Bohatch v. Butler & Binion

• Court: Texas Supreme Court
• Writing for the Court: ENOCH, Justice, delivered the opinion of the Court, in which GONZALEZ, OWEN, BAKER, and HANKINSON
• Citation: Bohatch v. Butler & Binion, 977 S.W.2d 543, 41 Tex. Sup.Ct. J. 308 (Tex. 1998)
• Decision Date: 22 January 1998
• Docket Number: No. 95-0934,95-0934
• Parties: 41 Tex. Sup. Ct. J. 308 Colette BOHATCH, Petitioner, v. BUTLER & BINION, et al., Respondents.

Page 543

977 S.W.2d 543

41 Tex. Sup. Ct. J. 308

Colette BOHATCH, Petitioner, v. BUTLER & BINION, et al., Respondents.

No. 95-0934.

Supreme Court of Texas.

Argued Nov. 20, 1996.

Decided Jan. 22, 1998.

H. Victor Thomas, Eliot P. Tucker, Houston, for petitioner.

Richard N. Countiss, David W. Holman, Larry D. Knippa, Houston, for respondents.

ENOCH, Justice, delivered the opinion of the Court, in which GONZALEZ, OWEN, BAKER, and HANKINSON, Justices, join.

Partnerships exist by the agreement of the partners; partners have no duty to remain partners. The issue in this case is whether we should create an exception to this rule by holding that a partnership has a duty not to expel a partner for reporting suspected overbilling by another partner. The trial court rendered judgment for Colette Bohatch on her breach of fiduciary duty claim against Butler & Binion and several of its partners (collectively, "the firm"). The court of appeals held that there was no evidence that the firm breached a fiduciary duty and reversed the trial court's tort judgment; however, the court of appeals found evidence of a breach of the partnership agreement and rendered judgment for Bohatch on this ground. 905 S.W.2d 597. We affirm the court of appeals' judgment.

I. FACTS

Bohatch became an associate in the Washington, D.C., office of Butler & Binion in 1986 after working for several years as Deputy Assistant General Counsel at the Federal Energy Regulatory Commission. John McDonald, the managing partner of the office, and Richard Powers, a partner, were the only other attorneys in the Washington office. The office did work for Pennzoil almost exclusively.

Bohatch was made partner in February 1990. She then began receiving internal firm reports showing the number of hours each attorney worked, billed, and collected. From her review of these reports, Bohatch became concerned that McDonald was overbilling Pennzoil and discussed the matter with Powers. Together they reviewed and copied portions of McDonald's time diary. Bohatch's review of McDonald's time entries increased her concern.

On July 15, 1990, Bohatch met with Louis Paine, the firm's managing partner, to report her concern that McDonald was overbilling Pennzoil. Paine said he would investigate. Later that day, Bohatch told Powers about her conversation with Paine.

The following day, McDonald met with Bohatch and informed her that Pennzoil was not satisfied with her work and wanted her work to be supervised. Bohatch testified that this was the first time she had ever heard criticism of her work for Pennzoil.

The next day, Bohatch repeated her concerns to Paine and to R. Hayden Burns and Marion E. McDaniel, two other members of the firm's management committee, in a telephone conversation. Over the next month, Paine and Burns investigated Bohatch's complaint. They reviewed the Pennzoil bills and supporting computer print-outs for those bills. They then discussed the allegations with Pennzoil in-house counsel John Chapman, the firm's primary contact with Pennzoil. Chapman, who had a long-standing relationship with McDonald, responded that Pennzoil was satisfied that the bills were reasonable.

In August, Paine met with Bohatch and told her that the firm's investigation revealed no basis for her contentions. He added that she should begin looking for other employment, but that the firm would continue to provide her a monthly draw, insurance coverage, office space, and a secretary. After this meeting, Bohatch received no further work assignments from the firm.

In January 1991, the firm denied Bohatch a year-end partnership distribution for 1990 and reduced her tentative distribution share for 1991 to zero. In June, the firm paid Bohatch her monthly draw and told her that this draw would be her last. Finally, in August, the firm gave Bohatch until November to vacate her office.

By September, Bohatch had found new employment. She filed this suit on October 18, 1991, and the firm voted formally to expel her from the partnership three days later, October 21, 1991.

