Opinion
No. 5447–15.
05-24-2016
Norman R. ROMANOFF, M.D., Plaintiff, v. The CENTER FOR RHEUMATOLOGY, LLP, Neal S. Greenstein, M.D., Lee S. Shapiro, M.D., Joel M. Kremer, M.D. and Dorata L. Hausner–Sypek, M.D ., Defendants.
McNamee, Lochner, Titus & Williams, P.C., (Christopher Massaroni and Keri L. Vanderwarker, of counsel) Albany, for Plaintiff. Ganz Wolkenbreit & Siegfeld LLP, (Robert E. Ganz, of counsel), Albany, for Defendants.
McNamee, Lochner, Titus & Williams, P.C., (Christopher Massaroni and Keri L. Vanderwarker, of counsel) Albany, for Plaintiff.
Ganz Wolkenbreit & Siegfeld LLP, (Robert E. Ganz, of counsel), Albany, for Defendants.
RICHARD M. PLATKIN, J.
This is an action brought by plaintiff Norman R. Romanoff, M.D. pursuant to the Partnership Law seeking an order directing the valuation and distribution of his interest in The Center for Rheumatology, LLP (“Center” or “Partnership”). Prior to the completion of any discovery, the Partnership and partner-defendants Neal S. Greenstein, M.D., Lee S. Shapiro, M.D., Joel M. Kremer, M.D. and Dorata L. Hausner–Sypek, M.D. (“Partners”) move pursuant to CPLR 3212(c) for partial summary judgment eliminating “goodwill” as a component of the Partnership's value and plaintiff's distributive share thereof. Plaintiff opposes the motion and cross-moves for partial summary judgment confirming that the professional goodwill of the Center is a component of his distributive interest.
BACKGROUND
As alleged in the complaint, the Center is a limited liability partnership that operates a medical practice in Albany, New York. Plaintiff, who was one of the founding partners, alleges that from the time the Partnership was established, sometime in the mid–1980s, through September 2013, he “devoted his professional efforts to the growth and success of the Partnership, and assisted in establishing the Partnership as the premier [rheumatology] practice in the Capital Region” (¶ 10).
On or about September 30, 2013, plaintiff retired from the active practice of medicine. Plaintiff then expressed his will that the Partnership be dissolved in its then-existing form due to his retirement and demanded payment for his interest. As the Partnership allegedly was formed with no definite term or particular undertaking in mind, plaintiff asserts that the foregoing expression of will operated to dissolve the Partnership (Partnership Law § 62[1][b] ). From September 30, 2013 through the filing of the complaint, the business of the Partnership has continued, with the consent of plaintiff.
Plaintiff alleges that he made demand upon the Partnership and the Partners in an effort to obtain a fair and proper accounting of his interest in the Partnership and for payment thereof, but defendants have failed or refused to comply. As a result, plaintiff commenced this action on November 12, 2015, alleging four causes of action: (1) valuation and distribution (Partnership Law § 73 ); (2) accounting (Partnership Law § 74 ); (3) distribution of interest (Partnership Law § 69 ); and (4) winding up (Partnership Law § 68 ). Defendants filed an answer denying many of the allegations of the complaint and alleging seven affirmative defenses.
Defendants, believing that the only issue in dispute is whether or not a value should be placed on the alleged goodwill of the Partnership, tendered the sum of $76,623.90 to plaintiff, but plaintiff rejected the tender by letter dated December 18, 2015.
On or about January 28, 2016, plaintiff's counsel served discovery demands upon defendants, including notices of deposition for each defendant, interrogatories and demands for documents. In addition, plaintiff's counsel caused a subpoena duces tecum to be served upon the Partnership's accountant. Defendants responded by initiating the instant motion practice, contending that determination of the availability of a distributive award for goodwill may avoid costly and time-consuming fact discovery and expert analysis.
DISCUSSION
A.Legal Standard
To obtain summary judgment, a movant must establish his or her position “sufficiently to warrant the court as a matter of law in directing judgment” ' in his or her favor (Friends of Animals v. Associated Fur Mfrs., 46 N.Y.2d 1065, 1067 [1979], quoting CPLR 3212[b] ). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any genuine material issues of fact from the case (see Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [1986] ). The failure to make such a showing mandates denial of the motion, regardless of the sufficiency of the opposing papers (see Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 [1985] ).
