Gilman v. Hohman

• Decision Date: 09 March 2000
• Docket Number: No. 49A02-9904-CV-300.,49A02-9904-CV-300.
• Citation: 725 N.E.2d 425
• Parties: David GILMAN and William E. Statham, Appellants-Defendants, v. Sandra HOHMAN, Appellee-Plaintiff.
• Court: Indiana Appellate Court

725 N.E.2d 425

David GILMAN and William E. Statham, Appellants-Defendants, v. Sandra HOHMAN, Appellee-Plaintiff.

No. 49A02-9904-CV-300.

Court of Appeals of Indiana.

March 9, 2000.

Robert J. Wampler, Eric D. Johnson, Pfenne P. Cantrell, Kightlinger & Gray, Indianapolis, Indiana, Attorneys for Appellant David Gilman.

Todd J. Kaiser, Daniel M. Long, Locke Reynolds Boyd & Weisell, Indianapolis, Indiana, Attorneys for Appellant William E. Statham.

Kevin W. Betz, Sutherlin & Betz, Indianapolis, Indiana, Attorney for Appellee.

OPINION

ROBB, Judge.

David Gilman and William Statham appeal from the trial court's denial of their partial motion for summary judgment in Sandra Hohman's action against them for malpractice. We reverse and remand.

Issues

Gilman and Statham raise one issue for our review, which we restate as whether the trial court properly denied their motion for summary judgment on the issue of whether they committed legal malpractice in representing Hohman in her divorce by failing to value "goodwill" in her husband's medical practice.

Facts and Procedural History¹

Dr. James Hohman and Sandra Hohman were married in 1981. Dr. Hohman is a licensed physician. On June 11, 1991, Dr. Hohman filed a petition seeking dissolution of marriage. Sandra hired David Gilman as her attorney for the dissolution proceedings. Because Gilman practiced primarily in Marion County and the dissolution proceedings were being conducted in Vanderburgh County, he retained William Statham, a Vanderburgh County attorney, as local counsel.

During the course of discovery, Gilman and Statham determined that Dr. Hohman was, on the date of separation, a staff member physician with the Welborn Clinic, a business trust, in Evansville, Indiana, and subject to a covenant not to compete. They therefore concluded that because Dr. Hohman was an employee with no ownership interest in the Clinic, he also had no goodwill in the Clinic. Sandra concedes that Dr. Hohman had no ownership interest in the clinic. R. 433. Accordingly, Gilman and Statham prepared a property settlement agreement signed by the parties which did not include a valuation for goodwill in Dr. Hohman's practice. The marriage was dissolved on May 14, 1992.

On May 10, 1994, Sandra filed a complaint for legal malpractice against Gilman and Statham, alleging, inter alia, that they were negligent in failing to value Dr. Hohman's medical practice as part of the property settlement. Gilman and Statham joined in a motion for partial summary judgment, which was granted in part and denied in part: "The Court denies [the attorneys'] Motion for Summary Judgment as to the question of whether Dr. Hohman had any `goodwill interest in his professional medical practice,' and whether such goodwill, if existed [sic], was properly valued and/or should have been included in the marital estate...." R. 828. Gilman and Statham then properly instituted this interlocutory appeal from the denial of their motion.

Discussion and Decision

I. Standard of Review

Gilman and Statham contend that the trial court erred in denying that part of their motion for summary judgment regarding Sandra's claim that they committed legal malpractice in failing to value Dr. Hohman's goodwill in his practice. Gilman and Statham contend that, because Sandra conceded that Dr. Hohman had no ownership or present possessory interest in the Welborn Clinic, there is no issue of material fact with respect to Sandra's claim that they were negligent for failing to value his goodwill in the Clinic. Sandra responds that Gilman and Statham confuse the issue of Dr. Hohman's ownership interest in the Clinic with his goodwill in his practice.

A. Summary Judgment

Our standard of review of a summary judgment order is well-settled: summary judgment is appropriate if the "designated evidentiary matter shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Ind. Trial Rule 56(C). Relying on specifically designated evidence, the moving party bears the burden of showing prima facie that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Estate of Pflanz v. Davis, 678 N.E.2d 1148, 1150 (Ind.Ct.App.1997). If the moving party meets these two requirements, the burden shifts to the nonmovant to set forth specifically designated facts showing that there is a genuine issue for trial. Id. A genuine issue of material fact exists where facts concerning an issue which would dispose of the litigation are in dispute or where the undisputed material facts are capable of supporting conflicting inferences on such an issue. Downs v. Panhandle E. Pipeline Co., 694 N.E.2d 1198, 1200 (Ind.Ct.App.1998), trans. denied. Even if the facts are undisputed, summary judgment is inappropriate where the record reveals an incorrect application of the law to the facts. General Accident Ins. Co. of Am. v. Hughes, 706 N.E.2d 208, 210 (Ind.Ct.App.1999), trans. denied.

