The “goodwill” value of Little Rock’s Brave New Restaurant was considered in a valuation of the business and can be divided in the co-owners’ divorce proceedings, the Arkansas Supreme Court ruled Thursday.
The decision vacated a Court of Appeals opinion that had extended the concept of personal goodwill, which cannot be divided in a divorce.
The Court of Appeals ruled that the restaurant’s goodwill was so intertwined with chef and co-owner Peter Brave’s personal reputation that it could not be divided in the divorce.
But the high court found that Circuit Judge Ellen Brantley did not clearly err when she found that the goodwill was corporate goodwill - subject to being divided between the parties - and not personal goodwill.
“Goodwill is characterized as corporate goodwill and marital property, subject to division, if the evidence establishes the salability or marketability of the goodwill as a business asset. Thus, based on this court’s standard of review, we affirm the circuit court’s decision on this point,” Justice Cliff Hoofman wrote for a unanimous panel.
Goodwill is defined as the “reputation, patronage and other intangible assets,” usually attributed to businesses, according to Black’s Law Dictionary.
The state Supreme Court has found that for goodwill to be marital property, “it must be a business asset with value independent of the presence or reputation of a particular individual,” according to the Court of Appeals opinion in the Brave case.
The court has also extended the concept of personal goodwill to a spouse’s professional practice, such as doctors or lawyers, which prevents that goodwill from being divvied up.
Peter Brave and his former wife, Marie Brave, opened Brave New Restaurant in August 1991 and shared equal ownership in its corporation, Brave Inc. Marie Brave helped with the restaurant but became less involved when their children were born. The couple divorced in December 2011 after 22 years of marriage, but the restaurant lived on.
The eatery, which is adjacent to the Arkansas River in Little Rock’s Riverdale neighborhood, has received acclaim for best restaurant, servers and chef from About You and was runner-up for best seafood restaurant in the city in this year’s Arkansas Times Readers Choice Awards.
The business, including its goodwill, was valued by the trial court at $895,000.
In Brantley’s order, Peter Brave was to become the sole owner of the restaurant but was ordered to pay $420,000 to Marie Brave for her interest in the business.
Peter Brave appealed the ruling, arguing that the personal goodwill he contributed to the business could not be separated from the restaurant, because he is the restaurant.
His attorney, Lee Short, wrote in court filings that, “When people think of Brave New Restaurant, they think of Peter Brave.”
The Court of Appeals opinion would have ordered the trial court to decide what portion of the eatery’s value was personal goodwill and thus Peter Brave’s personal property. The remaining marital assets were to be divided, and the trial court would have assessed alimony based on those findings.
The Supreme Court opinion instead upheld the lower court’s ruling that Brave’s personal goodwill was included in the valuation of the eatery and could be divided. The courtal so upheld the lower court’s decision to award $4,000 per month in alimony to Marie Brave.
Patty Lueken, an attorney for Marie Brave, said she was “very very pleased” with the ruling, which she said was the “right decision.” Lueken said the Court of Appeals opinion “was going to basically turn the law upside down in Arkansas as it relates to personal goodwill.”
Short did not return a phone message seeking comment.
Michael Flannery, a professor at the W.H. Bowen School of Law at the University of Arkansas at Little Rock, said the court’s opinion did not directly take on the issue of whether personal goodwill could be extended to other businesses. He said the court did not provide a specific determination on how to calculate personal goodwill but also did not prevent the extension.
“It does still open the door to expand that into other businesses. It just didn’t find that in this case,” Flannery said.
Arkansas, Pages 9 on 04/18/2014