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In re Marriage of Mack

Court of Appeals of Iowa

September 12, 2018

IN RE THE MARRIAGE OF EDDIE R. MACK AND KATHY A. MACK Upon the Petition of EDDIE R. MACK, Petitioner-Appellant, And Concerning KATHY A. MACK, Respondent-Appellee.

          Appeal from the Iowa District Court for Audubon County, James S. Heckerman, Judge.

         An ex-husband appeals a dissolution decree, arguing the district court should have (1) imposed discovery sanctions; (2) accounted for dissipation in the property division; (3) ordered trial attorney fees; and (4) denied the wife's request for a noncompetition clause.

          Gina C. Badding of Neu, Minnich, Comito, Halbur, Neu & Badding, P.C., Carroll, for appellant.

          J. C. Salvo and Bryan D. Swain of Salvo, Deren, Schenck, Gross, Swain & Argotsinger, PC, Harlan, for appellee.

          Considered by Danilson, C.J., and Vogel and Tabor, JJ.

          TABOR, Judge.

         Although Eddie and Kathy Mack could not reconcile their differences to preserve their marriage, during more than twenty years together the couple did build a successful small business-Midwest Hard Parts, Inc. (MHPI). That lucrative aluminum-scrapping venture lies at the heart of this divorce appeal. Eddie raises four claims: (1) the district court should have imposed discovery sanctions when Kathy failed to turn over business records; (2) the property division was inequitable and should have accounted for Kathy's dissipation of corporate assets; (3) the court should have ordered Kathy to pay trial attorney fees; and (4) the decree improperly included a noncompetition clause, limiting Eddie's future business prospects. After reviewing the record, we find Eddie failed to preserve error on the first issue. On the remaining claims, we find the decree to be equitable-with two small exceptions. Due to a mathematical error, we modify Kathy's equalization payment slightly in Eddie's favor. We also order Kathy to pay $7000 toward Eddie's trial attorney fees.

         I. Facts and Prior Proceedings

         Eddie and Kathy first married in 1984. They stayed together for twelve years, divorced for two months, remarried, and continued as husband and wife for nine more years before Eddie filed for divorce. This is an appeal from their second divorce.

         Nearly twenty years ago, Kathy and Eddie started MHPI in their garage. Eddie scrapped transmissions for the aluminum and discovered a demand for the parts they kept stocked on their shelves. The Macks incorporated their business in 2000. Kathy handled ordering, bookkeeping, and payroll duties while Eddie handled parts and labor. They also raised three children-all of whom were adults by the time of this divorce. Throughout their relationship, the Macks used the business to pay personal expenses and allowed an accountant to separate the two categories for tax purposes.

         Eddie and Kathy separated in December 2015. Eddie filed a petition for dissolution in March 2016. Trial was originally set for September 2016 but did not occur until July 2017. In the interim, the parties reconciled and split up several more times. Simultaneously, they peppered each other with discovery requests and pretrial motions-mostly by Eddie against Kathy. Between the petition and the decree, Eddie filed an application for a restraining order; many discovery requests; seven motions to compel; applications to inspect the MHPI business premises; five motions for sanctions; motions to produce MHPI's business keys and computer passwords; and motions to appoint an auditor. The couple's representations to the court that they had reconciled, brief cessations of hostilities and subsequent separations, and simultaneous adversarial filings created significant confusion and delay.

         In April 2016, Eddie sought a restraining order to prevent Kathy from (1) dissipating corporate assets and (2) restricting him from conducting business activities; Kathy sought the same injunctions against Eddie. In May, the district court allowed Kathy to keep running MHPI and excluded Eddie from both the business premises and its assets. It ordered Kathy to direct the company's accountant to prepare monthly profit and loss statements and to provide them to Eddie. And the court allowed Eddie to retrieve several recreational vehicles that were located on the premises.

         In August 2016, Eddie filed a motion to compel discovery of the parties' 2015 tax return, credit card statements, bank account statements, and answers to his earlier interrogatories. The court sustained the motion to compel and ordered Kathy to produce the documents by August 19. On August 22, Eddie filed a second motion to compel alleging Kathy failed to provide complete financial disclosures and that-despite the May order-Kathy had not provided monthly profit and loss statements. For the first time, Eddie asked for unspecified sanctions against Kathy. It appears the court never addressed his motion.

         In early fall, the parties jointly requested a continuance, eyeing potential reconciliation. But in November 2016, Eddie filed a third motion to compel: he had requested and not received backup copies of MHPI's QuickBooks records. He also accused Kathy of dissipating corporate assets to pay attorney fees and other personal expenses. The court held an unrecorded hearing in December and issued an order in January 2017. The court ordered the parties to draw only $1000 each per week from the company as salary and $1000 each per month for attorney fees. No further use of business funds for personal expenses was allowed. The court ordered Kathy to give backup copies of the company's QuickBooks records and other financial documentation to her own accountants, Kevin Garrett and Ron Nielsen, and Eddie's accountant, John Sklenar, by February 1. The order instructed the accountants to receive monthly copies of the QuickBooks records and provide oversight to prevent personal use of corporate funds. The court did not impose any sanctions.

