Brief Fact Summary. A partner is expelled from the partnership for accusing a senior partner of overbilling a major client.
Synopsis of Rule of Law. Partners in at-will partnerships have the freedom to expel another partner if the offending partner damages the personal confidence and trust of the partnership.
Plaintiff, Colette Bohatch, is a partner at the Washington DC., office of Defendant, Butler & Binion (firm). After reviewing internal firm reports, Plaintiff was concerned that John McDonald, a senior partner, was overbilling a major client, Pennzoil. Plaintiff brought her concern to another partner in the office, Richard Powers. Together, they reviewed McDonald’s time diary.
On July 15, 1990, Plaintiff met with the firm’s managing partner, Louis Paine. The next day, McDonald notified Plaintiff that Pennzoil was unsatisfied with her work and requested she be supervised. Meanwhile, Paine and other members of the firm’s management committee investigated Plaintiff’s complaint and concluded that there was no basis for her allegations.
In August 1990, Plaintiff was notified that she was expelled from her employment with the firm, that the firm would provide her with a monthly draw, insurance coverage, office space, and a secretary. In January 1991, the firm denied Plaintiff a year-end partnership distribution for 1990 and reduced her tentative distribution share for 1991 to zero. The firm paid Plaintiff her last monthly draw in June 1991. In August 1991, the firm gave Plaintiff until November 1991 to vacate her office. On October 21, 1991, the firm expelled Plaintiff from the partnership, three days after Plaintiff brought this suit.
The trial court granted partial summary judgment for the firm on Plaintiff’s wrongful discharge claim and breach of fiduciary duty of good faith and fair dealing for any conduct occurring after October 21, 1991, but it denied the firm’s summary judgment motion for these claims for conduct occurring before October 21, 1991. The trial court held that the firm breached the partnership agreement and its fiduciary duty awarding past lost wages, past mental anguish, and punitive damages.
All parties appealed. The Court of Appeals reversed the trial court’s holding. It held that the firm’s only fiduciary duty to Plaintiff was not to expel her in bad faith, which did not occur in this instant case. However it agreed with the trial court that the partnership agreement was breached and awarded her $35,000 in lost earnings and attorney fees.
Whether the fiduciary duty of a partnership creates an exception to the at-will nature of partnerships where a partner was expelled from a partnership for reporting suspected over billing by another partner?
Whether Defendant breached the partnership agreement by reducing Plaintiff’s tentative distribution for 1991 to zero without notice.
Held. The Court of Appeals judgment is affirmed.
No. There is no fiduciary duty that creates an exception to the at-will nature of partnerships for whistle blowing.
Yes. Defendant breached the partnership agreement when it failed to disburse the $7,500 per month draw and give notice of this reduction.
Dissent. Punishing a partner for her good faith effort to alert her partners to the possible overbilling of a client in compliance with the Disciplinary Rules of Professional Conduct is a breach of the partner’s fiduciary duty to one another and discourages others from reporting another lawyer’s unethical behavior.
Concurrence. In this instant case, Defendant did not breach its fiduciary duty by expelling Plaintiff because she made a good faith, but incorrect charge against a senior partner that threatened the firms’ relationship with an important client and the partners’ relationship with each other. However, a bright line rule that there is no exception to the at-will partnership rule is too absolute and broad.
Discussion. A charge that a partner overbilled, whether true or not, has a profound effect on the personal confidence and trust essential to the partnership.