Howard C. Schoeffler v. Nancy N. Schoeffler

NOT DESIGNATED FOR PUBLICATION

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

21-21

HOWARD C. SCHOEFFLER

VERSUS

NANCY N. SCHOEFFLER

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF VERMILION, NO. 102882
HONORABLE CHARLES G. FITZGERALD, DISTRICT JUDGE

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J. LARRY VIDRINE‫٭‬
JUDGE

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Court composed of Billy H. Ezell, D. Kent Savoie, and J. Larry Vidrine‫٭‬, Judges.

AFFIRMED.

__________________

‫٭‬Honorable J. Larry Vidrine participated in this decision by appointment of the Louisiana
Supreme Court as Judge Pro Tempore.

Paul J. deMahy
2206 Catherine Drive
St. Martinville, LA 70582
(337) 519-5400
COUNSEL FOR DEFENDANT/APPELLEE:
Nancy N. Schoeffler

Bradford H. Felder
Veazey, Felder & Renegar, LLC
Post Office Box 80948
Lafayette, LA 70598-0948
(337) 234-5350
COUNSEL FOR PLAINTIFF/APPELLANT:
Howard C. Schoeffler

VIDRINE, Judge Pro Tempore.

This community property partition case involves an appeal from the trial

court’s valuation of the former wife’s interest in three limited liability companies.

The former husband contends that the trial court erroneously failed to apply a

marketability discount in determining the value of the former wife’s interests.

Alternatively, the former husband contends that the governing documents of the

three entities control the valuations of the former wife’s interests.

FACTS AND PROCEDURAL HISTORY:

Nancy Schoeffler and Howard Schoeffler were married. During the course of

that marriage, three limited liability companies were formed: Thibodeaux Hebert

Deshotels LeBlanc, LLC, a public accounting firm, Total HR Solutions, LLC, a

provider of payroll processing and HR services, and Financial Partners of Louisiana,

LLC, a provider of administrative support for financial advisory and planning

services.

On January 24, 2017, Howard filed for divorce and partition of the couple’s

community property. He and Nancy entered a consent judgment that resolved the

ancillary issues and partially settled the community property partition on December

20, 2017.

Thereafter, a trial was conducted on November 4, 2019, and November 20,

2019, to partition the remaining community property. On February 4, 2020, the trial

court signed a judgment that, inter alia, valued the community’s interest in the three

limited liability companies, partitioned 100% of the community’s interest in the

three companies to Howard, and awarded Nancy a money judgment to offset the loss

of her half of the community’s interest in the three limited liability companies.

Both parties filed motions for new trial. Nancy’s was denied. Howard’s was

granted, in part, on issues not relevant to this appeal and denied, in part, regarding

the applicability of a marketability discount in valuing the three limited liability

companies. This appeal followed with Howard alleging three assignments of error.

ASSIGNMENTS OF ERROR:

1. The trial court erred in holding marketability discounts never
apply to the determination of the fair market value of a party’s interest
in a limited liability company in a community property partition.

2. The trial court therefore erred when it failed to apply a 30%
marketability discount to determine the fair market value of Howard’s
interest in Thibodaux Hebert Deshotels & Leblanc, LLC, Total HR
Solutions, LLC, and Financial Partners of Louisiana, LLC.

3. Alternatively, if the entities are to be valued using a “known
party” transaction methodology, then the governing documents of the
entities control the valuations.

ASSIGNMENT OF ERROR NUMBER ONE:

In his first assigned error, Howard asserts that the trial court erred in holding

marketability discounts never apply to the determination of the fair market value of

a party’s interest in a limited liability company in a community property partition.

Howard’s assignment of error relates to his interpretation of the trial court’s

reasons for judgment. The judgment is silent on the trial court’s view regarding

whether marketability discounts ever apply to the determination of the fair market

value of a party’s interest in an LLC in a community property partition. In Keenan

v. Keenan, 15-828, p. 4 (La.App. 3 Cir. 2/3/16), 186 So.3d 289, 295, writ denied,

16-418 (La. 4/15/16), 191 So.3d 590 (alterations in original), this court addressed a

party’s assignment of error concerning a trial court’s reasons for judgment, stating:

We first address Horace’s assignment of error concerning the
trial court’s written reasons. Horace contends that they are inaccurate
and do not comport with the issues. He requests that this court perform
a de novo review. Horace does not cite any statutory or jurisprudential
authority for such a review.

