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Guagenti v. Guagenti

Court of Appeals of Ohio, Third District, Allen

May 8, 2017


         Appeal from Allen County Common Pleas Court Domestic Relations Division Trial Court No. DR 2013 0514

          Jose M. Lopez for Appellant.

          Andrew B. King for Appellee, Mark Guagenti


          SHAW, J.

         {¶1} Plaintiff-appellant, Bridget C. Guagenti ("Bridget") appeals the September 7, 2016 Amended Judgment Entry/Decree of Divorce issued by the Allen County Court of Common Pleas, Domestic Relations Division, granting her complaint for a divorce from Mark Guagenti ("Mark"). On appeal, Bridget assigns as error (1) the trial court's determination that the assets in the Samuel J. Guagenti 2007 Irrevocable Trust did not constitute marital property subject to equitable division; (2) the trial court's application of the $150, 000 combined income level cap in calculating Mark's child support obligation; and (3) the trial court's decision to award Bridget only $300, 000 for Mark's financial misconduct during the divorce proceedings.

         Relevant Facts

         {¶2} Bridget and Mark were married in 1992. Three children were born as issue of their marriage in 2000, 2002, and 2004.

         {¶3} In 1996, Mark took a position as an office manager in the family business, C&G Distributing, Co., Inc., ("C&G Distributing") an S-corporation operating in the wholesale beverage business. Mark eventually became the Chief Operations Officer of the business drawing an upper management salary, but was not a shareholder of the corporation. Rather, the record reflects that Mark's father, Samuel Guagenti, owned 33.3% of the corporate shares, along with three other individuals who owned the remaining shares.

         Samuel J. Guagenti 2007 Trust

         {¶4} In 2007, the shareholders of C&G Distributing began discussions of a possible sale of the corporation and considered estate planning matters attendant to their ownership interests. (See Atty. Pappas Depo. at 11-12). On October 11, 2007, Samuel Guagenti, as Grantor, executed the Samuel J. Guagenti 2007 Irrevocable Trust ("S JG 2007 Trust"). Mark was named Trustee. Another individual, who was not Mark, was also named as the "Special Trustee" under the terms of the Trust Agreement, "with respect to any stock or other equity interest of the trust in an entity that is a wholesaler of products of ANHEUSER-BUSCH INC., or any other brands, directly or through its affiliates * * *." (Samuel J. Guagenti 2007 Irrevocable Trust at p. 1). The Trust Agreement named Mark and his children as beneficiaries; specifically, it provided that "[t]he purpose of the Grantor [i.e., Samuel] in entering into this agreement is to effectuate a plan for the orderly, businesslike administration of the trust estate for the benefit of the Grantor's descendants, in particular the Grantor's son and the Grantor's son's children. [1] (Id.).

         {¶5} The Trust Agreement further stated that the Trustee shall accumulate all income earned by the Trust, and permitted the Trustee to distribute portions of the accumulated income "to, among, or for" the beneficiaries' benefit "as the Trustee may from time to time deem appropriate to support, maintain, or provide for the health or education of such beneficiaries." (Id. at § 3(b)). The Trust Agreement specified that the Trustee could only invade the principal of the Trust with the consent of the "Protector Committee, " which consists of "three individuals, acting by majority decision."[2] (Id. at §§ 3(b), 19(e)).[3] Thus, the Trust Agreement permitted Mark as Trustee to make distributions of the accumulated income to himself at his discretion, so long as the ascertainable standard outlined in § 3(b) was met and so long as Mark adhered to the fiduciary obligations set forth in the Trust Agreement. However, Mark's access to the SJG 2007 Trust's principal had to be approved by the Protector Committee.

