COURT OF APPEALS OF VIRGINIA
Present: Judge Bray, Senior Judges Cole and Overton Argued at Richmond, Virginia
STEPHEN WILSON PAULETTE MEMORANDUM OPINION * BY v. Record No. 0577-99-2 JUDGE RICHARD S. BRAY FEBRUARY 22, 2000 RUGENE SEATON PAULETTE
FROM THE CIRCUIT COURT OF HENRICO COUNTY Buford M. Parsons, Jr., Judge
Lawrence H. Framme, III (Susan H. Call; Framme Law Firm, P.L.C., on briefs), for appellant.
Terrence R. Batzli (M. Alicia Finley; Barnes & Batzli, P.C., on brief), for appellee.
Dr. Stephen Wilson Paulette (husband) appeals an order of the
trial court finding him "in breach of [the Separation and Property
Settlement] Agreement" (agreement) with his former wife, Rugene
Seaton Paulette (wife), and assessing attendant damages, fees, and
costs. Husband argues that the court erroneously relied upon
certain evidence provided by wife's accountant/witness in
determining such issues. We agree and reverse the order.
The parties are fully conversant with the record, and this
memorandum opinion recites only those facts necessary to a
disposition of the appeal.
* Pursuant to Code § 17.1-413, recodifying Code § 17-116.010, this opinion is not designated for publication. I.
Husband and wife executed the subject agreement, dated
November 27, 1985, incidental to their separation and divorce.
The agreement obligated husband, in pertinent part, to "pay to
wife 20% of his net income for spousal support" and was
incorporated into the final decree, entered December 23, 1986. On
May 29, 1997, wife moved the trial court to "reinstate this matter
on the active docket," and "review the amount of spousal support
and maintenance [husband] is currently paying." Thereafter, by
further motion, wife alleged that husband had failed to pay
spousal support in accordance with the agreement and prayed the
court, inter alia, to ascertain the "arrearage" and enter an
appropriate judgment, "with interest . . ., attorney's fees and
costs."
In proof of her claim, wife presented the evidence of
William K. Stephens, III, an accountant retained by her to conduct
an "analysis . . . to determine if the net income reported by
[husband] to [wife], for purposes of determining the amount due to
her according to [the] agreement, is a fair and accurate
representation of his share of the income of the [professional]
practice" conducted by husband, an oral surgeon, and his current
wife, Dr. Kathryn A. Biery-Paulette (Dr. Biery), a
dentist/anesthesiologist. In performing his task, Stephens
reviewed "all of the pertinent data" with respect to "two major
areas of concern . . . that have a material impact on the
- 2 - outcome:" (1) "the overall net income available for distribution
between the two doctors," and (2) "how that . . . net income was
distributed to the two." Recognizing that "[b]oth components
represent opportunities for . . . manipulation, which . . .
directly affects payments" to wife, Stephens compared the
"activity [of husband and Dr. Biery] to reliable industry
statistics" for professional "peer groups" to "determine the
reasonableness of the . . . allocation of income between the two
doctors" during the targeted time period, January 1, 1993 to
December 31, 1997.
Stephens' efforts culminated in a lengthy report, introduced
into evidence, together with detailed schedules, appendices and
related testimony. Guided by "information in his head" and
"different sources that are recognized sources for percentages of
profit, . . . of overhead, productivity norms,"1 Stephens'
analysis evinced a convoluted methodology. Without needlessly
detailing his formulations, several factors were critical to the
validity of the evaluation, including the "normal profit
percentage[s] for general dentistry . . . and oral surgery," 34.1%
and 46.8%, respectively, and husband's contribution to the "gross
receipts" of the practice. Applying such "industry averages" to
receipts attributable to husband and Dr. Biery for the years under
1 Stephens specifically identified two "industry sources" which provided "industry averages," "industry data," "norms," benchmarks indispensable to his analysis.
- 3 - scrutiny, Stephens determined a "fair allocation and distribution
of collections and overhead" to ascertain an appropriate net
income for each. He then compared such standardized net income to
the actual salaries of husband and Dr. Biery for the subject years
to conclude that husband was grossly underpaid, while Dr. Biery
enjoyed a substantial "overage" in compensation.
Aided by further evidence pertaining to husband's transfer of
certain assets to Dr. Biery, including his interests in the
professional corporation which operated the practice and in a
partnership which owned the condominium it occupied, at an
"inflated rent[]," Stephens resolved that husband had breached the
agreement, colluding with Dr. Biery in a "plan," a "strategy,"
"over a period of years," to reduce his "net income" chargeable
with wife's spousal support. Stephens then determined the
resulting arrearage by recalculating and otherwise adjusting
husband's "net income" to that amount "the industry feels that
[husband] should be able to pay himself" for the years, 1993-1997,
offset by that support already paid to wife based upon
"underreported net income."
II.
