wife”) on August 5, 1989. They separated on August

11, 2003. Since 1982, husband has worked as a certified public accountant for the accounting

firm of Frank E. Sheffer & Company (“Sheffer & Co.”). According to a stock agreement signed

by the original shareholders in 1983, Sheffer & Co. was organized as a corporation under the

laws of Virginia. All stockholders in the company were licensed accountants, and each of the


       * Pursuant to Code § 17.1-413, this opinion is not designated for publication.
original stockholders had an interest in the company of 1,000 shares of Class A common stock.

Frank Edward Sheffer, the founder and president of the firm, also received 50,000 Class B shares

according to the original agreement. In 1987, husband was made a shareholder in the company

and received 7½ shares of stock. According to the testimony of husband’s colleagues at Sheffer

& Co., husband received additional shares in 1988, 1989, and 1990.

       It is not precisely clear whether husband’s stock in Sheffer & Co. also formed 20% of the

equity in the company at the time of his separation from wife because another accountant,

Charles Louder, was given shares of stock at the same time as husband. Frank Sheffer’s

testimony indicated that only he, Arthur Robb, and husband, were shareholders at the time of the

equitable distribution hearing (March 31, 2006), suggesting Mr. Louder had left the company by

then. But neither he nor any other witness mentioned when Mr. Louder left the firm and how his

leaving affected each of the remaining shareholders’ stake in the company.

       The 1983 shareholder agreement requires that stockholders who end their employment

with Sheffer & Co. sell their shares back to the company. In 1996, Steven Huber, one of the

original stockholders, left the firm, gave up his shares, and received severance pay of $250,000.

Mr. Huber testified that the employment agreement entitled him to receive the increase in

accounts receivable and work in process from the time he acquired his stock to the time he left

the company multiplied by his ownership interest in the company. Mr. Huber also testified that

$250,000 was substantially less than he was entitled to according to the agreement, but that the

agreement’s formula was discussed in their negotiating the sum he did receive. Husband, all of

his colleagues, and even wife’s expert, Gregory Lawson, testified that husband would receive no

money under the employment agreement if he were to leave the company because the debts of

the company had greatly increased following Mr. Huber’s departure from the firm. Frank




                                               -2-
Sheffer testified the company’s debt problem resulted from their failure to bill their clients for

approximately two years.

       Sheffer & Co. has no stock book, no meetings of the board of directors, and no corporate

minutes. Other than husband, who introduced into evidence a stock certificate for 18 and 2/3

shares dated January 1, 1990, none of the shareholders who testified could say whether they had

ever been issued stock certificates. Wife’s expert witness received written confirmation that

Arthur Robb and Frank Sheffer each owned 40% of the company and that husband owned the

other 20%. However, the three stockholders all shared equally in the profits of their accounting

business, each receiving one third of the profits. Husband testified that this was $113,542 in

2005. There were no documents reflecting any changes to the stockholders’ respective

ownership interests as new stockholders joined the firm and others left. Mr. Sheffer and Mr.

Robb testified that they conducted their business with one another largely by informal

agreement. In response to Mr. Robb’s testimony, the trial judge asked him about how husband’s

original seven and a half shares could constitute a significant stake in the company if the original

shareholders each owned 1,000 shares. Mr. Robb answered that he believed that at some point

the firm informally agreed to reduce the number of shares because of, “the cost of filing with the

security exchange. SCC.” Mr. Robb mentioned that there was no written agreement reflecting

this change in the number of outstanding shares.

       Gregory Lawson, an accountant, was certified as an expert witness in business valuation.

Mr. Lawson testified as to the value of Sheffer & Co. Wife introduced into evidence a report,

written by Mr. Lawson, that included estimates of the company’s intrinsic value, or the economic

benefit the owner derived from ownership of the business, based on ownership interests in the

company of 20% and a 33.33%. Mr. Lawson also answered questions from counsel for both




                                                -3-
parties explaining the valuation methods and sources of information he used. Mr. Lawson made

his estimates after meeting with the shareholders. Mr. Lawson also reviewed the employment

and shareholder agreements, the firm’s corporate tax returns for 1998 through 2004, the firm’s

salary schedules, and summaries of the firm’s accounts receivable and work in process for

December 2003 and December 2004. Using a capitalization of earnings method, and after

subtracting the debts of the company and his estimate of the proportion of husband’s share of the

business attributable to husband’s personal goodwill, Mr. Lawson valued husband’s ownership

interest in 20% of Sheffer & Co. at between $83,500 and $87,200. Mr. Lawson valued a 33.33%

ownership interest in the company at between $139,200 and $145,200.

