Bader v. Cox

• Decision Date: 09 December 1985
• Docket Number: No. 05-84-00597-CV,05-84-00597-CV
• Parties: Paula A. BADER, Individually and as Independent Executrix of the Estate of Bertran T. Bader, Jr., Appellant, v. William D. COX, Jr.; William D. Cox, Jr., P.C.; Bertran Bader, III; Bertran T. Bader, III, P.C.; and Cox & Bader, Appellees.
• Court: Texas Court of Appeals

Page 677

701 S.W.2d 677

Paula A. BADER, Individually and as Independent Executrix of

the Estate of Bertran T. Bader, Jr., Appellant, v. William D. COX, Jr.; William D. Cox, Jr., P.C.; Bertran

Bader, III; Bertran T. Bader, III, P.C.; and Cox

& Bader, Appellees.

No. 05-84-00597-CV.

Court of Appeals of Texas,

Dallas.

Dec. 9, 1985.

Rehearing Denied Jan. 6, 1986.

Richard A. Sayles, Michael L. McCoy, Carrington, Coleman, Sloman & Blumenthal, Dallas, for appellant.

Bertran T. Bader III, William D. Cox, Jr., Cox & Bader, Dallas, for appellees.

Before SPARLING, WHITHAM and MALONEY, JJ.

SPARLING, Justice.

Appellant, Paula A. Bader ("Ms. Bader"), individually and as independent executrix of the estate of her husband, Bertran T. Bader ("decedent"), appeals a summary judgment denying her relief in her action against appellees, decedent's two former law partners, Bertran Bader, III, ("Bader") and William D. Cox, Jr. ("Cox"). Ms. Bader seeks to recover decedent's interest in the partnership and attorney's fees.

Ms. Bader's points of error on appeal present one central question: Are attorneys' pending contingent-fee files assets of their partnership? We hold that they are. Accordingly, the trial court erred in granting appellees' summary judgment motion which denied Ms. Bader's claim to income from the partnership's contingent-fee files. Further, since the valuation of these files is a fact issue, we reverse and remand this cause for trial.

Facts

On January 1, 1978, Cox and decedent formed a partnership for the practice of law, agreeing to share equally, on a percentage basis, profits, losses, and ownership of capital. Bader admitted that he subsequently joined the firm as a partner, holding a lesser percentage interest in the partnership.

Following decedent's death on April 7, 1982--which automatically dissolved the partnership--Cox and Bader continued to practice law, taking possession and control of the approximately 120 active cases of the former partnership. The majority of the cases were retained on a contingent-fee basis. Ms. Bader alleges that, in concluding some of the cases, Cox and Bader received more than $700,000 in attorney's fees and reimbursed expenses and that they have neither accounted to decedent's estate nor paid the estate decedent's percentage interest in the income.

Summary Judgment

Bader and Cox can prevail on motions for summary judgment if they establish, as a matter of law, that no genuine issue of material fact exists with respect to one or more essential elements of each of Ms. Bader's causes of action and that they are entitled to judgment as a matter of law. Emmer v. Phillips Petroleum Co., 668 S.W.2d 487, 490 (Tex.App.--Amarillo 1984, no writ); Federated Department Stores, Inc. v. Houston Lighting & Power Co., 646 S.W.2d 509, 511 (Tex.App.--Houston [1st Dist.] 1982, no writ). In reviewing the propriety of a summary judgment, we accept as true the nonmovant's version of the facts adduced through the summary judgment proof and infer every reasonable intendment in favor of the nonmovant. Williams v. Bennett, 610 S.W.2d 144, 145 (Tex.1980); Sonenthal v. Wheatley, 661 S.W.2d 169, 171 (Tex.App.--Houston [1st Dist.] 1983, writ ref'd n.r.e.); Goodwin v. Texas General Indemnity Co., 657 S.W.2d 156, 159 (Tex.App.--Houston [1st Dist.] 1983, writ ref'd n.r.e.).

Partnership Property

Ms. Bader argues that the trial court erred by granting summary judgment disposing of her claims to income from client files because, as a matter of law, contingent-fee files pending at the time of decedent's death are assets of the partnership, and the proper valuation of the files is a fact issue. We agree.

Ms. Bader alleges that the law firm operated as a partnership but did not present summary judgment proof of the terms of any partnership agreement. Consequently, the Texas Uniform Partnership Act, TEX.REV.CIV.STAT.ANN. art. 6132b (Vernon 1970), governs the rights and duties of the partners. Park Cities Corp. v. Byrd, 534 S.W.2d 668, 672 (Tex.1976); Dobson v. Dobson, 594 S.W.2d 177, 180 (Tex.Civ.App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.).

