In re the Marriage of: Paul Timothy Patock v. Cathy Liane Patock n/k/a Cathy Liane Mehr, County of Kandiyohi, intervenor

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2014).

STATE OF MINNESOTA
IN COURT OF APPEALS
A14-0658

In re the Marriage of:
Paul Timothy Patock, petitioner,
Respondent,

vs.

Cathy Liane Patock n/k/a Cathy Liane Mehr,
Appellant,

County of Kandiyohi, intervenor,
Respondent.

Filed January 12, 2015
Affirmed
Klaphake, Judge*

Kandiyohi County District Court
File No. 34-FA-05-115

Theresa Patock, Jones & Patock PA, Willmar, Minnesota (for respondent Paul Timothy
Patock)

Gregory Anderson, Anderson, Larson, Hanson, Saunders, P.L.L.P., Willmar, Minnesota
(for appellant)

Shane Baker, Kandiyohi County Attorney, John Kallestad, Assistant County Attorney,
Willmar, Minnesota (for respondent county)

Considered and decided by Peterson, Presiding Judge; Larkin, Judge; and

Klaphake, Judge.

*
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
 UNPUBLISHED OPINION

KLAPHAKE, Judge

Appellant Cathy Mehr argues that the district court misapplied Haefele v. Haefele,

837 N.W.2d 703 (Minn. 2013) when addressing whether to modify respondent Paul

Patock’s sub-guideline child support obligation. Because the district court correctly

applied Haefele, its findings of fact are supported by the record, and appellant has not

otherwise shown that the district court abused its discretion in addressing child support,

we affirm.

DECISION

We review orders modifying child support—including whether to deviate from a

presumptive guideline support obligation—to determine whether the district court abused

its discretion by resolving the matter in a manner contrary to logic and the facts on

record. Haefele, 837 N.W.2d at 708, 714. Whether a district court correctly applied

caselaw is reviewed de novo. In re Estate of Eckley, 780 N.W.2d 407, 410 (Minn. App.

2010).

A. Haefele

Haefele directs a district court addressing child support to calculate a presumptive

support obligation based on the “gross incomes” of the parents, and then to assess

whether, based on the factors listed in Minn. Stat. § 518A.43 (2012), it is appropriate to

set an actual obligation that deviates from the presumptive obligation. 837 N.W.2d at

708. For purposes of this calculation, “gross income” includes income from self-

employment and operation of a business. Minn. Stat. §§ 518A.28(a); .29 (2012).

2
 Respondent is the owner and sole operator of Willmar Wood Products (WWP).

Previously, the district court set respondent’s child support obligation at an amount below

the presumptive obligation. It did so largely because, when respondent acquired WWP in

2010, it was by a “strip sale,” in which ownership of WWP was transferred to respondent,

but all of its cash, as well as both its accrued accounts receivable and its earned accounts

receivable, were retained by the former owner. Further, it is WWP’s practice to retain,

rather than distribute to respondent, much of WWP’s earnings.

The district court calculated respondent’s presumptive basic and medical support

obligations using a “gross income” for respondent that included WWP’s retained

earnings. The district court also acknowledged that, under Minn. Stat. § 518A.39, subd.

2 (2012), these presumptive support obligations created a rebuttable presumption

favoring an increase of respondent’s existing obligations. Consistent with Haefele,

however, the district court also noted that because the statutory definition of “gross

income” includes undistributed earnings of a closely held business, a strict application of

that definition had “a significant potential for unfairness.” 837 N.W.2d at 714.

In considering the deviation factors, the district court emphasized the factors of the

“circumstances[] and resources of each parent[,]” Minn. Stat. § 518A.43, subd. 1(1), and

referred to Haefele’s observation that, in setting an actual support obligation, the “plain

meaning” of the deviation statute “allows the district court to consider, among other

things, the extent to which the parent’s gross income is actually available to him or her to

pay support.” 837 N.W.2d at 714. Concluding that the “retention of income within

WWP is a legitimate use of corporate funds” and a “sufficient” reason to rebut the

3
presumption that WWP’s earnings for 2012 and 2013 should be attributed to respondent

for support purposes, the district court ruled that a “deviation from the Guidelines is in

the children’s best interests[,]” and deviated from the presumptive obligations by

calculating actual basic and medical support obligations for respondent using the amount

respondent was actually being paid by WWP. The process used by the district court to

set respondent’s actual basic and medical support obligations at amounts deviating from

the presumptive obligations is consistent both with the support statutes and with Haefele.

In her reply brief, appellant asserts, for the first time, that the district court failed

to address the deviation factors of (a) the parties’ earnings, income, circumstances, and

resources; and (b) the standard of living the children would enjoy if the parties still lived

together. See Minn. Stat. § 518A.43, subd. 1(1), (3). Issues first raised in a reply brief

are waived. Szarzynski v. Szarzynski, 732 N.W.2d 285, 291 n.3 (Minn. App. 2007).