       The trial court declined to value Sheffer & Co. using Mr. Lawson’s 20% figure because:

               While it appears that Frank Edward Sheffer and Company registers
               with the State Corporation Commission each year, that is the only
               act consistent with this entity being a corporation. Mr. Scott owns
               one-third of the business, but the Court cannot use the purported
               value of the stock because this is a corporation in name only. The
               original stock agreement describes 3000 shares of Class A stock
               (in 1983) and the testimony was that 4 years later, Mr. Scott was
               given 5% of the stock, which amounted to 7.5 shares – that doesn’t
               compute; additionally, Mr. Scott was given (or it is alleged he was
               given) 18-3/4 shares of stock between 1987-1990, but the stock
               certificate describes 18-2/3 shares. While this is a miniscule
               difference, it illustrates that no one knows what the stock amounts
               are. After Mr. Huber left the firm, Mr. Scott became the owner of
               20% of the stock, but there is no legal explanation of that; to
               further complicate matters no other stock certificates are available
               as proof of ownership. There are no original corporate documents
               or corporate minutes to establish that a corporation in reality exists.

Instead, the trial court used Mr. Lawson’s 33.33% figure, concluding that husband’s stake in

Sheffer & Co. had a value of $145,200, of which 90% was marital property. That percentage is

approximately the proportion of husband’s time as a shareholder in Sheffer & Co. that he was




                                                -4-
married to wife before their August 11, 2003 separation. The trial court awarded wife 40% of

the share of husband’s accounting practice classified as marital, or $52,272.

        The trial court also ordered husband to pay wife $4,500 of her attorney’s fees, having

found that this was the cost of unnecessary discovery expenses. The trial court found that these

expenses were the result of Sheffer & Co.’s defiance of wife’s subpoena duces tecum. Husband

objected to paying the $4,500 on the grounds that it was the corporation’s lack of cooperation,

and not his own, that caused these unnecessary expenses.

                                             ANALYSIS

        Our applicable standard of review gives considerable deference to the discretion of the

trial court.

               Unless it appears from the record that the trial judge has abused his
               discretion, that he has not considered or has misapplied one of the
               statutory mandates, or that the evidence fails to support the
               findings of fact underlying his resolution of the conflict in the
               equities, the equitable distribution award will not be reversed upon
               appeal.

Blank v. Blank, 10 Va. App. 1, 9, 389 S.E.2d 723, 727 (1990). “[T]he value of property is an

issue of fact, not of law.” Howell v. Howell, 31 Va. App. 332, 340, 523 S.E.2d 514, 518 (2000).

“We will not disturb a trial court's finding of the value of an asset unless the finding is plainly

wrong or unsupported by the evidence.” Shooltz v. Shooltz, 27 Va. App. 264, 275, 498 S.E.2d

437, 442 (1998). However, “a trial court ‘by definition abuses its discretion when it makes an

error of law.’” Id. at 271, 498 S.E.2d at 441 (quoting Koon v. United States, 518 U.S. 81, 100

(1996)). “An abuse of discretion also exists if the trial court fails to consider the statutory factors

required to be part of the decisionmaking process.” Congdon v. Congdon, 40 Va. App. 255, 262,

578 S.E.2d 833, 836-37 (2003).




                                                 -5-
                           The Value of Husband’s Accounting Practice

       To determine the value of an asset for equitable distribution purposes, we look to the

intrinsic value of the asset to the parties. Owens v. Owens, 41 Va. App. 844, 854, 589 S.E.2d

488, 493 (2003). Intrinsic value is a subjective concept, and different methods of valuation may

be appropriate to different situations. Howell, 31 Va. App. at 339, 523 S.E.2d at 517-18. Prior

decisions cite this need for flexibility as the reason for giving great weight to the factual findings

of trial courts. Id. at 339, 523 S.E.2d at 518; Hoebelheinrich v. Hoebelheinrich, 43 Va. App.

543, 551, 600 S.E.2d 152, 155-56 (2004).

       Husband argues that the trial court erred in accepting Mr. Lawson’s testimony that his

interest in Sheffer & Co. was worth $145,200. We disagree. Husband contends this was too

high a figure. He cites the evidence of the large debts the company owed to banks and to Mr.

Sheffer personally. Husband also emphasizes the testimony from all the witnesses, including

Mr. Lawson, that he would not receive anything for his shares if he left the company. Mr.

Lawson’s valuation letter and his related testimony both reflect that he reached the $145,200

figure only after deducting the debts to which husband refers from the assets of the company.

See Hoebelheinrich, 43 Va. App. at 552, 600 S.E.2d at 156.

