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Norman v. Norman

Court of Appeals of Tennessee, Nashville

August 28, 2017


          August 18, 2016 Session

         Appeal from the Chancery Court for Williamson County No. 43349 James G. Martin III, Chancellor

         This case arises out of the demise of a long-term marriage. The trial court declared the parties divorced, equitably divided the marital estate, and awarded the wife alimony in solido, rehabilitative alimony, and alimony in futuro. On appeal, the husband raises many issues, including whether the doctrine of unclean hands should bar wife from receiving an award of alimony in solido, whether the court's division of the marital estate was inequitable, and whether the court's alimony awards were based on a clearly erroneous assessment of the evidence. Finding no abuse of discretion, we affirm the trial court's decision in all respects.

          Robert E. Lee Davies, Franklin, Tennessee, (on appeal only) for the appellant, John Arthur Norman IV.

          Lorraine Wade, Nashville, Tennessee, (on appeal only) for the appellee, Dinah Bostic Norman.

          W. Neal McBrayer, J., delivered the opinion of the court, in which Andy J. Bennett and Richard H. Dinkins, JJ., joined.




         A. Pretrial Proceedings

         On July 15, 2014, Dinah Bostic Norman ("Wife") filed a complaint for absolute divorce from John Arthur Norman IV ("Husband") in the Chancery Court for Williamson County, Tennessee. The parties had been married for twenty-two years, and since 2006 had jointly owned and operated A-Z DME, LLC ("A-Z"), a durable medical equipment company.

         In addition to her request for an absolute divorce, Wife sought an ex parte restraining order. She alleged that Husband had verbally abused and threatened her during the marriage, acted inappropriately at A-Z's business offices, and misappropriated company funds. Wife asked the court to prohibit Husband from having any contact with her pending a final hearing and from "coming about" A-Z, contacting any employees, accessing any business records or accounts, or otherwise interfering with Wife's operation of A-Z.

         Based on Wife's sworn allegations, on July 16, 2014, the court issued the requested temporary restraining order. After an August 12, 2014 hearing, the court modified the restraining order to allow Husband to return to the marital residence and granted Husband limited access to A-Z.[1]

         A-Z was the couple's most valuable marital asset and their sole source of income. After hearing testimony from both parties, the court imposed strict requirements on the use of funds generated by the business pending a final hearing. The court ordered Wife to transfer sufficient funds from the business to the parties' joint checking account to pay their respective household bills and prohibited any other withdrawals from the account. Each party was also directed to maintain separate checking accounts for personal expenses, and Wife was ordered to transfer $5, 000 per month from the business to those accounts.

         After a second hearing, the court dissolved the restraining order. Beginning September 29, 2014, the court ordered a return to the parties' traditional roles in the company but required them to alternate the days that they were physically present in the local office. The court left in place the previously ordered restrictions on the use of marital funds.

         But the parties were unable or unwilling to work together. In December, each spouse asked the court to exclude the other from the business based on allegations of misconduct. After a hearing, on December 19, 2014, the court issued an order excluding Wife from A-Z and placing Husband solely in charge of business operations. The court ordered Husband to be transparent in operating the business operation and to share copies of all business information with Wife. The court ordered Wife to provide an accounting of all funds removed from the business and prohibited her from receiving any additional funds until the accounting was provided. Husband was allowed to withdraw $5, 000 per month from the business for personal expenses. The court also ordered the parties to sell the marital residence.[2]

         B. Evidence Produced at Trial

         The court held a four-day trial, beginning on July 13, 2015. At the outset, the parties stipulated to the value of their marital assets and the total amount of funds A-Z had distributed to each party in 2014.

         1. History of A-Z

         At the time of the hearing, Wife was 44 and Husband was 49. Both parties were in good physical and mental health. They had two adult sons. Originally from Texas, the family moved to Tennessee in 2006. Shortly thereafter, they formed A-Z, with each spouse having a 50% ownership interest.

         Initially, A-Z sold durable medical supplies from a small office space in Nashville. In 2008, Wife became interested in soliciting contracts from the Veterans Administration. She discovered that the federal government, through the Small Business Administration, operates a business development program to assist eligible small disadvantaged businesses in competing for federal government contracts. See 13 C.F.R. § 124.1 (2017). Wife decided to apply for 8(a) certification, [3] which would enable A-Z to participate in the business development program and compete for federal contracts that are set aside for small businesses.[4] To qualify for the program, the parties modified their respective ownership percentages in A-Z, after which Wife owned a 51% controlling interest.

