What happens when partners in a law firm fall out? Try this.
The aggrieved partner (Mr Fagenblat) tendered his resignation from the partnership, while also suggesting to his old firm (Feingold Partners) that they might retain him as a “consultant”. He then asked for a salary equivalent to 30 percent of his billings. One of the firm’s own accountants (Mr Borsky) offered to put a value on his (Fagenblat’s) share of goodwill in the business.
Only trouble is, Borsky happens to be Fagenblat’s brother-in-law.
Feingold Partners were not impressed, either with Borsky’s negotiating skills (they seemed a little one-sided) or when Fagenblat raises his salary demand to 50 percent of his billings.
Things begin to fall apart rapidly, with no agreement on anything being reached before or after the official date of termination (June 30, 2000). Fagenblat left altogether two months later, taking with him a number of his clients and setting up a nice little practice of his own.
Unsurprisingly, Feingold Partners and Fagenblat ended up in court. After “expert testimony” from brother-in-law Borsky, Pagone J found in favour of Fagenblat to the tune of $375,399 (with interest) being the value of his goodwill in Feingold Partners at the time of his partnership termination. (Fagenblat’s share of the partnership’s assets was not in dispute.)
The remaining partners (Feingold, Gurgiel and Tuszynski) were not happy. They appealed on the grounds that Borsky’s evidence should never have been admitted because of “perceived bias” and that his methodology for calculating the value was based on the mistaken assumption that Fagenblat would be staying on as an employee.
The appeal was upheld unanimously by Ormiston, Chernov and Eames, but only on the facts, not on the issue of Borsky’s “independence”. A re-trial was ordered to properly establish the value of Fagenblat’s share of goodwill, given that he didn’t stay.
In his leading judgment Ormiston says:
”... there was in my opinion no basis in principle for excluding Mr Borsky’s expert evidence, whatever one might have said as to the wisdom of calling him as an expert in this action…”
He says the real issue is Borsky’s “competence” and it is on these grounds that the appeal was successful. Borsky’s evidence that Fagenblat was staying on (used as a basis for calculating the capitalisation rate applied to future maintainable earnings) is simply relied upon too heavily by Pagone, said Ormiston.
Justices Chernov and Eames were of the same mind.
Which leaves Fagenblat and Feingold Partners more or less back where they started.
But not without a final word from The Orm:
“Again the court has before it an appeal arising out of a bitter dispute between former partners in a solictors’ practice, in which the amount in dispute is far exceeded by the heat generated by it.”