Horner v. Bagnell

• Decision Date: 07 March 2017
• Docket Number: SC 19700
• Citation: 154 A.3d 975,324 Conn. 695
• Parties: Stephen P. HORNER v. Jeffrey S. BAGNELL
• Court: Connecticut Supreme Court

324 Conn. 695

154 A.3d 975

Stephen P. HORNER

v.Jeffrey S. BAGNELL

SC 19700

Supreme Court of Connecticut.

Argued November 17, 2016

Officially released March 7, 2017

Scott R. Lucas, with whom was Jeffrey S. Bagnell, self-represented, for the appellant (defendant).

Thomas B. Noonan, for the appellee (plaintiff).

Rogers, C. J., and Palmer, Eveleigh, McDonald, Espinosa and Robinson, Js.

ROBINSON, J.

In this appeal, we consider whether an attorney, who represented clients in contingency fee matters that originated while he was a member of a two person law firm and continued to represent them after the dissolution of that firm, is obligated to share a portion of those fees with his former law partner when those fees were not paid until after the firm's dissolution. The defendant, Jeffrey S. Bagnell, appeals¹ from the judgment of the trial court, rendered after a court trial, awarding the plaintiff, Stephen P. Horner, damages in the amount of $116,298.89. On appeal, the defendant contends that the award, predicated on a theory of unjust enrichment, was improper because contingency fee matters are the property of the client, rather than the law firm, and the award violated the fee splitting provisions of rule 1.5 (e) of the Rules of Professional Conduct.² Guided by the commentary to rule 1.5 (e) and the well established line of authority following Jewel v. Boxer , 156 Cal.App.3d 171, 203 Cal.Rptr. 13 (1984), we conclude that the trial court properly awarded the plaintiff a portion of the contingency fees that the defendant collected subsequent to the dissolution of the firm. Accordingly, we affirm the judgment of the trial court.

The record reveals the following facts, which were either undisputed or found by the trial court, and procedural history. In late 2003, the plaintiff and the defendant decided to start a law firm dedicated to the practice of labor and employment law. At that time, the plaintiff was an experienced solo practitioner and the defendant was a younger attorney looking to build a practice and advance his career. The parties entered into a partnership agreement in March, 2004. The partnership agreement provided that the defendant was a junior partner in the firm, in which the plaintiff served as managing partner.

With respect to the parties' compensation, the partnership agreement provided that, for the first year of the partnership, the plaintiff would bear 99 percent of the firm's total profits and losses, and the defendant 1 percent, with each partner being entitled to purchase additional interest in the partnership by paying a capital contribution of $5000 for each additional 1 percent interest. In addition to his 1 percent interest, the parties agreed in § 2.14 of the partnership agreement that the defendant, as a junior partner, was entitled to annual compensation in the amount of $110,000, plus bonus compensation that was based on the fees that he "generated" and were collected by the firm. Section 2.15 of the partnership agreement defined the term " 'fees generated' [to] include all hourly work performed for any client of the [p]artnership at the [p]artner's respective hourly rates," and further provided that "[w]ork performed on contingency cases shall be weighted in proportion to the hourly rates of the [p]artners at the time a contingency fee is received."³

Ultimately, the law firm disappointed the parties' expectations.⁴ They agreed to end the partnership effective December 31, 2006, and began to wind down the practice in October, 2006. Section 4.04 of the partnership agreement governed dissolution of the firm. Although the partnership agreement permitted the continuation of the partnership's business as "reasonably necessary to wind up the [p]artnership's affairs, discharge its obligations and preserve and distribute its assets," it was silent as to the allocation of fees collected after the dissolution of the firm.

The parties subsequently became embroiled in a dispute, documented in a series of e-mails, about the plaintiff's entitlement to portions of fees for certain litigation matters for the firm's former clients that were being handled exclusively by the defendant following the dissolution. Three of the disputed matters were contingency fee cases, and two were hourly fee cases. With respect to the hourly fee cases, the plaintiff claimed entitlement to 20 percent of the fees earned by the defendant for those two clients. With respect to the contingency fee cases, the plaintiff claimed entitlement to a pro rata share of the fees based on work involved in the firm's representation of the clients before dissolution, as opposed to the work performed exclusively by the defendant postdissolution.

