O'LEARY, J.
Randall Bauer (Randall)
The following facts are contained in the trial court's statement of facts. Randall and Rebecca married in August 1990 and separated in January 2007. They have two sons: Chad was born in April 1997, and Kyle was born in December 1993. Rebecca has a degree in economics. Randall is a licensed physical therapist. He and his father own Bauer Physical Therapy Inc., which employs several physical therapists in addition to Randall.
In October 2007, Rebecca filed a marital dissolution action and Randall began making some support payments. In December, the court ordered a special master (Dr. D.J. Mann) to make recommendations as to parenting disagreements. The parties were ordered to attend parenting classes. Based on the parties' stipulation to temporary income of $11,000 per month, the court ordered Randall to pay $4,450 per month for child and spousal support. The parties also agreed to hire a forensic accountant (S.M. Zamucen) to evaluate Randall's income and physical therapy business. Rebecca informed the court the children were hesitant to visit Randall "in the presence of his new lover Maria Christensen and her two children."
In March 2008, Rebecca requested a court hearing on the issues of child and spousal support as she had lost her employment. The court continued the trial on all issues to the end of May, and the parties had the opportunity to submit more documents and declarations.
On May 27, 2008, the court ruled the parental timesharing with Randall would be alternating weekends and "such other times as the parties may mutually agree." The court ordered Randall to pay child and spousal support and $7,500 towards Rebecca's attorney fees. In July 2008, the parties filed a stipulation agreeing Randall would pay $2,421 child support and $1,523 spousal support each month.
The trial court also mentioned in its statement of facts that in August 2008, Mann wrote a letter recommending Randall "not spend the night with his new lover . . . when the boys were with him, and that contact between the children and [Christensen]... be limited to one" time during the visitation weekends. In September 2008, Mann recommended Chad begin receiving individual therapy to help him with "feelings and anger." Trial was continued several times and finally set for April 2009.
The court's statement of facts next recounts that Randall withdrew money from several sources without notifying Rebecca or obtaining her consent. Rebecca moved for sanctions and indicated Randall had failed to pay the accountant. Randall and his father filed motions seeking sanctions against Rebecca but the court noted they failed to attach declarations indicating why sanctions would be appropriate.
In April 2009, Zamucen filed his report regarding Randall's income in 2007 and 2008. That same day, the court entered a judgment as to the status of the marriage only. The trial started in May 2009. Rebecca dismissed her attorney, and the court denied her request for a continuance. She proceeded in propria persona. The next day, the court continued the trial to July and ordered Randall to pay $1,528 support each month.
Rebecca retained a new attorney in time for the trial, which lasted several days. During his testimony, Randall admitted there were conflicts between his girlfriend and Kyle. The girlfriend once told Kyle he was being disrespectful and he should be ashamed of himself. Randall conceded this upset Kyle, but Randall disagreed with Mann's opinion the children have "some anger issues with the current situation." Randall conceded Mann's original recommendation was no contact between the children and Christensen. Randall said he agreed in August 2008 to limit contact during weekend visits. He stated, "I agreed at that time[,] I didn't realize how long that would last." Randall conceded he did not ask Mann or the court to change the visitation condition. Finally, with respect to his level of parental involvement, Randall testified he once forgot to pick up Chad from school, he could not name any of the children's teachers, and he did not attend school functions.
During the trial, the court also heard testimony from Randall's former partner, Ken Yoshino, Randall's father, Rebecca, and Rebecca's accounting expert, David Hanzich. The parties submitted several exhibits, including Zamucen's report. Zamucen did not testify.
Each party filed written closing arguments and the court deemed the matter submitted on July 22, 2009. Randall did not include his written closing argument in the appellant's appendix, but he provided us with Rebecca's closing argument. She included a lengthy discussion of the dysfunctional history of custody and visitation issues we will briefly summarize because the court granted her request to limit Randall's visitation, and it is an issue on appeal. Rebecca explained the parties had difficulty implementing a visitation schedule after the family residence was sold. Mann was appointed special master to make recommendations and assist the parties in implementing a custody and visitation schedule. The children's first therapist, Schwartz, was not helpful, and the parties returned to Mann for assistance. Mann determined he could not help as long as Randall "continued to insist on expanding his custodial time without recognizing the needs and concerns of the children."