"In Virginia property settlement [and separation] agreements
are contracts and subject to the same rules of formation, validity
and interpretation as other contracts." Smith v. Smith, 3 Va.
App. 510, 513, 351 S.E.2d 593, 595 (1986). "The essential
elements of a cause of action for breach of contract are: (1) 'a
- 4 - legal obligation of a defendant to the plaintiff,' (2) 'a
violation or breach of that right or duty,' and (3) 'a
consequential injury or damage to the plaintiff.'" Westminster
Investing Corp. v. Lamps Unlimited, 237 Va. 543, 546, 379 S.E.2d
316, 317 (1989) (quoting Caudill v. Wise Rambler, 210 Va. 11, 13,
168 S.E.2d 257, 259 (1969)).
"While it is true upon the breach of a valid and binding
contract the law infers nominal damages, it does not infer or
presume substantial or compensatory damages. The latter must be
proven by competent evidence." Orebaugh v. Antonious, 190 Va.
829, 834, 58 S.E.2d 873, 875 (1950). The party alleging a breach
has an "obligation to establish his damages with reasonable
certainty by the best evidence which is available." White Sewing
Mach. Co. v. Gilmore Furniture Co., 128 Va. 630, 650, 105 S.E.
134, 140 (1920). "Proof with mathematical precision is not
required, but there must be at least sufficient evidence to permit
an intelligent and probable estimate of the amount of damage."
Hailes v. Gonzales, 207 Va. 612, 614, 151 S.E.2d 388, 390 (1966).
In adjudicating a contractual dispute, evidence provided by
an expert is "admissible . . . if it will assist the fact finder
in understanding the evidence[,]" Tittsworth v. Robinson, 252 Va.
Free access — add to your briefcase to read the full text and ask questions with AI
COURT OF APPEALS OF VIRGINIA
Present: Judge Bray, Senior Judges Cole and Overton Argued at Richmond, Virginia
STEPHEN WILSON PAULETTE MEMORANDUM OPINION * BY v. Record No. 0577-99-2 JUDGE RICHARD S. BRAY FEBRUARY 22, 2000 RUGENE SEATON PAULETTE
FROM THE CIRCUIT COURT OF HENRICO COUNTY Buford M. Parsons, Jr., Judge
Lawrence H. Framme, III (Susan H. Call; Framme Law Firm, P.L.C., on briefs), for appellant.
Terrence R. Batzli (M. Alicia Finley; Barnes & Batzli, P.C., on brief), for appellee.
Dr. Stephen Wilson Paulette (husband) appeals an order of the
trial court finding him "in breach of [the Separation and Property
Settlement] Agreement" (agreement) with his former wife, Rugene
Seaton Paulette (wife), and assessing attendant damages, fees, and
costs. Husband argues that the court erroneously relied upon
certain evidence provided by wife's accountant/witness in
determining such issues. We agree and reverse the order.
The parties are fully conversant with the record, and this
memorandum opinion recites only those facts necessary to a
disposition of the appeal.
* Pursuant to Code § 17.1-413, recodifying Code § 17-116.010, this opinion is not designated for publication. I.
Husband and wife executed the subject agreement, dated
November 27, 1985, incidental to their separation and divorce.
The agreement obligated husband, in pertinent part, to "pay to
wife 20% of his net income for spousal support" and was
incorporated into the final decree, entered December 23, 1986. On
May 29, 1997, wife moved the trial court to "reinstate this matter
on the active docket," and "review the amount of spousal support
and maintenance [husband] is currently paying." Thereafter, by
further motion, wife alleged that husband had failed to pay
spousal support in accordance with the agreement and prayed the
court, inter alia, to ascertain the "arrearage" and enter an
appropriate judgment, "with interest . . ., attorney's fees and
costs."
In proof of her claim, wife presented the evidence of
William K. Stephens, III, an accountant retained by her to conduct
an "analysis . . . to determine if the net income reported by
[husband] to [wife], for purposes of determining the amount due to
her according to [the] agreement, is a fair and accurate
representation of his share of the income of the [professional]
practice" conducted by husband, an oral surgeon, and his current
wife, Dr. Kathryn A. Biery-Paulette (Dr. Biery), a
dentist/anesthesiologist. In performing his task, Stephens
reviewed "all of the pertinent data" with respect to "two major
areas of concern . . . that have a material impact on the
- 2 - outcome:" (1) "the overall net income available for distribution
between the two doctors," and (2) "how that . . . net income was
distributed to the two." Recognizing that "[b]oth components
represent opportunities for . . . manipulation, which . . .
directly affects payments" to wife, Stephens compared the
"activity [of husband and Dr. Biery] to reliable industry
statistics" for professional "peer groups" to "determine the
reasonableness of the . . . allocation of income between the two
doctors" during the targeted time period, January 1, 1993 to
December 31, 1997.