Unless an agreement provides otherwise, the partnership dissolves upon the death of any partner. ¹ Art. 6132b, §§ 29, 31(4); Miller v. Howell, 234 S.W.2d 925, 930 (Tex.Civ.App.--Fort Worth 1950, no writ). "On the death of a partner, such partner's surviving spouse (if any) and such partner's heirs, legatees or personal representative, shall to the extent of their respective interests in the partnership, be regarded for purposes of the Act as assignees and purchasers of such interests from such partner." Art. 6132b, § 28-B(1)(B). Section 42 defines the rights of the estate of a deceased partner when, as in the instant case, the business is continued:

When any partner retires or dies, and the business is continued under any of the conditions set forth in Section 41 (1, 2, 3, 5, 6) or Section 38(2b), without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such persons or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this Section as provided by Section 41(8) of this Act. [Emphasis added.] ²

Attached to Cox's motion for summary judgment is the affidavit of a certified public accountant who describes the firm's accounting system as "cash basis" and contends that decedent was entitled only to his "capital account." He further states that "all profits had already been added to the capital accounts." Thus, "[e]arnings due to work performed in the future on client files could not be properly attributed to the predissolution cash-basis law firm." We disagree. Ms. Bader is entitled to the value of decedent's interest in the dissolved partnership, defined as profits and surplus. Art. 6132b, § 26. "Surplus" is the excess of assets over liabilities. Fulgham v. Gulf, Colorado & Santa Fe Railway Co., 288 S.W.2d 811, 813 (Tex.Civ.App.--Austin 1956, writ ref'd n.r.e.); Anderson v. United States, 131 F.Supp. 501, 502 (S.D.Cal.1954). Partnership property is an asset of a partnership. Art. 6132b, § 40(a)(I). We hold that pending contingent-fee cases are partnership property which may or may not have value, depending upon the evidence.

Thus, we cannot agree with Bader's and Cox's contention that because the partnership operated on a cash-basis accounting system and because the value of the contingent-fee files at the time of decedent's death is not readily or easily ascertainable, the files are not assets of the partnership. The fact that fees are not earned until a case is concluded by settlement or judgment does not compel the conclusion that the files lose their characterization as partnership assets for purposes of evaluating the interest of a deceased partner.

First, the files are undergirded by binding contracts and, thus, constitute more than a mere unrealized future expectancy. Second, dissolution does not change the status of firm assets. Zimmerman v. Harding, 227 U.S. 489, 33 S.Ct. 387, 57 L.Ed. 608 (1913). As stated earlier, a partnership does not terminate upon dissolution but continues until the winding up is completed. Art. 6132b, § 30; Shannon v. Monasco, 632 S.W.2d 946, 946 (Tex.App.--Waco 1982, no writ); Woodruff v. Bryant, 558 S.W.2d 535, 539 (Tex.Civ.App.--Corpus Christi 1977, writ ref'd n.r.e.). The surviving partners are required to wind up the partnership business with reasonable dispatch and distribute the residue of the assets among the surviving partners and heirs of the deceased partner in proportion to their respective interests. Art. 6132b, § 37; Collins v. Naylor, 192 S.W.2d 332, 334 (Tex.Civ.App.--Fort Worth 1946, no writ). The duty to wind up generally includes the duty to complete all of the firm's executory contracts. See Rossetti v. City of New Britain, 163 Conn. 283, 303 A.2d 714, 718 (1972); Platt v. Henderson, 227 Or. 212, 361 P.2d 73, 82 (1961). A contractual agreement for the performance of services in existence at the dissolution of a partnership is unfinished business of the dissolved partnership, and the partners owe a fiduciary duty to wind up that business, if possible, and to refrain from taking action for purely personal gain. See Rosenfeld, Meyer & Susman v. Cohen, 146 Cal.App.3d 200, 194 Cal.Rptr. 180, 191-92 (1983). Therefore, we conclude that the contingent-fee contracts were, as a matter of law, assets of the partnership. ³

We are not unmindful, however, of the many factors--many outside the remaining partners' control--that may extend the length of a lawsuit into many years. These contingency fee cases need not be concluded as part of the winding-up process, but rather may be given a present value.

Valuation

The surviving partners owe a duty to account to the estate of a deceased partner, and the estate has a corresponding right to an accounting. Art. 6132b, §§ 22, 43; Stone City Attractions, Inc. v. Henderson, 571 S.W.2d 206, 210 (Tex.Civ.App.--Austin 1978, writ ref'd n.r.e.). Thus, as previously stated, if a business continues instead of being wound up on dissolution of the partnership, the deceased partner's representative may claim as a creditor the value of the decedent's interest at dissolution and either interest or profits attributable to the use of his right in the property of the dissolved partnership from the date of dissolution. As a creditor in this...