Rebecca stated the temporary visitation arrangement gave Randall after school/dinner-time visits on Tuesday and Thursday, as well as alternate weekends. Mann negotiated a compromise with Randall and they canceled Tuesday night dinner-time visits for an overnight visit on Thursday. One condition for this change was that Randall's "new girlfriend . . . be present for very brief periods of time only and that she not spend the night." Rebecca claimed Randall "immediately breached the agreement creating a `trust' problem with the children."
In her closing argument, Rebecca discussed Mann's September 16, 2008 letter in which he made clear he could not assist the parties further, and if problems continued to arise, counsel should be appointed for the minors. Rebecca concluded the problems were ongoing because Randall continually ignored the children's requests, the therapist's suggestions, and her wishes. She believed Randall could not recognize the children's need for counseling because he was very self-absorbed.
Finally, Rebecca gave some examples of how Randall failed to recognize his children's needs. She referred to testimony during trial about problems relating to Kyle. She recounted he was left to babysit the girlfriend's children, he felt like a stranger in Randall's home, and he craved for his father's attention. Randall so frequently ignored Kyle's concerns that now Kyle refused to go on visits. Randall was blaming Kyle for the trial and refused to recognize his son distrusted him. Rebecca claimed Chad was experiencing similar problems with Randall. Rebecca urged the court to appoint minors' counsel, who would provide a report about the children's preferences. Alternatively, she requested the court suspend overnight visitation and order Randall to participate in reconciliation counseling. She suggested Randall retain dinner-time visits, twice a week, be granted weekend visits with Chad, and visits with Kyle could be arranged between Randall and Kyle.
After considering the closing arguments, the court issued a lengthy statement of facts and a separate tentative decision on submitted issues. That same day, it issued a minute order stating these documents were the court's final rulings.
In the lengthy statement of facts, the court discussed Mann's reports and recommendation for limited contact. In the tentative decision of submitted issues, the court elaborated on Randall's failing relationship with his sons. In denying joint physical custody, the court concluded Rebecca "has been the primary responsible parent for the children in that she has attended parent/teacher conferences, and [Randall] has not. [Rebecca] has been sensitive to the feelings of the children and has encouraged ongoing contact . . . with [Randall] in spite of the feelings of the children. [Rebecca] is more aware of the children's educational requirements (such as counseling with the child's math teacher, attending the Advanced Placement class orientation and attending the school's open house, all when [Randall] did not), and has taken an active role in supporting the requirements of the children's homework assignments."
The court recognized Randall had been a sports coach and attended several sex-education classes, but "the primary responsibility for the children's emotional growth and to be chauffer for the children to all of their extracurricular activities has fallen upon [Rebecca]. [¶] [Randall] has failed to take direction of the mental health expert and not force the children to accept his new lover. [He] has deminimized the `acting out' of [Chad] when [the child] chased [Kyle] with a knife. [Randall] failed to take [the] direction of a professional mental health expert who recommended that [he] secure a counselor for the children."
On August 4, 2009, Randall filed a request for a statement of decision and filed objections to the court's statement of facts and tentative decision. The trial court ruled on Randall's request. In its order, the court noted California Rules of Court, rule 3.1590, provides the court may direct its tentative decision to be the statement of decision unless a party specifies there are issues not covered. The court ordered Rebecca's counsel to prepare a statement of decision and invited Rebecca to "make proposals as to the further content of the statement of decision in addition to those statements made by the court in the tentative decision and statement of facts."
The remainder of the appellant's appendix is scant on information and, consequently, it is unclear exactly what happened next. The record contains a court order issued just a few days after the court ordered counsel to prepare a statement of decision. It notes that on August 6, Randall filed "objections" and states the matter would be heard at the end of August. It is unclear the nature of Randall's objections because Rebecca had not yet prepared the statement of decision. We were not provided copies of the objection or a reporter's transcript of the August hearing.