Stephens' efforts culminated in a lengthy report, introduced
into evidence, together with detailed schedules, appendices and
related testimony. Guided by "information in his head" and
"different sources that are recognized sources for percentages of
profit, . . . of overhead, productivity norms,"1 Stephens'
analysis evinced a convoluted methodology. Without needlessly
detailing his formulations, several factors were critical to the
validity of the evaluation, including the "normal profit
percentage[s] for general dentistry . . . and oral surgery," 34.1%
and 46.8%, respectively, and husband's contribution to the "gross
receipts" of the practice. Applying such "industry averages" to
receipts attributable to husband and Dr. Biery for the years under
1 Stephens specifically identified two "industry sources" which provided "industry averages," "industry data," "norms," benchmarks indispensable to his analysis.
- 3 - scrutiny, Stephens determined a "fair allocation and distribution
of collections and overhead" to ascertain an appropriate net
income for each. He then compared such standardized net income to
the actual salaries of husband and Dr. Biery for the subject years
to conclude that husband was grossly underpaid, while Dr. Biery
enjoyed a substantial "overage" in compensation.
Aided by further evidence pertaining to husband's transfer of
certain assets to Dr. Biery, including his interests in the
professional corporation which operated the practice and in a
partnership which owned the condominium it occupied, at an
"inflated rent[]," Stephens resolved that husband had breached the
agreement, colluding with Dr. Biery in a "plan," a "strategy,"
"over a period of years," to reduce his "net income" chargeable
with wife's spousal support. Stephens then determined the
resulting arrearage by recalculating and otherwise adjusting
husband's "net income" to that amount "the industry feels that
[husband] should be able to pay himself" for the years, 1993-1997,
offset by that support already paid to wife based upon
"underreported net income."
II.
"In Virginia property settlement [and separation] agreements
are contracts and subject to the same rules of formation, validity
and interpretation as other contracts." Smith v. Smith, 3 Va.
App. 510, 513, 351 S.E.2d 593, 595 (1986). "The essential
elements of a cause of action for breach of contract are: (1) 'a
- 4 - legal obligation of a defendant to the plaintiff,' (2) 'a
violation or breach of that right or duty,' and (3) 'a
consequential injury or damage to the plaintiff.'" Westminster
Investing Corp. v. Lamps Unlimited, 237 Va. 543, 546, 379 S.E.2d
316, 317 (1989) (quoting Caudill v. Wise Rambler, 210 Va. 11, 13,
168 S.E.2d 257, 259 (1969)).
"While it is true upon the breach of a valid and binding
contract the law infers nominal damages, it does not infer or
presume substantial or compensatory damages. The latter must be
proven by competent evidence." Orebaugh v. Antonious, 190 Va.
829, 834, 58 S.E.2d 873, 875 (1950). The party alleging a breach
has an "obligation to establish his damages with reasonable
certainty by the best evidence which is available." White Sewing
Mach. Co. v. Gilmore Furniture Co., 128 Va. 630, 650, 105 S.E.
134, 140 (1920). "Proof with mathematical precision is not
required, but there must be at least sufficient evidence to permit
an intelligent and probable estimate of the amount of damage."
Hailes v. Gonzales, 207 Va. 612, 614, 151 S.E.2d 388, 390 (1966).
In adjudicating a contractual dispute, evidence provided by
an expert is "admissible . . . if it will assist the fact finder
in understanding the evidence[,]" Tittsworth v. Robinson, 252 Va.
151, 154, 475 S.E.2d 261, 263 (1996), but it must "be based on an
adequate foundation." Kessee v. Donigan, ___ Va. ___, ___, ___
S.E.2d ___, ___ (2000). "[E]xpert testimony is [not relevant and
- 5 - probative] if it is founded on assumptions that have an
insufficient factual basis." Id. at ___, ___ S.E.2d at ___.
Here, the trial court expressly "accepted [Stephens']
evaluation" and opinions, both with respect to the alleged breach
and related arrearages, and fashioned the disputed order
accordingly. However, much of Stephens' methodology was
problematic, oftentimes remote from and without appropriate
consideration of circumstances specific to the instant cause. Of
particular concern, Stephens' analysis relied upon an attribution
to husband of a fixed percentage of the total gross receipts of
husband and Dr. Biery for each of the five years in issue, derived
from actual data for only seven successive months in 1997 and
1998, a year otherwise excluded from his calculations. Thus,
several months during the final year of the five under examination
provided a pivotal component in Stephens' computations, thereby
clearly infecting his analysis and attendant opinions with
temporal bias. Similarly, Stephens' strict adherence to "industry
averages," without consideration of regional variables and the
specific expenses, operational and other factors peculiar to
husband's practice, provided an inadequate foundation for relevant
conclusions.
- 6 - Accordingly, we reverse the disputed order and remand these
proceedings for further consideration of that evidence properly
before the court and attendant redetermination of the issues.
Reversed and remanded.
- 7 -