ROBINSON, J.
In this appeal, we consider whether an attorney, who represented clients in contingency fee matters that originated while he was a member of a two person law firm and continued to represent them after the dissolution of that firm, is obligated to share a portion of those fees with his former law partner when those fees were not paid until after the firm's dissolution. The defendant, Jeffrey S. Bagnell,
The record reveals the following facts, which were either undisputed or found by the trial court, and procedural history. In late 2003, the plaintiff and the defendant decided to start a law firm dedicated to the practice of labor and employment law. At that time, the plaintiff was an experienced solo practitioner and the defendant was a younger attorney looking to build a practice and advance his career. The parties entered into a partnership agreement in March, 2004. The partnership agreement provided that the defendant was a junior partner in the firm, in which the plaintiff served as managing partner.
With respect to the parties' compensation, the partnership agreement provided that, for the first year of the partnership, the plaintiff would bear 99 percent of the firm's total profits and losses, and the defendant 1 percent, with each partner being entitled to purchase additional interest in the partnership by paying a capital contribution of $5000 for each additional 1 percent interest. In addition to his 1 percent interest, the parties agreed in § 2.14 of the partnership agreement that the defendant, as a junior partner, was entitled to annual compensation in the amount of $110,000, plus bonus compensation that was based on the fees that he "generated" and were collected by the firm. Section 2.15 of the partnership agreement defined the term "`fees generated' [to] include all hourly work performed for any client of the [p]artnership at the [p]artner's respective hourly rates," and further provided that "[w]ork performed on contingency cases shall be weighted in proportion to the hourly rates of the [p]artners at the time a contingency fee is received."
The parties subsequently became embroiled in a dispute, documented in a series of e-mails, about the plaintiff's entitlement to portions of fees for certain litigation matters for the firm's former clients that were being handled exclusively by the defendant following the dissolution. Three of the disputed matters were contingency fee cases, and two were hourly fee cases. With respect to the hourly fee cases, the plaintiff claimed entitlement to 20 percent of the fees earned by the defendant for those two clients. With respect to the contingency fee cases, the plaintiff claimed entitlement to a pro rata share of the fees based on work involved in the firm's representation of the clients before dissolution, as opposed to the work performed exclusively by the defendant postdissolution.
The plaintiff brought this action against the defendant in a four count complaint claiming that the defendant's failure to pay him these fees and supply him with status reports and supporting documentation constituted, inter alia: (1) breach of contract, namely, a postdissolution fee sharing agreement alleged to have been acknowledged in several e-mails and memoranda between the parties during the dissolution process; (2) breach of the implied covenant of good faith and fair dealing; and (3) unjust enrichment.
The trial court issued a comprehensive memorandum of decision addressing all of the claims, counterclaims, and defenses. The trial court found for the defendant with respect to the plaintiff's contract based claims, including breach of the covenant of good faith and fair dealing, determining that the parties did not have an enforceable agreement with respect to postdissolution fee splitting. Specifically, the trial court concluded that: (1) without client consent, hourly fees generated after the dissolution belong to the attorney who earned them, rendering any agreement with respect to the hourly fees unenforceable under rule 1.5 (e) of the Rules of Professional Conduct;
The trial court then addressed the unjust enrichment claim. The court found that "there was [no] unjust enrichment to [the] defendant" arising from the hourly fee cases because it was not inequitable for the defendant "to retain the full fruits of his labor" performed postdissolution given ethical guidance with respect to fee sharing from rule 1.5 (e) of the Rules of Professional Conduct and its commentary. The trial court concluded, however, that the plaintiff was entitled to recover on his claim of unjust enrichment with respect to the contingency fee cases because, under the partnership agreement, the "defendant had no direct claim to retain fees earned while a member of the partnership," with
In connection with its denial of the plaintiff's motion for reargument, the trial court rejected the defendant's claim that rule 1.5 (e) of the Rules of Professional Conduct barred its award of contingency fees earned and collected after dissolution to the plaintiff, specifying that its calculations were based on predissolution time "not subject to the rule...." The court "emphasize[d] that it was not attempting to enforce the partnership agreement but rather [was] using the partnership agreement as a guide to determin[e] an equitable result with respect to claims of unjust enrichment in the context of fees [paid or payable] after the partnership ceased to exist." The court reiterated that, "unjust enrichment is not measured by detriment to a claimant but rather whether it is unjust for the one against whom a claim is made to retain the benefit received. The court previously noted that it would be an unjust windfall for [the] plaintiff to disregard the bonus formula as part of the winding up process; it would also be an unjust windfall for [the] defendant not to acknowledge that he did not have a direct claim against fees earned prior to dissolution, i.e., while the partnership existed." This appeal followed.
