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Wednesday, October 19, 2005

Good Will Hunting

What is the value of good will in a law firm partnership? The New York courts will be tackling this issue now that a Nassau County judge has denied motions for summary judgment in Bodner v. Hoffman & Baron.

Plaintiff, a partner in Hoffman & Baron, was expelled from the law firm.  At the time he left, plaintiff had a 17% equity interest in the firm. The remaining partners provided plaintiff with an accounting of his partnership interest, and offered plaintiff $374,079.65, payable without interest over a five year period. Plaintiff rejected this calculation and demanded the full value of his interest, which he calculated as $1,519,000. Plaintiff’s calculation included the value of the law firm’s "good will."

When the remaining partners refused to pay plaintiff this amount, he sued for breach of contract and breach of fiduciary duty predicated upon the remaining partners’ "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." The plaintiff argues that, by undervaluing his interest, the remaining partners "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."

Both sides moved for summary judgment. In addressing the motions, the court defined "good will" in this context:

[g]oodwill, 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."

The court denied the motions, however, holding that there were triable issues of fact to be resolved at trial.

[Meredith R. Miller]

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