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Partnering up

I didn't do anything on civil stuff last week, so a shout-out to one of my peeps, a lawyer in Middleburg Heights who dropped me an email and turned me on to an interesting decision in a probate court case.  Now, as far as I'm concerned, the words "interesting" and "probate court case" are as likely to appear in the same sentence as the words "Paris Hilton" and "genius-level IQ."  Still, the decision last year by the 11th District in In Re Estate of Ivanchak should pique our interest because it's about something that's near and dear to our hearts:  us.

Partnerships between us, to be more precise.  The case tracks the careers of three attorneys:  John Fowler, Theodore Ivanchak, and his son, Terry.  The three had engaged in various business relationships, beginning with a law firm composed of Ivanchak fils and pere, with Fowler as a salaried employee.  This then became Ivanchak, Ivanchak & Fowler, with an agreement for weekly pay plus a sharing of the profits among the three.  Subsequently, Terry left, and the firm became Ivanchak & Fowler, with a slightly different agreement regarding pay and the sharing of profits, Fowler's percentage being elevated from 20% to 40%.

Then Theodore Ivanchak died, and his son Terry, as executor of the estate, filed a motion for an accounting of the partnership's assets.  As they say in the railroad biz, this is where the train went off the track.  The probate court appointed appraisers to evaluate the assets, the parties engaged in stipulations about how the various files should be divided, and the court conducted a hearing, at the conclusion of which it decided that there'd never been a partnership in the first place.

Fowler appealed, and the 11th District held that while whether a partnership existed was a "close call," it wouldn't engage in "Monday-morning quarterbacking," and would instead give due deference to the lower court's factual findings:

The probate court's conclusion that the parties did not intend to form a partnership rests on the findings that there was no written partnership agreement, the firm did not maintain an IOLTA account, Theodore used firm funds to pay for certain personal expenses, the firm did not file partnership tax returns, and the accountant, Smaltz, did not treat the firm as a partnership.

Well, that latter point wasn't quite right.  The appellate court conceded that "there is no direct evidence that Smaltz did not treat the firm as a partnership in the record"; a more accurate way of stating this would be that there was direct evidence that the account did treat the firm as a partnership, as the dissent points out:

there was a memorandum from Smaltz [the accountant] to Theodore admitted at the hearing in which Smaltz requests an appointment "to discuss the books for the new partnership." Far from concluding that Ivanchak, Ivanchak & Fowler was not a partnership, Smaltz treated the entity as a partnership.

The dissent also does a pretty good job of demolishing the remaining pillars of the lower court's decision:  there's no requirement that a partnership agreement be in writing, that it have an IOLTA account, or that it pay taxes (the individuals do, not the partnership), nor is there any prohibition on using firm funds for personal expenses:  on the contrary, this simply shows a co-ownership of the firm's assets, which is an indication of a partnership.

So what are we to make of all this?  Did the court of appeals really mean to suggest that partnership agreements based on nothing more than a verbal agreement and a handshake -- and I've been in two of those -- are now invalid? 

My Middleburg Heights correspondent suggests darkly that the true reason for the court's decision might be found in the first sentence of the seventh paragraph in the court's decision:

In January 2000, Terry left the firm to become a Warren Municipal Court Judge.

Now, I'm as jaundiced an observer of the human condition as the next guy, even if the next guy is H. L. Mencken, but I'm not willing to go quite that far.  After all, it's not as though Terry was contesting whether a partnership existed; indeed, the dissent's major point was that neither party had disputed that.  I think it's simply a bad decision at both the trial and appellate levels.  Fortunately, it's very fact-specific, and the appellate decision is so obsequious in its deferral to the trial court's factual determinations that it has no real precedential value.

But it probably wouldn't be a bad idea to put something in writing.  For all the talk from lawyers about how oral contracts aren't worth the paper they're not written on, sometimes we can be quite cavalier about our own affairs.

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