The final three documents contained in the appellant's appendix are:
The notice of appeal, filed March 9, 2010, states the appeal is from the February 2010 judgment. There is no appeal from the April 2010 judgment. Since the trial court lacked jurisdiction to enter an amended judgment in April, after the matter had been taken up on appeal, we will limit our review to the February 2010 judgment.
The February 2010 judgment is 18 pages long and is a condensed version of the court's tentative ruling on reserved issues. We will only briefly summarize the court's findings, and save for our analysis section a more in depth discussion of what Randall challenges on appeal. In sum, the court granted the parties joint legal custody, and gave Rebecca sole physical custody. Randall was awarded visitation that did not permit for any overnight visits for as long as he was residing with but unmarried to a person "of the opposite sex." Overnight visits were permitted if Randall was alone or married. The court awarded child and spousal support dating back to the end of 2007 to the present. The court valued Randall's physical therapy business at $1,015,779 and Randall's ownership share to be 50.5 percent. It awarded Rebecca $256,484 for her community share of the business. The court reserved jurisdiction over division of the other marital property, sending the parties to a referee to determine the values of those assets.
The court concluded Rebecca had "established by clear and convincing evidence that [Randall] engaged in a pattern of despicable conduct by his taking of the various withdrawals of sums without notice and without . . . consent and this conduct . . . justif[ied]" an award of $46,768 in punitive damages under Civil Code section 3294. The court also granted Randall's father's request for $1,000 sanctions against Rebecca on the grounds her behavior caused him delay and costs. The court found Rebecca had no claim for breach of fiduciary duty arising from Randall's contractual relationship with his father. Randall was ordered to pay $50,000 towards Rebecca's attorney fees.
"In fashioning suitable child custody and visitation orders consistent with the child's best interest, courts must consider, and effectuate, two critical public policies ([Fam. Code,] § 3020): [¶] (1) . . . The court's `primary concern' is to assure the child's health, safety and welfare. This codified policy is a companion to the Legislature's express finding and declaration that `the perpetration of child abuse or domestic violence in a household where a child resides is detrimental to the child.' [Citations.] [¶] (2) . . . Further, an appropriate custody/visitation award must take into account the codified policy `to assure that children have frequent and continuing contact with both parents after the parents have separated or dissolved their marriage, or ended their relationship, and to encourage parents to share the rights and responsibilities of child rearing in order to effect this policy' . . . except where the contact would not be in the child's best interest pursuant to [Family Code section] 3011 [citations]."
"Unless it is shown that parental visitation would be detrimental to the best interests of the child, reasonable visitation rights must be awarded. [Citation.] [¶] `In view of the importance of the parent-child relationship and the likely benefits which a child will receive from visitation with the parent who does not have custody, the courts will attempt to preserve visitation rights whenever possible. [Citation.]' [Citation.]" (In re Marriage of Birdsall (1988) 197 Cal.App.3d 1024, 1028 (Birdsall).)
"`The standard of appellate review of custody and visitation orders is the deferential abuse of discretion test. [Citation.] The precise measure is whether the trial court could have reasonably concluded that the order in question advanced the "best interest" of the child.' [Citation.]" (In re Marriage of Slayton & Biggums-Slayton (2001) 86 Cal.App.4th 653, 656 [(Slayton)].) A court may not base its decision upon "`disapproval of the morals or other personal characteristics of a parent that do not harm the child.' [Citation.]" (In re Marriage of Wellman (1980) 104 Cal.App.3d 992, 998 (Wellman).)
As noted by one respected treatise, "Regardless of the court's perception of either parent's morals, a `nonconventional' or `deviant' lifestyle is not disqualifying as a matter of law. Custody or visitation orders intruding on a parent's associational or privacy interests will withstand attack only where there is `compelling evidence' of a `significant bearing' on the children's welfare. [(Wellman, supra, 104 Cal.App.3d at p. 999.)]" (Hogoboom et al., Cal. Practice Guide: Family Law, supra, ¶ 7:400, p. 7-161.)