Further, as noted, the district court’s analysis emphasized the factors of the circumstances

and resources of each parent: the district court’s entire order focuses on the finances of

the parties and WWP. Moreover, respondent testified that if the parties still lived

together he would not take more money out of WWP. Therefore, we decline, on this

record, to remand for explicit findings on the standard of living the children would enjoy

if the parties still lived together. See Grein v. Grein, 364 N.W.2d 383, 387 (Minn. 1985)

(declining to remand and affirming when, “from reading the files, the record, and the

court’s findings, on remand the [district] court would undoubtedly make findings that

comport with the statutory language” and reach the same result); Tarlan v. Sorensen, 702

N.W.2d 915, 920 n.1 (Minn. App. 2005) (citing Grein).

4
B. Appellant’s arguments

1. Control of WWP: Several of appellant’s arguments assert that because

respondent controls WWP and can decide how to use its funds and whether to disburse

funds, calculation of respondent’s “gross income” for his actual support obligations

should include WWP’s retained earnings. Haefele, however, notes that the statutes

defining “gross income” and addressing income from self-employment do not support the

idea that “gross income” of a parent with an interest in a closely held business depends on

“the extent of shareholder control over the company.” 837 N.W.2d at 710. Indeed, the

district court calculated presumptive support obligations for respondent based on a “gross

income” that included WWP’s retained earnings, but rejected those presumptive

obligations in favor of ones that deviated from those obligations. Further, respondent’s

financial expert, whom the district court found credible, counseled respondent to use

funds received by WWP to pay its line of credit and to build WWP’s cash reserves to the

point that WWP will not need to rely on a line of credit in the future, and not to disburse

to respondent funds beyond those necessary for him to pay the taxes on WWP’s retained

earnings attributable to him for tax purposes. Appellate courts defer to district court

credibility determinations. Sefkow v. Sefkow, 427 N.W.2d 203, 210 (Minn. 1988).

2. Minority owner: We reject appellant’s suggestion that the district court

misapplied Haefele because respondent is the sole owner of WWP and Haefele addresses

only cases involving minority owners of closely held businesses. Haefele states that its

analysis applies to situations “including” and hence not limited to “cases in which the

parent is a minority owner of the business.” 837 N.W.2d at 714.

5
 3. Taxes: Appellant asserts that the district court erred by excluding from

respondent’s “gross income” the funds WWP distributed to him to pay taxes on WWP’s

retained earnings. See Haefele, 837 N.W.2d at 713 (addressing whether to exclude from

“gross income” amounts disbursed by a business to an obligor to allow the obligor to pay

taxes). But, as noted, the district court’s deviation analysis refers to Haefele’s

observation that the “plain meaning” of the deviation statute allows the district court to

consider the extent to which a parent’s “gross income” “is actually available to him” to

pay support. 837 N.W.2d at 714. On this record, we conclude that even if the district

court had calculated a higher presumptive support obligation for respondent based on a

“gross income” for him including the amounts disbursed to respondent to pay taxes on

WWP’s retained earnings, the district court’s deviation analysis still would support

setting respondent’s actual support obligation at the amount selected by the district court.

Therefore, we decline to alter that obligation.

4. Sheltering income: We reject appellant’s argument that respondent is using

WWP to “shelter” income from being considered for support purposes. The district court

was aware of both respondent’s “gross income,” and the presumptive support obligation

based thereon. The district court also found, however, that (a) because of the 2010 “strip

sale” of WWP to respondent, WWP had limited financial resources; (b) appellant’s

financial expert stated that WWP “is very well operated by [respondent] and that it is

very sound financially”; (c) the parties’ financial experts disagreed regarding “whether all

earnings should be retained by WWP and that its Line of Credit always be paid when

money is available to do so”, and the court was “unable” to find one expert “more

6
credible than the other”; (d) “there is no allegation that [respondent] is self-limiting his

income in order to avoid payment of child support,” and “the Court has been presented

with no evidence of extraordinary needs of the children”; and (e) a “deviation from the

Guidelines is in the children’s best interests,” and respondent’s plan to grow WWP means

that “the children will ultimately benefit from such growth.”

Appellant challenges none of these findings. Thus, any “sheltering” of income is

not the result of conduct by respondent, but of a decision by the district court that, on this

record, the deviation from the presumptive support obligation previously granted when

respondent acquired WWP as an operating business but without cash and accounts

receivable continues to be warranted. Finally, it is unclear how the district court can be

seen to have abused its discretion by continuing a support obligation that deviates from

guideline obligation when the district court found that the request to continue the

deviation was not based on an attempt by respondent to finesse his support obligation,

was consistent with expert financial advice which the district court found credible, and

will ultimately benefit the children.

Affirmed.

7