Law School Case Brief
Beckman v. Farmer - 579 A.2d 618 (D.C. 1990)
The customary attributes of partnership such as profit and loss sharing and joint control of decisionmaking are necessary guideposts of inquiry, but none is conclusive. For example, D.C. Code Ann. § 41-106 (4) creates, in effect, a statutory presumption of partnership from evidence that a party shared in the profits of the business. An exception is made, however, if the profits are received in payment as wages of an employee. Similarly, while a right of joint control is ordinarily key to partnership, one partner may cede the power to manage and control the business to one or more of his associates. A person may be a partner even though he has entrusted control of the business exclusively to his associates. The question then becomes whether or not the participant had the right to exercise control in the management of the business.
In the Summer of 1981, Robert Beckman and Donald Farmer, Jr. agreed to form a joint law practice called "Beckman & Farmer." The two men mailed out engraved notices announcing the "formation of a partnership for the practice of law." While drafts of formal partnership agreements were exchanged during negotiations, the two men never executed a contract defining the nature of their association and respective rights and duties. They did, however, memorialize in writing an agreement that Farmer would receive a guaranteed "draw" of $85,000 annually, payable monthly, and certain percentages of firm profits if net annual profits exceeded specified amounts. The document further stated Beckman would provide financing as required, and would be reimbursed by the firm for expenses he covered. Effective January 1, 1983, David Kirstein joined the firm. He also executed no formal agreement defining his status, but a document captioned “Re: Partnership Agreement,” set out a revised agreement on division of net profits reflecting his participation. For the first few years, the firm incurred a loss, and Beckman advanced funds to cover this shortfall. From time to time thereafter, Beckman made other similar advances, all of which the firm eventually repaid. In various internal documents and memoranda Beckman referred to the entity as a partnership, and the bank accounts, books, and records of the firm were maintained as if the same was a partnership. Similarly, the firm's accountant prepared, and until 1984 Beckman signed, partners ship tax returns, and the firm filed Schedule K-1 forms identifying Beckman, Farmer and Kirstein as partners.
After doing work for an important client, and waiting for the contingent fee therefrom, the relationship between Beckman & Farmer soured. This led to the winding up of the partnership and of the separation of practice of Farmer from that of Beckman and Kirstein. Thereafter, Farmer filed suit in Superior Court against Beckman and Kirstein, seeking damages, an accounting, and injunctive relief for fraud, conversion, breach of fiduciary duty and breach of partnership agreement. In essence, Farmer alleged that Beckman and Kirstein had conspired to deprive him of a rightful share of the contingent fee by forcing him out of the partnership by fraud, breach of fiduciary duty, and a refusal to acknowledge Farmer's partnership rights. During the trial, Farmer alleged that the fiduciary breach was continuing in nature, referring primarily to the defendants' persistent refusal to conduct a final accounting in the manner sought by Farmer. The superior court granted Farmer's motion for summary judgment after concluding that the law firm had advanced virtually no record evidence to substantiate the allegations that the business arrangement was not in fact a partnership.
Was an attorney entitled to summary judgment on the threshold issue regarding the existence of the partnership?
On appeal, the District of Columbia Court of Appeals disagreed with the superior court and held that, despite the fact that Farmer had presented very substantial evidence of a partnership, the law firm also had proffered evidence on key determinative issues with respect to the right of control and liability for business losses. Because both those issues were key in determining whether the partnership existed, the superior court erred when it granted summary judgment in favor of the partner. Further, the court found that the superior court erred during the trial on the breach of fiduciary duty and civil conspiracy issues when it admitted into evidence an offer of compromise made by the law firm in a letter to the partner. The court concluded that the erroneous admission was not harmless and that a new trial was warranted. Accordingly, the judgments of the superior court were reversed and the matter remanded for a new trial.
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