Fox v. Abrams

Citation210 Cal.Rptr. 260,163 Cal.App.3d 610
CourtCalifornia Court of Appeals
Decision Date14 January 1985
PartiesHarry D. FOX et al., Plaintiffs and Respondents, v. Martin L. ABRAMS, etc., et al., Defendants and Appellants. Civ. B002553.

Albert E. Levy and Michael A. Kaufman, San Francisco, for defendants and appellants.

Kinsella, Boesch, Fujikawa & Towle, Dale F. Kinsella, and Catherine H. Coleman, Los Angeles, for plaintiffs and respondents.

ASHBY, Associate Justice.

Martin L. Abrams, individually (Abrams), and Martin L. Abrams, a law corporation (appellant), appeal from a judgment in favor of respondents Harry D. Fox, James Gibson, E. Clarke Moseley and Fox & Gibson, a law corporation. These consolidated actions arise from the bitter breakup of the parties' law practice.

In 1976 the parties were practicing law together in El Monte as Abrams, Fox, Gibson & O'Rourke, a law corporation (AFGO). 1 The shareholders had a written agreement referred to at trial as the "Buy-Sell Agreement."

Relations between the parties broke down, and on May 6, 1976, Fox resigned from the firm. On June 1, 1976, Gibson also resigned and joined Fox in the practice of law a few blocks away. Moseley was then elevated to shareholder and on July 14, 1976, he entered a similar buy-sell agreement with Abrams, but on July 19 Moseley resigned and thereafter joined practice with Fox and Gibson, under the name of Fox & Gibson, a law corporation.

Prior to the resignations, respondents had been actively working on a number of AFGO's pending cases, mostly personal injury and wrongful death. After the resignations, 70 of the clients executed substitutions of attorney, substituting out AFGO and substituting in Fox & Gibson, a law corporation. Clients involved in other matters which had been pending with AFGO continued to employ Abrams as their attorney. Abrams' firm changed its name to Martin L. Abrams, a law corporation.

The numerous complaints and cross-complaints in this litigation primarily concern the parties' rights and obligations in the fees subsequently received for the cases which were in process on the dates of the resignations.

Respondents' theory, successful below, was that under the terms of the buy-sell agreements respondents were entitled to their percentage (reflective of their former ownership interests in the shares of stock) of all fees subsequently received by appellant for work in process as of the resignations, but that appellant had no similar interest in fees subsequently received by respondents for the cases which respondents took with them to their new law practice; rather, that appellant was entitled only to quantum meruit for the reasonable value of any services which may have been performed on those cases prior to the resignations, pursuant to Fracasse v. Brent (1972) 6 Cal.3d 784, 791, 100 Cal.Rptr. 385, 494 P.2d 9, the formula used in determining a discharged attorney's recovery against his former client.

Based on this assumption, the trial court, as a discovery sanction, struck appellant's answers and affirmative defenses to respondents' complaint and dismissed numerous causes of action in appellant's complaints and cross-complaints after appellant repeatedly declined to answer respondents' interrogatories requesting to know the number of hours spent on the cases, and a detailed description of the services performed. 2

The result was to convert the trial on these causes to a default proveup, with appellant's liability established as a matter of law. The court awarded a judgment totaling over $138,000 against appellant and Abrams. 3

We hold that the judgment must be reversed because the theories supporting the judgment and the discovery sanctions are erroneous. The Fracasse v. Brent test on which the discovery motions were based deals with the relations between a discharged attorney and the former client, and has nothing to do with how the fee should be allocated among the lawyers who formerly practiced together. The buy-sell agreements were erroneously interpreted in a one-sided manner which favored respondents over appellant based on a distinction exalting form over substance concerning who "left" and who "stayed" in the course of the breakup of the firm.

