Court Opinion

ID: 9544518
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:56:28.864056+00
Date Added: 2024-06-11T15:13:07.715111
License: Public Domain

BECK, Judge,
concurring:
Although I agree with the majority’s affirmance of the lower court, I believe the majority opinion requires supplementation in two regards. First, the majority fails to provide adequate support for its decision that the order before us is appealable at this time. Second, the majority opinion does not provide sufficient guidance to the bench and bar on the existence and valuation of goodwill in a business. It renders its decision without making any refer*496ence to the larger issue of goodwill as an element of economic value in a business subject to equitable distribution.
APPEALABILITY.
The majority correctly notes that under the Divorce Code, the entry of a divorce decree is a prerequisite to an order for alimony or equitable distribution of property. Deck v. Deck, 342 Pa.Super. 17, 22, 492 A.2d 41, 43 (1985). As we thoroughly demonstrated in Dech, numerous sections of the Code refer to the entry of an order of equitable distribution only after or in conjunction with the entry of a divorce decree. Id. (citing 23 P.S. §§ 104, 301(a), 401(b) & (j), 402). The statutory sections which so provide are based on sound concerns for the possible ramifications of allowing distribution of marital property to predate divorce. Id.
Given the prohibition on a pre-divorce equitable distribution order, any such order must be deemed to be interlocutory. The majority correctly states that such an order does not terminate the divorce action and, in most instances, could not be immediately reviewed.1 However, after so stating, the majority merely concludes that in this case an exception should be made and proceeds to consider the substantive issues on appeal. At minimum, I believe that there should be additional cautionary statements outlining the extremely limited circumstances in which such an exception will be allowed.
In Reese v. Reese, 351 Pa.Super. 521, 506 A.2d 471 (1986), this Court allowed such a limited exception and couched its opinion in appropriate limiting language. In that case, the trial court had entered an order of equitable distribution prior to entering the divorce decree. The wife died before the divorce was granted. On petition of the wife’s estate, the trial court ordered the husband to comply with the *497equitable distribution order. This court affirmed. Id., 351 Pa.Superior Ct. at 521, 506 A.2d at 475. Citing Dech, the Reese court noted that the entry of the equitable distribution order before divorce has been “ill-advised”. However, it also concluded that in consideration of all the pertinent and somewhat extraordinary circumstances of that case, the distribution order should be permitted to stand. These circumstances included the fact that the husband had been the party initially requesting the pre-divorce distribution order, neither party had objected to the untimeliness of the order or appealed from it, and both had acted in reliance on the order by taking sole possession of the property awarded to them. Id., 351 Pa.Superior Ct. at 521, 506 A.2d at 473-4. Given this conduct by the parties, particularly by the appellant-husband, and reasoning that the husband was estopped from objecting to the order, this court allowed it to stand.
Similarly, in Mandia v. Mandia, 341 Pa.Super. 116, 491 A.2d 177 (1985), this Court permitted an appeal which was described by counsel for appellant as being from the trial court’s order bifurcating the parties’ divorce from their economic claims. The divorce decree was entered six days after the bifurcation order. The court nevertheless accepted the appeal, explaining that the bifurcation order had clearly been entered only because the trial court intended shortly thereafter to enter the divorce decree. Moreover, the court emphasized that the true substance of the appeal concerned the order entering the divorce decree and refused to ignore that fact merely because of counsel for appellant’s “uninformed procedural misstep”. Id., 341 Pa.Superior Ct. at 119, 491 A.2d at 178-9.
This case presents a situation similar to those found in Reese and Mandia and thus poses somewhat of a dilemma. This case represents the rare exception to the rule that the divorce decree is a prerequisite to equitable distribution, Deck, and that an appeal relating to equitable distribution will not lie absent a divorce decree. On the one hand, the procedure followed by the trial court was clearly in error. However, the trial court committed that error only because *498it believed the divorce decree had already been entered. Both parties and their counsel apparently shared that belief. As the trial court was careful to point out in its opinion accompanying the divorce decree, both parties appealed immediately after entry of the equitable distribution order, apparently because they thought the divorce decree had previously been entered. The trial court also stated that at the master’s hearing, the parties had stipulated on the record to a § 201(d) divorce. Thus, the trial court felt confident that the entry of the decree, although untimely, was in accord with both parties’ wishes. Opinion of the Trial Court, dated 9/18/84, at pp. 2-4.
I would, therefore, agree with the majority that we have jurisdiction over this appeal, but only because the timing of the divorce decree resulted simply from a mistake by the court, both parties and their counsel and because entry of the decree after the equitable distribution order did not prejudice the rights of either party.