         On July 28, 2009, Wife and, by extension, A-Z were awarded 8(a) certification. A-Z also qualified to compete for federal contracts set aside for small businesses in general, 13 C.F.R. § 121.101 (2017), for qualified HUBZone[5] small businesses, 13 C.F.R. § 126.100 (2017), and for woman-owned small businesses, 13 C.F.R. § 127.100 (2017). A-Z obtained its first government contract in April 2010, and a second followed shortly thereafter. At the time of the hearing, A-Z had four government contracts, and its business had expanded to include eleven offices in six states.

         Both parties contributed to A-Z's success. While Husband was responsible for the financial aspects of the business, Wife was the "face" of the company. She pursued the contracts, secured warehouse space, and hired employees. Her focus was marketing and networking. She also set up the initial quality control systems for A-Z.

         At the time of trial, contracts with the Veterans Administration comprised 90% of A-Z's business. Since obtaining 8(a) certification, the company had been highly profitable. A-Z's ordinary business income since 2010 had been well over $200, 000 a year. The couple paid many expenses, including their mortgage, car payments, life and health insurance premiums, and the children's student loans, through A-Z. Husband and Wife distributed all company profits to themselves. Customarily, they received monthly distributions of $20, 000.

         2. Changes in A-Z's Financial Condition

         During the pendency of the divorce, A-Z's financial situation deteriorated markedly. Husband testified that, when the restraining order was dissolved, he discovered a company in disarray. The Veterans Administration placed the company on month-to-month probation for October through December 2014 based on quality issues that arose during his absence. The business checking account had a negative balance, and Wife had withdrawn all available funds from the line of credit. He also discovered that Wife had used company funds to pay over $20, 000 to a personal friend, Latda Vaughn, and $14, 000 to family members. Because of the company's poor financial condition, Husband did not withdraw his allotted $5, 000 for personal expenses during the last three months of 2014 or in January 2015.

         Husband took immediate steps to implement more oversight of the company's quality control system and increased communication with federal procurement officials. In December, based on the company's good performance, the Veterans Administration renewed the expiring contract. According to Husband, at the time of trial, all contracts were renewed, and none were in danger of termination for noncompliance. The cash balance in the business checking account also grew steadily during his tenure.

         Wife testified that the company's cash flow issues were Husband's fault. She claimed that Husband remotely deleted A-Z's bookkeeping records for 2014, preventing her from making payroll or paying company bills and forcing her to hire two accountants, Erica Hayes and Latda Vaughn, to recreate the missing data.

         In reality, Husband had not deleted the files, but had transferred them to an outside accountant for necessary upgrades. The "missing" files were returned in less than a week. Wife maintained that, even then, crucial data was missing, which necessitated additional work by Ms. Vaughn. But two accountants who regularly performed work for A-Z testified that Wife had a backup copy of the allegedly missing data on her computer. Ms. Vaughn admitted at trial that the work she performed did not benefit A-Z.

         The court called Paul Demonbreun, a certified public accountant who had provided services to A-Z since its formation, to testify on two separate occasions about the company's financial health. Initially, he opined that the company's future was "much more cloudy" than in previous years. The company's debt load had increased and its cash flow had greatly diminished. In December 2014, the bank refused to renew the line of credit and notified the company to repay the loan immediately. Between February and July of 2015, the company only distributed a total of $20, 000 to the parties, in addition to paying the couple's household bills.

         When asked his opinion as to when the company would be able to return to its previous level of financial success, Mr. Demonbreun responded: "[I]t may take a year. It may take four years. It may not happen. It's going to be difficult." He was doubtful that either spouse would be able to enjoy the same standard of living post-divorce as during the marriage. But he conceded that, since Husband had returned to the company, the company's financial situation had improved.

         Later, Mr. Demonbreun revised his opinion, explaining that even "[c]loudy skies do sometimes turn to blue." After reviewing the company finances for 2014, he determined that, even during the tumultuous divorce proceedings, the company's net income was approximately $231, 000. In the last few months, the company profits and the bank account balance had also increased.

         Both Husband and Wife were optimistic about the future of the company. Each testified that, if they were awarded the business, they could pay $3, 000 to $5, 000 per month to the departing ...

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