“Appeals are taken from the judgment, not the reasons for
judgment” and the reasons “are merely an explication of the trial court’s
determinations. They do not alter, amend, or affect the final judgment
being appealed[.]” Winbery v. Louisiana College, 13-339, p. 9 (La.App.
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3 Cir. 11/6/13), 124 So.3d 1212, 1217-18 (quoting Wooley v.
Lucksinger, 09-571, 09-584, 09-585, 09-586 (La.4/1/11), 61 So.3d 507,
and State in the Interest of Mason, 356 So.2d 530 (La.App. 1
Cir.1977)), writs denied, 13-2844, 13-2859 (La.4/11/14), 137 So.3d
1215. Further, “[i]n general, if the appellate court believes that the trial
court reached the proper result, it will affirm the judgment.” David v.
David, 12-1051, p. 4 (La.App. 3 Cir. 4/10/13), 117 So.3d 148, 152, writ
denied, 13-1541 (La.10/4/13), 122 So.3d 1023.

Thereafter, the Keenan court amended the judgment of the trial court but did

not amend the trial court’s reasons for judgment. Like the Keenan court, we find no

legal basis to consider a trial court’s reasons for judgment as, “[a]ppeals are from

judgments, not reasons for judgment.” Wooley, 61 So.3d at 572 (quoting Greater

New Orleans Expressway Comm’n v. Olivier, 02-2759, p. 3 (La. 11/18/03), 860

So.2d 22, 24). “Judgments are often upheld on appeal for reasons different than

those assigned by the district judges.” Id. Given the clear jurisprudence on assigned

errors targeting a trial court’s reasons for judgment, we find no merit to this assigned

error.

ASSIGNMENT OF ERROR NUMBER TWO:

Howard, in his second assignment of error, argues that the trial court erred

when it failed to apply a 30% marketability discount to determine the fair market

value of his interest in three limited liability companies: Thibodaux Hebert

Deshotels & Leblanc, Total HR Solutions, and Financial Partners of Louisiana. We

disagree.

The parties disagree on the standard of review applicable to this assigned

error. Howard’s argument for a de novo review is on the premise that the trial court

found “marketability discounts never apply in community property partition

actions.” Contrarily, Nancy cites Cannon v. Bertrand, 08-1073 (La. 1/21/09), 2

So.3d 393, for the proposition that the standard of reviewing a trial court’s decision

whether to apply a marketability discount is abuse of discretion. In Cannon, our

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supreme court looked to the application of a what it ascertained as a combination of

marketability and minority discounts and found that the trial court abused its

discretion in applying those discounts.

Howard’s assertion that the trial court’s judgment found marketability

discounts never apply in community property partition actions is not accurate. The

trial court’s judgment does not stand for such a bright-line rule. As we iterated in

Howard’s Assignment of Error Number One, the trial court’s judgment is silent on

its view regarding whether marketability discounts ever apply to the determination

of the fair market value of a party’s interest in an LLC in a community property

partition. Thus, his assertion of legal error is unfounded.

This court, in Segura v. Comeaux, 17-258, p. 2 (La.App. 3 Cir. 11/2/17), 279

So.3d 418, 420, writ denied, 17-2027 (La. 2/2/18), 235 So.3d 1119 (first alteration

in original) (quoting Ellington v. Ellington, 36,943, pp. 6-7 (La.App. 2 Cir. 3/18/03),

842 So.2d 1160, 1165-66, writ denied, 03-1092 (La. 6/27/03), 847 So.2d 1269),

stated the following:

In light of the discretion granted to the trial court by La.R.S.
9:2801, the court is not required to accept at face value a party’s
valuation of assets, debts or claims against the community. Gay v. Gay,
31,974 (La.App.2d Cir.06/16/99), 741 So.2d 149; Kaplan v. Kaplan,
522 So.2d 1344 (La.App. 2d Cir. 1988); Alford v. Alford, 94-1464
(La.App. 3d Cir.04/05/95), 653 So.2d 133. If the trial court’s valuations
are reasonably supported by the record and do not constitute an abuse
of discretion, its determinations should be affirmed. Alford, supra. As
noted by the court in Starr v. Starr, 557 So.2d 1026 (La.App. 4th Cir.
1990), the law provides no mathematical formula for determining the
value of community assets.

