Houston Bar Association - Family Law Section

Gray's Interesting Cases for November, 2008

Updated and presented by Sallee S. Smyth

Von Hohn v. Von Hohn, 260 S.W.3d 631 (Tex. App. – Tyler 2008, no pet.)
H and W married in 1997 and had two children. W filed for divorce in 2004 and the parties reached an agreement on all issues relating to the children. Issues surrounding the division of property were tried to the bench. The primary dispute related to the value of H’s interest in a law firm partnership. Under the terms of the partnership agreement, each partner was allotted a certain number of units of participation and they were each assigned an undivided profits account and a capital account. The partnership agreement included a formula for calculating each partner’s interest in the event of death, retirement, withdrawal or expulsion. There was no formula in the event of a divorce. Prior to trial, H asserted a Daubert challenge to W’s financial expert who had valued H’s interest in the law partnership.

Daubert issue: Regarding the Daubert challenge, H argued that the expert’s opinion was based on unreliable methods, analysis and principles. H also asserted the there was no evidence that the expert’s chosen methodology was used by other valuation experts. At the conclusion of the Daubert hearing, the trial court partially granted the motion finding that the proper measure of the value of the community interest in the firm could include methods other than those set forth in the partnership agreement. The court allowed the expert to testify about his valuation based on (1) withdrawal value and (2) the asset approach and/or income approach. However, the trial court limited any valuation using the income approach to income reasonably expected to be collected within two years from the valuation date. The court of appeals found no error in allowing the expert to testify based on his experience in performing business valuations, specifically prior experience in valuing law firm partnership interests using the income approach. Further, the expert’s reliance upon the opinions of a court appointed master in chancery who specifically reviewed the law firm files and offered opinions on case values was appropriate.

Goodwill issue: H also challenged the trial court’s interpretation of the law applicable to the division of professional practices upon divorce. On the valuation issue, the jury was instructed to consider the partnership agreement. Further, they were instructed that they could not consider personal/professional goodwill (Keith v. Keith, 763 S.W.2d 950) or time and labor to be expended after the divorce. Finally, they were instructed to consider commercial goodwill, if any, of the firm. Specifically, H argued that his interest in the partnership was defined by the partnership agreement and that the community estate was not entitled to a greater interest in the law firm’s commercial goodwill than he was afforded by the partnership agreement citing the decision in Finn v. Finn, 658 S.W.2d 735 (Tex. App. – Dallas 1983, writ ref’d n.r.e.). In Finn, the partnership agreement only provided for payment of amounts based on the partner’s capital account, the firm’s reserve account and undistributed earned income at the time of the partner’s death or withdrawal. The agreement did not provide any compensation for accrued goodwill to a partner who left the firm and it provided no mechanism to realize the value of goodwill. The Finn court found that the only way a partner could realize the value of commercial goodwill was to continue to practice law with the firm and as such, this was nothing more than an expectancy dependent upon his continued employment after divorce and not part of the community estate.

In a concurring opinion, Justice Stewart noted that the firm’s goodwill was an asset of the partnership itself and neither community or separate property of the individual partners. In Finn, Justice Stewart felt that since the partnership agreement dealt only with the value to the partner at death or withdrawal, and the jury was being asked to value the husband’s interest in a partnership as an ongoing business, the partnership agreement did not control the value of the individual partnership interests and should not preclude consideration of other facts. In his concurring opinion to Finn Justice Stewart concluded that the value of husband’s interest should be based on the present value of the partnership entity as a going business which would include consideration of commercial goodwill. The Tyler court of appeals agreed with Justice Stewart’s concurring opinion in Finn and found that the partnership agreement in this case was not determinative of the value of H’s interest and that other methods of valuation could be considered.

