Appeal from the Circuit Court of Cook County. Honorable Sheldon Gardner, Judge Presiding.
Released for Publication September 16, 1996.
Presiding Justice Hartman delivered the opinion of the court. Scariano and Burke, JJ., concur.
The opinion of the court was delivered by: Hartman
PRESIDING JUSTICE HARTMAN delivered the opinion of the court:
This is the second appeal involving these parties. See In re Marriage of Reib, 114 Ill. App. 3d 993, 449 N.E.2d 919, 70 Ill. Dec. 572 (1983) (Reib). Following remand, the circuit court valued Reib and Reib, Inc. (R&R), respondent William's company, at $483,000 and awarded petitioner Barbara one-half of that amount plus prejudgment interest. The court subsequently granted Barbara attorneys' and accountant's fees. Respondent appeals, contending the circuit court abused its discretion in (1) considering the testimony of petitioner's expert, (2) granting attorneys' and accountant's fees, (3) evaluating respondent's company, R&R, and (4) allowing prejudgment interest. Respondent also contends the court exceeded the mandate of the appellate court in hearing certain evidence. For reasons which follow, we affirm in part and reverse in part.
Following dissolution of Barbara and William Reib's marriage, Barbara appealed the circuit court's awards of property and maintenance contending the court failed to value the parties' assets properly. The appellate court reversed the circuit court's determination that the parties' marital debts exceeded the value of their marital assets because the court heard no evidence regarding the value of Mainway Financial Corporation (Mainway) and R&R, two of William's companies. Reib, 114 Ill. App. 3d at 999-1000. R&R was an insurance agency engaged in risk management and was the parent company of Mainway. Mainway had a subsidiary, Main Insurance Company (Main Insurance). On remand, the court conducted an evidentiary hearing and found that R&R had a value of $483,000 as of December 31, 1981. The court thereafter awarded Barbara $241,500, or one-half of R&R's value, plus interest from September 22, 1981, the date of the original circuit court's judgment. The court granted Barbara's petition for attorneys' and accountant's fees.
Lawrence Lipsky, a certified public accountant (CPA) and tax lawyer, testified without objection as Barbara's expert witness. He had testified many times regarding the valuation of companies but never concerning the value of an insurance agency. Lipsky examined the tax records, work papers, cash receipts, corporate disbursements and general ledger of R&R, as well as some records for Mainway. These records were supplied to Lipsky by William's CPA, Leonard Frumm. R&R's 1981 tax return showed a cash balance of $776,611 and indicated that William had been paid $121,208 in commission. William's commission for 1982 was $129,000. Lipsky opined that R&R had a value of $517,099 as of December 31, 1981. He arrived at that number by using a four-year (1978-1981) average of R&R's gross revenues and using a multiplier of 1.5, which is the commonly accepted rule of thumb for the price at which an insurance agency is sold. Lipsky relied, in part, upon a publication to ascertain the 1.5 multiplier. He added the net book value of the company and a federal tax refund to determine the final amount.
On cross-examination, Lipsky testified he had never done any accounting work for risk management companies. His knowledge of R&R's business came from the tax returns. He was unsure of the number of clients R&R had. William was R&R's only employee. R&R owed over a million dollars in accounts payable and sustained a loss of $36,727 for 1981. The publication Lipsky relied on for the valuation formula required the net renewal commissions for the most current year but Lipsky used total commissions instead. Lipsky would not have adjusted the multiplier had he known how many accounts R&R had at the time of his evaluation. Lipsky considered the 1.5 multiplier conservative.
Frumm, William's CPA, was called as an adverse witness by Barbara and testified as an expert for William. Frumm prepared tax returns for R&R and Mainway. R&R's 1981 tax return showed a $636,367 investment in Mainway. Mainway reported a loss of $1,577,125 for 1980 and a net operating loss of $7,261,052 from years prior to 1980. Frumm believed R&R had a value of negative $211,105 on December 31, 1981.
According to Frumm, R&R had only one client by the end of 1981. R&R reported a loss for 1981, yet William was paid over $121,000 in commissions. In 1981, R&R earned a gross income of $200,000; traveling and entertainment expenses of $19,000 were paid, as were outside consulting expenses of $34,560 and legal expenses of $19,885. Frumm agreed with Lipsky's gross income figure but disagreed with the 1.5 multiplier. Although R&R owed Mainway $636,367, Frumm did not calculate that amount into R&R's value. Frumm wanted to write the loan off as a bad debt but William persuaded him not to do so until 1983. Frumm admitted that had he written off the loan to Mainway, R&R's value as of December 31, 1981, would have been approximately $425,000.
The circuit court concluded that R&R's value as of December 31, 1981, was $470,000. The court requested each party to submit a memorandum setting forth argument concerning a proper "allocation." Subsequently, the court determined that R&R's value was $483,000. The court set a date to determine how the assets were to be distributed and eventually ordered that Barbara was entitled to $241,500. No transcript of this hearing is contained in the record.
Barbara's counsel thereafter filed a petition for attorneys' fees and costs as well as reimbursement for the fees and costs associated with retaining Lipsky as an expert. William unsuccessfully moved to dismiss Barbara's petition for attorneys' fees.
At the hearing on the petition for attorneys' fees, Barbara's counsel testified that the fee petition reflected his work. The petition also alleged that William was a successful businessman; in the late 1980s, Barbara's counsel had investigated William's financial success. William's tax returns for the last three years were requested but were never received. Barbara testified that she was unable to pay her attorneys' fees and costs. Following the hearing, the court awarded Barbara attorneys' fees and costs of $49,573 and accountant's fees of $8,000. William appeals.
William initially contends the circuit court abused its discretion in permitting Lipsky to testify as an expert witness because he had no ...