         In March 2017, Eddie filed another motion to compel, asserting he had not received the QuickBooks records; nor had he received requested credit card statements or check copies. Kathy responded she was producing all the documents she had. She also asserted she gave the QuickBooks records to her accountant Garrett, and could not control whether he provided them to Eddie's accountant.[1] She asserted and maintained throughout the proceedings that Eddie's discovery requests were duplicative and meant to harass her rather than obtain relevant information. The court set a hearing on the motion for May 8, but it is not clear from our record what orders followed from that hearing.

         In early June 2017, Eddie filed another motion to compel, asserting the QuickBooks records he received were "raw data" instead of the "backup" version requested and from which reports can be generated.[2] Other financial documents were still missing. He requested again, generally, that Kathy be sanctioned. He specifically requested attorney fees. After a hearing on June 12, the court sustained the motion to compel and ordered production of seven credit card statements, as well as Kathy's personal bank statements. The order did not mention the QuickBooks records or the requested sanctions.

         Also at the June 12 hearing, the court ventured to value MHPI and decide which party would purchase it. Eddie agreed to pay $467, 840 for the business. Three days later, Eddie filed a motion to compel Kathy to give him keys to the business and passwords to the office computers. Eddie also filed a motion for sanctions, alleging Kathy continued to violate discovery orders. Kathy responded Eddie's purchase was conditioned upon obtaining a $200, 000 line of credit, and he was not able to complete that condition, so he was not entitled to take possession of the company.[3] At the end of June, Eddie filed two more motions to compel and motions to impose sanctions; he called for the first time to exclude any evidence Kathy might produce as a sanction for the discovery violations and again requested $1000 in attorney fees. The court held an unrecorded hearing on June 29. On July 3, it issued an order finding Eddie had failed to secure the necessary credit, so he could not purchase the business. The court stated Kathy would continue to have exclusive control of the business until further order. The court did not respond to any discovery or sanctions requests.

         Meanwhile, Eddie filed a new request for supplementary discovery followed by another motion to exclude evidence based on Kathy's failure to produce "usable" QuickBooks backups.

         At the pretrial conference on July 17, 2017, the court agreed Eddie had not met the condition to purchase MHPI. The court reached a new valuation of the business based on Eddie's suggestion the real estate be sold through an agent and the equipment and inventory be sold at auction-Eddie estimated together the sales would total about $325, 000. The court offered to award MHPI to Kathy, placing that amount on her side of the ledger, and she accepted. The amount included all assets and liabilities of the business. The court did not rule on Eddie's other motions.

         The dissolution trial occurred July 28, 2017. Ruling from the bench, the court found the Macks' separation began January 1, 2017, because before that date the parties were trying to reconcile, largely living as husband and wife, and sharing finances. The court collected estimates from the parties as to how much more Kathy spent on personal expenses and attorney fees than Eddie did-from the first of the year. Eddie estimated $90, 000; Kathy was at $70, 000. The court split the difference and found Kathy spent $80, 000 more from business proceeds. The court added half that amount to an equalization payment outlined in the dissolution decree.

         The court issued the decree on August 24, 2017. The court awarded Kathy MHPI with all its assets and liabilities, the marital home, a duplex, a contract for repayment of a home loan to the parties' daughter, and six cars. The court awarded Eddie the contracts on three different house loans to the parties' son and two others, seven cars and recreation vehicles, and all guns and tools in his possession. The parties kept all monies in their personal accounts, most of which were reduced to negligible balances. After comparing the awards, the court ordered Kathy to make a $261, 328 equalization payment to Eddie. It also imposed a noncompetition requirement on Eddie, preventing him from starting or operating a similar scrapping business for four years within a radius of 250 miles from the parties' hometown of Hamlin. The parties were responsible for their own attorney fees and split court costs. Eddie filed a lengthy motion to amend, enlarge, and reconsider, which the court denied on all grounds. Eddie appeals.

         II. Scope and Standard of Review

         We review an equity action involving the dissolution of a marriage de novo. In re Marriage of McDermott, 827 N.W.2d 671, 676 (Iowa 2013). "[W]e examine the entire record and adjudicate anew the issue of the property distribution." Id. While we give weight to the district court fact findings, particularly concerning witness credibility, we are not bound by them. Id. We modify the decree only when it falls short of equity. Id.

         The district court has discretion to sanction a party for failing to comply with discovery orders. Whitley v. C.R. Pharmacy Serv., Inc., 816 N.W.2d 378, 388 (Iowa 2012). We will find an abuse of discretion if the court acted "on grounds or for reasons clearly untenable or to an extent clearly unreasonable." Id. at 389. Likewise, to overturn the court's decision on attorney fees, the complaining party ...

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