Future earnings issue: In accordance with the trial court’s ruling, W’s expert considered income expected from cases that had already settled but were not yet funded as well as income reasonably expected within two years from the valuation date from cases which remained pending but unsettled. The court of appeals found that since H had to do no additional work to receive his benefit from the income off of settled cases, these were properly considered. To the contrary, to the extent that H had to work to achieve a recovery in pending but unsettled cases these benefits were a mere expectancy and any monies received would be future earnings to which W was not entitled. By including these amounts in the valuation, the trial court divested H of his separate property which was error. The court of appeals determined that future earnings could not be considered in the valuation of H’s interest in the partnership.

Outcome: The court of appeals reversed and remanded the division of property.
In the Interest of A.B., Jr., 2008 Tex. App. LEXIS 7649 (Tex. App. – Dallas October 10, 2008) (Cause No. 05-07-898-CV)
In a modification proceeding, the trial court appointed the child’s aunt as his managing conservator and his parents as possessory conservators. The court ordered the father to pay child support to the Guardian Ad Litem through the Texas Child Support Disbursement Unit, which is a branch of the Office of the Attorney General. The AG appealed challenging the trial court’s authority to order the AG to send child support payments to someone other than the child support obligee. The court of appeals found that only the Texas Supreme Court has the authority to order the AG (as part of the executive branch of government) to act and the trial court’s order compelling the AG (Disbursement Office) to remit the child support payments to the GAL was not authorized. The court of appeals set aside that part of the modification order as void and remanded the matter for further proceedings.
Almond v. Loe, Warren, Rosenfield, Kaitcer, Hibbs & Windsor, 2008 Tex. App. LEXIS 7905 (Tex. App. – Fort Worth October 16, 2008) (mem. opinion) (Cause no. 02-07-282-CV)
WARNING TO LAWYERS: This case is included as an example of how one should NOT practice law.

H and W divorced. W complained to her attorneys that H was not remitting assets under the terms of the decree as ordered. W’s attorney filed a Chapter 9 enforcement action on her behalf and H was served. Thereafter, W’s attorney filed a motion to withdraw stating that W had not paid her attorney fees from the divorce. The trial court granted the motion to withdraw and then W’s attorney intervened seeking to recover his fees. After a bench trial the court signed a final judgment awarding the attorney his unpaid fees, pre and post judgment interest on those fees, as well as fees incurred in the intervention. The final judgment mentioned nothing about the H or the enforcement issues brought against him and the record does not even reflect his appearance at trial. W appealed.

The court of appeals dismissed the appeal for lack of jurisdiction because the underlying order was interlocutory, failing to address the pending enforcement claims against the H.

Comment: What chutzpah! And to think that a trial court actually bought into this request. I’m guessing this attorney was not concerned about future referrals from his client. While I’m all in favor of honest pay for honest work, the end does not justify the means in this case.
In the Interest of A.D.P., 2008 Tex. App. LEXIS 8101 (Tex. App. – El Paso October 23, 2008) (Cause No. 08-06-245-CV)
WARNING: These facts occurred in Texas and not Arkansas. Mary had a daughter Ida. Ida had a daughter, Jaimee. Ida’s parental rights to Jaime were terminated and Jaimee was then adopted by her grandmother, Mary. Jaimee then had a son, ADP. Jaimee’s parental rights to ADP were terminated and he was then adopted by his great-grandmother, Mary. By virtue of these terminations and adoptions, ADP’s mother and grandmother are now his sisters. ADP lived in Ward County with Mary from his birth in 1999. In June 2005 Mary became ill and Ida moved her to a nursing home in Limestone County. Ida removed ADP from school and took him home with her. Mary died in December 2005. Mary’s will left everything to ADP and appointed Jaimee as the guardian of ADP’s person and estate. Ignoring the will, Ida placed ADP in the care of an unrelated couple, Tammie and Allen, who lived in Ward County. They re-enrolled ADP in school there. In March, Ida notified them of her intent to remove ADP from school and relocate him to Limestone County. Tammie and Allen immediately filed for guardianship in the county court of Ward County and the judge appointed them temporary guardians through May. They also filed a SAPCR in district court seeking appointment as non-parent SMC’s of the child. The district court issued a TRO against Ida from removing ADP from the court’s jurisdiction and from visiting the child at school without Tammie’s knowledge or permission. Ida and Jaimee filed a counter-petition seeking appointment as SMC and filed a motion to transfer venue to Limestone County. They also requested a transfer of the guardianship proceeding to the district court which was granted. The Ward County district court denied the transfer to Limestone County finding that the child’s residence was in Ward County at the time of his mother’s death. The court appointed Tammie and Allen as SMC’s and gave Ida visitation. Ida and Jaimee appealed.

