Jacobson Holman, PLLC v. Gentner

Jacobson Holman, PLLC v. Gentner

Opinion

 [*692]  Easterly, Associate Judge: This appeal arises out of a dispute over contractual terms in a law firm's operating agreement governing the payout to an equity partner leaving the firm. Marsha Gentner sued Jacobson Holman, PLLC ("the firm"), for breach of contract because it refused to pay the equity interest she believed was due to her under the firm's operating agreement (actually a collection of agreements). Specifically, she claimed that the firm, where she had worked for three decades, had improperly calculated her equity share by failing to rely on the last annual financial statement issued prior to her notice of withdrawal as required by the operating agreement. She also asserted that a provision in the operating agreement which forced her to forfeit half of her equity interest if she took any clients from the firm violated D.C. Rule of Professional Conduct 5.6(a) and was thus unenforceable. The Superior Court concluded that Ms. Gentner was entitled to judgment as [**2]  a matter of law, both as to the payout of her equity share under the operating agreement and as to the enforceability of the forfeiture provision. The firm appealed both components of the trial court's ruling. We affirm and publish this opinion to ensure that the members of the District of Columbia Bar understand the strictures of Rule 5.6(a).

I. Facts and Procedural History¹

A. Ms. Gentner's Tenure at the Firm and the Firm's Operating Agreement as amended.

Ms. Gentner joined a predecessor entity to the firm as an associate in 1983, later becoming an equity partner. In 1989, the firm's equity partners signed a new Partnership Agreement. Paragraph 24A of the 1989 agreement addressed "Payment Upon Withdrawal of a Partner." It provided  [*693]  that payment would be based on a partner's "adjusted Accrual Basis Account," which would "be equal to the Accrual Basis Account of such Partner as of the end of the fiscal year immediately preceding the effective date of withdrawal," and then "adjusted for Net Profits (and Losses) and Accrual Basis Profits (or Losses) allocable to such Partner up to [the] date of withdrawal." Paragraph 24A identified two methods for calculating "[s]uch adjustment": the withdrawing partner [**3]  and the remaining partners would agree on the adjustment, or it would be calculated "by applying the allocation percentage for the withdrawing Partner of Net Profits determined based on the average allocation percentage to such Partner of Net Profits for the last two fiscal year-ends immediately preceding such withdrawal." Lastly, Paragraph 24A provided that "[t]he adjusted Accrual Basis Account of a Partner at [the] date of withdrawal [would] be established by the accountants regularly employed by the Partnership as soon as practicable after the effective date of such withdrawal[,] . . . [would] be conclusive and binding upon all Partners hereto," and would "include a reduction for doubtful accounts, based upon prior experience of the Partnership."

The firm converted to a professional limited liability company in 1996. The Operating Agreement effecting this conversion expressly incorporated provisions of the 1989 Partnership Agreement that addressed "the withdrawal or retirement of Equity Members, except to the extent that any such provision of the Partnership Agreement [was] inconsistent with the [District of Columbia Limited Liability Act of 1994], the Articles [of Organization] [**4]  or this Agreement."

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