The recent case of Jewel v. Boxer (1984) 156 Cal.App.3d 171, 203 Cal.Rptr. 13, shows the proper way to resolve the instant dispute. In that case four attorneys, Jewel, Boxer, Elkind, and Leary, practiced law together in a partnership. They dissolved the partnership and formed two new firms, Jewel & Leary, and Boxer & Elkind. Each of the new law firms took a portion of the former firm's active cases, and the clients involved executed the appropriate substitutions of attorney. In allocating the fees subsequently derived from those cases, the trial court devised an elaborate formula, based partly on Fracasse v. Brent, supra, 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9. The appellate court reversed, holding that the fees were to be allocated to the former partners according to their right to fees in the former partnership. Citing the Uniform Partnership Act (Corp.Code, § 15001 et seq.) and Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 194 Cal.Rptr. 180, the court reasoned that the cases in progress constituted unfinished business of the former partnership, which partnership continued for the purpose of winding up its affairs, and that none of the former partners could seek extra compensation for services rendered in completing unfinished business. (Jewel v. Boxer, supra, 156 Cal.App.3d at pp. 176-177, 203 Cal.Rptr. 13; Rosenfeld, Meyer & Susman v. Cohen, supra, 146 Cal.App.3d at pp. 216-220, 194 Cal.Rptr. 180.) The Jewel court further held that the trial court had erred in allocating postdissolution income on a quantum meruit basis under Fracasse v. Brent, supra. (Jewel v. Boxer, supra, 156 Cal.App.3d at pp. 177-178, 180, 203 Cal.Rptr. 13.) "[T]he right of a client to an attorney of one's choice and the rights and duties as between partners with respect to income from unfinished business are distinct and do not offend one another. Once the client's fee is paid to an attorney, it is of no concern to the client how that fee is allocated among the attorney and his or her former partners." (Jewel v. Boxer, supra, 156 Cal.App.3d at p. 178, 203 Cal.Rptr. 13.) The subsequent executions of substitutions of attorney did not alter the character of the cases as unfinished business of the former firm. (Id.; Rosenfeld, Meyer & Susman v. Cohen, supra, 146 Cal.App.3d at p. 219, 194 Cal.Rptr. 180.)

The same reasoning compels the conclusion in the instant case that the work in process on the dates of the resignations was unfinished business of the former firm; that the parties were entitled to share in the fees subsequently derived in proportion to their interests in the former firm; and that the trial court erred in granting such relief only to respondents while denying it to appellant and limiting appellant to the reasonable value of services performed on cases which respondents took with them to their new law practice.

Respondents seek to avoid the reasoning of Jewel by arguing (1) Jewel applies only where there is no written agreement to the contrary, and that here the parties' buy-sell agreement is to the contrary; and (2) Jewel does not apply because it is based on partnership law whereas here the parties practiced together in a law corporation. We find no merit to these contentions. 4

Respondents point out that in Jewel v. Boxer the court relied on general principles because there was no written agreement of the parties allocating the fees. (Jewel v. Boxer, supra, 156 Cal.App.3d at pp. 179-180, 203 Cal.Rptr. 13.) Respondents contend that in this case, the buy-sell agreement otherwise provides. This contention lacks merit. Respondents based their claims for their percentage shares of appellant's subsequently derived fees on paragraph V of the buy-sell agreements. 5 While that paragraph tends to support their claims against appellant, it is silent toward, and does not expressly preclude, a corresponding claim by appellant against them. The agreement does not prevent resort to the equitable principles of Jewel v. Boxer rather thanFracasse v. Brent as contended by respondents below. Failure of the buy-sell agreement to expressly include mention of appellant's rights against departing shareholders is probably due to the fact that, as stated in their preambles, the agreements were intended to deal with the events of "death, disability, or disqualification from the practice of law," and the parties likely never contemplated that paragraph V would be exercised by a member who resigned in order to practice law in competition with the firm by taking a number of the firm's pending cases with him. (See Frates v. Nichols (Fla.App.1964) 167 So.2d 77, 82, cited in Jewel v. Boxer, supra, 156 Cal.App.3d at p. 177, 203 Cal.Rptr. 13.)

Finally, respondents contend that Jewel v. Boxer is a partnership case which should have no application because this case involves a law corporation. Respondents offer no persuasive reason why the principles of Jewel v. Boxer should not apply.

First, Jewel v. Boxer was not based solely on partnership law but also cited "sound policy reasons" for its decision. "The rule prevents partners from competing for the most remunerative cases during the life of the partnership in anticipation that they might retain those cases should the partnership dissolve. It also discourages former partners from scrambling to take physical possession of files and seeking personal gain by soliciting a firm's existing clients upon dissolution. Boxer and Elkind argue that application of the rule in the present context will discourage continued representation of clients by the attorney of their choice, as former partners will not want to perform all of the postdissolution work on a particular case while...

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    ...(Cal.App. 2 Dist.1993). And Jewel applies to registered limited liability partnerships like Thelen. See Fox v. Abrams, 163 Cal.App.3d 610, 616, 210 Cal.Rptr. 260 (Cal.App. 2 Dist.1985) (extending the Jewel doctrine to the dissolution of a law corporation because Jewel “was not based solely ......
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