If the community asset to be valued is an interest in a partnership
or corporation, the court must be careful to value the interest, not just
the assets of the business entity. Moody v. Moody, 622 So.2d 1381
(La.App. 1st Cir. 1993), writ denied, 629 So.2d 1168 (La.1993);
Borrello v. Borrello, 614 So.2d 91 (La.App. 4th Cir. 1992); Mexic v.
Mexic, 577 So.2d 1046 (La.App. 4th Cir. 1991). The trial court’s
determination of the value of a community business is a factual one
which will not be disturbed absent manifest error. Monje [v. Monje],
[94-622 (La.App. 5th Cir. 12/28/94), 648 So.2d 1086]; Moody, supra.
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A court, in valuing a community asset, has discretion. Hare v. Hodgins,
586 So.2d 118 (La.1991).

Given the above, we agree with Nancy. The standard of reviewing a trial

court’s decision whether to apply a marketability discount is abuse of discretion.

The record before us indicates that both experts agreed as to the initial value

of the three limited liability companies, i.e., prior to application of discounts, if any.

However, Nancy’s expert, Chris Rainey, opined that the fair market value of the

community companies should not include a marketability discount, while Howard’s

expert, Ralph Stephens, disagreed. Rainey’s opinion regarding marketability

discounts was based on the reasoning in our supreme court’s opinion in Cannon, 2

So.3d 393.

Marketability discounts, as stated by both experts in this case, derive from

illiquidity. The liquidity of an asset is ascertained by how quickly and easily its

value can be converted into cash without affecting the asset’s value. Intuitively,

selling an interest in a private, closely-held company is a more costly, uncertain, and

time-consuming process than selling an interest in a publicly traded entity. An asset

that the owner can convert to cash in a timely fashion is worth more than an asset

that the owner cannot sell quickly. Hence, when valuing the owner’s interest in

small, closely-held companies, experts may apply a marketability discount when

warranted.

In Cannon, our supreme court stated, “[m]inority discounts and other

discounts, such as for lack of marketability, may have a place in our law; however,

such discounts must be used sparingly and only when the facts support their use.”

Id. at 396 (footnote omitted). In reversing this court, the Cannon court reasoned,

given the facts before it, that applying a marketability discount when “the

[remaining] partners have already determined to purchase the partnership share

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themselves by opting to continue the partnership and avoid liquidation” was an abuse

of discretion by the trial court. Id.

Here, as is generally the case in a community partition situation regarding a

community’s interests in a business, the actual market for the withdrawing

party/spouse’s interest is known. Howard, the recipient spouse, has determined to

remain a member of the limited liability companies after acquiring Nancy’s interest.

This is not dissimilar to the partners deciding to purchase the withdrawing partner’s

interests and continue the business in Cannon. Rainey’s expert opinion on the

applicability of marketability discounts was based on the Cannon court’s reasoning

and the fact of a “known market” both here and in Cannon.

Furthermore, after Howard acquires Nancy’s half of the former community’s

interests and continues those businesses, should he decide to withdraw from

Thibodeaux Hebert Deshotels LeBlanc, LLC or Total HR Solutions, LLC, the

former community’s interests will not be sold on an open market to a hypothetical

buyer. Those interests are subject to buy/sell agreements with the remaining

members. Similarly, Howard’s acquired interests in Financial Partners of Louisiana,

LLC, may also not be sold on an open market to a future, hypothetical buyer because

his interests are subject to a right of first refusal granted to the remaining members

with the purchase price being set, at that time, at the fair market value. Although a

trial court is to value the community assets at the time of partition under La.R.S.

