Dwyer v. Nicholson

Decision Date20 September 1993
Citation602 N.Y.S.2d 144,193 A.D.2d 70
PartiesDiane DWYER, Respondent-Appellant, v. Michael NICHOLSON, et al., Appellants-Respondents. Carmine A. Ventiera, et al., Nonparty Respondents-Appellants.
CourtNew York Supreme Court — Appellate Division

Nathan R. Sobel, Brooklyn, for appellants-respondents.

Foley, Hickey, Gilbert & O'Reilly, New York City (Terry P. O'Reilly on the brief), for respondent-appellant.

Cahill & Cahill, Brooklyn (James H. Cahill, of counsel), for nonparty respondents-appellants.

Before BRACKEN, J.P., and MILLER, COPERTINO and SANTUCCI, JJ.

PER CURIAM.

We conclude that the plaintiff's decedent, Peter Dwyer, and the defendant Michael Nicholson agreed that, upon the dissolution of their partnership, the only items that would be subject to distribution would be "net income, cash and other deposits in partnership bank accounts, and accounts receivable". Because these parties agreed that the value of contingency fee cases and similar intangible firm assets would not be subject to distribution, we conclude that the Supreme Court erred in calculating the amount to be awarded to the plaintiff. For this reason, and also because the defendants were deprived of their right to a fair trial, we reverse the judgments appealed from, and grant the defendants a new trial.

I

The plaintiff's decedent, Peter Dwyer, and the defendant, Michael Nicholson, practiced law together until Mr. Dwyer's death on December 3, 1978. In her complaint, the plaintiff alleged that, in August of 1978, Mr. Dwyer and Mr. Nicholson had formed a law partnership (hereinafter the Dwyer-Nicholson firm), and had agreed "that all income would be divided between the [two] partners, with the decedent receiving fifty-five (55%) percent and the defendant Michael Nicholson receiving forty-five (45%) per cent". These allegations were admitted in the defendants' answer.

In her complaint, the plaintiff sought, inter alia, a judgment "directing the defendants to pay to the plaintiff a sum of money equal to the value of the decedent's partnership interest as of the date of his death". In their answer, the defendants denied that the plaintiff was entitled to anything, claiming that Mr. Dwyer's 55% interest in the income generated by the Dwyer-Nicholson partnership during its brief four-month life span was exceeded by amounts lawfully owed by Mr. Dwyer or the Dwyer-Nicholson firm to the defendant Michael Nicholson.

In their several affirmative defenses and counterclaims, the defendants asserted that the amount owed to Mr. Dwyer's estate was substantially exceeded by amounts owed by Mr. Dwyer's estate to Michael Nicholson. The defendants, in their affirmative defenses and counterclaims, made detailed allegations to the effect that Mr. Dwyer, acting in concert with another attorney, had negotiated forged checks in order to misappropriate funds rightfully belonging to clients of the Dwyer-Nicholson firm. The defendants alleged, inter alia, that they were legally responsible for reimbursing these clients for the funds misappropriated by Mr. Dwyer, and that Mr. Dwyer's estate should therefore be responsible for reimbursing them. Based on these and other allegations, the defendants claimed that the plaintiff owed them actual damages in the sum of $87,187.68.

The Supreme Court, after a reference, awarded two judgments against one or more of the defendants and in favor of the plaintiff, including one judgment in the principal sum of $2,943,275 and another in the principal sum of $1,233,209.14. These judgments are based primarily on the Supreme Court's evaluation of certain contingency fee cases which were pending in the Dwyer-Nicholson firm on December 3, 1978.

II

On appeal, the defendants seek reversal of these judgments by arguing that pending contingency fee cases are not assets subject to distribution in an action to dissolve a partnership. This argument is supported by a decision of the Appellate Division, First Department (see, Aurnou v. Greenspan, 161 A.D.2d 438, 555 N.Y.S.2d 356). However, we believe the better view is that enunciated by the Appellate Division, Third Department, in the more recent case of Kirsch v. Leventhal, 181 A.D.2d 222, 224-226, 586 N.Y.S.2d 330). We agree with the Third Department and with the courts in other jurisdictions which have held that such cases do constitute partnership assets (see, Partnership Law § 4; Bader v. Cox, 701 S.W.2d 677 [Tex]; Ellerby v. Spiezer, 138 Ill.App.3d 77, 92 Ill.Dec. 602, 485 N.E.2d 413; Resnick v. Kaplan, 49 Md.App. 499, 434 A.2d 582; Fox v. Abrams, 163 Cal.App.3d 610, 210 Cal.Rptr. 260; Balfour, Guthrie & Co. v. Hansen, 227 Cal.App.2d 173, 38 Cal.Rptr. 525; Jewel v. Boxer, 156 Cal.App.3d 171, 203 Cal.Rptr. 13; In re Estate of Barbera, 55 Ill.2d 235, 302 N.E.2d 302; Frates v. Nichols, 167 So.2d 77 [Fla].

