Partnership Law § 73; Partnership Law § 62(1)(b); Partial Summary Judgment; Distribution of Interest; Distribution of Goodwill
By: Mia Piccininni | Staff Writer
Plaintiff Norman Romanoff (“Plaintiff”) is a medical doctor and one of the founding partners of the Center for Rheumatology, a limited liability partnership that operates a medical practice in Albany, New York (“Partnership”). Defendants are partners of the Partnership. Upon retirement, Plaintiff requested that the Defendants dissolve the Partnership and pay him a fair and proper accounting of his interest. Defendants, however, did not acquiesce to Plaintiff’s request. Consequently, Plaintiff commenced an action alleging four causes of action: (1) valuation and distribution pursuant to Partnership Law § 73 concerning the rights of a retiring partner when the business is continued; (2) accounting under Partnership Law § 74, on the basis that any partner has the right to an account of his interest; (3) distribution of interest under Partnership Law § 69, on the basis that he retained a right to the partnership property; (4) winding up under Partnership Law § 68, on the basis that a partner “has the right to wind up the partnership affairs.” Defendants interposed an Answer, and made a tender offer to Plaintiff of his interest in the Partnership, which excluded the valuation for goodwill.
Plaintiff, however, rejected Defendants’ tender and served discovery demands. Defendants then filed a motion for partial summary judgment, arguing that a value should not be placed on the alleged “goodwill” of the Partnership because “the [Partnership] lacks distributable goodwill in its own right.” In opposition, Plaintiff argued that Partnership Law § 73 evinced the existence of Distributable Goodwill due to the Partnership’s economic growth and overall success and cross-moved for partial summary judgment relying on Partnership Law § 62(1)(b), which allows dissolution of a partnership “by the express will of any partner when no definite term or particular undertaking is specified.”
The Court denied both motions because material issues of fact existed. First, the Court found that Defendants did not meet their burden of demonstrating that, as a matter of law, the Partnership lacked distributable goodwill, such as the ability to attract patients as a result of its name, locations, and reputation. Under Spaulding v. Benenati, “the personal skill, judgment and reputation of a professional person is not a saleable item.” The value of goodwill may, however, be a saleable item when it includes “something other than the personal attributes of a profession, such as the right to establish a practice on the same premises used by the former practitioner.” Here, the Court found a certain level of caution must be applied when property interest of value is excluded by implication because “goodwill . . . is presumptively an asset to be accounted for.” Since neither Plaintiff nor Defendants could set forth sufficient evidence as to whether goodwill would be accounted as a distributable asset of the Partnership, the Court denied Defendants’ motion.
Second, the Court found that the supporting affidavits of Plaintiff and Defendants demonstrated the existence of genuine issues of material fact. To obtain summary judgment on the basis that goodwill should not be considered, Defendants must demonstrate as a matter of law that the Partnership “lacks the ability to attract patients as a result of its name, location(s), and reputation.” Here, the mere existence of Plaintiff’s affidavit demonstrating the existence of goodwill and the reply affidavit of Defendants was insufficient to affirmatively prove that the Partnership lacked the ability to attract patients.
Third, the Court held that the absence of an express agreement to exclude goodwill as a distributable asset was sufficient to conclude that goodwill could be excluded, thereby creating issues of fact. When the partnership agreement reflects the binding written expression of the “intention that goodwill be deemed of no value,” then there is proof of an express agreement to exclude goodwill as a distributable asset. Here, there was no governing partnership agreement and no offer of proof of any “written or oral agreement that speaks to the issue of distributable goodwill.” Therefore, issues of fact remained as to whether goodwill was a distributable asset.
Fourth, the Court held that Plaintiff was the first to withdraw from the Partnership so it remained unclear as to whether goodwill was a distributable asset. A history of partners who are not compensated for goodwill is determinative of distributable goodwill. Since Plaintiff was the first to withdraw from the Partnership, the Partnership lacked a clear history of partners not being compensated for goodwill upon withdrawal. Thus, issues of fact remained.
Finally, the Court held there was insufficient proof to find an implied agreement to exclude goodwill as an asset of the partnership. The Court noted that “goodwill . . . is presumptively an asset to be accounted for.” Here, the absence of any meaningful accounting for goodwill in the Partnership’s books and records was not sufficient evidence to conclude that the parties agreed to exclude goodwill as a distributable asset. Thus, issues of fact existed as to whether goodwill should be excluded.
Romanoff v. Center for Rheumatology, LLP, Index. No. 50856/15, 5/24/16 (Platkin, J.).