The court of appeals agreed with the trial court’s finding that Mary’s residence at the nursing home in Limestone County was only temporary and involuntary. She continued to own property in Ward County and that was her legal residence. As such, it was also the legal residence of the child. The court of appeals determined that denial of the transfer was proper. Ida and Jaimee also challenged Tammie and Allen’s standing to file a SAPCR. In a case of first impression, the court of appeals found that temporary guardians appointed under the probate code have standing under TFC §102.003(a)(4) because the definition of “Guardian” under the probate code includes temporary as well as permanent.
Grohman-Kahlig v. Kahlig, 2008 Tex. App. LEXIS 8171 (Tex. App. – San Antonio October 29, 2008) (mem. opinion) (Cause No. 04-07-468-CV)
H and W divorced in 2001. As part of the settlement, H agreed to pay W $22 million. H paid W $12 million in cash and gave W a note for $9.5 million secured by his stock in two corporations. H signed a Security Agreement and the stock certificates were placed into escrow with a bank. As part of the Security Agreement, H agreed not to sell, transfer, lease or otherwise dispose of the stock collateral. H timely paid the annual $1 million installments under the note after divorce. Several years later, during a subsequent custody proceeding, W discovered that H had converted the corporations to limited partnerships in 2003 to avoid paying franchise taxes. W sued H for breach of contract. H filed a counter claim for declaratory relief seeking a declaration that he was permitted to manage the businesses unilaterally and that the conversion of the entities from one form to another does not constitute conversion. W amending her claims to include torts and joined the business entities as defendants. The case was tried to jury. At the charge conference, H objected to the submission of a breach of contract question asserting that it was a matter of law for the court to decide. Nevertheless, the court charged the jury and instructed them on conversion, including statutory language from the Texas Business Corporations Act. The jury found no breach of the contract. The court refused to submit the tort claims to the jury and entered a take nothing judgment on those issues. The court granted H’s request for declaratory relief and awarded attorneys fees against W in the amount of $82,000 on this claim. W appealed. W asserted charge error based on her claim that the breach of contract instruction was confusing and further improperly instructed the jury that conversion was legally justified. H argued against that it was error to submit a question on breach of contract.

