BECKMAN v. FARMER

• Decision Date: 26 July 1990
• Docket Number: No. 88-742,No. 88-741,88-741,88-742
• Parties: Robert M. BECKMAN, David M. Kirstein, Appellants, v. Donald A. FARMER, Appellee.
• Court: D.C. Court of Appeals

579 A.2d 618 Robert M. BECKMAN, David M. Kirstein, Appellants, v. Donald A. FARMER,Appellee. Nos. 88-741, 88-742. District of Columbia Court of Appeals. Argued September 18, 1989. Decided July 26, 1990.

Appeal from the Superior Court, Gladys kessler and Frederick H. Weisberg, JJ.

THIS PAGE CONTAINED HEADNOTES AND HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.

THIS PAGE CONTAINED HEADNOTES AND HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.

THIS PAGE CONTAINED HEADNOTES AND HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.

Jacob A. Stein, Washington, D.C., with whom Wiley A. Branton, Little Rock, Ark., was on the brief, for appellant Robert M. Beckman.

Milton Heller, Washington, D.C., for appellant David M. Kirstein.

John E. Heintz, Washington, D.C., with whom Stephanie E. Humbert, Orlando, Fla., was on the brief, for appellee Donald A. Farmer.

Before ROGERS, Chief Judge, and STEADMAN and FARRELL, Associate Judges.

FARRELL, Associate Judge:

This is a consolidated appeal from a jury verdict in a complex civil action involving the dissolution of a three-person law practice and a dispute over a large contingent fee received by two of the three lawyers who continued to practice together. The court below trifurcated the issues and tried them separately. First, on the threshold issue of whether the joint practice was a partnership and plaintiff (Farmer) a partner in it, the court granted Farmer's cross-motion for summary judgment. The court next established the value of Farmer's interest as a partner in certain firm assets, including the disputed fee, in an accounting in equity with the aid of a special master. Finally, after directing a verdict for appellants on counts alleging civil conspiracy, fraud and conversion, the court conducted a jury trial on remaining claims of breach of fiduciary duty in the failure to wind up the partnership and account to Farmer, and specifically on appellants' defense that Farmer had waived any share in the disputed contingent fee by entering into a separation of practice agreement.

On appeal, after conducting our own independent review of the record, we hold that appellants raised genuine issues of material fact concerning the existence of a partnership, and hence summary judgment was inappropriate. With regard to the jury trial, we conclude that the trial court erred in admitting into evidence an offer of compromise made by appellants, and that the error was not harmless. We therefore remand for a trial combining the issue of partnership and the issues previously submitted to the jury. We reject all of appellants' remaining claims.¹

FACTUAL BACKGROUND

In the Summer of 1981, Robert Beckman and Donald Farmer, Jr. agreed to form a joint law practice called "Beckman & Farmer." Beckman had practiced civil aviation law for a number of years and was a sole practitioner at the time. Most of the clients of the new firm were his. The two men mailed out engraved notices announcing the "formation of a partnership for the practice of law."

While drafts of formal partnership agreements were exchanged during negotiations, the two men never executed a contract defining the nature of their association and respective rights and duties.² They did, however, memorialize in writing an agreement that Farmer would receive a guaranteed "draw" of $85,000 annually, payable monthly, and certain percentages of firm profits if net annual profits exceeded specified amounts. The document further stated Beckman would provide financing as required, and would be reimbursed by the firm for expenses he covered. He was also to receive a monthly payment as rent for furnishings and equipment used in the joint practice but owned by him.

Effective January 1, 1983, David Kirstein joined the firm. He also executed no formal agreement defining his status, but a document dated October 27, 1982, captioned "Re: Partnership Agreement," set out a revised agreement on division of net profits reflecting his participation. Kirstein was to receive a "draw" of $80,000 annually "guaranteed" by Beckman and a share of profits once certain levels of net firm profits were reached. After October 1982 the firm practiced under the name of Beckman, Farmer & Kirstein.

