A Charlotte area law firm alleged it struck a necessary, and rather ordinary, deal with departing partners to divide fees on contingent cases transitioning among firms based on time expended by each, with an included true up of costs. But the deal didn’t get past settlement of the first case, when the originating firm protested the time the departed lawyers say they dedicated to it.

Weaver, Bennett & Bland, P.A. v. Villmer, 2023 NCBC 49, offers the perfect circle of an attorney’s administrative heartache: (i) a task they mostly despise (tracking hours); combines with (ii) events they dread and loathe (partner exits/fee disputes); and results in (iii) a litigation fight that includes arguments about how they do something they mostly despise (tracking hours).

It didn’t take long for tensions to escalate between Weaver, Bennett and its exiting colleagues. The complaint alleged the parties met in person in January 2022 to strike the deal, which in addition to fee splits included an agreement by the firm to refer out its inventory of cases on behalf of consumers fighting with an installer of rooftop solar panels. But Weaver, Bennett alleged that before their partners departed, they improperly “wiped clean” a hard drive and erased or deleted files and work product without authorization. That led to a prompt shareholder action to terminate the defendants. Id. ¶¶ 16-18.

Nearly six months later, Weaver, Bennett learned from a third party that one of the solar lawsuits had settled, and after inquiry received a response with settlement specifics that it believed “grossly overstate the actual amount of time Defendants expended on the matter.” Id. ¶ 21.

The opening motion to dismiss salvos featured a couple of recurring law firm division disputes with interesting twists. The firm advanced a fraud by omission claim based on the departees’ duties as fiduciaries and officers to alert the other officers and shareholders of their exit plans. That omission was key because, Weaver, Bennett alleged, it led the firm to take steps and make commitments it wouldn’t have if armed with the exit information: hiring associates, advancing funds to contingent clients, bonus distributions, and changes to the firm’s fee splitting practices. Id. ¶ 43.

Judge Robinson allowed the omission claim to proceed, noting that “[t]hese allegations make clear that knowledge of the . . . plan would have materially affected Plaintiff’s decisions at each turn.” Id. ¶ 44. As well, as a fraudulent misrepresentation claim survived that was based on the firm’s claim that the defendants refused to make personal guarantees for office renovations based on the withheld basis of their upcoming exit.

The Business Court agreed, however, that plaintiff’s attempt to parlay its substantive breach, fraud and related claims against its departed partners into an “attorney fraudulent practices” violation under N.C.G.S. § 84-13 was misplaced. That statute provides:

“If any attorney commits any fraudulent practice, he shall be liable in an action to the party injured, and on the verdict passing against him, judgment shall be given for the plaintiff to recover double damages.”

While the provision’s language does not facially exclude attorney fraud in the context of law firm operations, the Court held that the statute’s overall structure commended just that conclusion. Section 84-13 resides, the opinion noted, in an article entitled “Relation to Client.” Thus, “the applicability of this section . . . turns on whether Plaintiff was a client of the [departing lawyers] during the alleged fraudulent acts and omissions.” With no such evidence, the Court declined to expand §84-13 “beyond its apparent intent—to govern the relationship between attorneys and clients.” Weaver, ¶ 60.

Takeaways

• In a time of fluid movement among law firms, the decision suggests careful attention by departing attorneys should be given to law firm actions that could be argued to rely on their continued professional residence.

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