       As for the probability that husband would not receive anything for his shares if he left,

our prior decisions suggest this is too speculative a consideration to overcome the deference we

owe to the finder of fact because there was no evidence that husband actually planned to leave

the firm. Indeed, husband’s testimony was that he planned to stay because of a non-competition

contract that he had signed. “The reason for rejecting the value set by buyout provisions is that

they do not necessarily represent the intrinsic worth of the stock to the parties.” Bosserman v.

Bosserman, 9 Va. App. 1, 6, 384 S.E.2d 104, 107 (1989). In Owens, husband complained that




                                                 -6-
the trial court had overvalued his business because it did not include “lack of marketability

discount.” Mr. Owens argued that any buyer would pay less for his 50% in the company than the

trial court awarded because the interest offered for sale was not a controlling interest.

               If a sale is improbable, the discount need not be applied. See e.g.,
               Howell, 31 Va. App. at 345, 523 S.E.2d at 521 (approving trial
               court’s rejection of minority and marketability discounts for a
               minority equity interest in law partnership where “no transfer of
               the partnership interest was foreseeable and no one in the firm, nor
               any group within it, exercised majority control”).

Owens, 41 Va. App. at 856, 589 S.E.2d at 494-95. Mr. Lawson offered a thorough explanation

for his conclusion that husband’s stake in the firm was worth $145,200 in 2004. He also

described the sources of information he used in valuing the company: meetings with the

stockholders, the company’s tax returns, accounts receivable, work in process, and the written

stockholder and employment agreements of the company. Because Mr. Lawson offered a

reasonable explanation for his treatment of the debts, it was within the trial court’s discretion to

value the accounting practice as it did. Because there was no evidence that husband planned to

leave the company, we hold the trial court did not err in accepting Mr. Lawson’s figure instead

of what husband might have received for his shares if he had left the company.

                    Husband’s Ownership Interest in the Accounting Practice

       Even if the trial judge valued the accounting practice correctly, husband claims that the

trial court erred in valuing his ownership interest in the accounting practice at 33.33% instead of

20%, which his colleagues testified was his interest in the outstanding stock of the company. We

also disagree with husband on this question. In light of the deferential standard of review we

owe to the trial court, we will not reverse this finding because the trial court’s use of a 33.33%

figure was supported by credible evidence. Specifically, all of husband’s colleagues testified

that the economic rewards they received in exchange for their work were not proportional to




                                                -7-
their respective ownership interests in the outstanding stock. Mr. Robb, Mr. Sheffer, and

husband ostensibly owned 40%, 40%, and 20%, respectively, of the stock of Sheffer & Co. Yet

they all split the profits and losses one third each. Because the trial court was bound by our prior

decisions to find the intrinsic value of Sheffer & Co. and intrinsic value is “a subjective concept

that looks to the worth of the property to the parties,” Howell, 31 Va. App. at 339, 523 S.E.2d at

517, we hold the trial court did not err in deciding that the 33.33% share husband had in the

economic profits of the company was a more accurate measure of the worth of the property to

the parties than his purported 20% interest in the company’s stock.

       In affirming the trial court’s use of the 33.33% figure, we hold that it was acceptable for

the trial court to treat Sheffer & Co. as a partnership rather than as a corporation. The

shareholders testified that they had not observed any corporate formalities since their lawyer

drew up the original stock agreement between the original three shareholders in 1983. Yet these

formalities were important to the maintenance of Sheffer & Co.’s status as a corporation.

Indeed, the Code of Virginia provides for the automatic termination of a corporation’s existence

if a domestic corporation does not file an annual report with the State Corporation Commission.

Code § 13.1-752. Moreover, “[t]he existence of a partnership is a question of fact and the

finding of such fact by the trial court will not be disturbed on appeal unless it is clearly

erroneous.” United States v. Neel, 235 F.2d 395, 399 (10th Cir. 1956); see Boyd, Payne, Gates

& Farthing, P.C. v. Payne, Gates, Farthing & Radd, P.C., 244 Va. 418, 422 S.E.2d 784 (1992)

(Law firm that incorporated for tax purposes but otherwise continued to function as a partnership

was subject to partnership law). We therefore hold that it was not error to decide husband’s

ownership interest in Sheffer & Co. was 33.33%.