         The SJG 2007 Trust's Purchase of Corporate Shares

         {¶6} In 2008, Samuel initially funded the SJG 2007 Trust with a contribution of $10, 000 and the right to purchase his 33.3% stake in C&G Distributing. The same year, the SJG 2007 Trust borrowed $3, 000, 000 from Fifth-Third Bank to purchase Samuel's shares. Mark participated in the transaction in a fiduciary capacity as Trustee. The loan documents identified the SJG 2007 Trust as the "borrower" and C&G Distributing as the "guarantor." (See Third Party Defendant's Ex. D). As a result of the purchase, the SJG 2007 Trust owned 33.3% of the shares of C&G Distributing.

         {¶7} As a shareholder of the corporation, the SJG 2007 Trust received distributions which were used to pay the interest on the three-million-dollar loan with Fifth-Third. Shortly after purchasing Samuel's share, the SJG 2007 Trust also became a member of C&G Investment Properties, LLC, which held titles to certain real property, including the real estate upon which C&G Distributing's distribution centers were located. Thus, the SJG 2007 Trust had two streams of income, the accumulation of which Mark, as Trustee, was entitled to distribute to himself and the other beneficiaries for support, maintenance, health or education: (1) income flowing from the S-corporation shares of C&G Distributing and (2) rental income from C&G Investment Properties, LLC.

         Sale to Anheuser-Busch

         {¶8} On June 12, 2013, the shareholders of C&G Distributing-the Virginia M. Cajacob 2007 Irrevocable Trust, the Francis J. Guagenti 2007 Irrevocable Trust, and the Samuel J. Guagenti 2007 Irrevocable Trust each entered into an agreement, through their respective trustees, for the sale of C&G Distributing's assets to Anheuser-Busch for $47, 700, 000, of which one third or $15, 900, 000 was attributable to the shares held by the SJG 2007 Trust.[4] The SJG 2007 Trust paid Federal and State income taxes incurred from the transaction. As a term of the asset purchase agreement, the three senior managers of C&G Distributing, of which Mark was one, signed non-competition agreements and received a consulting fee for a period of three years.

         Case Procedural History

         {¶9} On November 12, 2013, Bridget filed a complaint for divorce initiating this action. Bridget filed a motion to join the SJG 2007 Trust as Third Party Defendant, claiming that she was entitled to the assets contained in the Trust because the assets were property acquired by Mark during the marriage and the profits thereof were attributable in part to Mark's employment at C&G Distributing. Thus, Bridget claimed that the trust assets resulting from the sale of the business to Anheuser-Busch were subject to equitable division in the divorce.

         {¶10} On April 15, 2015, the trial court held a two-day final divorce hearing. Prior to the hearing, the parties stipulated to a number of matters related to the custody of the children and the division of certain marital property, including the allocation of the marital residence to Bridget. The matters remaining for the trial court to resolve focused upon whether the assets of the SJG 2007 Trust were marital property, the equitable distribution of the remaining marital assets between the parties, the amount of spousal support to be awarded to Bridget, and the amount of Mark's child support obligation. At the final divorce hearing, the trial court heard from both Mark and Bridget, as well as several witnesses who testified about the nature of the assets in the SJG 2007 Trust and the circumstances surrounding the Trust's creation.

         The Trial Court's Decision

         {¶11} The trial court issued a decision on March 10, 2016. In a thorough and detailed opinion, the trial court outlined numerous reasons in support of its determination that "the creation of the Trust in and of itself is a separate entity and the assets contained within that Trust are * * * neither marital nor separate property. The assets are not property owned by either of the parties at the creation of the SJG Trust." (Doc. No. 153 at 7). Thus, the trial court concluded that the trust assets were property of a third party, i.e., the SJG 2007 Trust, and not subject to equitable division in the parties' divorce under R.C. 3105.171.