The COA determined that because the contract was unambiguous, and because there was no dispute that H had converted the corporations to partnerships, it was error to submit a question to the jury because this was a question of law for the court to decide. Since the jury answered “No” to the breach question, the COA then had to analyze the claim to determine if the jury’s answer was harmless. The COA determined that the specific language of the Security Agreement which prevented the sale, transfer or disposition of the stock had been violated and therefore the jury’s answer was not harmless. The COA reversed and remanded for consideration of issues regarding damages or other relief. Because the COA determined that the Security Agreement had been breached, the COA also reversed the trial court’s declaratory judgment and the award of attorneys fees stemming from this claim. The COA affirmed the trial court’s decision refusing to submit the tort claim to the jury based on lack of evidence.
Phillips v. Phillips, 2008 Tex. App. LEXIS 8242 (Tex. App. – Beaumont October 30, 2008) (mem. opinion) (Cause No. 09-07-232-CV)
H and W married in 1998 and had two children. A divorce and custody suit was filed in Louisiana in February 2002. In July the LA court issued an order granting the parties joint custody, giving W possession for 183 days per year and H possession for 182 days. The order also allowed W to relocate. The divorce was not adjudicated. In January 2003 W moved to Georgia with the children. In February 2004 the children were removed from W’s home by Georgia CPS and placed with maternal GP’s who also lived in Georgia. In June 2005 the children were removed from their grandparents home and placed with H in Texas. The children remained with H until February 2006. During this time, W and her parents all relocated to North Carolina. In February 2006 the Georgia court conducted a final custody hearing on the children’s removal. The court placed the children back with the maternal GP’s in North Carolina and gave them the right to establish domicile. Then the GA court adopted the terms of the original LA custody order giving W visitation for 183 days each year and H visitation for 182 days each year. (Apparently GP’s had only paper custody since there were no more days in the year for them to have physical custody!). In July 2006 H filed a motion to register a foreign custody order and a motion to modify the GA order, asking for custody and for W to have supervised visitation. W and GP’s filed special appearances as well as motion to dismiss based on inconvenient forum. In January 2007 the Texas trial court held a hearing. The trial court accepted registration of the original LA custody order and the more recent GA order. The trial court then granted the special appearances and dismissed the remaining issues in the case. H appealed.

The court of appeals noted that personal jurisdiction was not required to address any custody issue and that the trial court should have examined it’s subject matter jurisdiction under the UCCJEA before dismissing the entire case. Since the trial court did not do this, the court of appeals reversed the dismissal order and remanded the proceedings back to the trial court for a determination of UCCJEA jurisdiction. The court of appeals instructed the trial court to address the inconvenient forum issue only if it was first determined that the Texas court had subject matter jurisdiction.
In the Interest of G.M.S., 2008 Tex. App. LEXIS 8364 (Tex. App. – Waco November 5, 2008) (mem. opinion) (Cause No. 10-08-131-CV)
Maternal GP’s were appointed SMC of their grandchild. M was named possessory conservator and was awarded supervised visitation. F was not named as a conservator but was ordered to pay child support. At all relevant times, F was in prison. From prison, F filed a motion for contempt against the GP’s alleging that they were permitting M to visit the child unsupervised. His motion was accompanied by his affidavit as well as a letter from M stating that the child was now living with her. A hearing was set. In advance of the hearing F filed an application for a bench warrant or alternatively a request to participate in the hearing by teleconference. His motion stated that prison officials agreed to cooperate in the teleconference and he provided the teleconference information. He also stated that he was a “minimum risk” prisoner. On the day of the contempt hearing the court called the docket and no one answered. The court dismissed the case for want of prosecution. F appealed and asserted that he had been denied due process and that the court had abused its discretion by failing to consider his motion for contempt.

The COA noted an inmates constitutional right of access to the court but only qualified rights to appear personally. In requesting a bench warrant, an inmate must provide sufficient information for the court to determine the necessity of the inmates appearance at the proceeding. If the inmate does not provide this, the court does not abuse its discretion by failing to act on the application. But here, the inmate alternatively requested to participate by teleconference and did provide sufficient information for that purpose. Case law suggests that if a trial court determines that the personal appearance of a pro se inmate in civil litigation is not necessary, the prisoner should be allowed to proceed by affidavit, deposition, telephone or other effective means. The COA found that the trial court did abuse its discretion by failing to allow F to proceed by alternative means and by dismissing his case for want of prosecution.
In re Sigmar, 2008 Tex. App. LEXIS 8345 (Tex. App. – Waco November 5, 2008) (orig. proceeding) (Cause No. 10-08-328-CV)
At H’s request, H and W obtained a “friendly” divorce in February 2007, naming them JMC of their only child and giving them equal visitation rights. Neither parent had a superior right to designate the child’s domicile. The decree gave W the house, a car and other miscellaneous personal property. H was awarded a separate residence, 3 cars, 3 boats, and all interest in several business entities. At the time they agreed not to tell the child about the divorce. The “friendly” divorce had been encouraged by H because he was involved in a variety of multi-million dollar lawsuits, both in the US and Mexico and further because he claimed that his life was in danger based on alleged threats from someone in Mexico. H visited the child on a periodic schedule. In early June, before leaving on a business trip, H told W he was seeing someone else and that he thought they should tell the child about the divorce and that he wanted to spend more time with the child. While he was gone, W filed a petition for bill of review and an application for a protective order. W also filed a motion to modify the decree and sought a TRO. After a temporary hearing the trial court appointed W as temporary SMC and gave H supervised possession only based on a finding that there was a risk of international abduction. The court further enjoined H from selling or liquidating assets pending an evidentiary hearing on W’s bill of review. H filed for mandamus.