The plaintiff brought this action against the defendant in a four count complaint claiming that the defendant's failure to pay him these fees and supply him with status reports and supporting documentation constituted, inter alia: (1) breach of contract, namely, a postdissolution fee sharing agreement alleged to have been acknowledged in several e-mails and memoranda between the parties during the dissolution process; (2) breach of the implied covenant of good faith and fair dealing; and (3) unjust enrichment.⁵ With respect to unjust enrichment, the plaintiff alleged that the defendant benefited from cases that the plaintiff had referred to him pursuant to the fee sharing agreement, that the defendant "unjustly failed" to make payments due under that agreement to the plaintiff's detriment, and that the defendant would be unfairly enriched if he were permitted to avoid paying the plaintiff these fees, having received the benefits of those client referrals.

In his answer to the complaint, the defendant denied the allegations and interposed numerous special defenses, including that the plaintiff's claims were barred by the doctrine of illegality because the alleged fee sharing agreement violated rule 1.5 (e) of the Rules of Professional Conduct. The defendant also asserted a plethora of counterclaims against the plaintiff, which included a claim of unjust enrichment arising from the defendant's overpayment to the plaintiff of his share of a contingency fee obtained after a postdissolution settlement in 2007. The present case was thereafter tried to the court, Povodator, J.⁶

The trial court issued a comprehensive memorandum of decision addressing all of the claims, counterclaims, and defenses. The trial court found for the defendant with respect to the plaintiff's contract based claims, including breach of the covenant of good faith and fair dealing, determining that the parties did not have an enforceable agreement with respect to postdissolution fee splitting. Specifically, the trial court concluded that: (1) without client consent, hourly fees generated after the dissolution belong to the attorney who earned them, rendering any agreement with respect to the hourly fees unenforceable under rule 1.5 (e) of the Rules of Professional Conduct ;⁷ and (2) there simply was no "meeting of the minds" with respect to sharing the contingency fees paid after dissolution because the parties disagreed, in the e-mail correspondence that the plaintiff claimed to constitute the fee sharing agreement, as to the essential terms of compensation. The court concluded that, in the absence of an enforceable agreement, "fees earned prior to dissolution presumptively are partnership property and presumptively are subject to the bonus calculation," and that "fees earned after the dissolution are the sole property of the defendant."

The trial court then addressed the unjust enrichment claim. The court found that "there was [no] unjust enrichment to [the] defendant" arising from the hourly fee cases because it was not inequitable for the defendant "to retain the full fruits of his labor" performed postdissolution given ethical guidance with respect to fee sharing from rule 1.5 (e) of the Rules of Professional Conduct and its commentary. The trial court concluded, however, that the plaintiff was entitled to recover on his claim of unjust enrichment with respect to the contingency fee cases because, under the partnership agreement, the "defendant had no direct claim to retain fees earned while a member of the partnership," with the bulk of the defendant's participation in the firm's profits being his bonus.⁸ Turning to the damages, the trial court applied the methodology "implicitly" proposed by the defendant⁹ and found that he owed the plaintiff $116,298.89. The trial court then rendered a judgment on the defendant's unjust enrichment counterclaim, which it described as nominal in nature. Specifically, the court found that, in connection with one of the matters on which the defendant had "devoted substantial time, personally, to the case" prior to dissolution of the firm, the plaintiff nevertheless had been unjustly enriched by $7607.67. The court ultimately found net damages due to the plaintiff in the amount of $108,691.22, with no interest awarded.

In connection with its denial of the plaintiff's motion for reargument, the trial court rejected the defendant's claim that rule 1.5 (e) of the Rules of Professional Conduct barred its award of contingency fees earned and collected after dissolution to the plaintiff, specifying that its calculations were based on predissolution time "not subject to the rule ...." The court "emphasize[d] that it was not attempting to enforce the partnership agreement but rather [was] using the partnership agreement as a guide to determin[e] an equitable result with respect to claims of unjust enrichment in the context of fees [paid or payable] after the partnership ceased to exist." The court reiterated that, "unjust enrichment is not measured by detriment to a claimant but rather whether it is unjust for the one against whom a claim is made to retain the benefit received. The court previously noted that it would be an unjust windfall for [the] plaintiff to disregard the bonus formula as part of the winding up...