Bodner v Hoffmann & Baron, LLP

[*1] Bodner v Hoffmann & Baron, LLP 2005 NY Slip Op 51563(U) [9 Misc 3d 1115(A)] Decided on September 27, 2005 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 27, 2005
Supreme Court, Nassau County

Gerald T. Bodner, Plaintiff,

against

Hoffmann & Baron, LLP; CHARLES R. HOFFMANN, RONALD BARON, DANIEL A. SCOLA, SALVATORE ABBRUZZESE, as individuals and partners of HOFFMANN & BARON, LLP, Defendants.



003790/04



ATTORNEYS FOR PLAINTIFF

Kaye Scholer, LLP

425 Park Avenue, New York, New York 10022

ATTORNEYS FOR DEFENDANTS

Farrell Fritz, P.C.

EAB Plaza

West Tower 14th Floor

Uniondale, New York 11556

Leonard B. Austin, J.

Defendants move, pursuant to CPLR 3212(e), for summary judgment on their counterclaim declaring that goodwill is not a distributable asset of the law firm of Hoffmann & Baron LLP.

Plaintiff cross-moves for a judgment in the amount of $1,519,000 plus pre- and post judgment interest as and for his partnership interest in the law firm of Hoffmann & Baron LLP.

BACKGROUND

In this action, Plaintiff, a former equity partner in the law firm of Hoffmann & Baron, LLP ("Hoffmann & Baron"), who was expelled from the partnership effective June 30, 2002, sues to recover the fair value of his partnership interest in the firm. The reason for Plaintiff's expulsion, among other things, was a disagreement over a proposed retirement plan and new Partnership Agreement. On or about August 9, 2002, Defendants provided Plaintiff with an accounting of his partnership interest offering him the sum of $368,468.28 payable without interest over a five year period. Thereafter, Plaintiff was provided with a revised accounting on September 22, 2003 setting forth the value of his interest as $374,079.65 to be paid, also without interest, and over a five year period.

At the time of his departure from Hoffmann & Baron, Plaintiff possessed a 17% equity interest in the firm as reflected in the 1999 Partnership Agreement. Plaintiff has rejected Defendants' accounting calculation of $374,079.65 and demands the full value [*2]of his partnership interest which, according to his calculation, amounts to $1,519,000 plus interest. To date, he has not received any payment from his former partners.

The complaint alleges causes of action for breach of contract and breach of fiduciary duty predicated upon Defendants' alleged miscalculation of the value of his partnership interest by excluding from the sum an amount as and for the goodwill of the law firm. In this regard, Plaintiff contends he is a world class patent lawyer whose skill, dedication and hard work contributed significantly both to the success of the Hoffmann & Baron law firm. He argues that goodwill is a substantial component of the firm's economic value. By undervaluing his interest, Plaintiff maintains that the individual Defendants created a scenario in which they will be able to retain a larger equity stake in the partnership than they are entitled to under the Partnership Agreement.

On the motion and cross-motion for summary judgment, the basic question before the Court is whether Plaintiff, as a departing partner, is entitled to be compensated for the goodwill of Hoffmann & Baron.

DISCUSSION

Goodwill, in its most general sense, is an intangible asset that is comprised of a reputation that will, in all likelihood, generate future business. "When applied to law firms, the term 'good will' refers to the 'ability to attract clients as [a] result of [t]he firm's name, location, or the reputation of its lawyers.'" Dawson v. White & Case, 88 NY2d 666, 670 (1996). In Matter of Brown, 242 NY 1, 6-7 (1926), the Court of Appeals noted that "[g]oodwill when it exists as incidental to the business of a partnership, is presumptively an asset to be accounted for like any other by those who liquidate the business."

Pursuant to Partnership Law §71, in settling accounts between partners after dissolution, subject to any agreement to the contrary, the assets of the partnership include the partnership property. Partners may contract that goodwill, though it exists, will not be considered as property or as an asset of the partnership. The contract may be expressly made or may arise by implication from other contracts and the acts and conduct of the parties. Matter of Brown, supra at 6. See also, Dawson v. White & Case, supra at 672, where the Court of Appeals held that the existence of law firm goodwill was recognized in conjunction with the promulgation of Code of Professional Responsibility DR2-111(A) which authorizes the sale of "a law practice, including good will by a lawyer retiring from a private practice of law, [or] a law firm one or more members of which are retiring from the private practice of law with the firm. 22 NYCRR 1200.15-a[a]." (Internal quotes omitted)

