Court Opinion

ID: 9749739
Source: CourtListenerOpinion
Date Created: 2023-08-27 17:01:51.061838+00
Date Added: 2024-06-11T07:25:57.135926
License: Public Domain

BOLAND, J., Concurring.
I concur in the judgment and write separately to state the rationale I believe justifies the conclusion that, as a matter of law, John McTiernan’s work as a movie director is not a business or professional practice to which goodwill may attach.
Let me begin with several points on which there is no dispute.
First, goodwill may exist in a professional practice or in a business which is founded upon personal skill or reputation. (In re Marriage of Foster (1974) 42 Cal.App.3d 577, 582, fn. 2 [117 Cal.Rptr. 49].)
Second, the goodwill of a business is property and is transferable. (Bus. & Prof. Code, § 14102.) Otherwise stated, goodwill is an asset of a business or professional practice, and where the business or professional practice is community property, it is a community asset. (Golden v. Golden (1969) 270 Cal.App.2d 401, 405 [75 Cal.Rptr. 735].)
*1112Third, “[although the goodwill of a business may be the result of the personal skill, talent, experience, or reputation of an individual connected with the business, it may attach to and continue with the business even after the separation of the individual on whom it was founded.” (Smith v. Bull (1958) 50 Cal.2d 294, 302 [325 P.2d 463].)
Fourth, “[w]hen goodwill attaches to a business, its value is a question of fact.” (In re Marriage of King (1983) 150 Cal.App.3d 304, 309 [197 Cal.Rptr. 716].)
From these well-settled points, two other principles seem clear:
—Goodwill, as a divisible asset, does not exist apart from the business or professional practice to which it attaches.
—Because it is property, any business or professional practice (along with any goodwill attached to it) is and must be, at least in legal theory, transferable from one person or entity to another. (See Yuba River Power Co. v. Nevada Irr. Dist. (1929) 207 Cal. 521, 523 [279 P. 128] [citing a definition of the term “property” as “ ‘sufficiently comprehensive to include every species of estate, real and personal, and everything which one person can own and transfer to another’ ”]; see also Douglas Aircraft Co. v. Byram (1943) 57 Cal.App.2d 311, 317 [134 P.2d 15] [“[a] common characteristic of a property right, is that it may be disposed of, transferred to another”]; Bias v. Ohio Farmers Indemnity Co. (1938) 28 Cal.App.2d 14, 16 [81 P.2d 1057] [“it is a fundamental principle of law that one of the chief incidents of ownership in property is the right to transfer it”].)
Accordingly, in the first instance, the question is whether McTiernan—or, more properly, the marital community—owned a business or a professional practice to which goodwill could attach. In my view, the answer is no, because McTiernan cannot—even in theory—sell or otherwise transfer his “professional practice” or “business” to a third party. This is not because there is no market for the business, but for the more fundamental reason that nothing exists to sell. McTiernan has only his talent as a director, and he cannot transfer it to anyone else. In this, he is no different from any other artist, entertainer or athlete with a talent that commands high compensation. While the occupations of these individuals, like most other occupations, are in common parlance denominated “professions,” they are neither businesses nor professional practices that can be expanded beyond the individual in whom the talent resides. Unlike a doctor, lawyer, accountant or other business person, McTiernan cannot hire someone else to direct a movie he has been hired to direct. He cannot expand his “practice” or “business” because he has only his own artistic talent to offer. Whatever we may call it—talent, *1113occupation, livelihood or profession—the creative processes of a movie director, like that of any other artist, cannot be bought, sold or given away, and therefore do not fit within any recognized definition of property. Consequently, no business or professional practice constituting property exists in McTiernan’s case, within the meaning of current statutory or case law. Goodwill as statutorily defined, as merely an intangible asset of a business or professional practice, necessarily cannot exist in the absence of a business or professional practice.
The conclusion that, as a matter of law, McTiernan has no business or professional practice to which goodwill could attach is not a departure from California precedents on professional goodwill. Our dissenting colleague concludes that In re Marriage of Watts (1985) 171 Cal.App.3d 366 [217 Cal.Rptr. 301] and In re Marriage of Foster, supra, 42 Cal.App.3d 577 teach that “professional goodwill” need not be susceptible to transfer to another in order to be a divisible community asset. I do not so read either case. Both Foster and Watts involved medical practices, and there is no question that medical practices, including sole proprietorships, can be and are bought and sold. Specifically:
—In Foster, as the court observed, “the parties apparently concede that a medical practice has a goodwill and that such goodwill has a value.” (In re Marriage of Foster, supra, 42 Cal.App.3d at p. 581.) The issue in Foster was whether a proper method of evaluating goodwill was used. Foster stands for the proposition that the value of professional goodwill in a marital dissolution is not necessarily its market value. The court held that “[t]he value of community goodwill is not necessarily the specified amount of money that a willing buyer would pay for such goodwill.” (Id. at p. 584.) Foster explained: “In view of exigencies that are ordinarily attendant a marriage dissolution the amount obtainable in the marketplace might well be less than the true value of the goodwill.” (Ibid.) Thus, Foster assumes that the sale of a medical practice is possible, and indeed we know this from our common experience in the business and professional world.
