Dixon v. Crawford, McGilliard, Peterson & Yelish
Facts:
Dixon, Crawford, McGilliard, Peterson, & Yelish were five partners in the
Crawford law firm all holding an equal 20% stake of the partnership and received their 20% of
profits yearly. In 2006 Dixon decided to leave the firm and his clients followed, when leaving he
requested to be paid out his portion of the partnership interests which included intangible and
tangible assets. Dixon hires Joe Lawrence, an accounting specialist to calculate what is owed to
Dixon and that comes out to between $350,000.00 to $360,000.00 from the intangible (goodwill)
and tangible assets. On the other hand the remaining Crawford firm partners hired three
accounting experts: Weber, Kessler, and Nelson to do the same work. When Crawford Firms’
accountants ran their numbers they came to the conclusion that there was no goodwill value to
the firm (no intangible assets) and the number they came up with for Dixons interest in the firm
was between $36,000.00 and $48,000.00. Trial court brought up the validity and success of the
firm and with the help of the experts valued the firm at $1,160,714.00; 20% of which would be
$232,143.00. Crawford firm appeals the trial court's decision because they believed there was an
error in the calculation because of the goodwill value. And Dixon cross-appeals because he
believes the court didn’t include the tangible assets into the valuation.
Issue:
Is there any goodwill value or intangible interest in the Crawfors law firm
considering they are a very successful and preeminent public defense firm? Should Dixon be
awarded the goodwill value?
Rule:
1. The value of a partnership must be based on the value “ of the entire business
as a going concern without the dissociated partner” 2. The buyout price of a dissociated partner's
interest is the amount that would have been distributable to the dissociating partner under RCW
25.05.330 if, on the date of dissociation, the assets of the partnership were sold at a price equal to
the greater of the liquidation value or the value based on a sale of the entire business as a going
concern without the dissociated partner and the partnership were wound up as of that date.
Interest must be paid from the date of dissociation to the date of payment.
Application
∏:
Plaintiff Dixon argues that when leaving the firm he is entitled to 20% of the
assets of the firm including the tangible and intangible (goodwill) assets of the Crawford firm.
When leaving the firm he leaves behind his goodwill and therefore should be repaid for what he
has done at and for the firm. Dixon hires Lawrence, an accounting specialist who is able to
calculate all of the tangible and goodwill assets coming out to between $350,000.00 and
$360,000.00 using the “going concern” approach. When the court comes back with a valuation
of $232,143.00, Dixon cross-appeals this decision claiming that the court made an error in
calculating the valuation of the tangible assets and should be awarded a higher settlement for
both the tangible assets and the goodwill ones.
∆:
The rest of the partners at the Crawford firm argue that instead of going concern
approach the capitalization of excess earnings approach is the proper one to use. After replacing
the average values to calculate the goodwill value with those being higher they calculated that
there was no goodwill value in the firm and that Dixon (plaintiff) was only leaving his tangible
assets and those should be values between $36,000.00 and $48,000.00. Crawford firm also
argues that there should be a discovery of the earnings because of the clientele that is paying
Dixon after following him when he left the firm. Stating that “ Plaintiff in effect received his
share of any good will in the firm in taking a substantial portion of the firm’s clients.”
Court:
Despite the arguments of both parties the court affirms their decision for Dixon.
The court uses Joe Lawrence’s method “going concern” approach to calculate the proper
valuation of the firms tangibles and intangibles. Court also states that the partners had not said
anything regarding claims of goodwill in their partnership agreement meaning goodwill is not off
limits. The court then refuses Crawford firms request for a discovery of post dissociation
earnings because it claims that clients do not belong to anyone they have free will to go wherever
they deem fit and therefore the earnings he made from the clients who followed him out of the
firm are no longer a part of the firms possible income. In regards to Dixons cross appeal
claiming that the tangibles and intangibles are worth more than court valued; court says that the
approach used to calculate the valuation is that of the accountant Dixon hired calculating the
tangible and intangible assets of the firm and that that number is correct.
Conclusion: All that said the court concludes that their initial decision in adding goodwill
value and valuing it at a total of $232,143 for Dixon if correct. And in regards to Dixons
cross-appeal the court shows that they have used the proper method and after reviewing
everything from both sides affirm their calculations and decisions as they are. Giving value to the
tangibles and the goodwill assets.