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MILLER v. FOULSTON

April 13, 1990.

MALCOLM MILLER, Appellant,
v.
FOULSTON, SIEFKIN, POWERS & EBERHARDT, a Kansas Partnership; and ROBERT C. FOULSTON, ROBERT N. PARTRIDGE, JOHN F. EBERHARDT, ROBERT M. SIEFKIN, RICHARD C. HARRIS, GERALD SAWATZKY, ROBERT L. HOWARD, CHARLES J. WOODIN, MIKEL L. STOUT, MICHAEL KIM MOORE, WILLIAM R. SAMPSON, CHRISTOPHER P. CHRISTIAN, JERRY G. ELLIOTT, BENJAMIN C. LANGEL, WILLIAM H. DYE, PHILLIP S. FRICK, STANLEY G. ANDEEL, FREDRICK L. HAAG, RICHARD D. EWY, DARRELL L. WARTA, HARVEY R. SORENSEN, JAMES M. ARMSTRONG, MARY KATHLEEN BABCOCK, CHARLES P. EFFLANDT, and JAMES D. OLIVER, individuals in said partnership, Appellees.



*fn1 REPORTER'S NOTE: Pursuant to the authority vested in the Supreme Court by article 3, § 6(f) of the Kansas Constitution, Hon. Fred S. Jackson, Shawnee District Judge, and Hon. David S. Knudson, Saline District Judge, served on the Supreme Court to participate in the hearing and decision of this case vice Justices Holmes and Herd.

The opinion of the court was delivered by

This is a civil action brought by the plaintiff, Malcolm Miller, against the law firm of Foulston, Siefkin, Powers & Eberhardt (Foulston-Siefkin) and his former partners. The plaintiff involuntarily left the firm under pressure, and, although he alleges ten separate claims in his petition, the basis of his action is that he should receive retirement benefits and a share of the attorney fees the firm received for its 20-year litigation in two sets of class action cases that have become known as the consolidated and the private helium cases. The district court denied plaintiff's motion for partial summary judgment and granted summary judgment to defendants on the grounds the claims were barred by the statute of limitations. Miller appeals from that judgment.

  Miller began practicing with Foulston-Siefkin in 1952. In a memo dated May 13, 1982, the executive committee of Foulston-Siefkin advised plaintiff that it was concerned about his participation in the firm and was suggesting a substantial reduction in compensation. In December 1982, plaintiff was advised by memorandum from "his partners" of their desire for him to resign rather than face expulsion. Fifteen partners signed the memo. It was based upon a unanimous recommendation from the executive committee that plaintiff be expelled from Foulston-Siefkin. Plaintiff left the firm January 1, 1983. He was of counsel with the firm until February 28, 1983, when he was required to remove

[246 Kan. 452]

      all his belongings from the firm's offices. Plaintiff never intended to retire from the practice of law when he left Foulston-Siefkin.

  Foulston-Siefkin first became involved in complex helium litigation in 1963. One set of cases in this class action became known as the consolidated helium cases. One of these cases settled in 1985, the others in 1988. The court awarded attorney fees of approximately $17 million. The second set of cases, known as the private helium cases, which were filed in 1971 and 1986, resulted in attorney fees of approximately $4.5 million. According to plaintiff, he suggested to his partner, Gerald Sawatzky, that Foulston-Siefkin seek a consensual achievement fee in the helium litigation but was told that such a request was not possible because the attorney time had been billed at a high rate throughout the litigation. This claim was denied by Sawatzky. His affidavit states that the continuous agreement with Foulston-Siefkin's clients in the helium cases was that the firm would bill at a minimum level with the understanding that, if recovery occurred, the court would be asked to award attorney fees from the amount recovered at full compensation.

  Plaintiff and Foulston-Siefkin disputed whether plaintiff should receive retirement benefits. At one point, the firm agreed to pay plaintiff retirement benefits in the amount of $190,416.89 in 120 equal installments of $1,586.81, beginning June 1, 1983, conditioned upon plaintiff's retirement. In May 1983, at the Foulston-Siefkin partnership meeting, it was reported that the firm would begin paying these retirement benefits. In the fall of 1983, plaintiff and Foulston-Siefkin attempted to negotiate a settlement which would allow plaintiff to continue some activity in the practice of law while remaining retired and receiving retirement benefits under the 1965 Foulston-Siefkin partnership agreement. Pursuant to the proposal, Foulston-Siefkin agreed to pay plaintiff $190,000 over ten years while liberalizing the phrase "practice law" contained in the partnership agreement to allow some minimal activity. Foulston-Siefkin offered to pay plaintiff $2,000 a month for 96 months if he restricted his practice to "permitted activities."

  In December 1985, plaintiff learned that Foulston-Siefkin had sought extraordinary attorney fees in the helium cases. Foulston-Siefkin first received payment on those fees in December 1985. Plaintiff sought to have a portion of the helium fees, but his

[246 Kan. 453]

      request was denied. He filed the original petition on November 30, 1987. He filed his amended petition, which alleges the ten claims against the defendants, on January 20, 1989.