Goodwill.

Goodwill can be defined as the advantage or benefit that inheres in a business beyond the mere value of the tangible assets of the business and which is attributable to the good reputation of the business or those qualities which cause existing customers to continue to patronize the business. In other words, goodwill is the expectancy of repeat patronage, the qualities of a business that make its customers return. Quaid v. Philadelphia Tax Review Board, 188 Pa.Super. 623, 630, 149 A.2d 557, 560 (1959); Dugan v. Dugan, 92 N.J. 423, 457 A.2d 1 (1983). The goodwill of a small, closely held business can represent a large portion of the value of that business. See Gutzeit v. Gutzeit, 200 Pa.Super. 401, 405, 189 A.2d 324 (1963) (allocatur denied).
In this case, the testimony offered as to the goodwill of the Williamsport Candy Company (the “Company”) was confined to that of a certified public accountant called by the appellee-wife to give expert testimony as to the value of the Company, and of Richard W. Campbell, appellant-hus*499band’s father and a partner in the Company. Mindful of our limitations in reviewing the factual findings of a lower court in a matter like this, I agree with the majority’s conclusion that no value should be attributed to goodwill in the valuation of the Company for purposes of equitable distribution. I base this conclusion on the fact that the testimony of appellee’s expert does appear to be deficient in the ways noted by the trial court and reiterated by the majority. Those deficiencies all relate to the expert’s failure to acquaint himself with the particulars of the Company’s business, its methods of obtaining and preserving a competitive position in the marketplace, or with the candy and cigarette distributing business in general. (N.T. 72, 87-8). Indeed, the expert based his conclusion that the Company possessed goodwill with an ascertainable value on a purely numerical and formulistic calculation he made based entirely on his review of the Company’s tax returns for three consecutive years. (N.T. 66-7). These returns were the only data regarding the Company that apparently was provided to the expert to use in valuing the Company. (N.T. 67).
The importance of these deficiencies in the expert’s testimony is obvious when analyzed in light of the prevailing standards for valuation of a closely held business like the Company for equitable distribution purposes. Many courts refer to the Internal Revenue Service’s Revenue Ruling 59-60 as providing a reliable method of valuation for such businesses. 1959-1 CB 237; Bowen v. Bowen, 96 N.J. 36, 473 A.2d 73 (1984).
Revenue Ruling 59-60 lists several basic factors that should be considered in valuing such a business.2 These factors include, inter alia, the nature of the particular business being valued and the history of the enterprise from its inception, the condition and outlook of the specific industry in which the business is engaged and whether the *500business has goodwill or other intangible value. 1959—1 CB 237. Obviously the analysis of the first two of the foregoing factors is pertinent to whether the business has goodwill and, if so, what the goodwill is worth. Given the definition of goodwill provided above, it is obvious that a consideration of the particular history and mode of doing business of the company being valued in relation to those of other businesses in the same industry is crucial to determining the existence and value of goodwill.
Although appellee’s expert repeatedly referred to Revenue Ruling 59-60 as having been the standard for his valuation, in fact he appears not to have sufficiently followed the ruling’s valuation method, particularly as to the goodwill of the Company. In fact, the expert specifically stated that he had no familiarity with the candy and cigarette distributing business nor with the Company’s competitive position in the market. (N.T. 72, 87-8). Thus, I agree with the majority that appellee failed to show that the business has goodwill or, if it does, what the value of the goodwill is.
I must emphasize that my conclusion in this regard is based entirely on the deficiencies in the appellee’s expert testimony.3 But that is where my concurrence with the analyses of the trial court and the majority on this issue ends. Unlike the trial court and the majority, I find the testimony of Mr. Campbell, appellant’s father and a partner in the Company, on the goodwill issue both unqualified and unpersuasive. Mr. Campbell testified that it was in the nature of the Company’s business that it would not have any goodwill. In other words, outside of any quantitative issue as to value, Mr. Campbell stated that the Company had no goodwill in a qualitative sense. He further stated *501that one indicia of this lack of goodwill was the fact that the Company had purchased seven other candy distributors in the past and had never paid any amount for goodwill. (N.T. 140-42).
