Robinson v. Nussbaum

• Decision Date: 23 July 1997
• Docket Number: No. CIV.A. 96-2243(HHG).,CIV.A. 96-2243(HHG).
• Citation: 11 F.Supp.2d 1
• Parties: Jeffrey D. ROBINSON, et al., Plaintiffs, v. Michael NUSSBAUM, Defendant.
• Court: U.S. District Court — District of Columbia

Page 1

11 F.Supp.2d 1

Jeffrey D. ROBINSON, et al., Plaintiffs, v. Michael NUSSBAUM, Defendant.

No. CIV.A. 96-2243(HHG).

United States District Court, District of Columbia.

July 23, 1997.

John Payton, Michael W. Carroll, Steven P. Finizio, Wilmer, Cutler & Pickering, Washington, DC, for Plaintiffs.

Jacob A. Stein, Stein, Mitchell & Mezines, Washington, DC, Bernard J. Nussbaum, Sonnenschein Nath & Rosenthal, Chicago, IL, for Defendant.

OPINION

HAROLD H. GREENE, District Judge.

The case arises out of the dissolution of the prominent law firm of Nussbaum & Wald. Plaintiffs Jeffrey D. Robinson, Eric L. Lewis, Michael B. Waitzkin, Martin R. Baach, and James P. Davenport and defendant Michael Nussbaum were general partners at Nussbaum & Wald. Currently before the Court are the parties' respective motions for partial summary judgment.¹ As will be seen below, the legal issues are, surprisingly, relatively novel and therefore of some difficulty.

I Background

Nussbaum & Wald opened its doors as a law partnership in October of 1989. The firm operated as such until its dissolution on September 9, 1996. Nussbaum & Wald was never governed by a written partnership agreement. According to plaintiffs, as early as the firm's inception there was an understanding among the partners that the firm needed to adopt a comprehensive partnership agreement. Plaintiffs allege that for almost five years the partners at Nussbaum & Wald attempted to draft an agreement that would control, among other things, the liabilities and the distribution of the firm's assets after dissolution. They further claim that during this period Nussbaum repeatedly represented that he would cooperate in the development of such an agreement, but that he stalled, and even thwarted, this effort at every turn.

Defendant Nussbaum tells a very different story. He alleges that he, too, wanted the partners to adopt a written partnership agreement and that he cooperated with outside counsel hired to draft such an agreement. According to him, the efforts came to naught because the agreement failed to include a retirement plan for him, funded out of profits of the firm. He claims that it was this issue, not any bad faith or unwillingness on his part, which stalled the adoption of a written agreement.

More specifically, Nussbaum alleges that on August 31, 1996 James Davenport, another partner, had delivered to him a draft partnership agreement and a memorandum to all the partners. Nussbaum interpreted this memorandum as issuing an ultimatum — either he agree to the terms plaintiffs wanted included in the partnership agreement or Nussbaum & Wald would be dissolved. Given the tensions between partners this issue had produced and in light of the threat of dissolution by Davenport, Nussbaum claims, he dissolved the partnership by serving notice on his partners on September 9, 1996.

At the time of dissolution the firm employed approximately twenty-five lawyers and thirty-five support personnel. A large portion of the firm's revenues came from matters billed on an hourly rate basis. Almost all of the partners and associates from the firm of Nussbaum & Wald went on to establish the new law firm of Baach, Robinson & Lewis. Currently, Baach, Robinson & Lewis handles cases which were pending at Nussbaum & Wald at the time the firm was dissolved.

Plaintiffs filed the instant action on September 30, 1996. Initially, plaintiffs sought only declaratory relief. However, they later amended their complaint to include claims for damages for fraud, misrepresentation, breach of contract, wrongful dissolution, and breach of fiduciary duty. Plaintiffs also seek a declaration that Nussbaum & Wald did not have a partnership agreement with respect to the partners' shares in the profits of the firm for 1995 and 1996 as well as a declaration that Nussbaum is not entitled to share in the profits earned by plaintiffs from their work following the dissolution of Nussbaum & Wald on hourly rate matters pending in the firm at the time of dissolution.