The court of appeals found that review of the injunction order by mandamus was inappropriate because interlocutory orders granting temporary injunctions are subject to appeal. As a result, only the custody portion of the order was decided. The COA noted that Texas was the first state to enact legislation aimed at international child abduction in May 2003. Because these statutes are only mentioned in one published decision, the COA used other publications and bill analysis to construe the Texas statues. TFC §153.503 permits the court to impose measures such as supervised visitation if a potential risk of international abduction is proven by credible evidence. TFC §153.501(b) lists 4 factors that the court shall consider in deciding whether to impose these measures: (1) policy considerations in TFC§153.001 and best interest; (2) risk of international abduction by a parent based on the factors outlined in TFC §153.202; (3) any obstacles to locating and recovering the child in a foreign country; and (4) the potential physical or emotional harm to the child if they are abducted to a foreign country. TFC §153.502(a) provides six abduction risk factors for the court to consider. Here the trial court found evidence in support of one risk factor and H argued that the statute required a finding of all six. The COA disagreed and held that evidence of only one is necessary before the court may proceed to consider the additional factors in subsections (b) and (c). The COA analyzed all of the evidence presented. The COA further noted that the trial court’s findings were supported by information obtained from outside sources such as the U.S. State Department website. The COA found that the trial court properly considered information regarding a foreign country’s compliance with the Hague Convention as well as their legal practices and processes by taking judicial notice of these legislative facts. The COA noted that the trial court is permitted to do this sua sponte, without prompting from either party. The COA determined that the evidence and judicially noticed information supported the trial court’s finding of a risk of international abduction. Further, the COA noted that the trial court properly considered state public policy and the child’s best interest and that there were no less restrictive means by which the child could be protected. Mandamus relief was denied.
Stoker v. Fisher-Stoker, 2008 Tex. App. LEXIS ____ (Tex. App. – Houston [1st Dist.] November 6, 2008) (mem. opinion) (Cause No. 01-07-056-CV)
H and W divorced in April 2003. H was awarded a portion of W’s retirement benefits which he received and spent on the purchase of a new home. W appealed claiming that the trial court had improperly divested her of separate property retirement benefits as a result of misinterpreting the parties’ premarital agreement. The COA reversed and remanded (174 S.W.3d 272). On retrial, the court confirmed W’s retirement benefits as her separate property. Both parties sought enforcement of the premarital agreement which provided for a 50/50 division of community property. H was the only party to testify and he sought economic contribution. The parties submitted all trial exhibits by agreement which exhibits attempted to identify the property and its value. Both attorneys testified as to fees. At the conclusion of trial the court confirmed separate property to each and divided the community assets equally, noting that some assets were hard to value in the absence of evidence but the court sought to achieve a 50/50 division. The court denied H’s EC claim and awarded W a judgment for the separate property retirement benefits previously received and spent by H. The court also awarded W an equitable lien against H’s residence. H appealed.

The COA affirmed finding no abuse of discretion in the division. The COA noted that since the terms of the premarital agreement waived reimbursement, this translated into a waiver of EC under TFC §3.410. Further, because it was H’s burden to put on evidence that his new residence was his homestead and he did not do so, the trial court did not err in granting an equitable lien against the property in favor of the W.