In Re the Marriage of Fleege ( 1979 )

Stafford, J.

I dissent. In the instant case the majority has oversimplified important facts on the subject of goodwill. For example, it has down-played the fact that the goodwill in question is not similar to commercial goodwill in general. It is connected with a dental practice which is covered by specific laws governing the use of one's name. Also, the role of the sole dental practitioner is all but ignored.

Further, the majority has chosen to place its reliance upon the testimony of two experts obviously rejected by the trial court and has rejected the testimony of a third expert which the trial court clearly accepted on the subject of goodwill. The majority preferred and used the expert testimony with which it chose to agree rather than that which was accepted by the trial court. This is not a proper appellate function when there is conflicting testimony, the trial court has seen and heard the experts and clearly has given greater weight to the one it felt had the most credibility, and where there is substantial evidence to support the trial court's finding. Under these circumstances the constitution does not authorize an appellate court to substitute its judgment for that of the trial court. Thorndike v. Hesperian Orchards, Inc., 54 Wn.2d 570, 343 P.2d 183 (1959). In this case the trial court chose to believe an expert who was a dentist with over 40 years of practice in this state, who had himself sold his sole dental practice, who had assisted attorneys and widows of dentists to liquidate dental practices and who had assisted young dentists to acquire existing practices.

Usually it is not necessary to restate the facts, but in this case I must do it so the issue of goodwill actually involved herein may be viewed in its correct setting.

The Fleeges were married in 1943. During the marriage Dr. Fleege established a substantial dental practice. In 1975 he netted approximately $106,000 as a sole practitioner specializing in children's dentistry.

In 1976, Dr. Fleege filed for a dissolution of the marriage. At trial the only dispute was concerned with whether the goodwill of Dr. Fleege's dental practice was an asset subject to division. Three experts testified on the issue. Each based his opinion upon experience with sales of dental practices in which the selling dentist retired following a short-term association with the purchasing dentist. One expert, a dentist, testified that any goodwill associated with such sales had only minimal value and is paid to the retiring dentist to maintain that dentist's goodwill. The other two experts, certified public accountants, placed widely disparate values upon the goodwill of Dr. Fleege's practice. All experts agreed, however, that if a dentist should fail to dispose of his practice prior, to death any goodwill simply "evaporated" and would have no value as an asset.

The trial court valued the fixed assets of the practice at $47,373 and awarded them to Dr. Fleege. It assigned no value to goodwill and deemed it an asset incapable of division upon dissolution. After the decree of dissolution was entered Dr. Fleege sold his practice to his son and received nothing for goodwill.

Mrs. Fleege appealed the property division claiming that goodwill is a valuable asset which should have been considered in the division of property. It should be noted that after the notice of appeal was filed herein, Division Two of the Court of Appeals held that professional goodwill is an asset to be considered in a division of property. In re Marriage of Lukens, 16 Wn. App. 481, 558 P.2d 279 (1976). Division One of the Court of Appeals certified the instant appeal to this court.

The issue before this court is whether the goodwill of a sole professional practitioner of dentistry is a valuable asset subject to division in a dissolution of marriage. Initially, however, it is necessary to consider the general nature of goodwill.

Goodwill is most frequently associated with ongoing commercial ventures. In re Estate of Giant, 57 Wn.2d 309, 356 P.2d 707 (1960); J.L. Cooper & Co. v. Anchor Secs. Co., 9 Wn.2d 45, 113 P.2d 845 (1941); Stanton v. Zercher, 101 Wash. 383, 172 P. 559 (1918). In the commercial setting, goodwill includes the name, location, reputation for honesty and fair dealing, individual talents and abilities of the members of the organization. In re Estate of Giant, supra at 312; J.L. Cooper & Co. v. Anchor Secs. Co., supra at 54; Stanton v. Zercher, supra at 391-92. Goodwill comprises those advantages which may inure to a purchaser from holding himself out to the public as the successor in an enterprise which had been conducted in the past with the name and repute of his predecessor. Stanton v. Zercher, supra at 391. Because of its very nature the goodwill of an ongoing commercial venture inheres in the business and is inseparable from the whole. In re. Estate of Giant, supra at 312; Stanton v. Zercher, supra at 392; In re Marriage of Lukens, supra at 483-84.

Goodwill may also be generated in a professional venture such as the practice of dentistry, law, or medicine. But, such goodwill is personal in nature and is not a readily marketable commodity. See Lockhart v. Lockhart, 145 Wash. 210, 259 P. 385 (1927); In re Marriage of Lopez, 38 Cal. App. 3d 93, 113 Cal. Rptr. 58 (1974); Golden v. Golden, 270 Cal. App. 2d 401, 75 Cal. Rptr. 735 (1969). Factors contributing to a professional practitioner's goodwill include his name, age, health, past earning power, reputation for skill, judgment, and knowledge as well as his comparative success. In re Marriage of Lukens, supra at 484; In re Marriage of Lopez, supra at 68. The individual labor and individual attention of the professional practitioner are critical to establishing and maintaining goodwill. Lockhart v. Lockhart, supra at 213; Nail v. Nail, 486 S.W.2d 761, 763 (Tex. 1972).