Defendant Nussbaum has filed a three-count counterclaim. First, he seeks a declaratory judgment that he is entitled to share in fees earned after dissolution for pending but uncompleted matters. Next, he seeks a declaration that his partnership share is 36.8%. Third, he demands an accounting of his entitlements in the winding up of the partnership.

Both parties have moved for partial summary judgment on the same issue: defendant Nussbaum's entitlement to share in hourly fees earned by Baach, Robinson & Lewis which stem from client matters which were pending but uncompleted at Nussbaum & Wald at the time of dissolution. For the reasons explained below, the Court will grant summary judgment in favor of defendant on this central issue.

II Standard of Review

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). For purposes of summary judgment, "the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original). In determining this, a court must draw all justifiable inferences in favor of the nonmoving party. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520, 111 S.Ct. 2419, 115 L.Ed.2d 447 (1991). The non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Only if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law may the Court grant summary judgment. Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505.

III Are Hourly Rate Profits Property of the Partnership

As indicated, Nussbaum & Wald did not have a written partnership agreement. The rights and liabilities of the partners are therefore governed by the District of Columbia Uniform Partnership Act, D.C.Code §§ 41-101 et seq. (the "Partnership Act").

Under the Partnership Act, a partnership is terminated by a series of steps. First, the partnership is "dissolved" by one or more partners. Dissolution is "the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business." D.C.Code § 41-128. At the second stage, the partnership's liabilities are satisfied. Finally, the net assets of the partnership are distributed between and among the partners. D.C.Code §§ 41-128, 41-135, 41-137.

A partnership continues after dissolution. D.C.Code § 41-129. Each partner is entitled to "have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners." D.C.Code § 41-137(a) (emphasis supplied). Unless the dissolution is contrary to an express partnership agreement, partners are entitled to the benefits which inure "from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property." D.C.Code § 41-120(a) (emphasis supplied). Thus, profits derived from transactions which are not yet completed at the time of dissolution remain the property of the partnership, even if these profits are received after the partnership's dissolution.

The question before the Court is whether profits earned by Nussbaum & Wald's former partners on matters pending at the firm at the time of dissolution billed not an contingency basis but on an hourly rate basis, are "property" under the Partnership Act.

Although this is an issue of first impression in the District of Columbia, both parties recognize that this case is largely controlled by the D.C. Court of Appeals' opinion in Beckman v. Farmer, 579 A.2d 618 (D.C. 1990). That case involved the dissolution of a three-person law practice and the distribution of a large contingency fee received after the partnership had dissolved. Plaintiff Farmer had been a partner in the law practice of Beckman, Farmer & Kirstein. Some years later, Beckman informed Farmer that he wanted him out of the partnership. The partners reached a complicated arrangement for Farmer's departure, culminating in a "Separation of Practice Agreement."

A dispute soon arose as to distribution of a hefty contingency fee from a pending case which was to be paid to the partnership after Farmer left.² The court decided that Farmer was entitled to a full share of the contingency fee, 579 A.2d at 639, holding that following the dissolution³ of a law partnership, the pending cases are "uncompleted transactions" under the Partnership Act and require winding up after dissolution. 579 A.2d at 636. These pending cases, according to the Court, remain "assets" of the partnership, and the profits from completing these matters must be distributed to each partner according to his share. Id.

Plaintiffs claim that Beckman does not speak directly to the issue before the Court because it addressed only the distribution of contingency fees, not profits from work on hourly rate matters. This premise is certainly factually correct. But the court neither limited its holding to contingency fee cases nor attempted to distinguish between contingency fee matters and hourly rate representation. It explained that the parties had signed a separate side agreement which resolved the disposition of fees earned from hourly rate matters. For this reason, the Court did not explicitly address distribution of profits from hourly rate matters except to conclude broadly that "all work performed on partnership business unfinished at the date of dissolution and unaddressed by the Separation of Practice Agreement, including the Laker...