Because firm expenses outstripped revenues from work billed in the early months of the firm's existence, Beckman & Farmer showed a loss for the four-month period from September 1 to December 31, 1981. Beckman advanced funds to cover this shortfall, and the loss was not carried over to the following year on the firm's books and tax returns. From time to time thereafter, Beckman made other similar advances, all of which the firm eventually repaid, including the 1981 advance. In various internal documents and memoranda Beckman referred to the entity as a partnership,³ and from September 1, 1981 until the relationship with Farmer soured in 1984, the bank accounts, books, and records of both Beckman & Farmer and Beckman, Farmer & Kirstein were maintained as if the firm was a partnership. Similarly, the firm's accountant prepared, and until 1984 Beckman signed, partnership tax returns, and the firm filed Schedule K-1 forms identifying Beckman, Farmer and Kirstein as partners. When the firm needed operating capital, its practice was to make loans with a bank secured by a certificate of deposit owned by Beckman and his wife of sufficient value to cover the debt in case of default by the firm. The loans were made in the firm's name, however, and Farmer signed promissory notes as a partner making him liable on the obligations if the Bank was unable to foreclose on the collateral pledged by the Beckmans.

Among Beckman's clients were Sir Freddy Laker and Laker Airways, Ltd. (Laker), a British airline offering low fare, no-frills transatlantic flights. During the early period of the Beckman-Farmer association, the firm performed substantial work for Laker payable on an hourly basis. In early 1982, Laker was placed in receivership and Christopher Morris was appointed liquidator, the British equivalent of a trustee in bankruptcy. Following the liquidation, Beckman & Farmer, in association with Metzger, Shadyac & Schwarz, another firm retained as trial specialists, brought a multi-million dollar antitrust suit in federal court against a number of international air carriers on Morris' behalf. Post-liquidation legal services were to be compensated under a contract providing for payment of fees contingent on the outcome of the suit and reimbursement of expenses as theywere incurred. Shortly after suit was filed, Farmer screened himself from participating in the Laker case to avoid disqualifying the firm as a result of Farmer's former position at the Civil Aeronautics Board,⁴ and performed no further services for Morris. After the suit was filed some of the antitrust defendants, including McDonnell-Douglas Corporation, filed a counterclaim. Beckman, Farmer & Kirstein performed substantial work on the counterclaim, which was payable on an hourly basis distinct from the contingent fee work.

One of the antitrust defendants made settlement overtures as early as late 1983 or early 1984. By March 1984 Beckman had grown dissatisfied with the way Metzger, Shadyac & Schwarz was handling the case and sought to assert control of the litigation. In December 1984 Morris became convinced that Beckman was no longer acting in the liquidator's best interest, which was primarily to see that all Laker creditors were satisfied, because of Beckman's own interest in the contingent fee and his relationship with Sir Freddy Laker. Beginning in January 1985 another lawyer, Michael Nussbaum, originally retained by Morris to monitor the progress of the litigation, assumed an active role in settlement negotiations with the antitrust defendants. Urgent settlement talks with British Airways, one of the principal antitrust defendants, opened in December 1984 after it became known in June that the airline, formerly held by the British government, sought to go public.

A settlement was reached on June 12, 1985, which disposed of all claims except those of the lawyers for the Laker liquidator for the work they had done. On July 12, 1985, agreement was reached that $12.5 million would be split equally between Beckman's firm and Metzger, Shadyac & Schwarz in release of all claims arising from the fee agreement with Morris regarding the antitrust suit, and that Beckman's firm would receive an additional $340,000 in fees for work performed for Laker before liquidation. By this time, however, Farmer was no longer associated with Beckman and Kirstein.

In late Spring 1983, the firm apparently experienced cash flow problems owing to the loss of an important client and its preoccupation with the Laker contingent fee case and other non-billable work. On June 8, 1983 Beckman sent a letter to Farmer and Kirstein entitled "Firm Finances" which described the situation and informed them that the firm was increasing its loan obligation, which Beckman would secure by pledging his own assets. He also "proposed" that the firm cease leasing his and Farmer's cars and stop paying "advance draws"⁵ until its cash position improved, and advised that the partners should be prepared to reimburse the firm for advance draws received since January 1 of that year. Beckman had grown dissatisfied with the manner in which Farmer was handling clients. In May 1984, he told Farmer that he wanted to terminate the association and that Farmer should begin making arrangements to practice elsewhere. In June 1984, after returning from a trip to England to meet with the Laker liquidator, Beckman confronted Farmer and insisted in sharper terms that he leave immediately. The two began negotiating the terms of Farmer's departure. Beckman proposed paying Farmer six months' compensation at the agreed annual rate of $85,000 and allowing him to use the...