Goodwill, whether generated by a commercial business or by a professional venture, is clearly "property" in a legal sense. See J.L. Cooper & Co. v. Anchor Secs. Co., supra at 53. However, to be true goodwill in the sense of a commodity with a salable value, it must have an existence separate from the continued presence of those who generated it. Goodwill of this nature may be sold precisely as other personal property may be sold. See J.L. Cooper & Co. v. Anchor Secs. Co., supra at 53. It follows that if goodwill of a professional practice exists, it will be an asset subject to division on dissolution of marriage if an appropriate value may be assigned to it as a salable commodity.

The next question is whether any goodwill exists, in connection with Dr. Fleege’s sole practice of dentistry, which may be valued in this dissolution proceeding.

Each expert testified that the "goodwill" associated with Dr. Fleege's sole practice of dentistry would have a value only if he had associated with a dental successor for a period of time and then retired. Thus, according to the only testimony on the subject, both the existence and value of that kind of "goodwill" are dependent upon a short-term association followed by Dr. Fleege's retirement. The trial court properly rejected this evidence and refused to distribute this so-called "goodwill" of Dr. Fleege's sole dental practice.

Clearly, the value assigned by the experts to Dr. Fleege's so-called "goodwill" represents a value assigned to a service for which a successor would be willing to pay Dr. Fleege for a temporary association prior to retirement. This concept and its value is not goodwill as the term is commonly used. Rather, it represents compensation to Dr. Fleege in exchange for a short-term association (i.e., his continued presence) followed by retirement. True goodwill must not depend upon the continued presence of the one who originally created it. It derives from the ability of a successor to enjoy the predecessor's name and reputation.

Further, considering the type of "goodwill" and allied valuation testified to by the experts herein it is important to note that in the profession of dentistry a successor could not lawfully enjoy Dr. Fleege's name and reputation without his continued active professional association. RCW 18.32.360 provides:

It shall be unlawful for any person to practice dentistry under any name, except his own, which shall be that used in his license issued by the director: Provided, That this shall not apply to any person who was practicing dentistry in this state on March 20, 1935, under an association or trade name.

It shall be unlawful for any person to conduct a dental office in his name, or to advertise his name in connection with any dental offices, unless he is personally present therein operating as a dentist, or personally overseeing the operations performed in any office, during most of the time that that office is being operated: Provided, That this section shall not prohibit any person from continuing to conduct any offices legally conducted in this state on March 20, 1935.

Any violation of the provisions of this section shall constitute improper, unprofessional and dishonorable conduct; it shall also constitute grounds for injunction proceedings as provided by this chapter, and in addition shall constitute a gross misdemeanor.

Consequently, neither the existence nor the value of "goodwill" discussed by the experts represents goodwill in its true sense. The trial court properly refused to consider such evidence as establishing either the existence of or the value of the goodwill of Dr. Fleege's sole dental practice.

I am also unable to find any evidence demonstrating the existence or value of the kind of "goodwill" here in question. The deficiency is understandable, however. Given the accepted understanding of goodwill, the nature of the dental profession, and RCW 18.32.360, the existence and value of a sole dental practitioner's goodwill, at the time of marriage dissolution, would be the same as its value if he should simply abandon it without more. Lockhart v. Lockhart, supra at 213. Total abandonment of a sole dental practice, while unusual, is analogous to the situation in which a dentist dies prior to selling the practice. In such an event, the three experts agreed any goodwill would simply "evaporate." It would no longer exist and would have no value.

If Dr. Fleege were to die or abandon his practice, any person thereafter using his name would be guilty of a gross misdemeanor. Since the very existence of professional goodwill derives from a successor's ability to enjoy the reputation associated with his predecessor and because another dentist could not enjoy Dr. Fleege's reputation without his continued presence, no true goodwill exists in connection with Dr. Fleege's sole practice to be valued in the marriage dissolution setting. Consequently, the trial court properly determined that the professional "goodwill" of Dr. Fleege's sole dental practice was not an asset capable of division in a marriage dissolution proceeding.

In resolving the issue at hand this court is not concerned with possible goodwill as an asset incident to sale of other types of professional practices, or goodwill that may exist in the setting of a professional partnership. We are concerned solely with a marital dissolution and the existence and valuation of goodwill generated by a dentist who is a sole practitioner.

The trial court should be affirmed.

Brachtenbach, Horowitz, and Dolliver, JJ., concur with Stafford, J.