"Winding Up" A Law Firm Partnership Doesn't Necessarily Mean Liquidation

You can "wind up" a partnership without having to liquidate all of its assets and terminating its existence.  So ruled Judge McGuire last week in Hardin v. Lewis, 2016 NCBC 55.  But that may not be true for all partnerships.  This case involved a law firm partnership which was continuing to operate its practice after one of its partners left to start her own law firm.

The lawsuit concerned the amount due to the Plaintiff from her former partners for the value of her partnership share (along with a host of other claims on which the Court will rule later).  Her withdrawal had constituted a dissolution of the partnership as a  matter of law (Op. ¶4). She had also requested the winding up of the partnership.

What Is "Winding Up"?

North Carolina's Uniform Partnership Act seems to dictate that winding up is the final stage in the existence of a partnership.  Section 59-60 of the General Statutes says that: "[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed."  N.C.G.S. §59-60.

That is consistent with the definition often given to "winding up":

The last phase in the dissolution of a partnership or corporation, in which accounts are settled and assets are liquidated so that they may be distributed and the business may be terminated.

The Free Dictionary.

That a winding up ending in liquidation was not required of their law partnership was particularly good news for the Defendants in Hardin, as they were the remaining partners in the law firm which Plaintiff had left.  They had continued to practice law without their departing partner, and filed a Certificate of Amendment with the NC Secretary of State to change the name of the firm to delete Plaintiff's name.

Judge McGuire found support for his ruling that the old partnership would not have to liquidate as a part of its winding up in decisions from other states, observing that:

a number of courts have concluded that a 'winding up' is technically effected when an outgoing partner is compensated for their interest in the dissolving partnership, without any strict requirement that the dissolving partnership be liquidated.

Op. ¶18.

Judge McGuire said that given "the potential disruption to the representation of [the law firm's] current clients that would result from a liquidation of the Firm's assets" that an accounting and settling of accounts between the partners as of the date of the dissolution, with the new partnership continuing in business was the appropriate means of a "winding up."  Op. ¶19.

Law Firms Should Have Written Partnership Agreements In Place To Avoid Cases Like This

The Business Court has been called upon before to adjudicate breakups of law firms, like in Walters & Zimmerman, PLLC v. Zimmerman and in Mitchell, Brewer, Richards, Adams, Burge & Boughman, PLLC v. BrewerIn the Mitchell case, the Court struggled with the issue of how a withdrawing partner should be compensated for fees generated from a contingent fee engagement after the withdrawal.

in every one of these kind of cases in the  Business Court, the partnership (or the PLLC) did not have a written agreement regarding the relationship of its partner/members, which led to significant dispute.  If you are a lawyer practicing with one or more other lawyers, put your agreement in writing and avoid having to get a Business Court Judge to resolve your disagreement.

Even though the Defendants in the Hardin case didn't have to liquidate their firm and shut down their practice, they still have to deal with the annoyance of having a Receiver overseeing their practice while the amount to be paid to the Plaintiff for her partnership interest is determined.  And they have to bear the cost of the Receiver.

Your "Limited Appearance" in the Business Court May Not Be As Limited As You Think

The attorney for the Plaintiff in Foster Biodevice, LLC v. Cantrell. 2016 NCBC 51 said that he was only making a limited appearance, but the Business Court (through new Business Court Judge Robinson, in his first Opinion for the Court) wasn't buying the limited nature of the appearance.

Plaintiff's counsel had previously obtained an Order from Judge Bledsoe permitting him to withdraw as counsel for Foster Biodevice.  He then appeared in the case and filed a Voluntary Dismissal of the case Without Prejudice after his withdrawal.  He stated in the Voluntary Dismissal that he was "making a limited appearance . . . for the sole purpose of filing this Notice of Limited Appearance and Voluntary Dismissal Without Prejudice."

Limited Appearances Are Allowed Under The Revised Rules Of Professional Responsibility

The Revised Rules of Professional Conduct of the North Carolina State Bar permit limited appearances.  Rule 1.2(c) says that “[a] lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances.” in a "Formal Ethics Opinion," the State Bar said that the ability of an attorney, in a litigated matter, to make a “limited appearance” is subject to the "rules of the tribunal."  99 FEO 12, Inquiry No. 3.