In support of their motion, Defendants contend, under the authority of Saltzstein v. Payne, Wood & Littlejohn, 292 AD2d 585 (2nd Dept. 2002), that goodwill is not a distributable asset of the Hoffmann & Baron law firm because (1) the partnership agreement at issue does not specify that it is a firm asset; (2) no consideration was/is paid for goodwill when new partners joined the firm; (3) no amounts were paid or given on account of goodwill when partners left the firm; and (4) the firm's financial statements do not reflect any goodwill. [*3]

The 1999 Partnership Agreement is silent on the issue of the distribution paid to a departing partner. With respect to termination of partnership status, however, paragraph 7 of the Agreement provides:

It is contemplated that partnership status is terminated by one of the following: death, disability, retirement, withdrawal, and expulsion. As of the date of this Agreement, the firm has not determined the terms of termination with respect to each of the events set forth above.

A fair reading of this provision establishes that, at the time of Plaintiff's departure from the firm, the partners of Hoffmann & Baron had not come to an agreement among themselves vis-a-vis the financial ramifications of an individual partner's departure from the law firm nor had they specifically agreed to exclude goodwill from the calculation of the termination payment to a departing partner.

Since Plaintiff was the first partner to depart from the Hoffmann & Baron law firm, it cannot reasonably be said that no amount had previously been paid or given on account of goodwill to a departing partner. Nor can it said, as a matter of law, that no consideration was paid for goodwill as new partners joined the firm. Whether or not such consideration was paid is a factual issue which requires resolution by the trier of fact as does the question of whether Hoffmann & Baron is a new firm, from which Plaintiff is the first partner to depart, or a continuation of the dissolved partnership known as Hoffmann, Dilworth, Barrese & Baron.

According to the affidavit of Plaintiff's accounting expert, "the fact that goodwill is not listed as an asset on Hoffmann & Baron's financial statements is in no way indicative of whether or not the firm intended its goodwill to be distributable to a departing partner." He opines that goodwill would be included as an asset on a law partnership's financial statement if the firm had been bought or sold.

While Defendants make much of the fact that goodwill is not listed as an asset on the firm's financial statement, and discount the relevance of the personal financial statements submitted by the individual partners to various lenders in connection with personal guarantees they executed on firm loans, Plaintiff's expert notes that Defendant partners used an asset based valuation approach in computing the value of the tangible and intangible assets (goodwill) of the firm. Two of the Defendant partners, Hoffmann and Abbruzzese, expressly acknowledged in their personal financial statements to the lending institution that the firm's method of determining market value was "tangible net assets and goodwill." While not dispositive, this factor is worthy of consideration in determining whether goodwill is a valid component in the valuation of Plaintiff's interest in Hoffmann & Baron.

The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issue of fact from the case. Such showing must be made by producing evidentiary proof in admissible form. Zuckerman v. City of New York, 49 NY2d 557, 562 (1980); and Santanastasio v. Doe, 301 AD2d 511 (2nd Dept. 2003). Regardless of the sufficiency of the opposing papers, in the absence of the required evidentiary showing, summary judgment must be denied. Ayotte v. Gerasio, 81 NY2d 1062, 1063 (1993). See also, In re New York City Asbestos Litigation, 14 AD3d 112, [*4]116 (1st Dept. 2004).

In assessing the record to determine whether there is a genuine issue as to any material fact, the court is required to resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought. The inferences to be drawn from the underlying affidavits, exhibits and depositions must be viewed in the light most favorable to the party opposing the motion. Negri v. Stop & Shop, Inc., 65 NY2d 625 (1985); and Erikson v. J. I. B. Realty Corp., 12 AD3d 344 (2nd Dept. 2004).

Here, neither side has demonstrated entitlement to the requested relief. Whether Defendants breached the Partnership Agreement herein and/or their fiduciary duty to Plaintiff by failing to pay him a fair price for his interest in Hoffmann & Baron upon his expulsion from the firm and whether Plaintiff must be paid for his share of the value of the goodwill of Hoffmann & Baron are questions which require resolution at trial.

Accordingly, it is,

ORDERED, that Plaintiff's motion for summary judgment is denied; and it is further,

ORDERED, that Defendants' motion for summary judgment is denied; and it is further,

ORDERED, that counsel for the respective parties shall appear for a certification conference on October 27, 2005 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY _____________________________

September 27, 2005 Hon. LEONARD B. AUSTIN, J.S.C.