As a general matter, “the personal skill, judgment and reputation of a professional person ... is not a saleable item. This rule is based on the sound reasoning that the name, skill, judgment and reputation of a professional person is inseparable from that person and follows its possessor wherever he [or she] goes” (Spaulding v. Benenati, 57 N.Y.2d 418, 421 [1982] [internal citation omitted] ). “[I]t would be a fraud on the public to attempt to conserve the good will of an individual or former partner, which is personal to [the individual], by attempting to create a false appearance of continuity” (id. at 421–422 [internal quotation omitted] ). However, “th[is] rule should not be applied to the situation where the sale of good will is intended to include something other than the personal attributes of a professional, such as the right to establish a practice on the same premises used by the former practitioner” (id. at 422 ).
In the context of professional firms, “the term goodwill' refers to the ability to attract clients as [a] result of [the] firm's name, location, or the reputation of [its professionals]” ' (Dawson v. White & Case, 88 N.Y.2d 666, 670 [1996], quoting Black's Law Dictionary 695 [6th ed.] ). However, “even if a given partnership might be said to possess goodwill, the courts will honor an agreement among partners—whether express or implied—that goodwill not be considered an asset of the [partnership]” (id. at 671 ; see Partnership Law § 71 ).
In Dawson, the Court of Appeals gave effect to an express agreement of the partners
“that no consideration has been or is to be paid for the [partnership] name or any good will of the partnership” and that “such items are deemed to be of no value” (id. at 672 ). The Court also emphasized the course of dealing among the partners, observing that incoming “partners never paid anything for goodwill; departing partners never received a payment for goodwill; and goodwill was not listed as an asset in the firm's financial statements” (id.; see Matter of Brown (242 N.Y. 1, 7 [1926] [ similar “course of dealing between the partners” allowed the trier of fact to infer “that by tacit understanding there was to be no accounting for good will”] ).
B.The Parties' Contentions
In moving for partial summary judgment eliminating “goodwill” as a component of the Partnership's value for distribution purposes, defendants submit the affidavit of Dr. Greenstein, who currently acts as the managing partner. Dr. Greenstein avers that Dr. Shapiro joined with plaintiff in 1982 and became his partner in 1984 without any kind of payment. Dr. Greenstein then joined the Center in 1986 and became a partner in 1988. Dr. Greenstein avers that he did not pay anything for the goodwill of the Partnership, but he does acknowledge making a payment of $50,000, which is claimed to be attributable to hard assets and receivables. Dr. Kremer joined the Partnership in 2000 under terms said to be “similar” to Dr. Shapiro, and Dr. Hausner–Sypek became a partner in 2002 under arrangements that “mirrored” those of Dr. Greenstein. Finally, Dr. Greenstein avers that plaintiff is the first to withdraw or retire from the Partnership.
Defendants also submit the affidavit of Kevin Tully, a certified public accountant (“CPA”) who has acted as the accountant for the Center since 1993. In this capacity, Tully prepares financial statements for the Center's internal use and for use in taxation matters. Tully avers that when he became the Center's accountant in 1993, there already was an entry in the Partnership's books and records for goodwill in the sum of $16,647. Despite the growth of the Center in revenues, profits and reputation over the years, this figure remained essentially unchanged. According to Tully, the true intangible value of the Center's goodwill inevitably would change over time, but there never was any internal effort or discussion to assign an accurate value for goodwill. Tully further maintains that the portion of the partners' buy-in allocated to accounts receivable without a multiplier is not an indicator of goodwill. Based on the foregoing, Tully opines that the entry labeled “goodwill” on the Center's books and records “is what is known in accounting as a place holder' figure in order to equalize capital accounts of the partners upon the original formation of the enterprise”.
In opposition, plaintiff submits an affidavit seeking to establish existence of distributable goodwill of the Center. Plaintiff highlights the professional and economic success of the Center over time, including: (a) expansion to a satellite office in Saratoga County; (b) annual revenues of more than $18 million; (c) about 70 employees, including Partner and non-Partner physicians, physicians' assistants, nurses, medical technicians and assistants, and other support staff; (d) the Center's expansion into the provision of non-physician direct-care services, including infusions, x-rays and laboratory testing; (e) participation by the Center's physicians in clinical testing and trials; and (f) an extensive professional referral network. Plaintiff claims that at least a portion of this success is attributable to the professional goodwill and reputation of the Center itself, separate and apart from the personal skill, judgment and reputation of its individual physicians.
Plaintiff also submits a brief affidavit from Edward Romanzo, an accountant retained to value plaintiff's distributive interest in the Partnership. Romanzo avers that, under relevant professional standards governing the appraisal and valuation of a professional enterprise, it is appropriate to include goodwill when certain, specified factors are present. Based upon his preliminary analysis, Romanzo opines that a proper appraisal and evaluation of the Center should include a component attributable to the professional goodwill of the enterprise.