For example, courts have held "a parent's homosexuality does not per se adversely affect the child and cannot be grounds for denial of custody absent specific evidence of a negative effect on the child's best interests. [Citations.]" (Hogoboom et al., Cal. Practice Guide: Family Law, supra, ¶ 7:401, p. 7161; see also Birdsall, supra, 197 Cal.App.3d at pp. 1030-1031.) Likewise, "Courts cannot base a custody (or visitation) decision on a parent's religious practices or beliefs absent a clear showing the religious practices are detrimental to the child. [Citations.]" (Id. at [¶] 7:403, p. 7-162.) In addition, it has been held a parent's alleged adulterous relationship is irrelevant to a custody determination. (Slayton, supra, 86 Cal.App.4th at pp. 661-662, and cases cited therein.) "Similarly, a court abuses its discretion in conditioning custody on the parents' adhering to restrictions about `sexual visitors' where the only justification is the court's disapproval of nonmarital relationships. [(Wellman, supra, 104 Cal.App.3d at p. 999 . . .; and see In re Marriage of Russo (1971) 21 Cal.App.3d 72, 88-89 [Mother's `indiscretion' in making home for male companion not ground for custody change].)]" (Hogoboom et al., Cal. Practice Guide: Family Law, supra, ¶ 7:402, pp. 7-161 to 7-162.)
The Wellman case is instructive. The trial court granted Mother physical custody of the children conditioned upon her not having any overnight guest of the opposite sex until or unless she was married to that individual. In reversing this order, the appellate court reasoned, "We do not mean to suggest that a person's associational or even sexual conduct may not be relevant in deciding a custody dispute, where there is compelling evidence that such conduct has significant bearing upon the welfare of the children objectively defined. Here, however, the parents had no dispute between them as to physical custody; the court took it upon itself to raise the issue of [Mother's] relationship with [her boyfriend]; there was no investigative custody report and no evidence in the record as to the impact of that relationship upon the children; and the court declined to hear the only evidence that was offered." (Wellman, supra, 104 Cal.App.3d at p. 999.)
After noting "it has been held error for a trial court to decide that a mother was not a proper person to have custody because she was a homosexual, in the absence of evidence as to the bearing of her sexual proclivities upon the welfare of the child involved," the Wellman court reiterated, "[i]t is not the function of a trial court in cases of this sort to punish parents for what the court may regard as their shortcomings, nor to reward an `unoffending' parent for any wrongs suffered by the `sins' of the other; `(t)he prime question is, what is the effect upon the lives of the children.' [Citations.] [¶] `The courts have frequently warned that a judge should not base his decision upon his disapproval of the morals or other personal characteristics of a parent that do not harm the child.' [Citation.] This admonition seems particularly appropriate where what is involved is freedom of association and sexual conduct between mature, consenting adults. As our state Supreme Court has explicitly recognized, nonmarital relationships are pervasive in current society, and mores in regard to cohabitation have changed radically, so that courts `cannot impose a standard based on alleged moral considerations that have apparently been so widely abandoned by so many.' [Citation.] Moreover, such conduct has been held to be within the penumbra of constitutional protection afforded the rights of privacy as well as the rights of a parent as previously discussed, so that intrusion by the state in this sensitive area is not a matter to be undertaken lightly. [Citations.] (Ibid., fn. omitted.) The court found the sexual conduct of the parent to be relevant only in the face of "compelling evidence that such conduct has significant bearing upon the welfare of the children objectively defined." (Wellman, supra, 104 Cal.App.3d at pp. 998-999.)
Randall asserts the court disapproved of his nonmarital relationship and improperly based its restrictive visitation order on his marital status. Rebecca asserts the court's visitation order is supported by substantial evidence Randall and his girlfriend were having a detrimental effect upon the children's welfare. We conclude there was sufficient evidence to support a finding of detriment, but nevertheless the order must be reversed and remanded because, on its face, the order improperly suggests visitation is limited based on Randall's "marital status" per se rather than the welfare of the children. The wording of the order must be clarified to show the basis of the court's order and reflect appropriate factors.
