Two oral surgeons in Spokane split up. They had practiced together for a decade through a professional limited liability company, operating out of three offices — two in Spokane, one across the state line in Post Falls, Idaho — under the trade name Spokane Oral & Maxillofacial Surgery. Patients called the practice’s phone number, not the surgeons’ personal lines. Referrals came to the practice name. The PLLC employed the staff, maintained the patient files, and sent the bills. When the dissolution came, the question was predictable: does the practice itself have goodwill to be divided, or does the goodwill belong to the individual surgeons?
The Washington Court of Appeals answered in McLelland v. Paxton, No. 35401-6-III, 11 Wn. App. 2d 181 (Div. III Nov. 21, 2019) (published) (Fearing, J., with Lawrence-Berrey, C.J., and Pennell, J., concurring): yes. Washington “adopt[s] the rule that a professional business entity may enjoy goodwill,” because some patients choose the organization for reasons independent of any individual practitioner. The court affirmed a finding of $1,822,388 in entity goodwill and the $414,036 equalization payment built on it, while reversing one thing: the $138,707.73 in prejudgment interest awarded on that payment, because Washington does not allow prejudgment interest on an opinion-derived, unliquidated award. For dissolution counsel and valuation experts, the case is doubly useful — a published holding that the entity-goodwill question is real, and an unusually detailed record showing exactly what evidence persuades a court that the goodwill sits in the entity: not a doctrinal multi-factor test, but operational proof, transaction history, and an expert who valued the right thing. (One somber procedural note: Dr. Paxton died while the appeal was pending; his estate was substituted as appellant.)
A Practice, Not Just Two Surgeons
Mark Paxton built an oral and maxillofacial surgery practice in Spokane and hired Bryan McLelland as an associate in March 2003. In March 2005, McLelland and a second associate, Melanie Lang — each through an individual professional service corporation — simultaneously purchased one-third interests: McLelland PS and Lang PS each paid Paxton PS $619,835 (a combined $1,239,670) for undivided interests in the practice’s assets, “including equipment, furniture, and fixtures, accounts receivable, supplies, one of the buildings in which the practice is operated, goodwill, and patient files.” Of McLelland’s price, $261,667 was allocated to goodwill. The three PS corporations signed a lengthy partnership agreement providing that “the goodwill of the Partnership shall be owned, or considered owned, by the Shareholders, in undivided interests, based on Percentage Ownership.” In late 2005 the trio converted the general partnership into Spokane OMS, PLLC, doing business as Spokane Oral & Maxillofacial Surgery — but never executed an operating agreement, so the partnership agreement remained the governing document. The structure was layered throughout: the PS corporations were the members; the practice assets sat in the surgeons’ PS corporations in undivided interests; the PLLC ran the practice.
In June 2014, McLelland PS and Paxton PS bought out Lang PS for $265,000 each — $121,250 of it, again, for goodwill — leaving the two surgeons as equal owners. Their own relationship then failed. On August 4, 2014, McLelland gave the six-month termination notice the agreement allowed; he sued on January 28, 2015 (breach of contract, fiduciary duty, and related claims, plus dissolution); the partnership contractually dissolved on February 28, 2015; and on March 20, 2015 the superior court, by stipulated order, judicially dissolved the entity and appointed a receiver to preserve the practice as a going concern pending division. Both surgeons kept practicing at all three locations, dividing staff and files by agreement, using the PLLC’s name, website, phone number, and systems. Then, in May 2015, South Stone, LLC — a landlord entity 20% owned by Paxton — evicted the practice from the South Hill office without notice and signed a new long-term lease with Paxton PS alone. On summary judgment, the trial court held that Paxton PS thereby breached the partnership agreement, breached its fiduciary duties, and committed constructive fraud (though it ultimately found no damages); the appellate court later called the ejection “the fault of Mark Paxton.” In a final irony, on the second day of trial Paxton paid $20,000 for the rights to the practice’s logo and trade name — while litigating the position that the entity’s name carried no goodwill.
Three Experts, One Definitional Mistake
McLelland’s valuation expert, Lenore Romney, opined that the practice held enterprise goodwill valuable on a going-concern, fair-market basis — and, critically, she valued the right asset pool. Because the assets sat in the two PS corporations in undivided interests while the PLLC administered the practice, Romney valued the practice as conducted at its locations: goodwill of $821,760 for Spokane Valley, $503,470 for South Hill, and $497,158 for Post Falls — $1,822,388 in total. Her method extracted intangible percentages from the parties’ own transactions: the 2005 buy-in implied patient files at 8.1% and goodwill at 25.3% of practice value, 33.4% combined, which she applied to net production by office, corroborated against the 1999 practice prospectus, the 2014 Lang buyout, and the Goodwill Registry, a recognized industry source on professional-practice sales.
Paxton’s first expert, Charles Wilhoite, ran the serious methodological objection: “I didn’t think there was any material level of institutional goodwill based on the fact the practice wasn’t generating earnings sufficient enough to pay the practitioners at a level equal to market-based compensation” — the classic excess-earnings position that where owner compensation absorbs the economics, nothing institutional remains. Paxton’s second expert, Scott Martin, illustrates the definitional failure mode: he valued only the PLLC, an entity that held no assets, and conceded on cross that he “didn’t think about” the fact that the practice assets were owned in undivided interests by the PS corporations. He performed no valuation as of the February 28, 2015 dissolution date at all; and his own report had found entity goodwill of $148,111 in 2013 and $206,548 in April 2014, conceding the existence of the very thing his client denied. The trial court adopted Romney’s figures, found “location is the most valuable asset of the practice after the practitioners themselves,” awarded Paxton the South Hill and Spokane Valley offices and McLelland the Post Falls office (at McLelland’s unopposed request), and ordered Paxton PS to pay a $414,036 equalization payment.
The lesson sits at the engagement-definition stage, before any methodology question: an expert who scopes the valuation to the wrong entity in a layered structure — the empty administrative shell instead of the asset-holding practice — loses the case in the first deposition question. Romney’s testimony walking the court through why the PLLC’s dissolution was “irrelevant, because it never owned the assets in the first place” is a model of structure-literate valuation testimony.
The Published Holding — and What It Is Not
Paxton’s lead argument was categorical: professional entities — partnerships, PLLCs, corporations — as a matter of law lack goodwill, which inheres only in the individual professionals. The court rejected it, with a survey worth keeping on file. Washington law already treated goodwill as “the expectation of continued public patronage,” In re Marriage of Lukens, 16 Wn. App. 481, 483 (1976), distinct from the professional’s earning capacity: “the goodwill that once attached to his practice may continue in existence in the form of established patients or clients, referrals, trade name, location and associations,” In re Marriage of Hall, 103 Wn.2d 236, 241 (1984). Out-of-state authority split: New York (Spaulding v. Benenati — continuity of place and name), Nevada (Ford v. Ford), Delaware (Evans v. Gunnip), and the Tax Court (H&M, Inc.) recognized professional-entity goodwill; Illinois (McCubbin) and Mississippi (Goodson) went the other way. The court adopted the recognition rule, noting that Paxton’s logic would deny goodwill even to his own PS corporation, that the surgeons never signed a covenant not to compete, that no evidence cast either surgeon as the key employee, and that the partnership agreement itself recognized and allocated goodwill. And Paxton had a falsifying transaction history: he sold goodwill for $261,667 in 2005, and bought Lang’s for $121,250 in 2014. As the opinion put it, his receipt of money for goodwill “injures his argument.”
A framing correction matters here for anyone citing the case. The widely circulated “six-factor test” reading of McLelland — locations, trade name, phone/website, staff, patient files, billing — overstates the opinion’s architecture. The court announced one rule (a professional entity may possess goodwill) and then affirmed a factual finding (Spokane OMS did) on substantial evidence: the PLLC maintained the locations and website in its name; patients called its phone number; it employed the staff and therefore possessed and maintained the patient files; bills came from the PLLC, not the PS corporations; and patients and referrals were still directed to the trade name at the time of trial. Those indicia are an evidentiary roadmap, not a doctrinal checklist — which is exactly how counsel should use them: as the categories of proof to gather, knowing the existence of goodwill is a question of fact reviewed deferentially.
Three subsidiary holdings round out the dissolution-law payload. Dissolution did not extinguish the goodwill: Harstad v. Metcalf — where engineer partners split the physical assets and walked away, leaving nothing — was distinguished because here the locations, files, website, name, systems, and staff continued in use, and a dissolved LLC persists for wind-up and may preserve the business as a going concern (RCW 25.15.297), which the receivership accomplished. Going concern was a factual finding supported by Romney’s testimony (Bank of Washington v. Burgraff distinguished — no lease was ever abandoned; the only ejection was Paxton’s own fiduciary breach). And the premature-suit theory, raised for the first time in closing argument, failed on the merits: the agreement’s default clause addressed third-party claims, not a partner’s suit for dissolution and accounting.
No Mandatory Method: The Hall Toolbox
Paxton also attacked Romney’s market-value methodology, arguing (from California’s Lopez) that a “future receipts” method is the only proper approach. The court’s answer is the valuation holding practitioners should pocket: Washington demands no particular method of measuring goodwill. Dixon v. Crawford, McGilliard, Peterson & Yelish, 163 Wn. App. 912, 922 (2011). Hall recognizes five non-exclusive approaches — straight capitalization, capitalization of excess earnings, the IRS variation of capitalized excess earnings, market value, and the buy/sell agreement method — and trial courts may use one or several. 103 Wn.2d at 243-45. The trial court was therefore free to credit Romney’s market approach over Wilhoite’s excess-earnings logic; her method, the court noted, even incorporated future-income features. The practice point cuts both ways: the excess-earnings objection (owner compensation absorbs the economics, so nothing institutional remains) is a respectable position — but it is not a trump card in a jurisdiction with a methodological open field, especially against a record in which the parties themselves repeatedly priced and paid for the goodwill in arm’s-length buy-ins. Transaction evidence is the market approach’s best friend, and these parties generated it twice.
The One Reversal: No Interest on an Opinion-Derived Award
The trial court had awarded 12% prejudgment interest — $138,707.73 — on the equalization payment, dating from McLelland’s 2014 termination notice, to remedy Paxton’s use of his partner’s assets “without remuneration.” The Court of Appeals struck it. Washington allows prejudgment interest only on liquidated claims — amounts computable “with exactness, without reliance on opinion or discretion,” Prier v. Refrigeration Engineering Co., 74 Wn.2d 25, 33 (1968) — and McLelland conceded the goodwill award rested on expert opinion. His statutory theory failed too: RCW 25.05.250(2)’s interest mandate governs the buyout of a dissociated partner where the partnership continues, not a full dissolution and wind-up; the dissolution statutes contain no interest provision; and this was, in any event, an LLC. His best argument — the partnership agreement’s own interest clause — was raised too late, in a statement of additional authorities, and was not considered. For valuation professionals the rule is worth internalizing: in Washington, a goodwill award built on appraisal opinion does not earn interest before judgment. Readers of this series will recognize the pattern from Alaska’s Johnston v. Adkins (2025), where a prejudgment-interest award on a business-division payment was likewise unwound on appeal. Interest fights follow valuation fights; counsel should brief the basis for (or against) interest at trial, under the contract if the contract provides it, not in supplemental filings.
The fee outcome completed the scoreboard: McLelland was the substantially prevailing party under the agreement’s fee clause — the court observing that goodwill was the case’s principal issue — and recovered $276,908.05 in fees and $53,675.50 in costs after an instructive segregation exercise (his counsel’s entry-by-entry removal of $9,194.75 attributable to unsuccessful claims survived reconsideration), plus appellate fees excluding the prejudgment-interest issue he lost.
Business Dissolution vs. Marital Dissolution
McLelland is a business dissolution case: the question was whether the entity owned goodwill as an asset of the wind-up, as against the members’ professional corporations. That is a different question from the one family-law readers know — whether goodwill is divisible marital property — and the two should not be conflated, particularly in Washington. In Washington marital dissolutions, the Fleege/Hall line treats professional goodwill as divisible property without the enterprise/personal carve-out: Washington is a minority jurisdiction that does not categorically exclude practitioner-attached goodwill from the marital estate. The majority rule elsewhere — enterprise goodwill divisible, personal goodwill not — is the framework this series has examined in Kentucky (Gaskill v. Robbins, the oral-surgery landmark adopting the distinction) and Alaska (Johnston v. Adkins, the 40% personal allocation; May v. Petersen, the law practice with no marketable goodwill at all).
Here is where McLelland earns its place in that conversation anyway: the operational indicia its record supplies — who holds the locations and the lease, whose name draws the referrals, who employs the staff, who possesses the patient files, who bills — are exactly the evidence that decides enterprise/personal allocation fights in majority-rule states, and exactly the evidence the Johnston trial court credited when it adopted the allocation of the expert who best understood the company’s operations. The same proof serves three different legal questions: entity-vs-member ownership (business dissolution), enterprise-vs-personal divisibility (majority-rule divorce), and total-goodwill valuation (Washington divorce). Counsel who gather it early can use it in whichever frame the case demands.
The Evidentiary Roadmap
Drawn from the affirmed findings — categories of proof, not elements of a test — the roadmap runs through seven questions. Who do the patients call? A practice-owned phone number and website answered by practice staff makes the intake relationship an entity asset; the practitioner’s cell phone makes it personal. Who employs the staff? The assembled workforce, and its institutional knowledge of patients, systems, and procedures, belongs to whoever employs it — in McLelland, the PLLC. Who bills and collects? Invoices from the entity put the revenue relationship between patient and practice. Whose name is on the door? A trade name like “Spokane Oral & Maxillofacial Surgery” is an entity asset that draws referrals; a personal name follows the individual — and Paxton’s $20,000 trial-time purchase of the trade name is the record’s own proof that the name had value. Who controls the locations? The McLelland trial court found location the most valuable asset after the practitioners themselves, and continuity of place is the oldest goodwill concept in the books (Spaulding’s “old customers will resort to the old place”). Who owns the patient files? Institutional custody of records creates continuity that survives any individual’s departure. And what does the transaction history say? Prior buy-ins, buyouts, and prospectuses that priced goodwill are admissions with a dollar sign. The parties here allocated goodwill in 2005 and again in 2014; the court used both against the party who took the money.