On appeal, we are bound by the same standard as the trial court, and we consider only those matters which were designated at the summary judgment stage. Pflanz, 678 N.E.2d at 1151. We liberally construe all designated evidentiary material in the light most favorable to the nonmoving party to determine whether there is a genuine issue of material fact for trial. Dunifon v. Iovino, 665 N.E.2d 51, 55 (Ind.Ct.App.1996), trans. denied. The party that lost in the trial court has the burden to persuade the appellate court that the trial court erred. Id. Specific findings and conclusions by the trial court are not required, and although they offer valuable insight into the rationale for the judgment and facilitate our review, we are not limited to reviewing the trial court's reasons for granting or denying summary judgment. Jones v. Western Reserve Group, 699 N.E.2d 711, 714 (Ind.Ct.App. 1998), trans. denied. A grant of summary judgment may be affirmed upon any theory supported by the designated materials. Sims v. Barnes, 689 N.E.2d 734, 735 (Ind. Ct.App.1997), trans. denied.

B. Legal Malpractice

To prove a legal malpractice claim, the plaintiff-client must prove four elements: 1) employment of the attorney (the duty); 2) failure of the attorney to exercise ordinary skill and knowledge (the breach); 3) proximate cause (causation); and 4) loss to the plaintiff (damages). Sleweon v. Burke, Murphy, Constanzo & Cuppy, 712 N.E.2d 517, 520 (Ind.Ct.App. 1999),trans. denied. To prove causation and damages in a legal malpractice case, the client must show that the outcome of the underlying litigation would have been more favorable but for the attorney's negligence. Id.

II. "Goodwill" as a Divisible Marital Asset in Indiana

"Goodwill" has been defined as:

the advantage or benefit which is acquired by an establishment beyond the mere value of the capital stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers on account of its local position, or common celebrity, or reputation for skill, or affluence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partiality or prejudices.

Porter v. Porter, 526 N.E.2d 219, 223 (Ind. Ct.App.1988), trans. denied (quoting 38 Am.Jur.2d Goodwill § 1). Alternatively, goodwill has been defined as "the probability that old customers of the [business] will resort to the old place of business where it is well-established, well-known, and enjoys the fixed and favorable consideration of its customers.... [T]he expectation of continued public patronage." Berger v. Berger, 648 N.E.2d 378, 383 (Ind.Ct.App.1995). Most recently, our supreme court has described goodwill as "the value of a business or practice that exceeds the combined value of the net assets used in the business." Yoon v. Yoon, 711 N.E.2d 1265, 1268 (Ind. 1999).

The element of goodwill in the valuation of a professional practice for division in a dissolution action has received various treatment among the states. Some courts never include goodwill as a divisible marital asset. See Holbrook v. Holbrook, 103 Wis.2d 327, 309 N.W.2d 343, 345 (1981) (refusing to acknowledge professional goodwill as marital property because it is too difficult to distinguish from future earning capacity). Others always include goodwill as a divisible marital asset, regardless of the nature of the goodwill. See Dugan v. Dugan, 92 N.J. 423, 457 A.2d 1, 6 (1983) (holding that goodwill is marital property subject to division in a dissolution without distinguishing between the reputation of the professional party as an individual and the reputation of the professional practice as a business). See also Powell v. Powell, 231 Kan. 456, 648 P.2d 218 (1982). The majority of states differentiate between "enterprise goodwill," which is considered a divisible marital asset, and "personal goodwill," which is not. See Hanson v. Hanson, 738 S.W.2d 429, 434 (Mo.1987) (holding that goodwill—defined as "the value of the practice which exceeds its tangible assets and is the result of the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioner"—to be martial property subject to division in a dissolution setting). See also Taylor v. Taylor, 222 Neb. 721, 386 N.W.2d 851 (1986); Beasley v. Beasley, 359 Pa.Super. 20, 518 A.2d 545 (1986).

In 1988, a panel of this court held for the first time that "a professional practice's goodwill value may be included in the marital estate for purposes of property distribution pursuant to a dissolution decree." Porter, 526 N.E.2d at 225. In Porter, the husband was a licensed medical doctor. He worked for Southern Indiana ENT, Inc. ("ENT"), a business which he had incorporated during the parties' marriage. The trial court valued ENT at $400,000. The husband claimed this was error...