Hammes v. Frank

• Decision Date: 24 October 1991
• Docket Number: No. 41A01-9010-CV-406,41A01-9010-CV-406
• Citation: 579 N.E.2d 1348
• Parties: Joseph W. HAMMES, and Henry Y. Dein, Appellants-Plaintiffs, v. Steven H. FRANK and Claude R. Magnuson, Appellees-Defendants.
• Court: Indiana Appellate Court

Page 1348

579 N.E.2d 1348

Joseph W. HAMMES, and Henry Y. Dein, Appellants-Plaintiffs, v. Steven H. FRANK and Claude R. Magnuson, Appellees-Defendants.

No. 41A01-9010-CV-406.

Court of Appeals of Indiana,

First District.

Oct. 24, 1991.

Transfer Dismissed Nov. 21, 1991.

James R. Fisher, Ice, Miller, Donadio & Ryan, Indianapolis, for appellants-plaintiffs.

James F.T. Sargent, Sargent & Meier, Greenwood, for appellees-defendants.

BAKER, Judge.

This appeal arises from the dissolution of an Indianapolis law partnership. Plaintiff-appellants Joseph Hammes and Henry Dein appeal as inadequate a judgment rendered in their favor following an accounting. They raise four issues on appeal, restated as:

I. Whether the trial court erred in its calculation of Frank's overhead.

II. Whether the trial court erred in its treatment of Magnuson's forfeited share.

III. Whether the trial court erred in its distribution of certain class action attorney fees.

IV. Whether the trial court erred in refusing to award prejudgment interest on certain awards.

Additionally, on cross-appeal, defendant-appellees Steve Frank and Claude Magnuson ¹ raise three issues:

V. Whether class action fees are subject to accounting.

VI. Whether Dein's and Hammes's claims are equitably barred by their failure to request an accounting.

VII. Whether Dein and Hammes are estopped from collecting any amounts owed them because they breached their wind-up duties.

We affirm in part, reverse in part, and remand with instructions.

FACTS

On January 13, 1984, the law partnership of Magnuson, Dein & Hammes dissolved. At that time, the only partners were the four parties to this appeal. Following dissolution, these four partners divided into two successor firms, Magnuson & Frank and Dein, Hammes, Stanley & Ripley. Stanley and Ripley were two associates from the Magnuson, Dein & Hammes partnership.

Because there was no written agreement regarding a post-breakup distribution of assets, the two firms and four partners engaged in extensive negotiations over a long period of time in an effort to resolve the unfinished business matters of Magnuson, Dein & Hammes. Ultimately, the partners were unable to reach an agreement concluding the rights and obligations of the successor firms or the individuals. One of the most hotly contested issues regarded the distribution of large class action fees Steve Frank was largely responsible for generating.

On July 12, 1990, the trial court held a hearing to account for the undistributed Magnuson, Dein & Hammes income. At that hearing, Frank, Dein, and Hammes presented expert testimony on their own income and expenses in generating that income, and each presented evidence of the others' income and expenses. Magnuson took no part in the proceeding.

On September 11, 1990, the court entered its findings and conclusions. It rejected Frank's accounting because it "list[s] so many variables it covers the issue with confusion." Record at 1013 (Findings, Conclusions and Judgment p 1). As for Dein's and Hammes's accounting, the court concluded:

[Dein's and Hammes's] accounting is more factually accurate except in overhead. [Dein's and Hammes's] accounting shows Frank's overhead equal or less than Hammes/Dein combined yet Frank guaranteed three (3) to four (4) times more income. This is not reasonable. Even though excessive, Frank's figures are more reasonable.

Record at 1013, p 2. The court accepted Dein's and Hammes's accounting, ² but determined Frank's overhead expense in generating Magnuson, Dein & Hammes fees to be $227,948.00, as Frank's expert concluded, rather than $73,768.27, as Dein's and Hammes's expert proposed.

The trial court then found Frank's net fees (gross fees less overhead expenses) received from the day of dissolution to the day of accounting equalled $559,097.11, Dein's equalled $51,924.94, and Hammes's equalled $25,599.00. The sum of these net fees was found to be $636.621.76. ³ Each partner was entitled to one-fourth, or $159,155.44. ⁴

By subtracting Dein's and Hammes's net fees from this amount, Frank was found to owe Dein $107,230.50 and to owe Hammes $133,555.73. Judgment was entered against Frank and in favor of Dein and Hammes for these two amounts. This appeal ensued.

