Pettingell v. Morrison, Mahoney & Miller

5 Mass. L. Rptr. 215
CourtMassachusetts Superior Court
DecidedMay 15, 1996
DocketNo. 9502841
StatusPublished

This text of 5 Mass. L. Rptr. 215 (Pettingell v. Morrison, Mahoney & Miller) is published on Counsel Stack Legal Research, covering Massachusetts Superior Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pettingell v. Morrison, Mahoney & Miller, 5 Mass. L. Rptr. 215 (Mass. Ct. App. 1996).

Opinion

Hinkle, J.

Plaintiffs Richard H. Pettingell (“Pettingell”) and Joseph A. Regan (“Regan”) filed this action against the law firm and partners of Morrison, Mahoney & Miller, pleading breach of contract and breach of fiduciary duty, and seeking declaratory relief. Morrison, Mahoney & Miller counterclaimed against the plaintiffs, demanding repayment of funds allegedly owed. The plaintiffs have moved for judgment on the pleadings under Mass.R.Civ.P. 12(c). Morrison, Mahoney & Miller has moved for summary judgment under Mass.R.Civ.P. 56 and contends that the plaintiffs’ 12(c) motion should be converted to a Rule 56 motion. In response, the plaintiffs have moved to strike the Rule 56 materials submitted by the defendants, or in the alternative, for severance and a continuance under Rule 56(f) for the preparation of responsive Rule 56 materials. For the following reasons, plaintiffs’ motion for judgment on the pleadings is converted into a motion for summary judgment and is ALLOWED. The defendants’ motion for summary judgment, along with the parties’ other motions, are DENIED.

BACKGROUND

The undisputed facts set out in the pleadings axe as follows.3 The plaintiffs are attorneys admitted to practice in the Commonwealth of Massachusetts and former partners at the law firm of Morrison, Mahoney & Miller. Pettingell became a partner on August 1, 1982; Regan became a partner on August 1, 1987. At the time they became partners, the plaintiffs agreed to be bound by the provisions of the Morrison, Mahoney & Miller Partnership Agreement.

On August 13, 1993, the plaintiffs voluntarily withdrew from Morrison, Mahoney & Miller and formed a new law firm under the name of Pettingell and Regan. As a result of their withdrawal, the plaintiffs allege that they are entitled to the payment of capital and accrued income from Morrison, Mahoney & Miller (Complaint, ¶9). Morrison, Mahoney & Miller and its partners allege that, at the time the plaintiffs withdrew from Morrison, Mahoney & Miller, they had negative cash basis capital accounts. Defendants argue that the plaintiffs now have a duty to pay Morrison, Mahoney & Miller a sum equivalent to the negative balances on these accounts (Defendant’s Answer and Counterclaim, ¶6, ¶7).

The Morrison, Mahoney & Miller Partnership Agreement (“the agreement”) contains the following provisions relevant to the payments owed to withdrawing partners. Partners at Morrison, Mahoney & Miller are allocated two sources of income under the agreement: the right to receive annual minimum drawing accounts and annual partnership interest credits. Section IV, C defines the “Annual Minimum Drawing Accounts” as an amount of cash income allocated annually to each full-time or part-time partner by majority vote of the entire partnership. Section IV, E defines the “Annual Partnership Interest Credit”: a system by which the increase or decrease in the net worth of the firm, computed annually on an accrual accounting basis, is divided into portions and allocated individually to each partner.

Section IV, A, 1 defines the capital contribution made by each partner upon attaining partner status as the “Paid-in Capital Account.” Section IV, D defines “Units of Participation”: units awarded each partner each year by vote of the other partners. The units of participation determine the share of each active and semi-active partner in the net cash profits or losses in any particular fiscal year (§IV, D, 3), and the votes allocated to each partner for the making of management decisions (§V, B, 1). The annual partnership interest credit, an accounting device, is a measure given to the partners to compensate them when the firm’s net worth increases on an accrual basis, but outstanding accounts receivable or other factors prevent the firm’s net worth from increasing by a similar [216]*216amount on a cash basis (§IV, E, 1(a)). The accrual accounting of the partnership’s assets includes an accounting of unbilled but completed legal work, un-reimbursed disbursements made on behalf of clients, and contingent amounts representing the estimated potential recoveries in subrogation cases (§IV, F, 2). Annual partnership interest credits are divided among the partners according to their respective units of participation (§IV, E, 1(b)). The credits translate into additional cash compensation for the partners only when the firm’s operations show a cash surplus from that year’s operations (§IV, E, 3). In years when the firm suffers a loss on an accrual basis, negative annual partnership interest credits are awarded each partner, carried over, and offset against the partners’ future annual partnership interest credits (§IV, E, 3). On December 31, 1992, Pettingell had collected $530,075 and Regan had collected $47,400 annual partnership interest credits, according to the Morrison, Mahoney & Miller Schedule of Partners’ Capital Accounts.4

Under the terms of §IV, E, 3 of the agreement, after the payment of expenses, the firm’s annual net income is used to pay each partner his or her annual minimum drawing accounts. Once these payments are made, further payments are made to retired and deceased partners. If a cash surplus remains, 50% of this surplus is paid as extra compensation to partners who have positive annual partnership interest credits. The first credits satisfied are those earned by partners in the earliest remaining outstanding years. If more credits remain outstanding in a particular year than can be paid out of cash surplus, the credits for that year are partially satisfied on a pro rata basis. The remaining surplus is either used to increase the partners’ paid-in capital accounts, entitling them eventually to more units of participation, or disbursed pro rata among the partners.

Regarding termination of partnership, the agreement states at §111, B, 3:

An active or semi-active partner’s interest in the firm and all his right, title and interest in its property and his Units of Participation, as hereinafter described, in its earnings shall terminate automatically upon the partner’s death or expulsion or in the event that the partner withdraws or retires from the firm or becomes permanently and totally disabled . . . Upon termination of his partnership, a partner shall be entitled to rights with respect to Paid-In Capital accounts, as hereinafter described, net income and assets and shall have such financial and other obligations to the firm, all as set forth in this Agreement.

The agreement further provides that, on the death of a partner, the firm shall pay to that partner’s estate an amount corresponding to the highest minimum annual drawing account awarded that partner in the preceding four years, plus the amount of cash profits for that year equivalent to the deceased partner’s units of participation, plus a ten-year installment payment equal to the partner’s uncompensated annual partnership interest credits (§VII, A). In the event of a partner’s retirement, an identical payment is made to departing partners unless they “return to practice other than to the continuing firm" (§VII, B).

A different scenario operates where a partner voluntarily withdraws (§VII, D). Initially, the withdrawing partner is entitled to the same payment scheme granted to deceased partners (§VII, D, 2), less the payment of the highest minimum annual drawing account of the prior four years. The agreement then states at §VII, D, 3:

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Bluebook (online)
5 Mass. L. Rptr. 215, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pettingell-v-morrison-mahoney-miller-masssuperct-1996.