#### GUSSIE BLUT, AS EXECUTRIX UNDER THE LAST WILL AND TESTAMENT OF ISAAC BLUT, DECEASED, PLAINTIFF-APPELLANT, AND CROSS-RESPONDENT, v. BENJAMIN KATZ AND HERMAN MARKS, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS.

Superior Court of New Jersey-Appellate Division

Argued May 2, 1955

Decided June 3, 1955.

*187Before Judges Clapp, Jayne and Francis.

*188
      *Mr. Harry Chashin*argued the cause for plaintiff-appellant *(Messrs. Marcus & Levy,*attorneys; *Mr. Hyman W. Rosenthal*on the brief).

*Mr. Harry Nadell*argued the cause for defendants-respondents.

The opinion of the court was delivered by

Clapp, S. J. A. D.

This action was brought by the executrix of Isaac Blut against his two surviving partners for, among other things, an account as to his interest in the partnership. The defendants have continued the business, acknowledging, it is said, an obligation to pay plaintiff whatever is found to have been the value of Blut’s interest as of his death. From a judgment awarding her a sum for the value of this interest, she appeals.

We deal with two points. The trial court held that the partnership estate is not a “fund in court” *(R. R.*4:55-7(b)) from which a fee may be allowed her attornej'S. This raises the first point. The other point has to do with the valuation of the partnership’s good will: she by her appeal claims it undervalued in certain respects, and defendant surviving partners through a cross-appeal say it was overvalued in certain respects. Further as to this litigation, see *Blut v. Katz,*13 *N. J.*374 (1953).

The ruling of the trial court with respect to the matter of attorneys’ fees was, we think, clearly proper. But at the risk of restating the obvious, we shall look back over the cases of the present Supreme Court on the matter.

The mere fact that, through some proceeding, a fund is subjected to the corrrt’s disposition, does not expose the fund to the allowance of fees. No fee was allowed in *Driscoll v. Burlington-Bristol Bridge Co.,*8 *N. J.*433, 496 (1952), where an illegal purchase was rescinded and injunctive control taken over a fund. The court noted that the action was not brought for the benefit of a class of which the plaintiffs were representatives. In what cases, then — of those wherein a court subjects a fund to its disposition — may an allowance be made from it?

*189The usual case is one where a party (sometimes a fiduciary or a *cestui que trust,*but others are comprehended), acting for the benefit of a number of persons, undertakes a judicial proceeding in the interest of a fund, to protect, recover, increase it or adjust rights in it. It is but fair that these persons bear their share of the expense of that proceeding.

Upon this basis, an allowance may be made, under familiar and settled practice, for the protection of the fund through “an accounting” by a fiduciary and a passage of his accounts — or for the adjustment of rights in a fund through the “construction” of a will, where the creator of the fund, the testator, through a doubtful will, has brought down on his estate the litigation. *Katz v. Farber,*4 *N. J.*333, 344 (1950). See too *In re Koretzky’s Estate,*8 *N. J.*506 (1951), where the beneficiary sued for the removal of an executor; *Milberg v. Seaboard Trust Co.,*7 *N. J.*236 (1951), abstracted in the *Driscoll*case, 8 *N. J.,*at *page*495.

Upon the same basis, also, an allowance may be had in an action for interpleader, *Farley v. Manning,*4 *N. J.*571, 576 (1950), or in an action to adjust rights of parties in a fund deposited with the court “subject to the rules of court.” *Katz v. Farber,*4 *N. J.*333 (1950), abstracted in the *Driscoll*case, 8 *N. J.,*at *page*495. However, a plaintiff cannot put his attorney in line for a fee by paying money into court with a view to establishing that it belongs, not to the defendant, but to himself; he is acting only for himself. *Janovsky v. American Motorists Ins. Co.,*11 *N. J.*1 (1952).

But there are unusual eases which rest upon a somewhat different basis. Thus an allowance may be made in an action instituted by one in a *quasi-ñduciarj*position on behalf of the sole beneficiary or owner of the fund, where the fund is recovered or preserved. *United States v. Equitable Trust Co. of New York,*283 *U. S.*738, 51 *S. Ct.*639, 75 *L. Ed.*1379 (1930) (an allowance made to an attorney for the next friend of an incompetent), abstracted in *Katz v. Farber, supra,*4 *N. J.,*at *page*342, and in *State v. Otis Elevator Co.,*12 *N. J.*1, 11 (1953).