We first note Randall provided us with an incomplete record on appeal. It does not contain the trial exhibits of letters and reports prepared by Mann regarding his evaluation of the children or the recommended custody and visitation schedule.
The problem we have with applying the presumption is the perplexing wording of the order. While the court at first expressly and clearly referred to the children's welfare when it granted Rebecca sole physical custody, it did not mention this factor at all in scheduling Randall's visitation. Specifically, the court ruled, "So long as [Randall] shall reside with an adult of the opposite sex to whom he is not married . . . he shall be deemed to have physical custody for purposes of parental contact and shall be responsible for [his sons] only as follows:" (1) Wednesday after school until 8 p.m.; (2) alternating Saturdays and Sundays from 9:00 a.m. to 8:00 p.m.; (3) Father's Day from 9:00 a.m. to 8:00 p.m.; (4) Christmas Day from 12:00 p.m. to 6:00 p.m.; and (5) any other times the children express a desire to be with him. In short, Randall was not given any overnight visitation if he continued to be unmarried and resided with Christensen. We can certainly infer this limited visitation schedule, as requested by Rebecca, reflected the history of harm caused when Randall had the children for overnight visits and insisted they also visit with Christensen.
The same inference cannot be made with respect to the next portion of the court's order, which delineated an alternative visitation schedule, and which included overnight visits as soon as Randall "resides alone or with a spouse[.]" By its plain meaning, this schedule could go into effect if Randall were to marry Christensen, regardless of the children's best interests. By the act of marriage, the court authorized Randall to have overnight weekend visits (on odd numbered Fridays) as well as dinner visits midweek after school on Tuesdays and Thursdays. In addition, Randall could share alternating years for Thanksgiving holidays, Christmas vacation, spring break, and long periods of time in the summer.
We conclude that if Randall and/or Christensen were having a detrimental effect on the children's welfare during overnight visits, this detriment would not necessarily be remedied by their marriage. This portion of the judgment cannot be reconciled with the other provisions based on the court's apparent finding Randall and/or Christensen were having a negative effect on the children's welfare. We hold the entire visitation portion (titled "Parental Timesharing") must be reconsidered in light of legally appropriate factors.
In reaching this conclusion we wish to clarify we do not, and cannot given our limited record, comment on the detriment issue and whether Randall should be permitted overnight visits. Our reversal is limited to directing the trial court to include in the order appropriate factors relating the children's best interests in fashioning the visitation orders (because Randall's marital status alone is not a permissible basis). And although we conclude there was arguably sufficient evidence to support the court's limited visitation schedule, we recognize our record is incomplete and it would be better to remand the issue for the trial court to reissue the order as it considered all the evidence and arguments presented at trial. For this same reason, we leave to the court's discretion whether the parties should be given a new trial on the best interests of the children, or if the evidence presented at the last trial was sufficient, before the court revises its visitation order.
Randall argues that if the time-share order is reversed, the child support order must also be reversed because it was based on an improper visitation schedule. Randall asserts, without referring to the record or any legal authority, the court never determined "what the proper support would be if Randall either married . . . Christensen or lived elsewhere[.]"
As noted above, we reversed the time-share order, but we anticipate the restrictive visitation schedule may remain the same as there was evidence it was made in the children's best interests. Obviously, if the visitation schedule remains the same, Randall has no basis to seek modification of child support.
The court credited Randall with 20 percent time-share in calculating child support. Rebecca argues a 20 percent time share does not accurately reflect the more restrictive visitation schedule that excludes overnight visits. She asserts a weekly dinner-time visit and one day on the weekend calculates to physical custody of less than 10 percent of the time. However, contrary to Rebecca's contention, the time-share credit used in the guideline formula represents "primary physical responsibility" rather than just physical custody. "[T]he time of a parent's primary physical responsibility has been held to include the time that the child is in child care [citation] . . . as long as that parent is responsible for the child during that time." (In re Marriage of Katzberg (2001) 88 Cal.App.4th 974, 981.) The court may have imputed some of the time Kyle and Chad are in school to Randall. (Id. at pp. 981-982.) If Rebecca desires full credit for time the children are in school, she would have the burden of producing evidence she is primarily responsible for them during those periods. (Id. at pp. 983-984.)
