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Donald G. Targan, P.A. v. Kieviet

A-0980-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

PARTNERSHIPS; DISSOLUTION—Absent a partnership agreement to the contrary each partner is to receive its capital account on the winding up of a dissolved partnership, but no partner is required to make up any deficit if another partner is unable to recoup its entire account.

Two attorneys filed suit against each other after their law firm’s breakup, each claiming he was owed money as a result of the break-up. One of the attorneys established the firm, while the other was an associate for twelve years before the partnership was formed. Since the partnership had been funded entirely by the original partner, the Chancery Division held that he was entitled to recover the full value of those assets. The lower court found that he was repaid most of his original investment, but the firm’s liquid assets were not sufficient to repay his entire investment. Therefore, the court held the new partner responsible for the balance.

The Appellate Division affirmed the lower court’s ruling that the original partner had the right to repay himself for his initial investment from the firm’s earnings, but held that the lower court erred in requiring the new partner to pay the remaining debt from his personal assets. Instead, the new partner was only obligated to pay the original partner from his share of the capital accounts the new partner took with him after the termination of the firm.

The lower court based its award against the new partner on the amount the firm still owed the original partner for his investment. In its calculations, the lower court took into account the amount earned by the new partner plus the income he was expected to receive from the cases he took with him when he left the firm. Those cases, however, were not a liquid asset of the firm, and there was no specific agreement between the partners as to how to allocate the fees from them. The Appellate Division agreed with the new partner that he could not have been expected to work on those cases for free, nor would he have agreed to be personally responsible to repay the original partner’s investment in the event the firm dissolved.

Case law teaches that where there is no written agreement regarding the split of income from cases taken by a withdrawing attorney, the Court can create a formula for doing so. Following those guidelines, the Court ruled that all that the new partner owed to the original partner was the original partner’s share of the fees from these cases.

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