Meister v. Meister

Meister v. Meister, No. 1 CA-CV 19-0618 FC, 2021 WL 5706977 (Ariz. App. Dec. 2, 2021).

Facts and Procedural History

Lucas and Jodi Meister were married in 2002. In 2007, Jodi started an industrial blasting company called Prescription Blasting Services (“PBS”). Lucas managed the day-to-day operations for PBS. The business was successful during the marriage—when Lucas accepted service of the divorce petition on January 31, 2017, PBS had an annual gross income of $6 million and annual net income over $1 million.

Within a few months of the date of service, PBS’s biggest customer discovered that PBS had been overbilling for blasting services by at least 30%. Following an internal investigation, the customer cut ties with PBS and refused to pay its outstanding bill of about $1 million. The value of the company dropped significantly, almost overnight.

At trial, Jodi’s expert (Lynton Kotzin) testified that the proper valuation date was March 31, 2017, because that was the end-of-quarter closest to the date of service. On that date, Kotzin valued the business at $2.6 million. Kotzin acknowledged the significant loss in value following the date of service, but opined that it was inappropriate to consider those facts in valuing the company because they were neither “known [n]or knowable” (foreseeable) on March 31, 2017.

Lucas’s expert (Mark Hughes) disagreed, and testified that the decrease in value was foreseeable on March 31 because the customer had already started investigating PBS’s billing practices at that point. Hughes testified that the more appropriate date would be the end of 2017, at which time he valued the business at $120,000.

The trial court ultimately adopted Kotzin’s valuation when it divided PBS, finding that the sharp decrease in value was not foreseeable at the time Jodi filed for divorce, and that Jodi met her prima facie showing to support a waste claim against Lucas for his post-service mismanagement of PBS.

Ruling

The court has wide discretion in selecting a valuation date, and Arizona courts have previously rejected a bright-line rule for selecting a valuation date (e.g., date of service or value at dissolution). Relying on Sample v. Sample, the court of appeals held that the trial court erred by failing to consider Lucas’s conduct during the marriage that led to the collapse of the business, such as the alleged overbilling practices. 152 Ariz. 239 (App. 1986).

However, foreseeability should not control the family court’s selection of a valuation date. “While foreseeability may be a relevant factor in some cases, it cannot trump the question of whether the selection of the valuation date must produce an equitable result.”

Although specific findings are not usually required when dividing assets, “the court must provide enough analysis, however labeled, to allow an appellate court to fulfill its obligation to decide whether the valuation date, and resulting property distribution, withstand the test of equity and fairness.”