                                                 -8-
                    90% Marital/10% Separate Hybrid Property Classification

       Husband also argues that the trial court erred in classifying husband’s stake in Sheffer &

Co. as hybrid property pursuant to Code § 20-107.3(A)(3) and in determining that this property

was 90% marital, 10% separate because (1) the evidence that he received 75% of his shares

before the marriage meant that, at most, 25% of his stake in the accounting practice was marital

property, and (2) wife failed to prove the value of Sheffer & Co. was an increase in the value of

husband’s separate property due to the personal efforts of either party. 1

       We reject husband’s first argument because, pursuant to Code § 20-107.3(A)(1) property

is presumed to be marital property. The only stock certificate admitted into evidence was dated

1990, after the parties’ 1989 marriage. Because the number of shares of stock husband owned

was unrelated to the economic benefits he received from working for the company, the trial court

was correct in concluding that the number of shares of stock husband owned was not the best

measure of determining intrinsic value. Having affirmed this holding, it would be illogical to

decide that the time at which he acquired additional, but for our purposes irrelevant, shares

determines the percentage of his accountancy practice classified as marital. Indeed, Sheffer &

Co.’s sloppy corporate recordkeeping allowed the trial court to treat them as a partnership. This

conclusion is justified by the facts and also inconsistent with allowing stock ownership to govern

the percentage of the accounting practice classified as husband’s or the percentage of husband’s

interest in the accounting practice classified as marital.




       1
         Wife argues that husband failed to make a timely objection on this basis and we should
not consider it pursuant to Rule 5A:18. However the transcript includes the following objection
from defense counsel: “But they have the burden of proving what participation, what personal
effort my client made to increase that value from day one until now. I don’t believe they have
submitted that, they have met that burden.”



                                                 -9-
       We also believe that wife met her statutory burden, pursuant to Code § 20-107.3(A)(3),

of proving an increase in the value of husband’s separate property and in proving that the

increase in value was caused by husband’s personal efforts. An increase in the value of

husband’s stake in the accounting practice was implicit in the trial court’s use of the part marital,

part separate hybrid property classification of Code § 20-107.3(A)(3). “Absent clear evidence to

the contrary in the record, the judgment of a trial court comes to us on appeal with a presumption

that the law was correctly applied to the facts.” Yarborough v. Commonwealth, 217 Va. 971,

978, 234 S.E.2d 286, 291 (1977). Giving the benefit of all reasonable inferences to the party

prevailing below, the existence of an increase was supported by the testimony of Mr. Lawson

that husband’s interest was $142,500 in 2004 together with the testimony of Mr. Lawson and of

husband’s colleagues that his shares were worth nothing at the time of the marriage.

       We also have no difficulty concluding that the increase in value of husband’s accounting

practice was due to his personal efforts. In his testimony, Mr. Lawson explained why any

increase in the value of husband’s practice was not passive appreciation:

               And personal service corporations, value is created through – and
               particularly in relation to law firms and CPA firms – through the
               personal efforts of its principals and their direction of their staff. I
               think particularly as it relates to CPA practices. I mean the value is
               not stagnant. You’ve got to recreate that value every three or four
               years. The original value evaporates and you replace it with new
               clients, new services to existing clients, new accounts receivable,
               new work in process.

Husband’s colleagues testified that he worked full time as an accountant. The written conditions

of husband’s employment required husband to “devote himself to the full-time practice of

accountancy . . . .” The text of the original 1983 stock agreement also links the ownership of

shares of stock in the company to the shareholder’s continued employment with the company.

These facts particular to personal services companies distinguish husband’s accounting practice




                                                - 10 -
from the assets examined in the authorities cited in appellant’s brief. Rowe v. Rowe, 24

Va. App. 123, 480 S.E.2d 760 (1997) (newspaper company); Congdon, 40 Va. App. 255, 578

S.E.2d 883 (trucking company); Martin v. Martin, 27 Va. App. 745, 501 S.E.2d 450 (1998)

(house); Bchara v. Bchara, 38 Va. App. 302, 563 S.E.2d 398 (2002) (house). The assets in these

cases were all susceptible to passive economic appreciation in a way that husband’s accounting

practice was not. The value of the practice itself and the very existence of husband’s continued

ownership interest in the practice both depended on husband’s personal efforts. We therefore

affirm the trial court’s distribution of the parties’ hybrid property.

                                       Attorney’s Fees

        The trial court ordered husband to pay a portion of wife’s attorney’s fees because Sheffer

& Co. defied wife’s subpoena duces tecum. “An award of attorney’s fees is a matter submitted

to the trial court’s sound discretion and is reviewable on appeal only for an abuse of discretion.”

Graves v. Graves, 4 Va. App. 326, 333, 357 S.E.2d 554, 558 (1987). Husband argues that the

trial court abused its discretion because the defiance of the subpoena and resulting unnecessary

discovery expenses were not his actions, but the actions of the corporation. Because of our

holding above that the trial court was allowed to treat Sheffer & Co. as a partnership instead of a

corporation, we conclude that the trial court did not abuse its discretion in its order of attorney’s

fees.



                                                                                      Affirmed.




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