Thus, the contingency fee cases pending in the Dwyer-Nicholson firm on the date of dissolution constituted partnership assets subject to distribution unless the partners in question had agreed otherwise. As an alternative argument for reversal, the defendants argue that, consistent with the practice of previous law firms of which Mr. Dwyer had been a member, Mr. Dwyer had in fact agreed with Mr. Nicholson that, upon dissolution of their partnership, only net income and accounts receivable would be distributed. We agree with this argument.

The only evidence of a written partnership agreement in this case consists of three pieces of paper, upon which there appear 12 handwritten paragraphs, designated with the Roman numerals I to XII. This document is entitled "proposal for partnership". Paragraph I states: "Distribution of Net Income: PED 55%; MN, 45% * * * effective 7/1/78". Paragraph V governs the parties' rights and obligations in the event of dissolution. This paragraph states, "[u]pon dissolution of the partnership, the net income, cash and other deposits in partnership bank accounts, and accounts receivable shall be distributed at the distribution rates of the partners in effect at that time".

The evidence produced in the Supreme Court included certain other handwritten notes, and the evidence supports the conclusion that these were made by Mr. Dwyer. These notes include, on one line, the cryptic entry "45-55", without any elaboration. These notes also include a statement that certain paragraphs of the 12-paragraph "proposal" noted above, i.e., paragraphs VIII, IX, X, XI, and XII, were "no problem". The foregoing paragraphs of the proposal govern the management of the firm. These notes contain no similar written expression of assent by Mr. Dwyer to the terms of either Paragraph I or Paragraph V of the proposal.

On appeal, the defendants argue that pursuant to Paragraph V of what they characterize as the "partnership agreement", Mr. Dwyer's estate is entitled to a percentage of the "net income and accounts receivable" of the short-lived Dwyer-Nicholson firm, and to nothing else. Such a construction of the "partnership agreement" would entitle the plaintiff estate to a relatively modest sum. Such a construction of the "agreement" would also be fully consistent with the partnership agreements which had governed Mr. Dwyer's relationships with previous partners.

In February of 1976, one former partner of Mr. Dwyer's had died, and upon the dissolution of the firm which occurred at that time, Mr. Dwyer had himself evaluated his ex-partner's interest at an amount which represents a tiny fraction of the sum now claimed by Mr. Dwyer's estate. In March of 1976, another former partner of Mr. Dwyer's had died and, upon the dissolution of this other previous partnership, Mr. Dwyer had evaluated his deceased ex-partner's interest in the firm as amounting to a similarly exiguous amount. This constitutes clear proof that Mr. Dwyer's past practice and that of his former partners was to facilitate the dissolution of their various partnerships by agreeing to distribute cash income only, not intangible assets. This evidence of past practice is highly probative of the nature of Mr. Dwyer's relationship to Mr. Nicholson (see, The Union v. Manley, 1993 WL 20071 [Ohio App] [partnership's past practice relevant to evaluation of partner's interest]; see also, Altman v. Altman, 653 F.2d 755 [3rd Cir.].

We also credit the testimony of the accountant employed by the Dwyer-Nicholson firm (who had also been employed by the prior firms). This witness testified, in essence, that he was instructed to keep the books of the Dwyer-Nicholson firm in the same way as that used in connection with the business of the previous firms. This witness's testimony supports the finding of fact that the 12-paragraph "proposal" noted above had become, even in the absence of express written assent by Mr. Dwyer to all its provisions, a binding partnership agreement.

The plaintiff cannot deny that paragraph V is part of the same document as paragraph I (supra ). Yet the plaintiff argues, in effect, that only the terms of paragraph I should be given effect and that the terms of paragraph V should be disregarded. The plaintiff seeks to give effect to paragraph I by insisting that the 45%-55% breakdown contained in that paragraph governs not only the division of the income of the Dwyer-Nicholson firm, but also the manner in which that firm's assets would be divided upon dissolution. Yet at the same time, the plaintiff argues that paragraph V should not be given effect, because to do so would lead to the result that the value of the firm's intangible assets would not be subject to distribution at all.

The plaintiff also occasionally goes further and argues that pursuant to paragraph I, Mr. Nicholson was made an "income partner" only, and that Mr. Dwyer's estate should have received 100% of the assets of the Dwyer-Nicholson firm, including the value of the pending contingency cases. This argument, in addition to being meritless, is wholly self-destructive, because if Mr. Nicholson was an "income...

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