Superior Court Considers Partner’s Right to Accounting upon Dissolution, Construes Rule of Professional Conduct on Fee Sharing Between Lawyers and Nonlawyers

October 7, 2013

In Ignelzi v. Ogg, 2013 PA Super 268 (Oct. 7, 2013), the Pennsylvania Superior Court considered the Uniform Partnership Act (“UPA”) in regard to a partner’s right to inspect partnership records and to request an accounting upon dissolution. The dispute arose when the plaintiff, who was a partner in a law firm with the defendants, left the firm to become a judge. Upon his departure, the firm dissolved, and the plaintiff’s former partners formed a new firm with one of the defendants. The plaintiff and his former partners attempted to reach an agreement as to the valuation and distribution of the dissolved firm’s assets, but to no avail. Accordingly, the plaintiff filed suit against his former partners and their new firm alleging various causes of action, including one for breach of the UPA that sought an accounting of the partnership assets in regard to outstanding contingency fee cases that were being handled by the new firm. The plaintiff also sought to inspect various records of the dissolved firm and the new firm. Essentially, it was the plaintiff’s position that an oral agreement or course of conduct existed between the parties as to contingency fee cases. The defendants opposed the plaintiff’s requests, however, arguing that they were baseless because the plaintiff had no right to the fees generated from those cases, and that disclosure in any event would violate the duty of confidentiality owed to their clients. The Superior Court held that the plaintiff was entitled to inspect the records of the dissolved firm, but that an accounting of the contingency fee cases was not proper.

As a preliminary matter, the court began its analysis by addressing the procedural issue of whether the trial court’s decision to permit an accounting was interlocutory in nature. The court held that it was not, citing caselaw holding that the right to an accounting is statutory and exists independently from causes of action asserted in connection with the requested accounting. Consequently, the accounting issue was properly before the court.

Moving on to the merits, the court distinguished the case from Huber v. Etkin, 58 A.3d 772 (Pa. Super. 2012), where the court recently addressed a similar issue and held that law partners have a duty to account for contingency fees cases as part of the wind up process of a partnership upon dissolution. According to the court, Huber was not controlling since the plaintiff alleged the existence of an oral agreement with respect to the contingency fee cases, in effect taking the issue outside of the default provisions of the UPA. In so concluding, the court also distinguished the case before it from other cases in which the court has held that an interest in contingency fee cases could not be determined as of a specific date of valuation, such as the date of a shareholder’s death or, in the context of a divorce, the date of separation, because of the uncertain nature of such fees.

Further, the court also went on to hold that Huber was distinguishable because the law partners in that case, unlike the plaintiff, all continued to practice law. Of particular concern to the court was Pennsylvania Rule of Professional Conduct 5.4, which prohibits fee sharing between lawyers and nonlawyers. In the court’s view, permitting the plaintiff, who is prohibited from practicing as a lawyer because he is now a judge, to recover for the contingency fee cases could run afoul of this rule, especially if the alleged oral agreement did not predate the plaintiff’s decision to become a judge. Because the record was still undeveloped on this point, the court remanded the case to the trial court with the instruction to consider Rule 5.4 in connection with the request for accounting.  The full decision can be found here: Ignelzi v. Ogg, 2013 PA Super 268 (Oct. 7. 2013).pdf

As a brief comment, it is interesting that the court began its analysis by distinguishing Huber on the basis that the plaintiff alleged the existence of an agreement between the parties, rather than focusing on Rule 5.4. Specifically, in the event that the defendants deny the existence of any agreement between the parties, and the plaintiff is unable to prove any such agreement, it would seem that the default provisions of the UPA would control, as they did in Huber. Indeed, the court seemed to recognize as much insofar as it said that the terms of the alleged agreement will apply “[i]f [the plaintiff] is correct.” Regardless, even if the UPA ultimately were to govern the dispute, the court’s concerns about Rule 5.4 would still remain, thus explaining why the court remanded the case with the express instruction to consider Rule 5.4.

Recent Insights