Judge Robinson rejected the "limited appearance," saying that he "deem[ed] Plaintiff's counsel to be . . . counsel of record for Plaintiff in this matter, at least with regard to proceedings in this Court, subject to all of the responsibilities of counsel of record."  Op. ¶25.

Judge Robinson pointed out that there was no Rule (either in the Business Court Rules, the Rules of Civil Procedure, or the Rules of General Practice) "that would permit a limitation of responsibility under these circumstances."  Op. ¶25.

Judge Robinson also looked to Rule 16 of the General Rules of Practice, which says that "[n]o attorney who has entered an appearance in any civil action shall withdraw his appearance, or have it stricken from the record, except on order of the court."  Op. ¶25

Was This Plaintiff Entitled To Take A Voluntary Dismissal?

Beyond the issue of the attempted "limited appearance," Judge Robinson dealt with the issue of whether the Plaintiff was entitled to file a voluntary dismissal of its case.  The answer ordinarily depends on whether the party taking the dismissal has "rested its case."  The Business Court explored that question recently.

In the case before Judge Robinson, the question was slightly different.  Another restraint on taking a voluntary dismissal applies when the opposing party has made a claim for affirmative relief arising out of the same transaction which is the subject of the attempted dismissal.  The Defendant here had asked in its prayer for relief (though not in a counterclaim) for a declaratory judgment  that it was the owner of the intellectual property which was at issue in the Complaint.

That prayer for relief wasn't enough for Judge Robinson to deny the Plaintiff the right to take a voluntary dismissal.  He said that it was nothing "but a standard request that the Court deny Plaintiff's requested relief."  Op. ¶25.

Since Judge Robinson allowed the voluntary dismissal without prejudice, does it make any difference that Plaintiff''s counsel must remain as Plaintiff's counsel of record?  Probably not, since there is no longer a case in which that lawyer is required to appear.

Though it might make no difference to the attorney for Foster Biodevice, the ruling should cause all lawyers to consider whether they can limit the scope of their responsibility in a particular case and state that they are making a limited appearance.  They may find themselves committed more deeply than they had anticipated.

Coincidentally, yesterday I saw lawyers file Notices of Appearances in the Business Court in three related cases on a limited basis, in which they said they are appearing solely to deal with one particular Motion.  That limitation may not work for them, although that case is not before Judge Robinson.

Judge Robinson Finally Joins The Court

You've known for a long time that Governor McCrory nominated Michael Robinson to be a Business Court Judge.  That happened over a year ago, back in March of 2015.  He was confirmed by the NC General Assembly on June 16th, and was sworn in as the newest Judge on the Business Court on July 1st.

Judge Gale has reassigned a number of the cases previously pending in the Business Court to Judge Robinson.  If you've got a case in the Business Court, you might want to check to see if your case has been reassigned to Judge Robinson.

Judge Robinson will be holding court in a new courtroom (which is not yet ready) at Wake Forest Law School in Winston--Salem.  For the time being, he will be sharing a courtroom and chambers  with Chief Judge Gale, in Greensboro.

 

NC Court Of Appeals, Not Sure That It Had Jurisdiction, Dismisses Appeal From Business Court Decision

How does your appeal get dismissed when you've appealed to the "right", "appropriate", or "correct" court?  In other words, your appeal was to the Court with jurisdiction over your appeal.  It happened in the NC Court of Appeals this week.

The Date That Your Case Was Designated To The Business Court Is Critical To Your Appeal

For some context, you'll remember the NC Court of Appeals decision in Christenbury Eye Center P.A. v. Medflow, Inc., in which the COA dismissed an appeal from a Business Court ruling because the proper appellate court to hear that case was not it, but the NC Supreme Court.  That was because the case was designated to the Business Court after October 1, 2014, when G.S. § 7A-27(a)(2), became effective.  That statute specifies that appeals of the Business Court's final judgments will go to the NC Supreme Court. 

Since the Christenbury appeal was from a case designated to the Business Court after the October 1, 2014 effective date of the statute, it was to the "wrong" Court. the NCCOA concluded that the case should have been appealed to the NC Supreme Court and it lacked jurisdiction to hear the appeal.

But in Grasinger v. Williams, this week, the NCCOA dismissed an appeal from a Business Court decision which was properly appealed to it, the "correct" Court.  This case was designated to the Business Court before the effective date of the statute, so there was no appeal directly to the NC Supreme Court under the new Section 7A-27(a)(2).

