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LaFond v. Sweeney

Supreme Court of Colorado, En Banc

January 20, 2015

Richard C. LaFond, Petitioner:
v.
Charlotte N. Sweeney, Respondent:

Page 940

Certiorari to the Court of Appeals. Court of Appeals Case No. 10CA2005.

Judgment Affirmed.

SYLLABUS

The supreme court holds that under the plain language of section 7-8-404(a)(1) of Colorado's Limited Liability Company Act (" LLC Act" ), § § 7-80-101 to -1101, C.R.S. (2014), any profit derived from a contingency fee case pending upon dissolution of a limited liability company (" LLC" ) belongs to the LLC and must be divided between members and managers according to their profit sharing agreement. Members and managers are not entitled to additional compensation for their post-dissolution work winding up the LLC business. This holding derives from (1) the principle that law firms do not end upon dissolution, but extend through the winding up period, (2) the fiduciary duties of members and managers of an LLC, and (3) the absence of language in the LLC Act granting members and managers the right to additional compensation for their post-dissolution services. Accordingly, the supreme court affirms the judgment of the court of appeals.

Attorneys for Petitioner: Don, Galleher & Saliman, P.C., Shelley B. Don, Watson W. Galleher, Mark E. Saliman, Denver, Colorado; Dean Neuwirth P.C., Dean Neuwirth, Denver, Colorado.

Attorneys for Respondent: Burns Figa & Will, P.C., Jennifer M. Osgood, Raul Chacon, Jr., Greenwood Village, Colorado.

OPINION

HOBBS, JUSTICE

Page 941

[¶1] In this case we must determine who in a dissolved limited liability company (" LLC" ) is entitled to the profits from a successful contingent fee case that was pending upon the dissolution of the company.[1] Attorneys Richard C. LaFond and Charlotte N. Sweeney formed LaFond & Sweeney LLC (" L& S" ) in 1995 pursuant to Colorado's Limited Liability Company Act (" LLC Act" ), § § 7-80-101 to -1101, C.R.S. (2014). L& S had several cases pending when it dissolved on June 1, 2008, including the subject of this action, the Maxwell case. LaFond and Sweeney were unable to reach an agreement on how to divide the profits that could come from the successful completion of the case. Sweeney filed an attorneys' lien on any profits derived from the case. LaFond then brought suit against Sweeney seeking a declaratory judgment for the full amount of the contingent fee. Sweeney filed a counterclaim to enforce the attorneys' lien.

[¶2] In the declaratory judgment suit, the trial court found that the Maxwell case was an asset of L& S and valued it using a quantum meruit approach based upon the number of hours L& S had worked on the case pre-dissolution, multiplied by L& S's

Page 942

hourly fee rate. The trial court concluded that Sweeney could only recover half of this amount in accordance with LaFond and Sweeney's profit sharing agreement. Sweeney appealed, and the court of appeals reversed. It concluded that the Maxwell case was unfinished business of the LLC and all profit derived therefrom belonged to the LLC subject to division according to LaFond and Sweeney's profit sharing agreement. LaFond petitioned us for certiorari. We now affirm the judgment of the court of appeals. We hold that any profit derived from the Maxwell case belongs to L& S and must be divided between LaFond and Sweeney according to their profit sharing agreement. LaFond is not entitled to additional compensation for his post-dissolution work on the case.

I.

[¶3] In 1995, attorneys Richard C. LaFond and Charlotte N. Sweeney formed LaFond & Sweeney LLC pursuant to Colorado's LLC Act. Although L& S never had a written operating agreement, at the time of formation the parties orally agreed to a 60/40 split of all L& S profits, irrespective of the parties' actual workloads. In July 2002, the parties orally agreed to a 50/50 split of profits.

[¶4] In either 2003 or 2004, a former client of LaFond, Bobby Maxwell, shared with LaFond facts regarding a false reporting claim against Kerr-McGee Oil & Gas Corporation. LaFond agreed to represent Maxwell, on behalf of L& S, with the assistance of co-counsel Michael Porter, an attorney with experience under the False Claims Act, 31 U.S.C. § § 3729-3733, (2012). In May 2004, L& S, Porter, and Maxwell executed a written contingent fee agreement in connection with this qui tam whistle-blower case brought under the False Claims Act in a suit titled United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corporation, No. 04-CV-01224-MSK-CBS (D. Colo.). The contingent fee agreement provided notice to the client of the lawyers' quantum meruit rights. In June 2007, L& S, Porter, and Maxwell amended the contingent fee agreement to add appellate counsel Reilly, Pozner & Connelly.