  Plaintiff filed a motion for partial summary judgment on October 26, 1988, asking the trial court to find: (1) that the 1965 Foulston-Siefkin partnership agreement was void under the Kansas Code of Professional Responsibility, DR 2-108(A) (1989 Kan. Ct. R. Annot. 159); or, in the alternative, (2) that the withdrawal, retirement, and expulsion portions of the 1965 agreement are void under the Code of Professional Responsibility. The trial court denied the motion, finding that the 1965 agreement did not violate any ethical code and that plaintiff did not retire, which meant that he was not entitled to retirement funds available under the 1965 agreement.

  Defendants (except Christopher P. Christian) filed a motion for summary judgment, arguing plaintiff's claims were time barred. The trial court found that the longest applicable statute of limitations was three years; that the action should have commenced about the end of 1985 or the early part of 1986; and that, because the action was not commenced until late in 1987, the claims were barred. The court further found that plaintiff's status in the law firm gave him knowledge that would include an awareness of the potential attorney fees that could be produced under the helium litigation even though the exact amount of anticipated fees was not known in late 1982. Finally, the court concluded that, even though plaintiff's claims are time barred, they might provide offsets to defendants' counterclaims. The defendants dismissed their counterclaims on March 13, 1989. Defendant Christian's motion for summary judgment was granted on March 27, 1989, based upon the same grounds as the others.

  Plaintiff argues that the trial court erred in denying his motion for partial summary judgment because the 1965 Foulston-Siefkin partnership agreement is unethical and unenforceable in two ways. First, plaintiff argues that the agreement on its face restrains the practice of law and does not comply with the requirements of DR 2-108 (1989 Kan. Ct. R. Annot. 159) of the Kansas Code of Professional Responsibility, which allows for conditional payment of retirement benefits. Second, plaintiff argues that Foulston-Siefkin attempted to use the agreement to compel plaintiff

[246 Kan. 454]

      to quit practicing law, which would also violate DR 2-108. Finally, plaintiff argues that, because the agreement's restraint on the practice of law was unethical and unenforceable, the entire 1965 partnership agreement is invalid and should be found to be void.

  We first consider if the conditional payment of retirement benefits make the 1965 agreement unethical and unenforceable on its face. DR 2-108(A) is intended to give clients the widest possible choice of attorneys by providing as follows:
"A lawyer shall not be a party to or participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement, except as a condition to payment of retirement benefits." 1989 Kan. Ct.R.Annot. 159.
The purpose behind DR 2-108(A) is to protect the public's right "to select and repose confidence in lawyers of their choice without restriction by providing full availability of legal counsel." Cohen v. Lord, Day & Lord, 144 A.D.2d 277, 280, 534 N.Y.S.2d 161 (1988), rev'd 75 N.Y.2d 95, 551 N.Y.S.2d 157 (1989).
  The partnership agreement challenged by plaintiff was adopted by Foulston-Siefkin on April 1, 1965. Twelve partners signed the "Amended Partnership Agreement," including plaintiff. Article I contains definitions of terms used in the agreement. "Retirement and Retiring partner" are defined in Article I(h) as "withdrawal from the partnership, other than upon death, in a manner and at the times set forth in Section 3 of ARTICLE VII." "Withdrawal and withdrawing partner" are defined in Article I(i) as "withdrawal from the partnership other than upon death, retirement or expulsion." Article I(j) states:
"Expulsion — shall mean expulsion from the partnership under the provisions of Section 5 of ARTICLE VII; provided, however, that any partner who is expelled and who, under the provisions of Section 5 of ARTICLE VII, is entitled to the rights and payments provided upon retirement shall not be regarded as an expelled partner but shall be considered for all purposes as having withdrawn in retirement and as being a retired partner."
  Article VII sets out how the partnership will respond to death, retirement, withdrawal, and expulsion of one of the partners. Article VII, § 1 establishes that the occurrence of one of these four events will not terminate the partnership, but will end claims

[246 Kan. 455]

      of that partner against the partnership except as set forth in the agreement. Article VII, § 2(a) defines the payments that will be received upon the death or retirement of a partner:

 
"(i) Such partner's full drawing account for the month in which his death or retirement occurs.
"(ii) Such partner's capital account as of the end of the month immediately preceding the month in which his death or retirement occurs.
"(iii) An amount equal to such partner's share of partnership profits, as defined in Section 3 of ARTICLE VI, for either the fiscal year of the partnership first preceding the date of such death or retirement, or for the fiscal year second preceding the date of such death or retirement, whichever is greater, provided, however, that for purposes of this computation, there shall be excluded from partnership net profits that portion of any single fee paid within any such year which is in excess of $75,000.00"
  Article VII, § 3 outlines the provisions by which a partner retires from the firm, as follows:
 