         {¶12} However, the trial court did take the income distributions from the SJG 2007 Trust to Mark into consideration when devising an amount for spousal support and child support. The trial court noted that Mark earned an annual salary of $120, 000 when he worked in upper management at C&G Distributing prior to the sale of the corporation's assets to Anheuser-Busch. As part of the purchase agreement terms, Mark and the other two senior managers at C&G Distributing were given a consulting salary of $265, 000 per year for a period of three years after the sale took place. The trial court found at the time of the final divorce hearing that "the income from the [S JG 2007 Trust] assets in total has been substantial and will be substantial in the future. Mark has, in compliance with the Trust, disbursed the income for his use as the primary beneficiary. In the first year this was approximately $330, 000.00 he utilized in distributions and the Court would find that is an appropriate figure to utilize for income in calculating the spousal support and * * * the child support." (Doc. No. 153 at 13). Using this figure, the trial court ordered Mark to pay $5, 000 per month in spousal support to Bridget for a period of eleven years. The trial court retained jurisdiction over the amount of spousal support, but not over the term of spousal support.

         {¶13} The trial court noted that Bridget had worked in the past earning an annual salary of $85, 000. However, the trial court took into account the fact that Bridget had been out of the workforce for several years and imputed a minimum wage income to Bridget for the purposes of its child support calculation. As stipulated by the parties, Bridget was named the residential parent of the three minor children and Mark was given visitation according to the local rule. Mark agreed to pay the cost of the children's private education and to provide health insurance for the children. The trial court further determined that "[t]his Court cannot find there has been any establishment that the needs and standard of living of the children are in excess of the child support schedule and this Court consequently cannot find that it would be unjust or inappropriate and not in the best interest of the children to order the [child support] amount at the $150, 000.00 level." (Doc. No. 153 at 15).

         {¶14} Accordingly, the trial court applied the $150, 000 combined income level cap to its child support calculation and ordered Mark to pay $24, 532 annually to Bridget in child support, or $681.45 per child when health insurance is being provided. If health insurance is not being provided, the trial court ordered Mark to pay $685.37 per child and an additional total of $971.00 per month as and for cash medical support.

         {¶15} The trial court assessed the value of the marital property awarded to each party and divided by stipulation, which included the value of vehicles, investment accounts, insurance policies, and Mark's personal interest in various business ventures. Mark was ordered to pay Bridget $179, 363.56 to equalize the distribution of these assets. The trial court also ordered Bridget to be entitled to the sum of $151, 212, plus or minus any gains or loss associated therewith from April 15, 2015 to equalize the value of the parties' IRA accounts.

         {¶16} Upon Bridget's motion, the trial court also found that Mark had engaged in financial misconduct by failing to timely and accurately disclose information with respect to assets in the case which resulted in considerable delay in the proceedings.[5] As a result, the trial court ordered Mark to pay Bridget $300, 000, in addition to the martial distributive awards previously mentioned, based upon "Mark's failure to disclose assets and continual usurpation of the discovery process in this case and his flagrant refusal to comply." (Doc. No. 153 at 16). The trial court also ordered Mark to pay Bridget's attorney fees associated with the prosecution of a contempt order based upon discovery violations in the amount of $1, 458.75, as well as the total amount of attorney fees Bridget incurred in the underlying divorce action, which totaled $90, 858.31 at the time of the trial court's decision.[6]

         {¶17} The trial court's decision was incorporated and implemented in its April 6, 2016 Judgment Entry/Decree of Divorce. Bridget filed an appeal of that judgment, which was dismissed by this Court for a lack of a final appealable order due to the trial court's indication in the judgment entry that it intended to take further action with respect to the amount of attorney fees awarded to Bridget. Accordingly, the cause was remanded to the trial court to resolve this pending matter.

          {¶18} On September 7, 2016, the trial court issued an Amended Judgment Entry/Decree of Divorce addressing the outstanding issue of attorney fees and ordering Mark to "pay the additional sum of $34, 830.20 for attorneys fees and litigation expenses for both the Final Divorce Hearing and the Motion for Citation in Contempt that had been litigated." (Doc. No. 168 at 7).

         {¶19} Bridget filed this appeal, asserting the following assignments of error.







