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656 S.E.2d 70
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2007 Term
ROBERT J. HELFER,
Petitioner Below, Appellee
CAROL A. HELFER,
Respondent Below, Appellant
Appeal from the Circuit Court of Ohio County
The Honorable James P. Mazzone, Judge
Case No. 02-D-209
REVERSED AND REMANDED
Submitted: October 10, 2007
Filed: November 8, 2007
Ancil G. Ramey
Scott E. Johnson
Frankovitch, Anetakis, Colantonio & Simon
Steptoe & Johnson, P.L.L.C. Weirton, West Virginia
Charleston, West Virginia Counsel for the Appellant
Counsel for the Appellee
The Opinion of the Court was delivered PER CURIAM.
SYLLABUS BY THE COURT
1. In reviewing a final order entered by a circuit judge upon a review of, or
upon a refusal to review, a final order of a family court judge, we review the findings of fact
made by the family court judge under the clearly erroneous standard, and the application of
law to the facts under an abuse of discretion standard. We review questions of law de
. Syllabus, Carr v. Hancock
, 216 W.Va. 474, 607 S.E.2d 803 (2004).
2. 'Enterprise goodwill' is an asset of the business and may be attributed to
a business by virtue of its existing arrangements with suppliers, customers or others, and its
anticipated future customer base due to factors attributable to the business. Syl. pt. 2, May
, 214 W.Va. 394, 589 S.E.2d 536 (2003).
3. In determining whether goodwill should be valued for purposes of
equitable distribution, courts must look to the precise nature of that goodwill . . . .
[E]nterprise goodwill, which is wholly attributable to the business itself, is subject to
equitable distribution. Syl. pt. 4, in pertinent part, May v. May
, 214 W.Va. 394, 589 S.E.2d
This is an appeal by Appellant Carol A. Helfer from an order of the Circuit
Court of Ohio County, West Virginia, which denied her petition for appeal of the family
court's Final Order Regarding Equitable Distribution. At issue is the valuation of the
chiropractic practice of Appellant's former spouse, Appellee Robert J. Helfer, for purposes
of equitable distribution in the parties' divorce. Appellant argues that the family court erred
in adopting the valuation submitted by Appellee's expert because it did not include the
intangible asset of enterprise goodwill. Upon careful review of the briefs, record, arguments
of counsel, and applicable precedent, this Court reverses the order of the circuit court and
remands this case for further proceedings.
I. Factual and Procedural Background
On July 2, 2002, Appellee filed an action of divorce from Appellant after
almost twenty years of marriage. The majority of contested issues in the parties' divorce
have either been resolved or are not relevant to the instant appeal.
The sole issue in this appeal involves the valuation of Appellee's business, a
sole proprietorship chiropractic practice located in Wheeling, West Virginia. Appellant
contends that it was clear error for the family court to adopt the valuation (fair market value)
calculated by Appellee's expert because the valuation did not take into account the
intangible asset of enterprise goodwill.
The difference between the valuation reports submitted by the parties'
respective accounting experts is significant in terms of the methods employed in calculating
the fair market value of Appellee's chiropractic practice and the resulting value placed on
the business. (See footnote 1)
Appellee's expert, Louis J. Costanzo, III, used the straight capitalization of
earnings method (the income approach), to value Appellee's chiropractic practice at
$41,000.00. At the outset, Mr. Costanzo's Valuation Report of the Fair Market Value of the
Chiropractic Practice of Robert J. Helfer, D.C. (A Sole Proprietorship), dated May 3, 2004,
included as a relevant factor to be considered in determining fair market value [w]hether
or not the enterprise has goodwill or other intangible value. A review of Mr. Costanzo's
report reveals, however, that enterprise goodwill was not considered or otherwise addressed.
Though Appellee argues that, in fact, his business has no enterprise goodwill, his counsel
conceded, during oral argument, that no value amount _ not even a value of zero _ was
attributed to enterprise goodwill by Appellee's accounting expert either in his report or
during his hearing testimony.
Appellant's expert, Jack R. Felton, CPA, valued Appellee's practice at
$388,000.00, using the capitalization of excess earnings method (a cost approach). Like Mr.
Costanzo, in his March 9, 2005, valuation report, Mr. Felton did not take into account, or
otherwise attribute any dollar amount to, the enterprise goodwill of Appellee's business.
In the Final Order Regarding Equitable Distribution entered May 3, 2006, the
family court, inter alia
, discussed the differences in the experts' valuations and valuation
methods. The court ultimately valued Appellee's business at $41,000.00, in accordance with
the opinion of Appellee's expert, Mr. Costanzo.
On June 2, 2006, Appellant filed a petition for appeal of the family court's
order to the Circuit Court of Ohio County. (See footnote 2)
In an Amended Order entered August 21, 2006,
that court refused Appellant's petition. It is from the circuit court's order that Appellant
II. Standard of Review
Our standard of review was set forth in the Syllabus of Carr v. Hancock
W.Va. 474, 607 S.E.2d 803 (2004):
In reviewing a final order entered by a circuit judge upon
a review of, or upon a refusal to review, a final order of a family
court judge, we review the findings of fact made by the family
court judge under the clearly erroneous standard, and the
application of law to the facts under an abuse of discretion
standard. We review questions of law de novo.