On appeal, the defendant contends that the trial court's unjust enrichment remedy, which ordered him to share with the plaintiff contingency fees that he received postdissolution, was improper under rule 1.5 (e) of the Rules of Professional Conduct because the clients had not consented to the fee sharing. Acknowledging that the commentary to rule 1.5 (e) allows the sharing of fees generated and earned during the existence of a partnership, the defendant relies on numerous cases, including
"We begin with an overview of general principles. [W]herever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract, restitution of the value of what has been given must be allowed. .... Under such circumstances, the basis of the plaintiff's recovery is the unjust enrichment of the defendant.... A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.... With no other test than what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and apply this standard.... Unjust enrichment is, consistent with the principles of equity, a broad and flexible remedy.... Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefited, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment....
"This doctrine is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated.... The question is: Did [the party liable], to the detriment of someone else, obtain something of value to which [the party liable] was not entitled?"
Although we ordinarily engage in a "deferential" review "of the trial court's conclusion that the defendant was unjustly enriched"; id., at 452, 970 A.2d 592; a claim that the equitable remedy of unjust enrichment is unavailable as a matter of law raises a question of law subject to plenary review.
The defendant's claims regarding entitlement to contingency fees originating with a subsequently dissolved law firm present an issue of first impression for this court. We begin our analysis with rule 1.5 (e) of the Rules of Professional Conduct, on which the defendant relies for the proposition that the trial court's order of fee sharing as a remedy for unjust enrichment was barred as a matter of law. Rule 1.5 (e) provides: "A division of fee between lawyers who are not in the same firm may be made only if: (1) The client is advised in writing of the compensation sharing agreement and of the participation of all the lawyers involved, and does not object; and (2) The total fee is reasonable." Even if we assume that rule 1.5 (e) might provide a public policy basis for voiding the damages award in the present case,
The ethical clarification provided by the commentary to rule 1.5 (e) of the Rules of Professional Conduct is substantively consistent with the weight of authority nationally, which is derived from a partnership law concept commonly known as the unfinished business doctrine. The decision of the California Court of Appeals in Jewel v. Boxer, supra, 156 Cal.App.3d at 171, 203 Cal.Rptr. 13, is widely considered to be the leading decision on point. The relevant case law holds that, in the absence of a contract between the partners providing to the contrary, a contingency fee matter pending at the time of dissolution is an asset of the partnership; the dissolved partnership is, therefore, entitled to share in the fee when it is paid to a former member of that partnership who has litigated the matter to completion.
As described by the court in Jewel, the unfinished business doctrine derives from provisions of the Uniform Partnership Act, namely, that "a dissolved partnership continues until the winding up of unfinished partnership business," and that "[n]o partner (except a surviving partner) is entitled to extra compensation for services rendered in completing unfinished business."