*190Another unusual situation arises in an action for the escheat of personal property wherein an allowance may be made to defendant’s and plaintiff’s attorneys not only on the usual basis above stated, but also on another basis. Here the State, which' is proceeding for the recovery of a fund, calls upon the defendant to assist it in the process. Again, as in the above cases, a party (here the defendant) has conferred in the nature of a gwasi-contractual benefit on another (in this case the plaintiff) who has an interest in the fund; that is to say, his attorney renders legal services on the fund’s behalf in the very action of account which subjects the fund to the court’s control. *State v. Otis Elevator Co.,*12 *N. J.*1, 12, 19, 21 (1953).

There are or may be other bases upon which *R. R.*4:55-7 (6) may be invoked. As to eases in other jurisdictions, see *Note, Allowance of Attorneys’ Fees from a Fund in Court,*35 *Col. L. Rev.*740 (1935). But — without undertaking in any way *to lay out*an all-engrossing *criterion*— we *may say*that the present case is clearly not within the compass of such philosophies as thése.

It is true that in the case of a partnership the surviving partners or partner is in some measure a fiduciary for the estate of the deceased partner and accountable as such to his estate with respect to all assets of the partnership. *Andrews v. Stinson,*254 *Ill.*111, 98 *N. E.*222, 225 *(Sup. Ct.*1912); *Jackson v. Jackson,*343 *Ill. App.*31, 98 *N. E. 2d*169, 176 *(App. Ct.*1951); *Malden Trust Co. v. Brooks,*291 *Mass.*273, 197 *N. E.*100, 105 *(Sup. Jud. Ct.*1935); *Phillipson v. Phillipson,*302 *Mich.*84, 4 *N. W. 2d*477, 479 *(Sup.Ct.*1952); *Losch v. Marcin,*251 *N. Y.*402, 167 *N. E.*514, 516 *(Ct. App.*1929); 68 *C. J. S., Partnership,*§ 285, *p.*785; 40 *Am. Jur.*342.

But plaintiff seeks a fee, not out of moneys' recovered (nor out of moneys which were deposited by defendants with the court to avoid a receivership and which have now been paid-over to her on account of her judgment), but out of the defendants’ shares in the partnership. She has rendered no benefit to the entire partnership estate. She has not *191attempted to preserve or perform any service for defendants’ shares; nor has she in any way, directly or indirectly, acted for defendants’ benefit. Indeed, the issue is directly controlled by what we had to say in *Long v. Mertz,*21 *N. J. Super.*401, 404 *(App. Div.*1952).

As to the second question, namely, the valuation of good will, it is first to be noted that the parties here accept the formula employed below, and we therefore confine our attention to that formula. For the federal estate tax practice with respect to the valuation of closely held businesses, see *Estate Tax Handbook,*edited by J. K. Lasser (1951), 386-404; see also the formula once commonly relied on, *A. R. M.*34, 2 *C. B.*31, 32 (1919). In general as to the valuation of good will, see *Tracy v. Alexander,*17 *N. J.*397 (1955); *Milberg v. Seaboard Trust Co.,*7 *N. J.*236, 242 (1951); 53 *Col. L. Rev.*660, 696 (1953); 47 *Journal of Accountancy*429 (1929); 64 *Id.*28 (1937); 31 *Neb. L. Rev.*559 (1952). Some courts seem to have rejected a formulistic approach to the matter. *Com’r of Corporations and Taxation v. Ford Motor Co.,*308 *Mass.*558, 33 *N. E. 2d*318, 139 *A. L. R.*936 *(Sup. Jud. Ct.*1941). The problem presented by franchise taxes is a somewhat different one, as they often have to do with more stable enterprises. 2 *Bonbright Valuation of Property*732 (1937).

Our own cases dealing with the transfer inheritance tax have made use of the formula accepted here. Stated very briefly, this formula consists in: (1) averaging net earnings over a period of years; (2) deducting a normal percentage (in New Jersey cases 6% has been employed) of the average value of certain net assets (exclusive of good will); (3) multiplying the excess by a factor which will be discussed later. *In re Hall’s Estate,*94 *N. J. Eq.*398, 407 *(Prerog.*1923), approved 99 *N. J. L.*1 *(Sup. Ct.*1923), affirmed 100 *N. J. L.*405 *(E. & A.*1924); *Schneider v. Zink,*2 *N. J. Super.*53, 61 *(App. Div.*1949). Our inheritance tax cases in this respect have followed the practice of the New York Surrogate’s Courts (see *New York Transfer Tax Regulations,*1926, *Art.*47, spelling out the formula — that tax was super*192seded in 1930) which in turn seem to have developed the formula from that employed in the English practice. See *Mellersh v. Keen,*28 *Beav.*453, 54 *Eng. Rep.*440 (Ch. 1860), allowing one year’s purchase of the net annual profits averaged over three years.

