## Facts

- Evan R. Dawson was a partner at White & Case for nearly 20 years.
- After negotiations for Dawson’s departure failed, the partners voted to dissolve the partnership and immediately re-form without him, effective July 1, 1988.
- Dawson sued the dissolving partnership and the successor firm, asserting claims including an accounting and various tort and contract theories.
- The partnership’s practices and records treated goodwill as non-compensable: new partners paid nothing for goodwill, departing partners received nothing for goodwill, financial statements did not list goodwill, and the partnership agreement excluded goodwill from amounts credited or charged to a withdrawing partner.
- White & Case maintained an unfunded pension arrangement for retired partners, paid from future firm income rather than a segregated fund.
- In the Partnership Law § 74 accounting, the lower courts included a goodwill component in valuing Dawson’s interest and treated the unfunded pension plan as a partnership liability.

## Issues

1. Whether the law firm’s goodwill was a distributable partnership asset in an accounting under New York Partnership Law § 74.
2. Whether the firm’s unfunded partner pension plan was a partnership liability to be included in the § 74 accounting.

## Decision

- The court held that, on these facts, the firm’s goodwill was not a distributable asset in the § 74 accounting.
- The court held that the firm’s unfunded pension plan was not a partnership liability for purposes of the accounting.
- The court modified the lower courts’ accounting determinations and remitted for further proceedings consistent with these holdings.

## Legal Principles

- Whether a professional partnership has distributable goodwill for accounting purposes is fact-dependent and turns largely on the partners’ agreement and established practice.
- Partners may agree, expressly or by consistent course of dealing reflected in firm financial practices, to exclude goodwill from a departing partner’s recovery.
- In a dissolution accounting, internal compensation arrangements among partners that are unfunded and dependent on future earnings may be treated differently from fixed debts owed to third parties.
- An unfunded partner pension promise payable from future income is not necessarily a present partnership “liability” that reduces the value of a partner’s interest in a § 74 accounting.

## Conclusion

In valuing a departing partner’s interest under Partnership Law § 74, the court treated the firm’s longstanding agreement and practice as controlling: goodwill was excluded from distribution, and the unfunded partner pension arrangement was not booked as a partnership liability.


Dawson v. White & Case, 88 N.Y.2d 666, 672 N.E.2d 589 (N.Y. 1996)