         First Assignment of Error

         {¶20} In her first assignment of error, Bridget claims that the trial court erred in determining that the SJG 2007 Irrevocable Trust did not constitute marital property subject to equitable division under R.C. 3105.171(B). Specifically, Bridget argues that the trial court erred in determining that the appreciation in the value of the trust assets-i.e., the value of C&G Distributing stock from the time of the Trust's acquisition of Samuel's shares to the sale of the corporation's assets to Anheuser-Busch, which Bridget argues is traceable to Mark's employment as a manager, did not constitute marital property. Bridget also maintains that Mark's authority under the Trust Agreement as Trustee and primary beneficiary was tantamount to outright ownership of the Trust and therefore the 2007 SJG Trust assets should be considered marital property on this basis.

         {¶21} Before we address Bridget's arguments on appeal, we must first review the evidence in the record regarding Mark's interest in the SJG 2007 Trust. Both Mark and Bridget presented expert testimony offering differing opinions characterizing the nature of Mark's interest in the SJG 2007 Trust.

         Mark's Evidence Regarding the SJG 2007 Trust

         {¶22} Mark presented the testimony of Robert Pappas, the attorney who drafted the SJG 2007 Irrevocable Trust.[7] Mr. Pappas testified that he has maintained a private legal practice since 1984 focusing on the areas of business, tax, estate planning and probate. Mr. Pappas recalled meeting with the individual owners of C&G Distributing, including Samuel Guagenti, Mark's father in 2007. Mr. Pappas met with Samuel several times before the execution of the Trust Agreement establishing the 2007 S JG Trust. He explained that the purpose of these meetings was to discuss the creation of the 2007 SJG Trust as an estate planning device.

         {¶23} Mr. Pappas testified that the 2007 SJG Trust expressed Samuel's intent to provide for Mark and Mark's descendants on a long term basis for at least two generations. There was no provision identifying Mark's spouse as a beneficiary. Mr. Pappas explained that "the purpose of the Trust was to make sure that these assets were owned and passed in the way Samuel J. Guagenti wanted them to be." (Doc. No. 183 at 98). In other words, Samuel as the Grantor "had the right to create the rules under which that Trust was to operate." (Id. at 145).

         {¶24} Mr. Pappas confirmed that the 2007 SJG Trust was not initially funded at the time of execution, but that a contribution agreement between Samuel as "Grantor" and Mark as "Trustee" of the SJG 2007 Trust was executed the same day as the SJG 2007 Trust was created. The contribution agreement stated that the "Grantor intends to contribute to the Trust an initial contribution of cash and rights to acquire stock in C&G Distributing Co., Inc." (3d Party Def. Ex B). A document entitled "Agreement for Purchase of Sale and Shares of C&G Distributing Co., Inc., " which was also executed the same day the SJG 2007 Trust was created, provided the terms and conditions for the SJG 2007 Trust to purchase Samuel's 41 shares of C&G Distributing for $3, 000, 000.[8] (3d Party Def. Ex. C). In addition to the right to acquire his shares in C&G Distributing, Samuel later contributed $10, 000 to the 2007 SJG Trust in 2008, which all parties agree was a gift to the 2007 SJG Trust.

         {¶25} Mr. Pappas refuted Bridget's counsel's characterization that the SJG 2007 Trust was intended to be a "freely distributable trust" to Mark. (Doc. No. 183 at 144). Rather, Mr. Pappas pointed to the provisions of the Trust Agreement, which only permitted Mark as Trustee to distribute the accumulated income to himself and the other beneficiaries if the ascertainable standard contained in the Trust Agreement was met. The Trust Agreement further provided that, when Mark was acting as Trustee, the principal of the 2007 SJG Trust was only to be distributed to the beneficiaries upon approval by the "Protector Committee." Mr. Pappas relayed that it is not unusual for the Trustee to also be a beneficiary under a trust and that is the case in an estimated ninety percent of the trusts he drafts. He further explained that Mark as Trustee is held to a fiduciary obligation and the 2007 SJG Trust provides standards to which he must adhere. Mr. Pappas noted that the 2007 SJG Trust also provides for an "Independent Trustee" other than Mark to be named in which case the power of distribution to the beneficiaries is even broader.[9]