Under the first step of this formula we must determine what should constitute *net*earnings. Erom earnings there should he deducted *(inter alia),*not salaries actually paid partners, nor drawings agreed upon, but a fair salary for services rendered. 2 *Bonbright, Valuation of Property*729; *10A Mertens, Federal Income Taxation*78 (1948); 47 *Journal of Accountancy*429, 442 (1929); *N. Y. Transfer Tax Regulations*(1926) *Art.*47. $95 a week fixed for each of the partners here in 1925 is in our view not a fair salary for the services rendered in 1949. Defendants sought to establish that appropriate compensation for each partner would come to 5% of gross sales — that is, on an average of about $11,500 per annum during the four years used in the computation. However, under the circumstances, we conclude, $175 a week would represent a fair salary for each active partner.

On the other hand, Blut was ill and did not contribute his services to the business during those four years. His salary of $95 a week, which the partnership paid him during so long an illness, would not be regarded by a hypothetical buyer as a reasonably foreseeable expense of the business chargeable to good will. This item, we think, should have been eliminated.

Erom net earnings there should also be deducted, in our view, such reasonable charitable contributions as could under present day practices be looked upon as a business expense. *Cf. A. P. Smith Mfg. Co. v. Barlow,*13 *N. J.*145 (1953). Here the contributions increased from $681 in 1946 to $1,870.20 (adjusted) in 1949. These figures clearly include personal donations. We will allow $500 a year.

In completing the first step of the formula, the court below rightly, we think, under the circumstances here averaged the net profits for the four years, 1946 to 1949, in-*193elusive. This omitted three of the more profitable years, 1943 to 1945, which plaintiff wanted to have included; but it included one of them, 1946, which defendants wanted to have omitted. The law seeks here a period of years which would afford our hypothetical buyer a reasonable basis for forecasting the future. *Paul, Federal Estate and Gift Taxation.*§ 18.30 (1942); *Estate Tax Handbook*397; 10A *Mertens, supra,*79-82; 2 *Bonbright,*729; 53 *Col. L. Rev.,*at 702; *Schneider v. Zink,*2 *N. J. Super.*53, three years used; *In re Hall's Estate,*94 *N. J. Eq.*398, 408, approved 99 *N. J. L.*1, affirmed 100 *N. J. L.*405, *supra,*three years; *In re Deutz’ Estate,*105 *N. J. Eq.*671 (Prerog. 1930), three years; *Crell v. Kelly,*134 *N. J. Eq.*593 (Prerog. 1944), five years, mod. 132 *N. J. L.*450 *(Sup. Ct.*1945) ; *Corry v. Passaic Nat. Bank and Trust co.,*3 *N. J. Super.*569 *(Ch. Div.*1949), five years.

The only other question is as to the factor to be used in the third step of the formula. If earnings attributable to good will average $X, how many times (this is the factor of. which we axe speaking) X would a purchaser pay for the good will? The factor usually runs from 1 to 10. The trial court used a factor of two. This, the most delicate operation in the computation, is the point where the formula loses all semblance of mathematical certainty.

In deciding upon this factor, we must take cognizance of the risks and the prospective stability of the business. Here, on the one hand, it will be noted we have a business that had achieved for a quarter of a century some measure of success. On the other hand, as pointed out by the trial court, there had been a decline in profits generally speaking over the last eight years, the business was highly competitive in nature and its success was due almost entirely to personal efforts of partners who had been with it 28 years before Bluffs death.

Our inheritance tax practice is indicated in the cases: a factor of 3 was used in *In re Hall's Estate,*94 *N. J. Eq.*398, *supra, Schneider v. Zink, 2 N. J. Super.*53, *supra,*and *In re Deutz,*105 *N. J. Eq.*671, *supra.*But the circumstances there were different. Bonbright has said a factor of *1943 was adopted most frequently in New York inheritance tax practice and apparently was regarded there as least in need of justification. 2 *Bonbright*731. However, higher factors are generally used in federal tax practice. *Estate Tax Handbook,*393-399; 10A *Mertens*82; 2 *Paul*1291; 2 *Bonbright*734, 1061. We think a factor of 3 would be proper here.

Upon this basis, Blut’s one-third interest in the firm’s good will is fixed at $21,781.45 at his death. See schedule appended to this opinion.

Modified. No costs.