On appeal, Rebecca also argues that any change in child support should be prospective rather than retroactive. Rebecca asserts that "in the real world" she has abided by the court's visitation schedule and supported the children as Randall's visitation was limited. This may be true, but such evidence relates to events after entry of the judgment and is not in our record. In this opinion, we have not ruled the child support award was erroneous. We did not conclude Randall overpaid support or that he is entitled to reimbursement. (§ 3653, subd. (c).) Thus, if the court modifies the visitation schedule for future contact, and if it modifies the child support award, as with all such modifications the new amount would apply prospectively. (§ 3653.)
Without citing any supporting legal authority, Randall asserts the court could not fix the amount of child support for his older son at $1,030 and award a larger sum, $2,066 for the younger son. Rebecca asserts the issue is waived because Randall failed to raise it below. She adds the court should have awarded the older child $209 more each month. We conclude Randall's and Rebecca's contentions are both waived. Rebecca did not appeal the support order and cannot seek affirmative relief as respondent. (Code Civ. Proc., § 906.) Randall did not timely raise an objection below. (In re Marriage of Hinman (1997) 55 Cal.App.4th 988, 1002 [forfeiture of alleged child support error due to failure to timely object].)
This court permitted Randall to amend his opening brief to assert the court erroneously based the child and spousal support order on his gross income rather than his net income after taxes. In his amended opening brief, Randall asserts the figures used for his income in both 2008 and 2009 "reflect his gross income, before taxes, as net income. These figures are derived directly from the report of . . . Zamucen, the court appointed Evidence Code section 730 expert's report." (Original underline omitted.) Randall supports this argument with a footnote conceding Zamucen's complete report was not included in the appellant's appendix he prepared. Indeed, our record contains only eight pages of the report, all relating to valuation of the physical therapy practice. Randall explains, "The actual report, a trial exhibit with attachments, will be transmitted to this [c]ourt on the request of appellant prior to oral argument."
Randall did not request transmittal of exhibits. (See Cal. Rules of Court, rule 8.224(a)(1) [requires "a party wanting the reviewing court to consider any original exhibits that were admitted in evidence" to timely serve and file the proper notice in superior court designating those exhibits].) "Where exhibits are missing we will not presume they would undermine the judgment. [Citation.]" (Western Aggregates, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 291 (Western Aggregates); see also Heyman v. Franchise Mortgage Acceptance Corp. (2003) 107 Cal.App.4th 921, 925, fn. 1.)
Rebecca notes Zamucen did not testify at trial. Randall agreed to proceed in his absence, and Randall did not present any evidence to rebut Zamucen's reported figures anytime during the six-day trial. She asserts Randall never submitted contrary evidence and due to his failure to raise any issue about the reported income figures directly during trial he should be deemed to have waived the issue. She concludes the court's determination of Randall's net income was conservative because she had argued and submitted proof it should be $3,000 higher. She also argues the report shows the gross and net income were the same because the business paid Randall's taxes and expenses. Given the absence of the crucial exhibits, as well as Randall's failure to raise the issue at all during trial, we deem the issue waived and presume the judgment is correct.
Randall maintains the court erred in valuing his business, Bauer Physical Therapy, at $1,015,779 and awarding the community 50.5 percent of that, giving Rebecca $254,484.
We review the trial court's ruling on valuation under the following standard of review. "The trial court possesses broad discretion to determine the value of community assets as long as its determination is within the range of the evidence presented. [Citation.] The valuation of a particular asset is a factual question for the trial court, and its determination will be upheld on appeal if supported by substantial evidence in the record. [Citation.] All issues of credibility are for the trier of fact, and all conflicts in the evidence must be resolved in support of the judgment. [Citation.] The trial court's judgment is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. [Citation.]" (In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 670.)