So, why did the COA dismiss this appeal?  Because there was nothing in the Record on Appeal showing the date that the case was designated to the Business Court.  In other words, there was no way to tell whether the case was designated to the Business Court before October 1, 2014 (in which case the appeal would go to the COA) or after that date (in which case the appeal would go to the NC Supreme Court).  Judge Calabria said:

[w]ithout the precise date upon which this action was designated as a mandatory complex business case, we cannot determine with certainty whether jurisdiction lies with this Court or our Supreme Court. . . .  In the instant case, because plaintiff-appellants failed to include the designation approval or a designation order in the record on appeal and failed to note the date of designation in their brief, they have failed to confer jurisdiction on this Court and we dismiss.

Op. at 9.

Show The Designation Date In Your Record On Appeal

She said that the party appealing from a case designated as a complex business case, "bears the burden of showing the actual designation date"  Op. at 9.  In order to carry that burden in an appeal from a Business Court case designated before October 1, 2014, the appealing party:

must include in the record a copy of the dated designation and explicitly note the date of designation in the statement of grounds for appellate review portions of their brief in order to confer jurisdiction on this Court.

Op. at 9.

The COA rejected the argument that since the Amended Complaint (in the Record on Appeal) showed a filing date of November 6, 2013, the designation to the Business Court must have followed no more than thirty days later (if the statutory procedure for designation was followed), and would have been designated to the Business Court well before the effective date of the statute requiring appeals be made to the NC Supreme Court.  Judge Calabria outlined a possible set of events by which a designation could be entered beyond the thirty day period specified by the statute.  Op. at 7.

Couldn't The COA Have Taken Judicial Notice Of The Date Of Designation?

The COA also was not willing to take the few minutes it took me to find the Grasinger Designation Order in the readily accessible case file on the Business Court's website.  The Designation Order bears a date of October 25, 2013, putting the Business Court's decision squarely within the COA's jurisdiction.  Could the COA have done the same thing that I did?  Sure, the NC Supreme Court has said that "this Court may take judicial notice of the public records of other courts within the state judicial system." Alpine Motors Corp. v. Hagwood, 233 N.C. 57, 62 S.E.2d 518 (1950).

In fact, if the North Carolina Rules of Evidence apply to the Court of Appeals, judicial notice might have been mandatory.  Rule 201(d) says: "When mandatory.– A court shall take judicial notice if requested by a party and supplied with the necessary information."  Of course, the Appellant in Grasinger probably had no idea that the COA would focus so squarely on the date of the designation, and that it would be unwilling to spend a couple of minutes on the Business Court's website to satisfy itself that it had jurisdiction over the appeal.  The Appellant  therefore had no opportunity to request that the COA take judicial notice of the readily available Designation Order.

To be fair, as Judge Calabria pointed out, "it is not the duty of this Court to construct arguments for or find support for [an] appellant’s right to appeal[.]" (quoting Jeffreys v. Raleigh Oaks Joint Venture, 115 N.C. App. 377, 380, 444 S.E.2d 252, 254 (1994).

The Court then dictated a mandatory procedure for those appealing opinions in case designated to the Business Court before October 1, 2014: they must include the Designation Order in the Record on Appeal, and state the date of designation in the statement of grounds for appellate review in their brief.  Op. at 9. 

This Dismissal Looks Like A One-Off

Should we be worried about a deluge of dismissals from the COA because Appellants didn't specify the date their case was designated to the Business Court?  Apparently not.  I thought that there couldn't be that many cases that old around still on appeal, but I checked and there were more than ten.  I looked at most of the Records on Appeal in those cases, and found that each either included the Designation Order or a statement reflecting the date of designation. So it's unlikely that there will be any more dismissals of this type from the COA.

Be Careful With Your Records On Appeal Going Forward Anyway

But in case the NC Supreme Court is as unwilling as the COA to check the Business Court website to determine whether a case was designated after October 1, 2014, it's a good idea to follow the instruction from the Grasinger opinion in appeals to the NC Supreme Court.

                                                           *     *     *  

I would have missed this decision but for my colleague Dan Smith, who circulated an email this week around Brooks Pierce about this decision.  (This is the second time that I owe a thank you to Dan)  And, of course, I was "scooped" again by the North Carolina Appellate Practice Blog, which wrote about this decision a couple of days ago.  I am reconciling myself to being much slower than I used to be.  I don't like it.