—In Watts, the court similarly rejected the notion that market value is the only method of evaluating the goodwill in a medical practice, citing the analysis in Foster. The husband’s experts in Watts, utilizing the market value or comparable sales method of valuation, concluded there was no goodwill in the husband’s medical practice because no market existed for the practice. (In re Marriage of Watts, supra, 171 Cal.App.3d at p. 369.) The court found that the trial court’s factual findings were in conflict with each other, and if the trial court had employed the capitalized excess earnings method of valuing the goodwill of a medical practice, a monetary value would have resulted. (Id. at p. 371.) The court concluded that, in the dissolution of *1114marriage context, “the mere fact that a professional practice cannot be sold, standing alone, will not justify a finding that the practice has no goodwill nor that the community goodwill has no value.” (Id. at p. 372.) This conclusion was quite proper, and is not in conflict with the principle that no business or professional practice exists where nothing can be transferred to a third party. Many reasons may exist why a professional practice “cannot be sold”—at a particular time, in a particular place, or under particular circumstances. But medical practices, law practices, and all other businesses are, in legal and economic terms, amenable to purchase and sale. McTiernan’s work—his talent or livelihood—like that of any other artist or athlete, is not.
A few additional observations are in order.
First, I recognize that the existence and value of goodwill in a business are questions for the trier of fact. (Smith v. Bull, supra, 50 Cal.2d at p. 306 [“whether the business possessed a goodwill is also a question of fact”]; see In re Marriage of Rosen (2002) 105 Cal.App.4th 808, 817 [130 Cal.Rptr.2d 1] [no goodwill existed in husband’s law practice; the trial court’s finding that law practice was worth $60,500, of which $42,000 constituted goodwill, was reversed with instructions to assign a goodwill value of $0].) In this case, however, transferable goodwill, by statute, exists only in a business or professional practice, and McTiernan, as a matter of law, has no goodwill because he has no transferable business or professional practice.
Second, I likewise understand that some cases recognize the goodwill a lawyer possesses as an individual, even though the lawyer practices as a partner in a firm, and by agreement holds no entitlement to the goodwill of the law firm. (In re Marriage of Iredale & Cates (2004) 121 Cal.App.4th 321, 329 [16 Cal.Rptr.3d 505]; see also In re Marriage of Fenton (1982) 134 Cal.App.3d 451, 461 [184 Cal.Rptr. 597] [value of the goodwill in husband’s law corporation was not controlled by the amount a shareholder in the corporation was entitled to receive on withdrawal or termination].) These cases merely recognize that the form in which a professional practice is carried on does not control the valuation of the goodwill that attaches to the individual’s professional practice, which would exist “whether he stays with his firm or strikes out on his own.” (Fenton, supra, 134 Cal.App.3d at p. 463; see also In re Marriage of Nichols (1994) 27 Cal.App.4th 661, 673, fn. 4 [33 Cal.Rptr.2d 13] [husband with shareholder interest in law firm “has personal goodwill regardless of whether he remains with the firm, and this goodwill cannot be eliminated by a recital in the stock purchase agreement”].) These cases do not suggest that any individual, regardless of occupation, possesses transferable goodwill simply because he or she is highly compensated in comparison with his or her peers. In each case, the underlying professional practice or business in which the individual is engaged is susceptible in legal *1115and economic theory of being changed in form, expanded, bought and sold. None of those attributes adhere to McTiernan’s activity as a movie director.
Finally, I return to the words of Smith v. Bull, supra, 50 Cal.2d at page 302, which plainly demonstrate that goodwill is not a divisible asset unless it can be transferred from the person who created it. As the Supreme Court observed, “[although the goodwill of a business may be the result of the personal skill, talent, experience, or reputation of an individual connected with the business, it may attach to and continue with the business even after the separation of the individual on whom it was founded.” (Ibid.) In this case, McTiernan cannot be separated from his “business,” either practically or theoretically.
In short, the Legislature has defined goodwill as property only in connection with a business, and it has specified that the goodwill of a business is transferable. Where there is no transferable business, there is no property to divide, and there is necessarily no goodwill. The Legislature, of course, is at liberty to define goodwill in a more expansive manner, so that it would include the ability of an artist or entertainer to generate excess earnings by virtue of his or her talent and the resulting encomium of a receptive public. It has not yet done so, and it was therefore error for the trial court to conclude that McTiernan possessed professional goodwill that was a divisible community asset.