Phelps v. Frampton

Decision Date22 October 2007
Docket NumberNo. 05-098.,05-098.
Citation2007 MT 263,170 P.3d 474
PartiesJohn M. PHELPS and John Phelps, P.C., Plaintiffs and Appellants, v. Sean S. FRAMPTON and Sean S. Frampton, P.C., Defendants and Appellees.
CourtMontana Supreme Court

For Appellants: James P. Molloy, Molloy Law Firm, Helena, Montana.

For Appellees: Sean S. Frampton, Morrison & Frampton, PLLP, Whitefish, Montana.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 John M. Phelps and John M. Phelps, P.C. (collectively, "Phelps") appeal from the order and final judgment of the District Court for the Eleventh Judicial District, Flathead County, granting summary judgment in favor of Sean S. Frampton and Sean S. Frampton, P.C. (collectively, "Frampton") and dismissing Phelps's complaint on the merits with prejudice. We affirm.

¶ 2 The sole issue on appeal is whether the District Court erred in granting summary judgment in favor of Frampton on each of the claims set forth in Phelps's complaint.

The Partnership Agreement

¶ 3 The law firm of Hedman, Hileman & Lacosta, P.L.L.P. ("the Firm") is a partnership located in Whitefish, Montana. The three original partners are Donald E. Hedman, William E. Hileman, Jr., and Susan M. Lacosta. Phelps joined the Firm as an equal partner in 1996. Frampton joined as an associate in 1996 and was admitted as an equal partner in 1999.

¶ 4 The operation of the Firm is controlled by a partnership agreement ("Agreement" or "Partnership Agreement"), which includes the 1980 formation agreement, a 1999 addendum, and a 2001 amendment. With respect to partnership draws, the Agreement provides, in pertinent part:

3. Partnership Draws: Except as otherwise provided herein, each partner will keep 50% (or such other percentage unanimously agreed upon by the partners) of the monthly fees paid and properly credited as his/her own. Such percentage shall be determined under the existing fee credit system using hourly rates for all attorneys with the remaining percentage to be retained in a partnership pool from which all overhead expenses will be paid.

. . . .

d) Any partners whose gross income reaches the sum of $200,000 in any calendar year shall be relieved of further contributions to the partnership pool for the remainder of said year, and shall be entitled to keep 100% of the fees paid and properly credited as his/her own in excess of $200,000 for said year.

In essence, a partner's contribution to the partnership pool of 50% of his or her monthly fees is capped at $100,000 per year; thus, after a partner has contributed $100,000 in a given year, the partner retains 100% of the monthly fees paid and properly credited as his or her own.

¶ 5 With respect to work on contingent-fee cases shared among partners, the Agreement states:

6. Shared Work: In light of the policy [to develop specialties within the Firm] set forth in Paragraph 2 above, when two or more partners henceforth work together on a case, the following fee arrangement shall be followed:

a. Hourly Cases:

b. Contingent Fee Cases: Each partner is entitled to receive part of a fee earned based upon (1) each partner's percentage of the total time spent on the case, or (2) a pre-determined percentage split which shall take into consideration such factors as origination of the case/client, etc.

The Gallagher Case

¶ 6 On or about May 26, 2000, four individuals were killed in an automobile accident in which a side saddle fuel tank exploded. V.M., a relative of the deceased, worked as a clerk for Whitefish City Judge Bradley F. Johnson, who assisted V.M. in obtaining legal representation to protect her rights and interests and to pursue a claim against General Motors ("the Gallagher case"). In particular, Johnson recommended that V.M. contact Frampton. As Johnson later explained in a January 15, 2004 affidavit filed in the case at hand:

I recommended that [V.M.] contact Sean Frampton, who she knew by virtue of his position as Whitefish City Prosecutor. [V.M.] generally distrusted lawyers, but I knew that she needed to have a legal representative to protect her rights and interests during a very unsettling time. I spoke with Sean about the need for representation and the scope of representation, to include a lawyer with the ability and expertise to pursue a claim against GM and to promptly preserve evidence (witness accounts and physical evidence). I felt that Sean had the legal acumen and the personal relationship with [V.M.] that was appropriate to the matters. I did not refer the case generally to the Hedman, Hileman and Lacosta law firm because [V.M.] did not like some of the other members of the firm. She did express her like for and trust in Sean, individually.