Run in reverse, the same roadmap identifies the practice with no entity goodwill: the solo practitioner under her own name, single location, minimal fungible staff, referrals directed to the individual, and patients who would follow her anywhere — the Harstad engineers who divided the furniture and walked away, leaving nothing behind. Asserting divisible entity goodwill in that fact pattern produces a number with no economic substance; the McLelland court’s candid acknowledgment that client-follows-practitioner logic is sometimes right (just not always, and not here) is the honest frame for both sides. Sometimes the roadmap tells you the answer before the formal appraisal begins.
The Practical Takeaway
McLelland v. Paxton gives Washington a published answer to a question that surfaces in every professional-practice dissolution: the entity itself may possess goodwill, separate from — and alongside — the practitioners’ own. Whether it does is a question of fact, won with operational proof and transaction history, valued under any of the Hall methods the evidence supports, and scoped to the entity that actually holds the assets. The winning expert valued the practice as it existed and operated; the losing expert valued an empty shell and conceded the scoping error on cross. And the one reversal teaches its own lesson: an award built on valuation opinion is unliquidated, and in Washington it earns no interest before judgment. Gather the roadmap evidence before you retain the appraiser; scope the engagement to the asset-holding structure; and brief the interest question at trial — under the contract, if you have one — rather than discovering on appeal that the clock never ran.
Authorities Cited
McLelland v. Paxton, No. 35401-6-III, 11 Wn. App. 2d 181 (Wash. Ct. App. Div. III Nov. 21, 2019) (published) (Fearing, J.) (affirming in all respects except reversing prejudgment interest).
Washington goodwill authority: In re Marriage of Hall, 103 Wn.2d 236 (1984); In re Marriage of Lukens, 16 Wn. App. 481 (1976); In re Marriage of Luckey, 73 Wn. App. 201 (1994); In re Marriage of Knight, 75 Wn. App. 721 (1994); In re Marriage of Sedlock, 69 Wn. App. 484 (1993); Dixon v. Crawford, McGilliard, Peterson & Yelish, 163 Wn. App. 912 (2011); Harstad v. Metcalf, 56 Wn.2d 239 (1960); Bank of Washington v. Burgraff, 38 Wn. App. 492 (1984); RCW 25.15.297; RCW 25.15.275 (former).
Out-of-state survey: Spaulding v. Benenati, 57 N.Y.2d 418 (1982); Ford v. Ford, 105 Nev. 672 (1989); Evans v. Gunnip, 36 Del. Ch. 589 (1957); H&M, Inc. v. Comm’r, 104 T.C.M. (CCH) 452 (2012); In re Estate of McCubbin, 125 Ill. App. 3d 74 (1984); Goodson v. Goodson, 910 So. 2d 35 (Miss. Ct. App. 2005); Butler v. Butler, 541 Pa. 364 (1995); Orbison v. Ma-Tex Rope Co., 553 S.W.3d 17 (Tex. App. 2018); In re Marriage of Lopez, 38 Cal. App. 3d 93 (1974).
Prejudgment interest and fees: Prier v. Refrigeration Eng’g Co., 74 Wn.2d 25 (1968); Hansen v. Rothaus, 107 Wn.2d 468 (1986); RCW 25.05.250, RCW 25.05.297, RCW 25.05.300, RCW 25.05.330; Green v. McAllister, 103 Wn. App. 452 (2000); Riss v. Angel, 131 Wn.2d 612 (1997); Mahler v. Szucs, 135 Wn.2d 398 (1998); Bowers v. Transamerica Title Ins. Co., 100 Wn.2d 581 (1983); RCW 4.84.330.
Companion decisions discussed in this series: Gaskill v. Robbins, 282 S.W.3d 306 (Ky. 2009); Johnston v. Adkins, Nos. S-18975/18985, Mem. Op. & J. No. 2113 (Alaska Oct. 8, 2025) (nonprecedential); May v. Petersen (Alaska 2025).
If you’re handling a professional-practice dissolution and need to determine whether the entity has goodwill separate from the individual practitioners — and to scope the valuation to the structure that actually holds the assets — we’re glad to talk through the approach. As McLelland shows, the evidentiary roadmap often tells you the answer before the formal appraisal begins.