In its decision on submitted issues, the court provided a two-page explanation to support its valuation of the physical therapy business. It began by assessing the accepted and non-accepted methods for valuation. It described and deemed acceptable the book value method, net asset value method, capitalization of excess earnings (also called earning power) method, the capitalization rate method, and "multiple-of-gross-earnings method." Whereas it stated the "price-earning-ratio valuation method" and "capitalization of dividends" methods had been criticized by other courts.
The last method mentioned by the court was the "multiple-of-gross-earnings method." It explained, "This method involves averaging net income for three to five years and then comparing the resulting figure to the income of an average person employed in the same business, profession, or industry. The assumption underlying this approach is that a regular pattern exists for every business, and that by applying a known multiple to the gross or net income of a business or practice, it's possible to determine the excess over the norm, which is goodwill." The trial court noted the "use of a multiple of gross earnings and of capitalizing `excess earnings[]'" was approved by the court in Mueller v. Mueller (1956) 144 Cal.App.2d 245.
Next, the court cited to a publication quoted in and attached to Zamucen's report, called the "Business Reference Guide: The Essential Guide to Pricing a Business" (hereafter the Guide) written by Tom West stating that as a rule of thumb the value of a physical therapy businesses may be determined by using a multiplier of 60 percent to 100 percent of annual collected fees. Applying this rule of thumb the court explained, "In this case the court has considered that the business is in a good location, is established in the medical community with a broad referral base, has an established core of professional employees, has the owners as a `hands on' presence, has been in business for a lengthy period, has reoccurring patronage, and has a history of growth in income, and so finds that a multiple of 100 [percent] is appropriate."
The court determined the gross profits of the corporation for the past four years had been $884,655 in 2005, $898,529 in 2006, $1,198,269 in 2007, and $1,081,666 in 2008. The court calculated the average gross profit for those years was $1,015,779. Applying the multiple of 100 percent, it valued the corporation at same amount, $1,015,779.
Randall first attacks the court's methodology by pointing out the court considered all the positive factors found in Zamucen's report, but arbitrarily failed to consider any of the negative factors. This argument is impossible to review because our record does not contain Zamucen's report and thus we cannot determine whether the negative factors were ignored arbitrarily or if they were perhaps contradicted by Rebecca's experts. "Where exhibits are missing we will not presume they would undermine the judgment. [Citation.]" (Western Aggregates, supra, 101 Cal.App.4th at p. 291.)
Second, Randall contends the court ignored his query about why the court did not use Zamucen's expert valuation of the business. The question was not ignored. Randall raised the inquiry in his request for a statement of decision. On August 6, 2009, the court affirmatively responded to Randall's request for a statement of decision by ordering Rebecca to prepare the statement of decision. It noted a statement of decision is sufficient when it states the grounds upon which the judgment rests and the court is not constrained to address every question. The court ordered Rebecca's counsel to prepare the document, make proposals for additional content, and forward it to Randall. The next document in the appellant's appendix is an order setting a hearing to address Randall's objections filed "on August 6, 2009." Our record does not contain copies of the objections. As such, we will not assume the court ignored any relevant objections to the proposed statement of decision or judgment.
Third, Randall speculates the Guide attached to Zamucen's report may have been incomplete. Randall suggests the Guide's method included a reduction to account for the reasonable replacement salary of the owner. This argument was raised in Randall's objection to the tentative decision on submitted issues. Once again, we will not assume the same argument was raised in the objections to the statement of decision. More importantly, Randall's argument there were missing elements to the Guide's valuation method is mere speculation and can be rejected on that additional basis.
Finally, Randall attacks the court's use of the Guide's valuation method on the grounds (1) there is no foundation for the expertise of the author of the Guide, (2) there is no evidence the entire method was actually included in Zamucen's report or that the court understood how to use that method, (3) the court's use of this method was not "`reasonable in nature' given the evidence," and (4) the Guide's method did not take into account Zamucen's list of negative factors. Randall concludes the trial court's valuation was not supported by evidence in the record, i.e., the guide was not evidence the court could rely on. Not so.
A court used a legitimate method of evaluation. The Guide was part of Zamucen's report, an undisputed expert and was certainly part of the evidence in the record. Although Zamucen used a different valuation method, this fact does not support the conclusion there is no foundation for the Guide's method, that it was incomplete, or that the court applied it incorrectly.
