Bader v. Cox
701 S.W.2d 677, 1985 Tex. App. LEXIS 12880 (1985)
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Rule of Law:
Upon the dissolution of a law partnership due to a partner's death, the firm's pending contingent-fee cases are partnership assets. The deceased partner's estate is entitled to the value of the decedent's interest in those assets, ascertained at the date of dissolution.
Facts:
- On January 1, 1978, William D. Cox, Jr. and Bertrán T. Bader (decedent) formed a law partnership, agreeing to share profits and losses.
- Bertrán Bader, III later joined the firm as a partner with a lesser interest.
- The decedent, Bertrán T. Bader, died on April 7, 1982, which automatically dissolved the partnership.
- Following the decedent's death, the surviving partners, Cox and Bader, took possession of the firm's approximately 120 active cases, a majority of which were on a contingent-fee basis.
- Cox and Bader continued to work on the cases and allegedly received more than $700,000 in attorney's fees and reimbursed expenses.
- The surviving partners did not provide an accounting to the decedent's estate for these fees, nor did they pay the estate the decedent's percentage interest in the income derived from those cases.
Procedural Posture:
- Paula A. Bader, as executrix of her deceased husband's estate, filed suit against her husband's former law partners, Bertrán Bader, III, and William D. Cox, Jr., in a Texas trial court.
- The defendants, Bader and Cox, filed motions for summary judgment, arguing that the pending contingent-fee files were not partnership assets.
- The trial court granted the defendants' motions for summary judgment, denying Ms. Bader's claims.
- Ms. Bader, as appellant, appealed the summary judgment to the Texas Court of Appeals.
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Issue:
Are pending contingent-fee client files of a law firm partnership considered partnership assets, the value of which must be accounted for to a deceased partner's estate upon dissolution of the partnership?
Opinions:
Majority - Sparling, Justice
Yes. Pending contingent-fee files are assets of a law partnership, and the deceased partner's estate is entitled to the value of the decedent's interest. Under the Texas Uniform Partnership Act, a partnership dissolves upon a partner's death but continues until the winding up of its affairs is complete. The deceased partner's estate is entitled to the value of the decedent's interest in the dissolved partnership, defined as profits and surplus. The court held that pending contingent-fee files, being undergirded by binding contracts, are partnership property and therefore assets contributing to the partnership's surplus. The fact that the fees were not yet earned or that their value was not easily ascertainable did not change their status as assets. The surviving partners have a fiduciary duty to wind up the firm's business, which includes completing executory contracts, and must account to the estate for the value of the decedent's interest in those contracts at the date of dissolution.
Concurring - Whitham, Justice
Yes. The pending contingent-fee cases are partnership property and therefore assets of the partnership. The concurring opinion agrees with the result based on the Texas Uniform Partnership Act. Under the Act, a deceased partner's estate is entitled to the value of the partner's interest, which is their share of profits and surplus. Surplus is defined as the excess of assets over liabilities. The contingent-fee files are assets, but a material fact issue remains as to their value on the date of the partner's death, April 7, 1982. Because the value of these assets was not established, summary judgment was improper, and the case must be remanded for a fact-finder to determine their value.
Analysis:
This case establishes a significant precedent for the dissolution of professional partnerships, particularly law firms, in Texas. It clarifies that intangible assets, such as a firm's portfolio of pending contingent-fee cases, are valuable partnership property that must be accounted for upon dissolution. This decision rejects the argument that the speculative nature of such cases or a firm's cash-basis accounting method can be used to deny a deceased partner's estate its share. The ruling provides a framework that balances the estate's right to its share of assets with the surviving partners' right to be compensated for their post-dissolution labor, shaping how partnership dissolutions and valuations are handled in the future.
