Beckman v. Farmer
1990 D.C. App. LEXIS 183, 1990 WL 109606, 579 A.2d 618 (1990)
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Rule of Law:
When a partnership is dissolved, fees from work that was in progress at the time of dissolution, such as a contingent fee in a pending case, are partnership assets that must be distributed among all partners upon the winding up of the business. Partners who complete the unfinished business are not entitled to extra remuneration for their services beyond their distributive share of the partnership profits.
Facts:
- In 1981, Robert Beckman and Donald Farmer, Jr. formed a law practice called 'Beckman & Farmer,' mailing announcements describing it as a 'partnership.'
- The attorneys never executed a formal partnership agreement, but did memorialize in writing an agreement for Farmer's guaranteed 'draw' and share of profits.
- In 1983, David Kirstein joined the firm, which became Beckman, Farmer & Kirstein, also without a formal partnership agreement.
- The firm took on a multi-million dollar antitrust suit for the liquidator of Laker Airways on a contingent fee basis.
- To avoid a conflict of interest, Farmer was screened from participating in the Laker case shortly after it was filed.
- In May 1984, Beckman informed Farmer he wanted to terminate their association, leading to negotiations over Farmer's departure.
- On July 6, 1984, the parties signed a 'Separation of Practice Agreement' to address the immediate logistics of splitting their practices, but the agreement stated it was 'without prejudice to anyone’s position with respect to the winding up.'
- In July 1985, after Farmer was no longer with the firm, Beckman and Kirstein reached a settlement in the Laker case, securing a fee of $6.25 million for their firm.
Procedural Posture:
- Donald Farmer, Jr. sued Robert Beckman and David Kirstein in Superior Court, seeking damages and an accounting for claims including breach of fiduciary duty.
- The trial court granted the defendants' motion to trifurcate the case.
- On cross-motions for summary judgment regarding the existence of a partnership, the trial court granted summary judgment in favor of Farmer.
- The trial court then ordered an accounting, conducted with the aid of a special master, which determined the value of Farmer's share of partnership assets, including the Laker fee.
- The trial court granted directed verdicts for the defendants on Farmer's claims of fraud, conversion, and civil conspiracy.
- A jury trial was held on the remaining claim of breach of fiduciary duty, and the jury found for Farmer, concluding he had not waived his claim to the Laker fee.
- The trial court entered judgment for Farmer. Beckman and Kirstein appealed this judgment to the intermediate appellate court.
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Issue:
Under the Uniform Partnership Act, does a contingent fee earned from a case that was pending at the time of a law firm's dissolution constitute a partnership asset to be distributed among all partners upon winding up, even if the fee is collected after dissolution by the remaining partners?
Opinions:
Majority - Farrell, Associate Judge
Yes, a contingent fee from a case pending at dissolution is a partnership asset that must be distributed among the partners upon winding up because dissolution does not terminate pre-existing contracts, and fees from completing such 'unfinished business' inure to the benefit of the dissolved partnership. The court reversed the trial court's grant of summary judgment on the issue of partnership, finding that appellants Beckman and Kirstein raised genuine issues of material fact regarding control and liability for losses that required a jury's determination. However, to guide the retrial, the court clarified the law on dissolution. It held that when a partner demands liquidation, as Farmer did, pending cases are considered unfinished business. Any fees received from the completion of such business are assets of the dissolved partnership. Under the 'no-compensation rule,' Beckman and Kirstein were not entitled to extra compensation for their work in winding up the Laker case. The court also held that admitting an offer of compromise into evidence was a reversible error. Finally, it affirmed that a tort claim for breach of fiduciary duty can be brought alongside an equitable action for an accounting. The judgment was reversed and the case remanded for a new trial on all issues.
Concurring - Steadman, Associate Judge
The author concurs in the result, agreeing that summary judgment was inappropriate and that the admission of the settlement offer letter constituted reversible error. However, the author believes the court should have refrained from deciding the other substantive legal issues concerning the accounting and fiduciary duties. These issues are 'functional dicta' and should be resolved, if necessary, based on the full record developed at the new trial on remand, rather than being decided preemptively.
Analysis:
This case provides a critical framework for the dissolution of professional partnerships, particularly law firms with contingent fee arrangements. It establishes that 'unfinished business,' including pending contingent fee cases, remains an asset of the dissolved partnership, not the successor entity, if a partner exercises their right to liquidation. The decision strongly reaffirms the statutory 'no-compensation rule,' preventing winding-up partners from claiming extra pay for completing pre-dissolution work. Furthermore, the court's holding that an equitable accounting does not preempt a tort claim for breach of fiduciary duty preserves a vital remedy for partners who suffer from malicious or bad-faith conduct during a breakup, opening the door for punitive damages.