Rebecca points out Yoshino testified as to the factors he believed should be taken into consideration in valuing a business. Yoshino is a physical therapist and was Randall's former partner and employer. Yoshino testified he has purchased five physical therapy practices, and he opined on the rule of thumb he typically uses when buying these kinds of businesses. Like the trial court, Yoshino determined the appropriate factors to consider in valuing a physical therapy practice is the business's financial health, ability to sustain itself, the number of years in business, and gross sales. He testified the value of a physical therapy practice ranges between one to two and one-half times the gross yearly sales. He opined the higher multiple is used if the business has existed for a long time. Yoshino did not express an opinion as to the value of Randall's business, but his methodology mirrored the one described in the Guide and utilized by the trial court.
Moreover, Rebecca's expert accountant witness, Hanzich, provided testimony which supported the court's valuation approach. Hanzich testified he reviewed Zamucen's financial statements and calculations when assessing the value of the business. Using these figures, Hanzich utilized a market comparable approach, looking at 31 other physical therapy practices that were for sale. He noted the average listing price was 1.06 times the gross income. He opined the appropriate multiplier for Randall's physical therapy business would be one times the gross income. He stated, "If the gross is a million dollars, the price is a million dollars." Based on Zamucen's reported figures of gross income, Hanzich opined the business was worth $1,123,000. Thus, Hanzich's valuation of market value, which was based on multiplier of the gross income, was certainly similar to the valuation method proposed by Yoshino and delineated in the Guide.
Counsel asked Hanzich about the Guide cited in Zamucen's report. Hanzich explained the Guide provided the "rules of thumb for various businesses." He stated it "is a reference that forensic accountants use in establishing valuation." The court asked about the difference between the Guide's rules of thumb (suggesting 75 percent of annual sales) and Hanzich's method using a multiplier of one. The court inquired if the difference was due to Hanzich's expertise and investigation of Randall's business. Hanzich agreed this was the reason for the difference. He explained there was a range in determining the rules of thumb. He was asked the hypothetical that if a practice was in an excellent location, was a growing business, and was highly marketable, would the rule of thumb be higher. He replied, "It would probably be in the middle. One being in the middle." He stated in 2006, when the market was better, the multiples were as high as two. Hanzich did not know why Zamuchen used a lower multiplier of .42 of gross income (which was close to five months of gross income). Hanzich stated that under Zamucen's method he would use a higher but conservative multiplier of 1.02 times the gross sales "based upon the marketability, the history, the growing number of patients, all the things contained in the factors in the guide that is used to determine valuation[.]"
Hanzich concluded the best approach, however, would be the comparable market approach. Counsel asked if Zamucen discussed that approach in his report. Hanzich replied, "He included it" but not by using comparables but instead "used a market approach where he used a rule of thumb . . . [of] .42 [percent] of gross, similar to [five] months of gross income."
Hanzich's "market comparable approach" using the listing prices of other businesses is essentially identical to Zamucen's approach of using a multiplier of gross income. The experts' opinions differed only with respect to the appropriate multiplier to use. Hanzich opined one times gross income should be the multiplier based on what other physical therapy practices were selling for. Zamucen used a lower multiplier of .42. The Guide gave a range of .75 to one. Yashino gave range of between one and 1.5 times gross sales. All the witnesses who testified explained the multiplier depending on various marketability factors and Randall's practice had many positive factors favoring a higher multiple. The court's use of 100 percent (the equivalent of using a multiplier of one) was well within the range of the evidence presented.
In light of the above, we conclude there was substantial evidence to support the court's valuation of the business. Zamucen did not testify, and the court was not required to accept his valuation. The court could calculate valuation using methodology described in the Guide, and in Yoshino's and Hanzich's testimony. The judgment is amply supported by the evidence.
The visitation order is reversed and remanded for reconsideration and clarification. In all other respects, the judgment is affirmed. Respondent shall recover her costs on this appeal.
RYLAARSDAM, ACTING P. J. and MOORE, J., concurs.