Finally, Dr. Greenstein submits a reply affidavit emphasizing the importance of physician reputation to the success of the Center and other factors that allegedly leave the Center without distributable goodwill.
C.Analysis
Defendants have not supported their motion with proof in admissible form sufficient to demonstrate, prima facie, that the Center lacks distributable goodwill in its own right. While defendants' moving papers make passing reference to changes in the name and location(s) of the Partnership over the years, they have not met their initial burden of affirmatively demonstrating, as a matter of law, that the Center lacks the ability to attract patients as a result of a result of its name, location(s) and reputation (see Dawson, 88 N.Y.2d at 670 ). And, to the extent that plaintiff's affidavit in support of the cross-motion demonstrates the existence of distributable goodwill, the reply affidavit of Dr. Greenstein suffices to raise questions of fact. Accordingly, neither side is entitled to summary judgment on the issue.
Nor have defendants come forward with proof of an express agreement to exclude goodwill as a distributable asset. There is no governing partnership agreement, and defendants offer no proof of any other written or oral agreement that speaks to the issue of distributable goodwill. Thus, this is not a case like Dawson where “the partnership agreement reflects the binding written expression of the terms under which these partners assented to associate with each other and evinces their intention that goodwill be deemed of no value” ' (88 N.Y.2d at 672 ). Further, contrary to defendants' suggestion, they cannot prevail simply by pointing to the absence of an agreement among the partners providing for distributable goodwill. “Good will, when it exists as incidental to the business of a partnership, is presumptively an asset to be accounted for” (Matter of Brown, 242 N.Y. at 7 ), and all “partnership property” is distributable, “subject to any agreement to the contrary” (Partnership Law § 71 [ ] ).
Defendants have, however, submitted some proof supporting their claim of an implied agreement among the partners that goodwill shall not be considered a distributable asset of the Center. In particular, defendants have submitted proof that incoming partners did not contribute anything for goodwill. Specifically, the moving affidavit of Dr. Greenstein demonstrates, prima facie, that two of the Partners did not pay anything to join the Partnership, and the two others made capital contributions that did not include a component allocable to goodwill. The affidavit of the Partnership's accountant further demonstrates the absence of any meaningful accounting for the goodwill in the Center's financial books and records for at least two decades, as well as proof that the relatively nominal value assigned to goodwill merely was an accounting “place holder”.
Nonetheless, the present record, compiled without the benefit of any discovery, falls short of compelling the conclusion that plaintiff and the other Partners agreed to exclude goodwill as a distributable asset as a matter of law. The facts here do not rise to the level of Dawson and Matter of Brown, where goodwill did not appear on the partnership's books, and there was a history of withdrawing partners not being compensated for goodwill (Dawson, 88 N.Y.2d at 672 ; Matter of Brown, 242 N.Y. at 7 ). Indeed, while a course of dealing may give rise to an implied agreement to exclude goodwill as an asset of the partnership, goodwill “is presumptively an asset to be accounted for”, and “there must be caution before property interests of value are thus excluded by implication” (Matter of Brown, 242 N.Y. at 7 ). “The life of the business must be scrutinized for every relevant circumstance affecting the intention of the partners. The inference is one of fact, to be drawn, if at all, when intention is thus appraised and probabilities are measured” (id. ).
Accordingly, plaintiff should be given the opportunity to explore all pertinent facts and circumstances, including Tully's averments that no portion of the payments made by incoming partners were attributable to goodwill and his claim that the account listed as “goodwill” on the Partnership's financial books and records was merely a “place holder” that was not intended to represent distributable goodwill.
CONCLUSION
Based upon the foregoing, it is
The Court has considered the parties' remaining arguments and contentions, but finds them unavailing or unnecessary to determination of the motions. Further, defendants' alternative requests for relief are more appropriately considered in the context of a preliminary conference and entry of a scheduling order.
ORDERED that defendants' motion for partial summary judgment is denied; and it is further
ORDERED that plaintiff's cross motion for partial summary judgment is denied; and finally it is
ORDERED that the parties shall appear for a preliminary conference in the Chambers of the undersigned on June 21, 2016 at 10:00 a.m. after conferring in accordance with the Rules of the Commercial Division.
This constitutes the Decision & Order of the Court. The original Decision & Order is being transmitted to plaintiff's counsel. All other papers are being transmitted to the Albany County Clerk for filing. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule 2220. Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry.