Court Opinion

ID: 9703318
Source: CourtListenerOpinion
Date Created: 2023-08-25 23:52:10.146475+00
Date Added: 2024-06-11T15:10:53.648778
License: Public Domain

JOHNSON, Judge,
concurring:
I agree with Judge Kelly that the good will element of Husband’s dental practice can be valued as marital property and thus should be included for equitable distribution. Therefore, I join Judge Kelly’s conclusion that the case must be remanded for a determination of the proper valuation of good will to be included for equitable distribution purposes. However, I read and apply the applicable cases differently than does Judge Kelly.
I reject the conclusion that a distinction between a business organized as a sole proprietorship and a business organized as a partnership or professional corporation determines whether good will may be valued as marital property. The applicable cases are not decided upon this distinction. Valuation may be difficult or impossible due to other factors, but I do not read the cases to mean that existence of a sole proprietorship renders valuation of good will per se impossible.
I begin with the definition of good will:
*494Good will is the favor which the management of a business has won from the public, and probability that old customers will continue their patronage, (citation omitted). 38 Am.Jur.2d Goodwill § 3 states:
Good will is property of an intangible nature and constitutes a valuable asset of the business of which it is part, unless, in the particular instance it is of too uncertain and contingent a nature to be appraised. Often a large portion of the intrinsic marketable or assessable value of a business consists of its good will. However, good will cannot be separated from the business in which it inheres, nor can it be disposed of independently from the business. It has no existence as property in and of itself, as a separate and distinct entity, but only as an incident of a continuing business having locality or name.
Buckl v. Buckl, 373 Pa.Super. 521, 530, 542 A.2d 65, 69 (1988) (en banc). First, this definition, recently adopted by the en banc Buckl panel, demonstrates that the intangibility of good will does not render it incapable of valuation. Just as important, the definition establishes that good will is an inseverable element of the business’ value. This principle holds true regardless of the source of the good will. Recognizing these two significant points regarding good will at the outset of any analysis goes far toward dispelling confusion.
In our case, the trial court held that the good will element of Husband’s dental practice could not be valued for equitable distribution purposes. The court noted that Husband was responsible for a large majority of the revenues of the practice due to his reputation and personal service. The court decided that, based upon these facts, the law warranted the conclusion that the good will could not be valued. The trial court relied upon two cases, Beasley v. Beasley, 359 Pa.Super. 20, 518 A.2d 545 (1985) (en banc) and DeMasi v. DeMasi, 366 Pa.Super. 19, 530 A.2d 871 (1987) for the proposition that because it was Husband’s reputation that generated the good will and not the entire dental *495practice that generated it, it is impossible to value the good will. Judge Kelly here properly reverses the trial court’s result, but he does so on an incorrect basis. In concluding that Beasley and DeMasi are factually distinguishable from the present case, Judge Kelly incorrectly accepts the conclusion that, if a single person’s reputation is the source of good will value to a business, good will cannot be valued.
In Beasley, Husband practiced law as a sole proprietor employing fifteen attorneys. The court was asked to decide whether the good will element of the law practice was marital property and whether Wife had a right to an appraisal of the value of the law practice. The court determined that “[i]t would appear to be incontrovertible that good will is a valuable asset and in proper context must be considered in valuation of a property,” Beasley, 359 Pa.Super. at 35, 518 A.2d at 552, and that there is no question that the law firm itself has value which is ascertainable. Beasley, 359 Pa.Super. at 41, 518 A.2d at 555. The court characterized the good will element as professional reputation and found that this element could not be determined separately but rather had to be taken into account when valuing each case file. In arriving at this conclusion the Beasley court discussed and weighted several views regarding the valuation of good will within the context of various business organization forms.
The court held that, under the facts presented in Beasley, the good will was not marital property. The court decided that the contingent fees presented too speculative a basis upon which to evaluate the case files and that, regardless, Wife did not have a right to appraise the files because in doing so she would unduly pry into the confidential attorney-client relationship. Further, the court noted that the income generated by Husband’s reputation was taken into account, and properly so, in considering Husband’s earning capacity for alimony purposes under 23 P.S. § 501(b)(1). The Beasley court did not hold generally that good will cannot be valued for equitable distribution purposes in a sole proprietorship.
*496In DeMasi v. DeMasi, two physicians were fifty percent shareholders in a professional corporation. The court relied upon Beasley for the proposition, not found in that case, that good will in a sole proprietorship was incapable of valuation and therefore held that the good will value of this medical practice could not be determined for equitable distribution purposes.
In Buckl v. Buckl, 373 Pa.Super. 521, 542 A.2d 65 (1988) (en banc), this Court considered both Beasley and DeMasi in deciding whether Husband’s partnership interest in his architectural firm was marital property. The court had no problem deciding that the partnership interest was marital property. The difficulty came into play in valuing the good will element of the value of the partnership share. The court held that the Master had properly determined that good will was a factor to be considered in placing a value on the husband’s marital property. The court recognized the Beasley decision but stressed that the Beasley court did not preclude valuation of good will categorically and that the Beasley decision was limited to the facts of that particular case.
Similarly, the Buckl court recognized the DeMasi decision as one in which a court decided that good will value should not be factored into the value of a business, but again the court characterized the analysis as one to be made on a case-by-case basis. Specifically, the court noted that the DeMasi court wrote: “Presumably, special circumstances may justify holding that the good will of a professional sole proprietorship is marital property while the good will of a professional corporation is not.” Buckl 373 Pa.Super. at 530, n. 5., 542 A.2d at 69, n. 5, quoting DeMasi, 366 Pa.Super. at 43-44, 530 A.2d at 883. In other words, the Buckl court concluded that use of a general rule based solely upon a distinction between a sole proprietorship and a partnership or professional corporation in order to determine whether good will value of the business should be included as marital property has not actually been used by *497our courts and that the cases in fact suggest that a general, per se rule should not be used.
The Buckl court then turned to the facts before it. The court noted that evidence of monetary value of the good will had been introduced. The court concluded that this value must be taken into account in valuing the partnership interest and remanded for this and other reasons. In his concurrence, Judge Del Sole noted that “[f]actually and functionally there is no difference between the partnership in the case sub judice and the interest of the professional in DeMasi. It is my view that DeMasi is implicitly overturned, and if not, severely limited in its application.” Buckl, 373 Pa.Super. at 536, 542 A.2d at 72.
Now I apply this law to the present case. Judge Kelly concludes that the good will value of Husband’s dental practice can be valued and is thus marital property. However, he reaches this conclusion by relying upon Beasley and DeMasi for the proposition that good will that emanates from the professional reputation of a sole proprietor cannot be valued for marital property purposes while good will emanating from a partnership or professional corporation can be so valued. Judge Kelly concludes that Husband’s share of his dental practice, which is a partnership, is factually distinguishable from the good will factor to be valued in Beasley and DeMasi.
There is no question that good will may be valued and is properly included as marital property. See Buckl v. Buckl. I find no general rule in any of the cases herein discussed establishing that good will of a sole proprietorship cannot be valued. If such a rule could be found in DeMasi, I agree that it is based upon a faulty reading of Beasley. Rather, the cases discussed herein make clear that the only barrier to including good will as marital property is if special circumstances preclude valuation, as in Beasley, where the court precluded Wife from appraising the files and where the court felt that Wife had already reaped the benefit of Husband’s professional reputation in the alimony award that was based upon Husband’s future earning capacity. *498The Buckl court’s discussion of Beasley and DeMasi supports this view. In the present case, as was true in Buckl, evidence of value that expressly evaluated good will was before the court; no special circumstances precluded its valuation. Therefore, the court should have considered it as marital property.
Valuation of good will is not an issue in McCabe v. McCabe, as Judge Kelly implies; the case thus has no bearing upon the present appeal. In McCabe, the issue was whether the trial court had properly valued shares in a law partnership. The trial court had accepted an appraisal that included assets, accounts receivable and work-in-progress. The Supreme Court noted that the appraisal did not include good will. The Court held that the appraisal should be rejected in favor of the terms of the partnership agreement, which provided for valuation of shares should a partner withdraw from the firm. Valuation of good will was not before the Court, and the Court’s only mention of the subject was that it was not included in the rejected appraisal. I find nothing in another case relied upon by Judge Kelly, Ullom v. Ullom, 384 Pa.Super. 514, 559 A.2d 555 (1989) that is contrary to my position.
Hence, I would conclude that, because good will of a business is án important aspect of the business’ value, it should be included when valuing the business, regardless of the form of organization of the business, unless there is a special circumstance that precludes valuation. Such a result would best carry out the intent of the Divorce Code to effectuate economic justice between the parties. 23 P.S. § 102(a)(6).