Whether the family court erred in adopting the valuation of Appellee's
accounting expert is governed by this Court's prior opinion of May v. May
, 214 W.Va. 394,
589 S.E.2d 536 (2003). In May
, we defined the term enterprise goodwill and adopted the
view of the majority of jurisdictions in holding that it is an asset subject to equitable
distribution in a divorce:
Enterprise goodwill is an asset of the business and may
be attributed to a business by virtue of its existing arrangements
with suppliers, customers or others, and its anticipated future
customer base due to factors attributable to the business.
In determining whether goodwill should be valued for
purposes of equitable distribution, courts must look to the
precise nature of that goodwill. . . . [E]nterprise goodwill, which
is wholly attributable to the business itself, is subject to
Id., at syl. pts. 2 and 4 (in pertinent part). (See footnote 3)
In May, this Court iterated that once a professional practice has been
determined to possess distributable goodwill, a value must be placed thereon. 214 W.Va.
at 405, 589 S.E.2d at 547. We also recognized that there are 'a variety of acceptable
methods of valuing the goodwill of a professional practice, and no single method is to be
preferred as a matter of law.' 214 W.Va. at 405-06, 589 S.E.2d at 547-48 (quoting McDiarmid v. McDiarmid, 649 A.2d 810, 815 (D.C. App. 1994)). Indeed, we outlined five
major valuation formulas, or methods; among them were the straight capitalization of
earnings method, used by Appellee's expert in this case, and the capitalization of excess
earnings method, used by Appellant's expert. 214 W.Va. at 406, 589 S.E.2d at 548. (See footnote 4) See
In re Marriage of Hall, 103 Wash.2d 236, 692 P.2d 175 (1984). Though none of the
methods provides a completely accurate measure of worth and no method is favored over
another[,] [n]onetheless, they should provide an adequate evidentiary basis for the lower
court to reach its factual conclusion regarding an amount of distributable goodwill for
business valuation purposes. 214 W.Va. at 409, 589 S.E.2d at 551 (Albright, J.,
We further indicated that, on appeal, this Court would not disturb the valuation
of a business if it appears the lower court reasonably approximated the business' net value
'and its goodwill, if any, based on competent evidence and on a sound valuation method
or methods[.]' 214 W.Va. at 407, 589 S.E.2d at 549 (quoting Conway v. Conway, 131
N.C.App. 609, 508 S.E.2d 812, 818 (1988) (emphasis added)). In the instant case, the
family court judge adopted the $41,000.00 valuation calculated by Appellee's expert on the
ground the capitalization of earnings method was the more appropriate method under the
circumstances. Crucially, however, the adopted valuation did not attribute any value to, or
otherwise consider, enterprise goodwill in valuating Appellee's business. Likewise, the
lower court did not offer any explanation for failing to recognize any enterprise goodwill in
this case. We find the absence of any valuation for enterprise goodwill, as well as any
explanation for such absence, to be error.
Accordingly, we reverse the family court's order insofar as the adopted
valuation failed to take into account enterprise goodwill as it relates to Appellee's
chiropractic practice. On remand, and consistent with our decision in May, the valuation of
Appellee's business should include a reasonable approximation of the business' enterprise
goodwill, if any, based upon competent evidence and on a sound valuation method. (See footnote 5) See
May, 214 W.Va. at 407, 589 S.E.2d at 549. If the lower court finds there to be no enterprise
goodwill, it is essential that the court not only articulate that finding, but also explain its
reasons for making such finding.
Based upon the foregoing, the family court's order is reversed with respect to
the issue of the valuation of Appellee's business, and this case is remanded for further
proceedings consistent with this opinion.
Both experts based their valuation reports on information provided for the
five-year period 1997-2001.
Appellant raised several assignments of error in her petitions for appeal to
both the circuit court and this Court. Her petition for appeal to this Court was granted only
as to the assignment of error related to enterprise goodwill.
The primary issue in May
related to the distinction between enterprise
goodwill, which we held is marital property subject to equitable distribution, and personal
goodwill, which we determined is a personal asset dependent on the continued presence of
a particular individual and may be attributed to the individual owner's personal skill, training
or reputation. Id.
, at syl. pt. 3. Personal goodwill is not marital property and thus not
distributable upon dissolution of a marriage. See Id
., at syl. pt. 4. We concluded in May
, inter alia
, that the family court committed error in adopting a fair market value of the
husband's dental practice which included a value for personal
goodwill in the amount of
In May, we stated:
Under the straight capitalization accounting method the
average net profits of the practitioner are determined and this
figure is capitalized at a definite rate, as, for example, 20
percent. This result is considered to be the total value of the
business including both tangible and intangible assets. To
determine the value of goodwill the book value of the business'
assets are subtracted from the total value figure.
The second accounting formula is the capitalization of
excess earnings method. Under the pure capitalization of
excess earnings the average net income is determined. From
this figure an annual salary of average employee practitioner
with like experience is subtracted. The remaining amount is
multiplied by a fixed capitalization rate to determine the
214 W.Va. at 406, 589 S.E.2d at 548 (quoting In re Marriage of Hall
, 103 Wash.2d 236,
692 P.2d 175, 179 (1984)).
The remaining valuation formulas discussed in May
include [t]he IRS
variation of capitalized excess earnings method, the market value approach, and the
buy/sell agreement method. 214 W.Va. at 406, 589 S.E.2d at 548. Each of these formulas
also includes a valuation method for determining goodwill. See Id
We note that, on remand, should the court determine the business does not
have any enterprise goodwill, then the business should be clearly assigned a goodwill value
of zero. See e.g., In re Marriage of Rosen, 130 Cal.Rptr.2d 1, 105 Cal.App.4th 808