IN: Underlying divorce action
Facts: Husband and wife divorce. Husband is a doctor who is a staff member at a local clinic. Since the husband has no ownership interest in the clinic, and his employment contract with the clinic had a non-compete clause, the wife’s lawyers conclude that the husband has no goodwill in the clinic. The property settlement agreement that the lawyers prepare for the divorce did not include a valuation for the goodwill of the husband’s medical practice. Two years later, the wife sues her lawyers for malpractice, alleging that they should have valued her husband’s goodwill in his medical practice as part of the property settlement.
Issue: Is a lawyer who does not value a husband’s goodwill in his medical practice as a part of a property settlement negligent if the husband’s goodwill is not divisible?
Ruling: There are two types of goodwill. Enterprise goodwill is the established relations that a business has with employees, customers, and suppliers, and it may be divisible in a divorce. Personal goodwill is a value attached to a business as a result of the continued presence of an individual. Personal goodwill is not divisible in a divorce, since the value only represents future earning capacity.
In this case, the wife could not have received any value from the goodwill of the husband’s medical practice as part of the property settlement. Since the husband had no ownership interest in the clinic, there was no business to which the goodwill could attach.
Lesson: To prevail on a claim of legal malpractice, a client must prove that they would prevail at trial if not for the lawyer’s breach of duty. The lawyers in this case were not negligent for failing to value something that was not divisible. Moreover, the damages claimed by the Ex-wife were not proximately caused by her lawyers since the ex-husband did not own the clinic and thus any of its good will.