[¶5] When L& S dissolved on June 1, 2008, LaFond and Sweeney agreed to divide L& S's pending cases so that each would continue to represent those clients for which he or she had been primarily responsible. They sent letters to L& S's clients advising them that the firm was dissolving and, while the L& S attorney who had primarily handled their cases would continue as their attorney, the client had the right to choose his or her own attorney or obtain another attorney. Maxwell chose LaFond to continue his representation; Sweeney performed no post-dissolution work on Maxwell. While LaFond and Sweeney were able to agree on some of the issues affected by dissolution, they were unable to agree on the division of the fees that might ultimately be earned from the Maxwell case. Sweeney filed a notice of attorneys' lien on behalf of L& S and herself to protect their interest in any fees, costs, or reimbursements that might be generated by the Maxwell case, among others.

[¶6] LaFond filed an action for declaratory relief against Sweeney to determine how any potential fees from the Maxwell case should be distributed. Sweeney answered, joined L& S as a party, and filed counterclaims, including a request to enforce the attorneys' lien. At the time of dissolution, L& S had expended over 1600 hours on the Maxwell case. As of trial in the case before us, LaFond had worked an additional 68 hours on the case.

[¶7] On July 5, 2010, the trial court issued its order, concluding that (1) the Maxwell case had been an asset of the law firm; (2) the value of the case as the firm's asset was its value when the law firm dissolved on June 1, 2008; (3) the value was to be determined by a calculation based on work that was done and costs that were advanced as of June 1, 2008; (4) this calculation multiplied the number of hours worked by the hourly billing rate, which amounted to $536,636.50 in fees, with added costs of $60,543.38, resulting in a total of $597,179.88; (5) the oral agreement between LaFond and Sweeney required that any " profit" from the case be divided equally; therefore, (6) if LaFond recovered contingent fees from the Maxwell case, Sweeney would

Page 943

be entitled to one-half of them up to a ceiling of $597,179.88, or a maximum of $298,589.94.

[¶8] On September 16, 2010, shortly after the trial court entered its order in LaFond's declaratory judgment suit, the United States District Court for the District of Colorado, on remand from the Tenth Circuit Court of Appeals, entered judgment in favor of Maxwell and against Kerr-McGee Oil & Gas in the amount of approximately $23 million. Both parties appealed from the judgment. On June 2, 2011, the district court awarded Maxwell approximately $2.2 million in attorneys' fees and costs, which included hours and costs expended by L& S prior to dissolution, as well as the hours expended by LaFond post-dissolution. Ultimately, the parties reached a settlement agreement under which Maxwell received roughly $26 million, including approximately $2.6 million in attorneys' fees and costs. In addition to the contingent fee, LaFond received statutory fees and costs for the time L& S and LaFond spent on the case.

[¶9] Sweeney appealed the trial court's order. The court of appeals reversed. It held that the trial court should have awarded LaFond and Sweeney each one-half of the profits allocated to LaFond from the Maxwell case, in accordance with their profit sharing agreement in place at the time of dissolution. The court's holding derived from three principles: (1) cases belong to clients, not to attorneys or law firms; (2) when attorneys handle contingent fee cases to successful resolution, they have enforceable rights to the contingent fee; and (3) a contingent fee may constitute an asset of a dissolved law firm organized as an LLC. Additionally, the court of appeals held that LaFond did not have a right to additional compensation for his post-dissolution work on the Maxwell case. The court reached this holding by comparing language from the Colorado Uniform Partnership Act of 1997 (" UPA" ), § § 7-64-101 to -1206, C.R.S. (2014), which specifically allows for reasonable compensation for services rendered in winding up the business of the partnership, with the LLC Act, which does not contain such a provision. Based on this comparison, the court concluded that the legislature intended that winding up members or managers of an LLC should not receive additional compensation for their post-dissolution services.

[¶10] We granted LaFond's petition. We affirm the judgment of the court of appeals.

II.

[¶11] We hold that any profit derived from the Maxwell case belongs to L& S and must be divided between LaFond and Sweeney according to their profit sharing agreement. LaFond is not entitled to additional compensation for his post-dissolution work on the case.

A. Standard of Review

[¶12] Whether a trial court or court of appeals has applied the correct legal standard to a case is a matter of law that we review de novo. In re Freedom Colo. Info., Inc. v. El Paso Cnty. Sheriff's Dep't,196 P.3d 892, 897-98 (Colo. 2008). Statutory interpretation is likewise a question of law we review de novo. Id. at 897. Our primary task when interpreting a statute is to determine and give effect to the intent of the legislature. MDC Holdings, Inc. v. Town of Parker, 223 P.3d 710, 717 (Colo. 2010). Courts presume the legislature is aware of its own enactments and existing case law precedent. Anderson v. Longmont Toyota, Inc., 102 P.3d 323, 330 (Colo. 2004). When interpreting a statute, we look to the language employed and, if unambiguous, apply the statute as written, unless doing so would lead to an absurd result. MDC Holdings, 223 P.3d at 717. If the plain language is unambiguous and does not conflict with other statutory provisions, we look no ...


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