         {¶26} In March of 2008, Mr. Pappas assisted Samuel in the transaction in which he sold his shares of C&G Distributing to the SJG 2007 Trust by drafting the pertinent documents related to the purchase. As previously discussed, the SJG 2007 Trust's purchase of Samuel's interest in C&G Distributing was financed by a $3, 000, 000 loan obtained from Fifth-Third Bank for a term of seven years. The commitment letter from the lending institution identified SJG 2007 Trust as the "Borrower or Debtor" and C&G Distributing as the "Guarantor." (3d Party Def. Ex. D). According to Mr. Pappas, which the record reveals is substantiated by the loan documents, there were no personal guarantees on the loan and Mark only participated in the transaction in a fiduciary capacity as Trustee of the "Borrower" and at no time ever individually owned any shares of C&G Distributing during the transaction. Notably, the "protector committee" was required to approve any borrowing by the Trust, which it did in this transaction with Fifth-Third Bank. (3d Party Def. Ex. D).[10]

         {¶27} Mr. Pappas testified that in 2008 the limited liability company, C&G Investment Properties, LLC, was created. The three members of the LLC were the Virginia M. Cajacob 2007 Irrevocable Trust, the Francis J. Guagenti 2007 Irrevocable Trust, and the Samuel J. Guagenti 2007 Irrevocable Trust. The titles to various real estate holdings were transferred to C&G Investment Properties, some of which were to the land upon which C&G Distributing had its distribution centers in Lima and Versailles. The rent from these properties provided a stream of income for the SJG 2007 Trust, in addition to the distributions the SJG 2007 Trust received as shareholder of the C&G Distributing stock.

         {¶28} Mr. Pappas also counseled Samuel on the transaction involving the sale of the corporation's assets to Anheuser-Busch in June of 2013. He explained that while out of state attorneys for the buyer were lead counsel, he assisted with the navigation through applicable Ohio law and was aware of each step of the transaction. In June of 2013, Anheuser-Busch purchased the stock outright and the real estate held by C&G Investment Properties was purchased at a later time. The SJG 2007 Trust received its share of the proceeds from both of these sales.[11]

         {¶29} Mr. Pappas' testimony established that under the terms of the 2007 SJG Trust Agreement there was a clear distinction between Mark's capacity as Trustee and Mark's individual capacity as beneficiary, and that Mark never personally owned any of the shares in C&G Distributing. However, Mr. Pappas declined to opine whether the Trust was separate or marital under R.C. 3105.171 due to the fact that his area of expertise did not encompass domestic relation matters.

         {¶30} Mark, in accordance with his powers as Trustee, placed most of the proceeds from the sale into investment accounts. Mr. Pappas assisted Mark in purchasing annuities for the beneficiaries of the SJG 2007 Trust, but did not have any personal knowledge of the other investments made with the Trust assets.[12]Mark presented additional evidence regarding the Trust assets after the sale of C&G Distributing to Anheuser-Busch.

         {¶31} Kimberly Chase, an Auditor with Rea & Associates, Inc., an accounting firm, stated that she completed a balance sheet as part of a general audit performed on the SJG 2007 Trust.[13] She testified that as of the end of 2014, the S JG 2007 Trust had one bank account containing a substantial amount of cash and also owned three investment accounts with Lincoln Financial Group, JP Morgan Chase, and Northwestern Mutual, which totaled approximately $7.9 Million. Ms. Chase also reviewed disbursements from the SJG 2007 Trust account to Mark's personal account and the joint account, held by both Mark and Bridget, for the period of January 2013 through December 2014. She noted that there was a purchase of a condominium which was financed through a loan directly to the Trust. Ms. Chase clarified that the Trust assets were not invaded but merely "pledged" to effectuate this purchase. (See Doc. No. 183 at 161).[14]