We observe that the unfinished business doctrine reflects practicalities attendant to contingency fee matters in particular. First, contingency fee agreements are executory in nature, with a fee not earned and due until the occurrence of the contingency, namely obtaining damages for the client via settlement or judgment; completing the executory contingency fee contract is part of winding up the firm's business. See, e.g., LaFond v. Sweeney, supra, 343 P.3d at 946; Bader v. Cox, 701 S.W.2d 677, 682 (Tex. App. 1985); see also McCullough v. Waterside Associates, 102 Conn.App. 23, 30-31, 925 A.2d 352, cert. denied, 284 Conn. 905, 931 A.2d 264 (2007). It also reflects, for example, the fact that the attorney's former partners, through their work on the firm's other matters, may well have provided financial and other support allowing that attorney to handle contingency fee cases. See Beckman v. Farmer, supra, 579 A.2d at 640 (concluding that there was "no inequity in the application of the [unfinished business] rule" when one attorney, who did not work on contingency matter after dissolution, testified that, before dissolution, "his work represented the firm's principal source of revenue and allowed [the departing partner] to concentrate on the as-yet unpaid" contingency matter); cf. Jewel v. Boxer, supra, 156 Cal.App.3d at 179, 203 Cal.Rptr. 13 (The court rejected an argument that the unfinished business doctrine "will discourage continued representation of clients by the attorney of their choice" because "a portion of the income generated by such work... is all the former partners would have received had the partnership not dissolved. Additionally, the former partners will receive, in addition to their partnership portion of such income, their partnership share of income generated by the work of the other former partners, without performing any postdissolution work in those cases."). Finally, application of this rule has the salutary effect of "prevent[ing] partners from competing for the most remunerative cases during the life of the
Moreover, consistent with the commentary to rule 1.5 (e) of the Rules of Professional Conduct, courts have rejected the argument that this application of the unfinished business doctrine with respect to contingency fee cases violates the right to counsel of choice, or is improper fee splitting without client consent, even when the client discharges the partnership and hires one of the partners individually to complete the representation.
Finally, we disagree with the defendant's rather troubling argument that the plaintiff's proper remedy is to seek compensation quantum meruit from their firm's former clients for the services that he provided while the firm represented them. This is not a case about a client receiving the benefit of representation for which he unjustly has not paid, such as when a client takes a contingency fee matter from one attorney, who has put a significant amount of work into the case, to another attorney who then collects the contingency fee after obtaining a judgment or settlement. See, e.g., Cole v. Myers, 128 Conn. 223, 230, 21 A.2d 396 (1941); cf. Gagne v. Vaccaro, supra, 255 Conn. at 407-408, 766 A.2d 416 (first attorney's failure to have written contingency fee agreement with client, as required by § 52-251c and rule 1.5 [c] of the Rules of Professional Conduct, did not preclude that attorney from recovering quantum meruit from second attorney who litigated client matter to conclusion and collected contingency fee).
The judgment is affirmed.
In this opinion the other justices concurred.
With respect to the plaintiff's expectations, the parties originally intended that the defendant would eventually buy the plaintiff's share of the firm, which would help the plaintiff fund his retirement while remaining affiliated with the firm. This plan did not come to fruition because a professional appraisal demonstrated that the law firm had "essentially no intrinsic value as a business" for purposes of a purchase. After the breakup of their firm, the plaintiff then went to work for another law firm in Fairfield county, frustrating the defendant, who had believed that the plaintiff planned to move out of the area.
Our jurisdictional inquiry is further complicated by the fact that the record and briefs are inconsistent with respect to the organization of the parties' now dissolved partnership. The complaint alleges, and the answer admits, that the law firm was a limited liability company. Limited liability companies are governed by the provisions of the Limited Liability Company Act, General Statutes § 34-100 et seq., which "establishes the right to form [a limited liability company] and all of the rights and duties of the [limited liability company], as well as all of the rights and duties of members and assignees. It permits the members to supplement these statutory provisions by adopting an operating agreement to govern the [limited liability company's] affairs.... A limited liability company... is a hybrid business entity that offers all of its members limited liability as if they were shareholders of a corporation, but treats the entity and its members as a partnership for tax purposes." (Citation omitted; internal quotation marks omitted.) Scarfo v. Snow, 168 Conn.App. 482, 499, 146 A.3d 1006 (2016).
The parties do not, however, use the parlance of the Connecticut Limited Liability Company Act with respect to the firm, such as the use of an "`[o]perating agreement'" to govern their relationship; General Statutes § 34-101 (17); or the terms "`[m]ember" or "`[m]anager'" to describe their positions in the firm. See General Statutes § 34-101 (15) and (16); see also General Statutes § 34-140 (b) (describing purpose of operating agreement); General Statutes § 34-187 (describing member and manager rights to initiate civil actions). Instead, in their pleadings and briefs, they consistently refer to their law firm as a "partnership," and describe their business relationship in those terms, including the partnership agreement that governed their obligation to each other as law partners. Indeed, the only citation in the parties' briefs to any law governing business organizations is in a footnote in the defendant's reply brief, which contains an erroneous citation to a provision in the Connecticut Uniform Partnership Act, General Statutes § 34-300 et seq., for the proposition that the plaintiff should have brought this action on behalf of the partnership, which was not terminated upon dissolution but "continues after dissolution only for the purpose of winding up its business," and that a "partnership is terminated when the winding up of its business is completed." General Statutes § 34-373 (a); see also General Statutes § 34-375 ("a partnership is bound by a partner's act after dissolution that ... [i]s appropriate for winding up the partnership business").