"Retirement. A partner who withdraws from the partnership for the purpose of retiring from the practice of law shall be considered as a retired partner and shall be entitled to payments provided for in Section 2 of this ARTICLE VII upon retirement, if, at the time of such withdrawal, such partner
(a) is sixty (60) years of age, or
(b) has been associated with the partnership, whether as a partner or as an associate, or both, for at least thirty (30) years, or
(c) is, in the unanimous opinion of all remaining partners, unable to continue in the practice of law by reason of a permanent physical or mental disability,
provided, however, that notwithstanding any provision in this agreement to the contrary, if such retired partner, without the express consent of all continuing partners, re-enters the practice of law or becomes otherwise gainfully engaged or employed at an occupation associated with or related to the practice of law, then, and upon such event, the obligation of the partnership to make the payments set forth in clause (iii) of Section 2(a) of this ARTICLE VII shall immediately cease and terminate and be forever forfeited by such retiring partner, and any amounts which have theretofore been paid by the partnership to such retired partner under clause (iii) of Section 2(a) shall be, upon demand of the partnership, immediately repaid by such retired partner to the partnership."
In Article VII, § 4, the agreement states that if a partner withdraws other than in retirement, the withdrawing partner is entitled to a portion of the drawing account and that partner's capital account. No provision is made for the receipt of retirement funds by a withdrawing partner.

[246 Kan. 456]

     

  The expulsion of a partner is defined in Article VII, § 5 as follows:
"Expulsion. Any partner may be expelled at any time, with or without cause, by a majority of partners, and upon such expulsion, such expelled partner's status as a partner shall immediately terminate and such partner shall forthwith terminate his practice of law with the partnership. Such expelled partner shall be entitled to the same payments at the same times and subject to the same terms and conditions as provided in Section 4 above with respect to a withdrawing partner, the same as if such partner had withdrawn and had not been expelled; provided, however, that if such expelled partner, at the time of expulsion, meets the conditions for retirement set forth in Section 3 hereof, and in the event the expulsion is not for cause by reason of dishonesty, unethical conduct or other acts of moral turpitude of such partner, then, and in such events, he shall be entitled to the same rights and payments, subject to the same terms and conditions, as if he had retired and had not been expelled."
  The 1965 agreement was amended in 1968. The terms of the agreement that were modified do not change the application of the 1965 agreement to the issues raised in this appeal.

  Article VII, § 3 of the agreement states specific conditions that must be met by a partner to qualify for retirement benefits. If a partner does not meet those qualifications, then that partner is not entitled to the compensation designated in Article VII, § 2(a)(iii). Plaintiff argues that the 1965 agreement violates DR 2-108(A) because an expelled partner is entitled to substantial benefits under Article VII, § 2(a)(iii) if he quits practicing law, but forfeits these benefits if he resumes practice. The benefits at issue here involved approximately $190,000.

  Plaintiff argues first that the terms of the 1965 agreement violate DR 2-108(A) because payment of one year of partnership profits is conditioned upon a former partner's quitting the practice of law. In support of this argument, plaintiff directs this court's attention to Gray v. Martin, 63 Or. App. 173, 663 P.2d 1285, rev. denied 295 Or. 541 (1983). In Gray, a law firm sued a withdrawing partner to obtain an accounting of attorney fees he collected on seven contingency fee cases he took with him when he left the firm. Defendant, the withdrawing partner, argued he was entitled to keep the contingency fees because it was not practicable for him to bill his unbilled time on those cases at the time he withdrew from the firm. The law firm described the

[246 Kan. 457]

      partnership agreement as having a "nothing in - nothing out" policy. The court concluded that this policy was not consistent with a withdrawing partner's taking the files of pending partnership cases and collecting fees on those files without accounting to the continuing firm for the monies received. 63 Or. App. at 178.

  The withdrawing partner counterclaimed, alleging that he was entitled to withdrawal benefits of the partnership agreement because restrictions conditioning the payment of these benefits upon his cessation of the practice of law in three counties in which the law firm was active violated DR 2-108(A). The law firm argued that the provision did not restrict the withdrawing partner's right to practice law and, even if it did, was an ethical condition to the payment of retirement benefits. 63 Or. App. at 181. The Oregon Court of Appeals concluded that the prohibition contained within the partnership agreement directly affected the withdrawing partner's right to practice law in the three counties listed because he lost benefits that otherwise would be his. The court found this restricted his right to practice law and was not a condition for the payment of retirement benefits. For the disciplinary rule to have meaning, the court reasoned that retirement must mean something different than withdrawal from the firm. Otherwise, every termination of a relationship between law partners would be a retirement and agreements restricting the right to practice would always be allowed. 63 Or. App. at 182. Plaintiff argues that this case supports his claim because his entitlement to retirement benefits is conditioned upon his ceasing the practice of law.

  In further support of his argument, plaintiff relies upon two opinions by state ethical committees and one opinion by a district court in Dallas County, Texas. Plaintiff did not include copies of these opinions in the record or in his brief. We note that the issue addressed by the Kentucky Bar Association Ethics Committee was whether a clause in a partnership agreement tying a partner's right to certain payments upon his withdrawal from a firm to a covenant not to compete within a geographical area for a period of two years violates DR 2-108(A). Reasoning ...


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