LaFond v. Sweeney, 10CA2005.

Citation345 P.3d 932,2012 COA 27
Decision Date16 February 2012
Docket NumberNo. 10CA2005.,10CA2005.
PartiesRichard C. LaFOND, Esq., Plaintiff–Appellee, v. Charlotte N. SWEENEY, Esq., Defendant–Appellant.
CourtCourt of Appeals of Colorado

345 P.3d 932
2012 COA 27

Richard C. LaFOND, Esq., Plaintiff–Appellee
v.
Charlotte N. SWEENEY, Esq., Defendant–Appellant.

No. 10CA2005.

Colorado Court of Appeals, Div. VI.

Feb. 16, 2012.


345 P.3d 934

Dean Neuwirth, P.C., Dean Neuwirth, Denver, Colorado, for Plaintiff–Appellee.

Burns Figa & Will, P.C., Jennifer M. Osgood, Greenwood Village, Colorado, for Defendant–Appellant.

Opinion

Opinion by Judge BERNARD.

¶ 1 When a limited liability company (LLC) dissolves, the distribution of its assets is normally governed by statutes and any relevant written agreement its members have approved. Here, a law firm, consisting of two members, was organized as an LLC. One of the members, plaintiff, Richard C. LaFond, brought a contingent-fee case into the law firm, and considerable work was done on the case.

¶ 2 The law firm dissolved. LaFond continued to represent the client.

¶ 3 When the firm dissolved, there was no written agreement that generally described how the law firm's assets should be distributed between LaFond and the law firm's other member, defendant, Charlotte N. Sweeney. And there was no written agreement that specifically described how the contingent fee generated by the case should be distributed. Therefore, we must look to other authority to decide the ultimate issue raised by this appeal: should the contingent fee be divided between LaFond and Sweeney, and, if so, how?

¶ 4 We focus on three principles. First, we examine the ethical duties that attorneys owe clients. From that examination, we distill the first principle: cases belong to clients, not to attorneys or law firms, and any decision we reach must protect the interests of clients.

¶ 5 Second, we evaluate the nature of attorney-client fee agreements. From that evaluation, we obtain the second principle: when attorneys handle contingent fee cases to successful resolution, they have enforceable rights to the contingent fee.

¶ 6 Third, we analyze pertinent components of the law of LLCs. From that analysis, we garner the third principle: a contingent fee may constitute an asset of a dissolved law firm organized as an LLC, which is to be divided among the firm's members once it is earned.

¶ 7 Applying these principles, we conclude:

1. When the law firm in this case dissolved, the client had sole authority to
345 P.3d 935
determine who should represent him. Here, he chose LaFond.
2. LaFond handled the client's case to its resolution, and so he has rights in the contingent fee.
3. Because the contingent-fee case was brought into the law firm before the firm dissolved, and because LaFond continued to handle the case until it was resolved, the contingent fee allocated to him as a result of the settlement is the firm's asset. Therefore, Sweeney also has rights in the contingent fee.
4. LaFond owed the dissolved law firm fiduciary duties, including a duty to divide the firm's assets with Sweeney in accord with the oral fee-sharing arrangement in place when the firm dissolved. This duty extends to the contingent fee.
5. As a result of these conclusions, we reverse the trial court's judgment in favor of LaFond and remand to the trial court for further proceedings to determine the amount of the contingent fee that should be awarded to Sweeney.

I. Background

¶ 8 After they formed the LLC, LaFond and Sweeney orally agreed to share equally in all the firm's profits, without regard to who brought cases into the office or who did work on them. The law firm dissolved on June 1, 2008.

¶ 9 Several cases were pending when the firm dissolved, including the representation of Bobby Maxwell in a qui tam whistle-blower action brought under the False Claims Act, 31 U.S.C. §§ 3729 to 3733. United States ex rel. Maxwell v. Kerr McGee Oil & Gas Corp., No. 04–CV–01224–MSK–CBS (D.Colo.). The law firm was co-counsel with another attorney, Michael Porter, on this case, and it involved a contingent fee agreement. LaFond continued to represent Maxwell as co-counsel with Porter after the firm dissolved, entering his appearance under the firm Richard C. LaFond, P.C.

