Opinion ID: 2525545
Heading Depth: 1
Heading Rank: 7

Heading: deferred compensation agreement

Text: When Oliver departed Wallace Saunders, he took the Hotchkisses' file, at the client's request. Oliver contends that the referral agreement is simply a fee arrangement with the client which passes with the file. He interprets the DCA as providing a mechanism for valuing the work-in-process for all of the applicable files, both retained and withdrawn, and regardless of whether the matter is designated as hourly or contingent fee. Accordingly, he argues that when Wallace Saunders deducted the agreed-upon value of the Hotchkiss file in the calculation of the amount due Oliver under the DCA, the firm received all of its contractually allocated share of the referral agreement. We agree. The DCA begins with a calculation of the individual attorney's percentage share of the firm by dividing the attorney's total income in the preceding year by the total salaries and bonuses paid to all stockholders/employees for the prior year. The agreement then creates two categories upon which compensation will be calculated: work-in-process and accounts receivable. The work-in-process calculation begins with the total number of client files in the firm's inventory the previous month and then subtracts the number of files in accounts receivable on that date. The resultant number of work-in-process files is then multiplied by $150 to get the total value of the firm's work-in-process. That total is reduced by a floor dollar amount which essentially represents the number of active files the firm had in inventory when the attorney entered the firm, again valued at $150 each. That net dollar amount is then multiplied by the attorney's percentage share of the firm to yield the amount that will be paid to the individual attorney. When an attorney is withdrawing from the firm, the attorney's work-in-process payment is further reduced by the number of files that the attorney takes out of the firm, multiplied by $150 per file and by the attorney's percentage share. The attorney's deferred compensation for accounts receivable is essentially determined by multiplying the attorney's percentage share with the dollar amount of unrealized accounts receivable, which is defined as professional charges for services billed and the expenses advanced by the [firm] which shall remain unpaid as of the last calendar month next preceding the event requiring payment. A floor amount is again deducted and other adjustments made, none of which impact our analysis. The district court found that the parties' characterization of the Hotchkisses' file as work-in-process, rather than as an accounts receivable, did not impact the original referral agreement between Wallace Saunders and Shamberg. Further, the court opined that the DCA was not an effective assignment of that referral contract and that the carve-out agreement corroborated that there was no assignment or transfer of the firm's contractual rights. We disagree on both counts. First, we quickly dispose of all of the arguments relying on the carve-out agreement. That document simply allowed the parties to settle all other aspects of the DCA calculation without prejudicing their respective claims to the referral fee in this case. By its terms, it did not create, modify, or destroy any of the parties' respective rights and obligations that existed at the time. Next, the district court's determination that the parties' treatment of the Hotchkisses' file as work-in-process for DCA purposes had no impact on the original referral fee agreement is inconsistent with the court's determination that Wallace Saunders had nothing more to do to earn the referral fee. The very name of the category, work-in-process, indicates a recognition there is more to do on the file. If, as the district court opined, Wallace Saunders had to do nothing else on the Hotchkisses' referral, then that fee was fully earned when Oliver departed. If the fee was fully earned, the Hotchkisses' file should have been in the accounts receivable pile, i.e., work completed, awaiting payment. More to the point, however, the district court's interpretation of the DCA treats the referral agreement as a separate and distinct sale of chattel between law firms, disassociated from the client file. However, as we noted above, the referral agreement was part of Oliver's fee arrangement with the clients and, accordingly, was inextricably tied to the clients' file. When Oliver took the Hotchkisses' file, he not only assumed the obligation to complete the performance that was due the clients, but he also received the benefits of the fee arrangement that was tied to that performance. On the other hand, part of the performance on the Hotchkisses' file was effected while Oliver was an agent of Wallace Saunders. Accordingly, the firm was entitled to that part of the compensation the clients consented to be paid to Oliver that was earned during his employment. Cf. Tucker v. Rio Optical Corp., 20 Kan.App.2d, 233, 236, 885 P.2d 1270 (1994) (generally, attorney withdrawing for good cause entitled to compensation, even if attorney had been working under a contingent fee contract). Arguably, in such circumstances, an allocation between the firm and departing attorney could be made on the basis of quantum meruit. Cf. Madison v. Goodyear Tire & Rubber Co., 8 Kan.App.2d 575, 579, 663 P.2d 663 (1983) (discharged attorney subject to contingent fee arrangement entitled to reasonable value of services rendered based on quantum meruit). However, Wallace Saunders does not seek only a fair share of the fee and, more importantly, the firm had reached a prior agreement with Oliver, through the DCA, to place a fixed value on the file, rather than to allocate value on the basis of quantum meruit. Wallace Saunders attempts to avoid using the DCA as a measure of the Hotchkisses' file's value by saying it was designed simply to measure the firm's growth during the attorney's employment. However, the firm acknowledges that the DCA is an admittedly crude measuring stick used to arrive at an amount to pay a departing member. Crude or not, the DCA effectively measures a departing attorney's share of the value of the firm by utilizing a fixed rate of $150 for each and every work-in-process file, including those retained by the firm with a contingent fee arrangement. Upon paying for retained work-in-process files under the DCA, the firm is entitled to receive all of the future fees generated by those files. In the context of our case, if the Hotchkisses had not requested Oliver to take their file, Oliver's employment agreement would have left that file with Wallace Saunders. The firm would have paid Oliver for his percentage share of $150 on that file, being approximately $5.22, and subsequently kept the referral fee of over a half-million dollars. As Oliver aptly stated in his brief, Sauce for the goose is sauce for the gander. The DCA makes no provision for treating a withdrawn file with a referral fee arrangement any differently. Oliver paid the agreed-upon value for the Hotchkisses' file under the DCA, and he, likewise, was entitled to the future fees generated by that file. The district court's grant of summary judgment to Wallace Saunders and denial of summary judgment to Oliver are reversed. The matter is remanded to the district court with directions to grant summary judgment in favor of Oliver. Reversed and remanded. [1] DAVIS, J., recused. GREENE, J., assigned. [2]