         {¶32} Mark provided additional testimony regarding his purchase of the condo. Mark purchased a condo in 2014 after the divorce was filed by using a line of credit from his personal account secured against the SJG 2007 Trust account. Mark's testimony and the exhibits admitted into evidence revealed that on September 11, 2014, he received a cashier's check in the amount of $544, 133.81 from the SJG 2007 Trust's bank account to secure payment for the condominium. (Pl. Ex. 3f). On the same day, he received a cashier's check from his personal account at Chase bank and repaid the money that he utilized to obtain the personal line of credit to the Trust account. (Pl. Ex. 3e). Mark testified that there is no mortgage on the condominium because he is personally making the payments, not the Trust, on the line of credit he obtained from his bank. (Doc. No. 182 at 106). Notably, there was no evidence in the record establishing that the amounts that Mark pledged from the SJG 2007 Trust bank account invaded the principal of the Trust or exceeded his authority as Trustee to make distributions of the accumulated income to himself as a beneficiary for his support, maintenance, health or education. And in fact the parties at trial stipulated that this transaction did not invade the Trust principal. (Doc. No. 183 at 37-38).

         {¶33} Mark also presented the testimony of Tiffany Crawford, a tech supervisor with Rea & Associates Inc., with a background in accounting and a licensed attorney. Ms. Crawford assessed the disbursements from the SJG 2007 Trust for the time period of 2008 to 2014. According to Ms. Crawford, "if a check was written from the Trust, I determined to whom the check was written to [sic]." (Doc. No. 183 at 177). She recalled that during this timeframe, checks were written to Mark, Lincoln Financial, Northwestern Mutual and JP Morgan Chase. Specifically, she testified that a total of $1, 600, 000 was disbursed to Lincoln Financial, a total of $3, 000, 000 was disbursed to Northwest Mutual, and a total in the amount of $1, 750, 000 was disbursed to JP Morgan Chase.

         {¶34} Ms. Crawford discussed Defendant's Exhibit S, a compilation of draft tax returns for the year 2014 prepared for Mark and Bridget to file jointly, as well as draft tax returns for the 2007 SJG Trust and Mark's other business entities. However, Bridget's counsel objected to the admission of the exhibit due to his claim that he had not seen these items prior to the final hearing and had not been given the opportunity to independently verify the accuracy of the document. The trial court sustained the objection for the documents related to 2014 and permitted Mark's counsel to question Ms. Crawford regarding the 1041 tax forms for the 2007 SJG Trust for the years 2008 to 2013 because those had already been admitted as exhibits in Bridget's case. Thus, the 2014 draft joint tax returns were not admitted as evidence. (See Doc. No. 183 at 173).

         {¶35} However, the trial court permitted Ms. Crawford to testify to her personal knowledge obtained from working with those documents. She specifically recalled that on the joint tax returns the income sources of both parties were included, which reflected investment income, capital gain income, and Mark's consulting income. The record demonstrates that this information was only significant to the parties at the hearing regarding the allocation of a certain tax credit, in the amount of $34, 628 from 2013, that remained to be allocated in the property settlement.

         Bridget's Evidence Regarding the SJG 2007 Trust

         {¶36} Bridget presented the testimony of James Kordik, a CPA and licensed attorney whose legal practice focused on estate planning. Mr. Kordik surmised that the reason for Samuel creating the SJG 2007 Trust was for income planning purposes.[15] Mr. Kordik stated his opinion that all the funds from C&G Distributing stock constituted marital property under R.C. 3105.171(A)(3)(a). In support of his opinion, Mr. Kordik attributed the appreciation of the C&G Distributing stock value to Mark's labor and effort in his upper management position at the company until 2013. Mr. Kordik also stated that he reviewed the Trust Agreement establishing the SJG 2007 Trust and made generalized statements regarding Mark's powers as Trustee under the Trust Agreement to make distributions to the Trust beneficiaries, in particular to himself as primary beneficiary, and characterized Mark has having "near complete" control of the Trust assets. (Kordik Report, Pl.'s Ex. 1 ...

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