Despite the admitted allegation that the law firm was a limited liability company, we are satisfied for the limited purpose of the present appeal to accept the parties' representations and treat their relationship as governed by the Connecticut Uniform Partnership Act. Thus, we conclude that the plaintiff has standing under the Uniform Partnership Act to bring the action underlying this appeal. See General Statutes § 34-339 (b) (3) ("[a] partner may maintain an action against the partnership or another partner for legal or equitable relief, with or without an accounting as to partnership business, to ... [e]nforce the rights and otherwise protect the interests of the partner, including rights and interests arising independently of the partnership relationship"); see also Brennan v. Brennan Associates, 293 Conn. 60, 91, 977 A.2d 107 (2009) (discussing relationship of statutory standing provisions under Connecticut Uniform Partnership Act). Accordingly, we reject the defendant's belated jurisdictional challenge in this case, while leaving to another day the significant standing issues present in civil actions between members of limited liability companies. See Scarfo v. Snow, supra, 168 Conn.App. at 503-504, 146 A.3d 1006; see also Smith v. Snyder, supra, 267 Conn. at 460-62, 839 A.2d 589 (treating individual claims brought by members as requiring proof of injury separate and distinct from injury to limited liability company); O'Reilly v. Valletta, 139 Conn.App. 208, 214, 55 A.3d 583 (2012) ("[a] member or manager, however, may not sue in an individual capacity to recover for an injury based on a wrong to the limited liability company"), cert. denied, 308 Conn. 914, 61 A.3d 1101 (2013).
We note, however, that this issue remains somewhat unsettled, and may well receive some significant clarification in the near future. The United States Court of Appeals for the Ninth Circuit recently questioned the continuing vitality of Jewel v. Boxer, supra, 156 Cal.App.3d at 171, 203 Cal.Rptr. 13, in light of subsequent changes to the Uniform Partnership Act replacing the "no compensation" rule with the "reasonable compensation rule" contained in the Revised Uniform Partnership Act. In the Matter of Heller Ehrman, LLP, 830 F.3d 964, 973 (9th Cir. 2016); see also Geron v. Robinson & Cole, LLP, supra, 476 B.R. at 744-45 (questioning whether Jewel is applicable to hourly fee matters and positing that change in uniform partnership statutes from "`no compensation'" to "`reasonable compensation'" might have provided dissolved firm with some interest under California law in hourly fee matters handled by its partners who moved to new firms). The Ninth Circuit certified to the California Supreme Court the question of "whether a dissolved law firm has a property interest in unfinished business where the law firm had been retained on an hourly basis." In the Matter of Heller Ehrman, LLP, supra, at 973; see id. (noting question of whether dissolution agreement was fraudulent transfer depended on answer to threshold question of whether law firm had property interest in unfinished hourly matters).
Similarly, we disagree with the defendant's reliance on Winston v. Guelzow, supra, 356 Wis.2d at 756-58, 855 N.W.2d 432, which held that an attorney who had withdrawn from a joint representation of a client in a contingency fee matter was entitled only to "quantum meruit recovery for the value of the services provided before withdrawal," consistent with case law governing an attorney's compensation following the withdrawal for good cause or with client consent from a contingency fee matter. First, Winston is distinguishable because it did not involve the dissolution of a law firm, but rather, arose from joint representation of clients pursuant to an operating agreement between two separate law firms. Id., at 751, 855 N.W.2d 432. Second, Winston lacks persuasive value because it does not address, or even cite, any of the unfinished business doctrine cases governing the dissolution of a law firm, and it has not been cited by any other state or federal courts addressing the distribution of contingency fees following a law firm dissolution.