¶ 7 V.M. and the personal representative of the decedents' estates thereafter met with Frampton about the Gallagher case and signed contingent-fee agreements with the Firm. In a June 7, 2004 affidavit, V.M. stated:

I did not refer this case to either John Phelps or the law firm of Hedman, Hileman, & Lacosta. Sean Frampton was the lawyer I sent the case to. I considered Sean Frampton to be our lawyer on this matter. . . . Although I knew Gene Hedman, Bill Hileman, Susan Lacosta, and John Phelps, I did not have a relationship with them. I knew Sean Frampton and had a relationship with him, and knew that I could trust him with this very important matter. [Paragraph break omitted.]

¶ 8 Frampton and Hileman agreed to work on the Gallagher case together and entered into an agreement regarding the sharing of work and splitting of fees on the case. They involved a Georgia law firm and another Montana law firm with more expertise in bringing this type of lawsuit. The Georgia firm agreed to pay all case expenses. It is undisputed that Phelps performed no legal services on the Gallagher case.

¶ 9 The Gallagher case settled in April 2002. As part of the settlement, the Georgia firm sent a check payable to "Hedman, Hileman & LaCosta, P.L.L.P." for approximately $1.8 million ("the Gallagher fee"). Of this amount, 55% was allocated to Frampton and the other 45% was allocated to Hileman pursuant to their predetermined percentage split. Frampton and Hileman contributed to the partnership pool until they each reached the $100,000 contribution cap. In addition, they gave bonuses to Hedman, Phelps, and the Firm's employees. (Apparently, Lacosta was not given a bonus because Hileman, to whom Lacosta was married, had indicated that she would receive a bonus from his 45% share of the Gallagher fee.) The amount of the bonuses given to Hedman and Phelps was $25,000 each, with no obligation to contribute any of this amount to the partnership pool. Phelps, however, was unsatisfied with this amount and returned his bonus.

The Release

¶ 10 Believing that $120,000 would be a more appropriate amount for a bonus, Phelps retained counsel to represent him in his fee dispute with Frampton and Hileman. Phelps eventually settled with Hileman, and, as part of the settlement, Phelps released the Firm from any claims that he might have against it related to the allocation of the Gallagher fee. However, Phelps specifically reserved any such claims against Frampton.

Phelps v. Frampton

¶ 11 Phelps initiated the instant lawsuit on March 17, 2003, asserting six claims against Frampton. (Phelps subsequently filed an amended complaint; however, the substance of his allegations remained substantially the same.) Under Count I ("Breach of Written Contract"), Phelps alleged that partnership net profits are allocated under the Agreement pursuant to the number of partnership units held by each partner and that he held one partnership unit out of the five partnership units outstanding (i.e., a 20% share) during the period at issue here. Phelps further alleged that a partner is entitled to a distribution of the fees that he or she has earned and that have been properly credited as his or her own, but that "[t]he Agreement does not, however, address or provide how a referral fee like the one received from [the Gallagher case] should be allocated." Consequently, according to Phelps, Frampton "breached the Agreement" by "keep[ing] the disproportionately large share of the fee from [the Gallagher case]," and "Phelps is entitled to 20% of the fee wrongfully retained by Frampton in breach of the Agreement."

¶ 12 Under Count II ("§§ 35-10-106(1) and 35-10-401(2), MCA"), Phelps alleged that "[b]ecause the Agreement does not address the allocation of a referral fee like the one received from [the Gallagher case], §§ 35-10-106(1) and 35-10-401(2), MCA require that the fee be shared equally by all [five] partners." Under Count III ("Breach of Oral Contract-Promissory Estoppel"), Phelps alleged that Frampton had orally agreed with Phelps "to share a substantial portion of the fee that he received from [the Gallagher case] with the other Hedman firm partners," that "[i]n reliance upon Frampton's assurances, Phelps forewent another employment opportunity that was available to him," and that "Frampton's failure and refusal to pay Phelps a 20% share is a breach of Frampton's oral contract." Under Count IV ("Breach of Covenant of Good Faith and Fair Dealing"), Phelps alleged that "Frampton breached the covenant of good faith and fair dealing by claiming and retaining an extraordinarily large sum as his sole property and refusing to pay Phelps his share." Under Count V ("Breach of Fiduciary Duty"), Phelps alleged that Frampton owed "a fiduciary duty to Phelps in connection with his appropriation of partnership property or opportunity" and that Frampton breached this duty "by claiming and retaining an extraordinarily large sum as his sole property and refusing to pay Phelps his share." Lastly, under Count VI ("Constructive Trust"), Phelps alleged that "Frampton derived property or benefit by appropriation of partnership property or opportunity" and that "Frampton would . . . be...

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