Issue I: Frank's Overhead

Dein and Hammes first contend the trial court's calculation of Frank's overhead figure as $227,948.00 was unreasonable and unsupported by the evidence. Relying on p 2 of the trial court's Findings, Conclusions and Judgment, they insist the court improperly considered Frank's disproportionate fee income in its determination of his overhead. They argue fee income is irrelevant to the calculation of overhead because overhead expenses in a law firm are relatively constant. They also argue the trial court recognized Frank's figure was unreasonable, because the trial court termed Frank's figures "excessive." Record at 1013. As excessive, the trial court was bound to disregard them, regardless of what the trial court thought of Dein's and Hammes's own figures, they claim.

Upon dissolution of a partnership and "prior to the distribution of any profits, each partner is entitled to be reimbursed for the reasonable and necessary overhead expenses attributable to winding up the partnership's business." Ellerby v. Spiezer (1985), Ill.App., 485 N.E.2d 413, 417. What constitutes "overhead" for the purposes of the wrap-up of a dissolved partnership, however, is unsettled in this jurisdiction ⁵ and elsewhere. The Uniform Partnership Act ⁶ offers no definition. THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 936 (1970) defines "overhead" as "[t]he operating expenses of a business, including the costs of rent, utilities, interior decoration, and taxes, and excluding labor and materials," and BLACK'S LAW DICTIONARY 1257 (4th ed. 1968) defines it as the "[c]ontinuous expenses of a business: the expenses and obligations incurred in connection with operation." At least one jurisdiction excludes from its definition of overhead those expenses indirectly attributable to the winding up of partnership business. Thus, office salaries, rent, and library costs have been denied to partners who sought their reimbursement as overhead. Hawkesworth v. Ponzoli (1980), Fla.App., 388 So.2d 299, 301. Other jurisdictions, however, allow indirect expenses in the calculation of overhead, reasoning that such an approach is fairer when, as here, one partner incurs a disproportionate amount during wind-up. Jewel v. Boxer (1984), 156 Cal.App.3d 171, 180, 203 Cal.Rptr. 13, 19.

Here, Frank seeks to include the cost of paralegals, associate attorneys, and computer time within the ambit of "overhead." We think this is proper, particularly in the context of protracted class action suits. We agree with the trial court's determination that given the complex and sophisticated nature of class action litigation in today's legal arena, the costs of paralegals, associate attorneys, and computer time are reasonable and necessary expenses. We believe the reasoning of Reichert v. Metropolitan Trust Co. (1934), 266 Mich. 322, 253 N.W. 313, in which the court discussed computing overhead for the purposes of fixing an attorney's fee, applies analogously: "[w]hen [an attorney] gives his entire time almost exclusively to a particular retainer for a considerable period, so that his office facilities are devoted in a large degree to such employment, ... the cost of maintaining his office should be considered in fixing his fee." Here, the evidence supports the finding that Steve Frank worked for several years on class action litigation, concentrating on little else, and that he incurred substantial expense in doing so. The court did not err in including these expenses in Frank's overhead computation.

We agree with Frank that in essence Dein and Hammes are appealing a negative judgment. Each side submitted conflicting overhead figures to the trial court; the trial court rejected Dein's and Hammes's and adopted Frank's. Upon review of a negative judgment, we will reverse only if the evidence is without conflict, and all reasonable inferences to be drawn from the evidence lead to but one conclusion and the trial court has reached a different conclusion. Williams v. City of Indianapolis (1990), Ind.App., 558 N.E.2d 884, 888, trans. denied. The specific findings and conclusions of the trial court will be affirmed unless clearly erroneous, and we will neither reweigh the evidence nor reassess the credibility of the witnesses. Id.

Here, substantial evidence of probative value supports the trial court's finding that Frank's overhead in wrapping-up Magnuson, Dein & Hammes files amounted to $227,948.00. Steve Frank's expert witness, Michael Swan, a certified public accountant, prepared a thorough report on the wrap-up activities of the Magnuson, Dein &amp Hammes partners. See Record at 2390. The evidence regarding Frank's overhead presented to the trial court was in conflict; the trial court, in its judgment, found Swan's figure of $227,948.00 to be more credible. Based on our examination of the report Swan prepared and the testimony he gave at trial, we cannot say the trial court's finding is clearly erroneous.

Neither are we concerned with the trial court's characterization of that amount as "excessive." Dein and Hammes submit that in this case "excessive" is synonymous with "unreasonable." We do not agree. Although we do not know exactly what the trial court meant by "excessive," we do know the trial court also characterized the $227,948.00 overhead figure as "more reasonable" than the $73,768.27 figure proposed by Dein and Hammes. The judgment of the trial court comes to us with a presumption of correctness. Myers v. Myers (1990), Ind., 560 N.E.2d 39. We trust the trial court would not adopt as a final finding of fact a figure it felt was unreasonable and unwarranted; therefore, Dein's and Hammes's interpretation fails. We note, finally, the ratio of overhead expenses...