The trial court granted partial summary judgment for the firm on Bohatch's wrongful discharge claim, and also on her breach of fiduciary duty and breach of the duty of good faith and fair dealing claims for any conduct occurring after October 21, 1991 (the date Bohatch was formally expelled from the firm). The trial court denied the firm's summary judgment motion on Bohatch's breach of fiduciary duty and breach of the duty of good faith and fair dealing claims for conduct occurring before October 21, 1991. The breach of fiduciary duty claim and a breach of contract claim were tried to a jury. The jury found that the firm breached the partnership agreement and its fiduciary duty. It awarded Bohatch $57,000 for past lost wages, $250,000 for past mental anguish, $4,000,000 total in punitive damages (this amount was apportioned against several defendants), and attorney's fees. The trial court rendered judgment for Bohatch in the amounts found by the jury, except it disallowed attorney's fees because the judgment was based in tort. After suggesting remittitur, which Bohatch accepted, the trial court reduced the punitive damages to around $237,000.

All parties appealed. The court of appeals held that the firm's only duty to Bohatch was not to expel her in bad faith. 905 S.W.2d at 602. The court of appeals stated that " '[b]ad faith' in this context means only that partners cannot expel another partner for self-gain." Id. Finding no evidence that the firm expelled Bohatch for self-gain, the court concluded that Bohatch could not recover for breach of fiduciary duty. Id. at 604. However, the court concluded that the firm breached the partnership agreement when it reduced Bohatch's tentative partnership distribution for 1991 to zero without notice, and when it terminated her draw three months before she left. Id. at 606. The court concluded that Bohatch was entitled to recover $35,000 in lost earnings for 1991 but none for 1990, and no mental anguish damages. Id. at 606-07. Accordingly, the court rendered judgment for Bohatch for $35,000 plus $225,000 in attorney's fees. Id. at 608.

II. BREACH OF FIDUCIARY DUTY

We have long recognized as a matter of common law that "[t]he relationship between ... partners ... is fiduciary in character, and imposes upon all the participants the obligation of loyalty to the joint concern and of the utmost good faith, fairness, and honesty in their dealings with each other with respect to matters pertaining to the enterprise." Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 264 (1951) (quotation omitted). Yet, partners have no obligation to remain partners; "at the heart of the partnership concept is the principle that partners may choose with whom they wish to be associated." Gelder Med. Group v. Webber, 41 N.Y.2d 680, 394 N.Y.S.2d 867, 870-71, 363 N.E.2d 573, 577 (1977). The issue presented, one of first impression, is whether the fiduciary relationship between and among partners creates an exception to the at-will nature of partnerships; that is, in this case, whether it gives rise to a duty not to expel a partner who reports suspected overbilling by another partner.

At the outset, we note that no party questions that the obligations of lawyers licensed to practice in the District of Columbia--including McDonald and Bohatch--were prescribed by the District of Columbia Code of Professional Responsibility in effect in 1990, and that in all other respects Texas law applies. Further, neither statutory nor contract law principles answer the question of whether the firm owed Bohatch a duty not to expel her. The Texas Uniform Partnership Act, TEX.REV.CIV. STAT. ANN. art. 6701b, addresses expulsion of a partner only in the context of dissolution of the partnership. See id. §§ 31, 38. In this case, as provided by the partnership agreement, Bohatch's expulsion did not dissolve the partnership. Additionally, the new Texas Revised Partnership Act, TEX.REV.CIV. STAT. ANN. art. 6701b-1.01 to -11.04, does not have retroactive effect and thus does not apply. See id. art. 6701b-11.03. Finally, the partnership agreement contemplates expulsion of a partner and prescribes procedures to be followed, but it does not specify or limit the grounds for expulsion. Thus, while Bohatch's claim that she was expelled in an improper way is governed by the partnership agreement, her claim that she was expelled for an improper reason is not. Therefore, we look to the common law to find the principles governing Bohatch's claim that the firm breached a duty when it expelled her.

Courts in other states have held that a partnership may expel a partner for purely business reasons. See St. Joseph's Reg'l Health Ctr. v. Munos, 326 Ark. 605, 934 S.W.2d 192, 197 (1996) (holding that partner's termination of another partner's contract to manage services performed by medical partnership was not breach of fiduciary duty because termination was for business purpose); Waite v. Sylvester, 131 N.H. 663, 560 A.2d 619, 622-23 (1989) (holding that removal of partner as managing partner of limited partnership was not breach of fiduciary duty because it was based on legitimate business purpose); Leigh v. Crescent Square, Ltd., 80 Ohio App.3d 231, 608 N.E.2d 1166, 1170 (1992) ("Taking into account the general partners' past problems and the previous litigation wherein Leigh was found to have acted in contravention of the partnership's best interests, the ouster was instituted in good faith and for legitimate business purposes."). Further, courts recognize that a law firm can expel a partner to protect relationships both within the firm and with clients. See Lawlis v. Kightlinger & Gray, 562 N.E.2d 435, 442 (Ind.App.1990) (holding that law firm did not breach fiduciary duty by expelling partner after partner's successful struggle against alcoholism because "if a partner's propensity toward alcohol has the potential to damage his firm's...