First, it should be noted that Mr. Campbell himself admitted to his lack of expertise as to the valuation of the Company. (N.T. 195). Moreover, the trial court also noted Mr. Campbell’s lack of expertise in this regard when it expressly discredited his testimony as to the total value of the Company. Opinion of the Trial Court, dated 6/1/84, at p. 10.
In addition to these general indicia of incredibility are the specific substantive flaws in Mr. Campbell’s testimony. The majority’s failure to highlight these flaws and its acceptance of Mr. Campbell’s testimony raise the suggestion that goodwill is frequently not a part of economic value of a small closely held business. Indeed, the opinion suggests that the qualitative lack of goodwill can be established simply through the testimony of an admitted non-expert and possibly interested witness regarding the terms of acquisitions of similar businesses. These suggestions are, in my opinion, seriously misleading.
As previously noted, Revenue Ruling 59-60 itself indicates that whether a closely held business has goodwill or other intangible value is always a factor to be considered in valuing such a business. This indicates to me that it is more likely than not that a business like the Company, which has been in operation for a substantial period of time and has exhibited some degree of competitiveness in the marketplace, does have goodwill. Mr. Campbell’s testimony that it is in the “nature” of a distributorship business not to have goodwill is unconvincing. Such testimony fails to consider a myriad of qualities the Company might have acquired that would encourage the repeat patronage of its customers. For example, the Company may have established a reputation for reliability for prompt delivery, and *502for maintaining a broad range of inventory and, thereby, increased its competitive position.
Further, Mr. Campbell’s testimony that in past acquisitions of similar businesses the Company had never paid for goodwill is not telling. On cross-examination, Mr. Campbell testified that the last of these acquisitions occurred approximately thirty years ago. (N.T. 190-91). Even more importantly, Mr. Campbell’s testimony indicates that in fact these transactions were not acquisitions of similar businesses. In each such transaction, the Company purchased only the saleable inventory and certain of the accounts receivable of the other business. The Company paid cost for the inventory and face value of the accounts, minus a discount presumably to reflect the risk of uncollectibility. The Company did not, for example, buy the fixed assets or customer lists. (N.T. 191-92). Thus, it is highly likely that goodwill would not factor in such a transaction, which amounted to no more that a purchase of some of the assets of the other business. This does not convince me that those businesses did not have any goodwill in a qualitative sense.
Even if those transactions had been acquisitions of an entire business, the failure to allocate any of the price to goodwill proves nothing. The transaction could have been a distress sale. Indeed, Mr. Campbell suggested that the last of these transactions by the Company was a distress sale when he testified that the sellers had come to the Company and requested that it buy them out. (N.T. 193-4). Lastly, it is common knowledge that the allocation by the parties of the total purchase price among the various assets of an acquired business is a matter of negotiation, influenced by many considerations including the tax consequences of the allocation.
In sum, goodwill is often a substantial element of value in a closely held business and should be subject to valuation through credible expert testimony and goodwill should be subject to equitable distribution. I disagree with any suggestion to the contrary by the majority.

. In fact, entry of an equitable distribution order before divorce could be construed to be outside the power of the trial court. Thus, the order presently before us is not only interlocutory but also may be considered to be void. Cf. Reese v. Reese, 351 Pa.Super. 521, 506 A.2d 471 (1986).

. Revenue Ruling 59-60 specifically relates to valuation of such businesses for estate and gift tax purposes. 1959—1 CB 237.

. The Divorce Code does not expressly address the valuation of marital property for equitable distribution purposes or the allocation of burden of proof as to valuation issues. The court must rely on the parties to submit adequate evidence of value. Semasek v. Semasek, 331 Pa.Super. 1, 7, 479 A.2d 1047, 1051 (1984); Gee v. Gee, 314 Pa.Super. 31, 460 A.2d 358 (1983).