¶ 10 When the law firm dissolved, LaFond and Sweeney were unable to agree on the division of the fees that might ultimately be earned from the Maxwell case. Sweeney filed a notice of attorney's lien on behalf of the law firm and herself to protect their interest in any fees, costs, or reimbursements that might be generated by the Maxwell case.

¶ 11 LaFond then filed this action for declaratory relief against Sweeney to determine how these fees should be distributed. Sweeney answered, joined the law firm as a party, and filed counterclaims, including a request to enforce the attorney's lien.

¶ 12 This case was tried to the court. The record establishes that, before the firm dissolved, over 1600 hours of work had been invested in the Maxwell case. Further, as of trial, LaFond proved that he had worked an additional 68 hours on the Maxwell case.

¶ 13 The trial court determined that (1) the Maxwell case had been an asset of the law firm; (2) the value of the case as the firm's asset was its value when the law firm dissolved on June 1, 2008; (3) the value was to be determined by a calculation based on work that was done and costs that were advanced as of June 1, 2008; (4) this calculation multiplied the number of hours worked by the hourly billing rate, which resulted in a figure of $536,636.50 in fees, with added costs of $60,543.38, which resulted in a total of $597,179.88; (5) the oral agreement between LaFond and Sweeney required that any “profit” from the case be divided equally; and (6) if LaFond recovered contingent fees from the Maxwell case, Sweeney would be entitled to one half of them up to a ceiling of $597,179.88, or a maximum of $298,589.94.

¶ 14 We have recently been informed that the Maxwell case has settled. Sweeney has provided us with a complaint in interpleader that Porter filed in the Denver District Court. In it, Porter (1) recognizes the dispute between LaFond and Sweeney over the contingent fee allocated to LaFond in the settlement of the case; (2) anticipates receiving funds in the “near future” that are the subject of that dispute; (3) states that LaFond and Sweeney “have agreed” that a portion of those funds “may properly be

345 P.3d 936

paid” to LaFond or Sweeney; and (4) adds that another portion “remains in dispute and needs to be safely sequestered” to protect the interests of Sweeney and the law firm.

¶ 15 The document then states that “it has been agreed that the following amounts remain in dispute [between LaFond and Sweeney].” Porter describes those amounts as $743,881.33 in contingent fees; pro rata interest on $743,881.33, which would be approximately $1,800 to $2,000; and $57,821.78 in costs. He states that these amounts will be placed in the court's registry, which will, he contends, “sufficiently protect” the interests of Sweeney and the law firm.

¶ 16 However, despite our request at oral argument for clarification, LaFond and Sweeney have not provided us with sufficient information for us to determine whether the portion of the funds that they agreed “may properly be paid to LaFond or Sweeney” includes either compensation to LaFond for the work he did on the case after the law firm was dissolved, or compensation to LaFond and Sweeney for work done before the law firm was dissolved, based on hours worked times hourly billing rate, up to one half each of $597,179.88, or $298,589.94 apiece.

¶ 17 They have also not provided us with sufficient information for us to determine what Porter meant by his statement that $743,881.33 in contingent fees, pro rata interest of $1,800 to $2,000, and $57,821.78 in costs “remain in dispute.” For example, we cannot determine whether $743,881.33 in contingent fees represents all the contingent fees allocated to LaFond in the settlement of the case; one half of the entire figure; or an amount based on some other calculation.

¶ 18 On appeal, LaFond and Sweeney agree that their oral agreement requires them to divide the “profits” from the Maxwell case equally. They dispute, however, how those “profits” should be calculated.

¶ 19 LaFond agrees with the trial court's decision to award Sweeney $298,589.94, based on an hourly valuation of attorney time and costs expended by the firm as of June 2008. He contends that Sweeney is not entitled to any more. Sweeney disagrees with the trial court's order, arguing that the court employed the wrong legal standard for calculating the value of the Maxwell case. She submits that she and the law firm are entitled to half the entire contingent fee awarded in the Maxwell case. We agree with Sweeney.

II. Analysis

A. Standard of Review

¶ 20 This case presents a question of law, which we review de novo. See E–470 Pub. Highway Auth. v. 455 Co., 3 P.3d 18, 22 (Colo.2000).

¶ 21 Our analysis also requires statutory interpretation, which is likewise a question of law that we review de novo. Crow v. Penrose–St. Francis Healthcare System, 262 P.3d 991, 995...

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