Successor Liability for Law Firm Partnerships
When partners depart a law firm, their departure often has profound effects on the business and culture of the partnership. Certain clients and employees often accompany the departing partner to their new firm, changing the day-to-day practice of the former firm. On a fundamental level, the departure also can transform the legal nature of the partnership and its obligations. In some circumstances, the departure results in a dissolution of the partnership, and, in others, the new firm can be deemed to be the successor of the old firm.
Late last year, the Appellate Division, Third Department, issued a decision, Masson v. Wiggins & Masson,1 concerning the departure of a law firm partner and the effect of the departure on the rights and obligations of the existing firm and partner. In this month's column, we analyze the decision and some of the issues it raises concerning partner departures and the rights and obligations of the remaining firm.
'Masson v. Wiggins & Masson'
Masson, Wiggins, and McKinley were partners in the law firm of Wiggins & Masson, LLP. The partners had a written partnership agreement which governed their rights. Among other things, it provided how the partnership would make payments to a withdrawing partner for any legal fees the firm received from its prosecution of contingent fee matters pending when the partner withdrew.
McKinley withdrew from the partnership, and its partnership agreement was amended to reflect the addition of a new partner, Crane. The firm's name was changed, in 2006, to Wiggins, Masson & Crane, LLP.
Soon after, Masson withdrew from the partnership. The remaining partners, Wiggins and Crane, thereafter, entered into a partnership with attorney Kopko and the partnership of Wiggins, Kopko & Crane, LLP was formed in January 2007.
Sometime thereafter, Crane withdrew, and the remaining partners formed Wiggins & Kopko, LLP in late 2007. Wiggins & Kopko had a written partnership agreement which was effective as of Nov. 17, 2006, which was the same day that Masson withdrew from the partnership.
Wiggins & Kopko thereafter made payments to the plaintiff, Masson, concerning her share of fees generated in cases pending while a partner in Wiggins & Masson. A dispute then ensued concerning how those fees should be computed and by whom they were to be paid. In December 2010, Masson commenced an action against Wiggins & Masson, Wiggins individually, and Wiggins & Kopko.
Plaintiff Masson moved2 for, among other things, summary judgment on her second cause of action for declaratory relief, which sought a declaration that plaintiff's share of contingency fees must be paid by Wiggins & Kopko and calculated pursuant to the Wiggins & Masson partnership agreement. The Supreme Court granted summary judgment to Masson, and, after motions to reargue, an appeal was taken.
The issues on the appeal were whether Masson was a creditor of Wiggins & Kopko and whether Wiggins & Kopko was a successor partnership to Wiggins & Masson, liable for the obligations to Masson pursuant to the Wiggins & Masson partnership agreement.
Wiggins & Kopko argued that it should not be liable to Masson because, pursuant to the terms of the Wiggins & Kopko partnership agreement, which was dated as of, Nov. 17, 2006, the date of Masson's departure, it was only to be "liable for the reasonable and necessary debts of the firm incurred after November 17, 2006 and not for the debts of any prior law practice with which Wiggins and Kopko were formerly associated."
The Third Department rejected this argument, affirmed, and found that Wiggins & Kopko, LLP "as a successor to Wiggins, Masson & Crane, LLP, was either a continuation of W[iggins] & M[asson] or an assignee thereof as to those cases inherited from W[iggins] & M[asson] and, as such, was responsible for payments due to plaintiff pursuant to the W[iggins] & M[asson] partnership agreement."