9:2801(4)(a), how those assets will be sold in the future, if known, can have an

impact on the present value of those assets and the propriety of applying a

marketability discount to those assets.

Therefore, the facts of this case are such that the actual market is known both

for the withdrawing spouse’s interests and either is or may be known for the

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continuing spouse’s combined, acquired interests. Neither of those interests will be

sold on a purely open market with a hypothetical buyer and seller.

We note that this is not to say that marketability discounts never apply in

community property partition actions. See Trahan, 10-109 (La.App. 1 Cir. 6/11/10),

43 So.3d 218, writ denied, 10-2014 (La. 11/12/10), 49 So.3d 889, wherein

application of a marketability discount was upheld when experts from both parties

applied a marketability discount in reaching their opinions on the fair market value

of a community asset. Here, we are simply following our supreme court’s directive

in Cannon by reviewing whether the trial court abused its discretion in refusing to

apply marketability discounts based on the facts of the case before it.

Accordingly, given the facts of this case and supporting evidence in the

record, we find no abuse of the discretion afforded the trial court in valuing the

community’s interests in the three companies without applying a marketability

discount. This assignment of error lacks merit.

ASSIGNMENT OF ERROR NUMBER THREE:

Finally, Howard’s third assignment of error is that, alternatively, if we find no

error by the trial court in valuing the three limited liability companies using a

“known party” transaction methodology, then the trial court erred by failing to use

the governing documents of the companies to control the interest valuations. We

find no merit to this assignment.

First, the assumption by Howard that the trial court, and, in the event of

affirmation, this court, used a “‘known party’ transaction methodology,” and that

this court endorsed such a methodology is baseless. Howard has produced no

evidence of this methodology, and this court is unaware that such a methodology

exists. Our finding in Assignment of Error Numbers One or Two is not an

endorsement or affirmation of a “known party” transaction methodology.
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Rather, this court followed our supreme court’s jurisprudence in Cannon, 2

So.3d 393, in reviewing the trial court’s judgment for abuse of discretion. The

Cannon court established that marketability discounts should be used sparingly and

only when the facts of the case support their use. The trial court found that the facts

of this case did not support a marketability discount’s use. We found no abuse of

the trial court’s discretion because the facts established in the record amply

supported the trial court’s decision.

Regarding the substance of this assigned error, that the trial court erred by

failing to use the governing documents of the companies to control the interest

valuations, we note that the documents detail how the partners will value Howard’s

interests upon withdrawal. That valuation is fixed by either the value of Howard’s

capital account on the date of withdrawal or the fair market value of those interests.

Here, Howard is not withdrawing from the businesses, he is continuing his

participation in them. Therefore, using the governing document’s current value

upon withdrawal is not based on the facts of this case.

Further, the governing documents only attempt to value Howard’s interest in

event of his withdrawal. Ownership of a thing is “the right that confers on a person

direct, immediate, and exclusive authority over a thing. The owner of a thing may

use, enjoy, and dispose of it within the limits and under the conditions established

by law.” La.Civ.Code art. 477(A). Under La.Civ.Code art. 477(A), the value of the

thing, the community’s interests in the three limited liability companies, includes

value for their use, enjoyment, and disposition. Here, using the governing

document’s valuation only includes the current value of disposing the community’s

interests without considering the value of using and enjoying those interests. Such

a valuation, without considering all sources of a thing’s value, is not aligned with

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the directive given to courts in La.R.S. 9:2801(4)(a) wherein we are to find the fair

market value a community’s asset.

Accordingly, we find no error by the trial court in failing to use the governing

documents of the companies to control the interest valuations. This assignment of

error is without merit.

CONCLUSION:

Howard Schoeffler raises three assignments of error. We find no merit in any

of Howard’s assignments of error. As such, we affirm the trial court’s judgment.

We assess all costs of this appeal to Howard Schoeffler.

AFFIRMED.

This opinion is NOT DESIGNATED FOR PUBLICATION.

Uniform Rules– Courts of Appeal, Rule 2–16.3.

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