977 S.W.2d 543
In 1986 Colette Bohatch joined the Washington, D.C. office of Butler & Binion as an associate after several years as Deputy Assistant General Counsel at the Federal Energy Regulatory Commission. The small office consisted only of managing partner John McDonald, partner Richard Powers, and Bohatch, and it performed work almost exclusively for Pennzoil. Bohatch was elevated to partner in February 1990.1
After becoming a partner, Bohatch began receiving internal firm reports showing hours worked, billed, and collected by each attorney. From those reports she grew concerned that McDonald was overbilling Pennzoil and discussed the matter with Powers; together they reviewed and copied portions of McDonald's time diary, which increased her concern. On July 15, 1990, Bohatch met with Louis Paine, the firm's managing partner, to report her suspicion that McDonald was overbilling Pennzoil, and Paine stated he would investigate.2
The next day McDonald informed Bohatch that Pennzoil was dissatisfied with her work and wanted it supervised, the first such criticism she had received. Over the following month Paine and management-committee member R. Hayden Burns reviewed the Pennzoil bills and computer printouts, then discussed the allegations with Pennzoil in-house counsel John Chapman, who had a long-standing relationship with McDonald and reported that Pennzoil was satisfied the bills were reasonable. In August Paine told Bohatch the investigation found no basis for her contentions and advised her to seek other employment while the firm would continue her monthly draw, insurance, office space, and secretary.3
Bohatch received no further work assignments. In January 1991 the firm denied her any year-end partnership distribution for 1990 and reduced her tentative 1991 distribution share to zero. In June the firm paid her final monthly draw; in August it directed her to vacate her office by November. By September she had secured new employment. She filed suit on October 18, 1991, and three days later the firm formally voted to expel her.4
The trial court granted partial summary judgment on the wrongful-discharge claim and on post-expulsion fiduciary-duty claims but allowed the pre-expulsion fiduciary-duty and contract claims to proceed to trial. The jury found breaches of both the partnership agreement and fiduciary duty and awarded $57,000 in past lost wages, $250,000 in past mental anguish, $4,000,000 in punitive damages (later remitted), and attorney's fees. The court of appeals reversed the tort judgment for lack of evidence but found a contract breach and rendered judgment for $35,000 plus $225,000 in fees. The Supreme Court of Texas granted writ of error.5
Whether a partnership has a duty not to expel a partner for reporting suspected overbilling by another partner?6
The fiduciary duty that partners owe one another does not encompass a duty to remain partners or else answer in tort damages. A partnership may expel a partner for accusing another partner of overbilling without subjecting the partnership to tort damages because such charges may destroy the personal confidence and trust essential to the partner relationship.7
No. The fiduciary duty that partners owe one another does not encompass a duty to remain partners.8 Bohatch became concerned about McDonald's billing after reviewing internal reports and time diary. She reported her suspicions to Paine on July 15, 1990.9 The firm investigated by reviewing the Pennzoil bills and computer printouts and consulting Chapman who confirmed that Pennzoil was satisfied the bills were reasonable.
Paine then told Bohatch to seek other employment while continuing her draw and benefits.10 This led to her eventual expulsion after she found new work.11 Because the expulsion resolved the fundamental schism caused by the report of suspected overbilling, it did not breach any fiduciary duty under the rule allowing partners to choose their associates.12
The firm did not owe Bohatch a duty not to expel her for reporting suspected overbilling by another partner.13
Related opinions on this issue
Justice Hecht concurs only in the judgment.14 He emphasizes that Bohatch's report, though made in good faith, proved incorrect because Pennzoil reviewed the bills and found them reasonable.15 He would hold that a partner can always be expelled for a serious error in judgment even if the report was sincere.16 The charge destroyed the trust necessary for the relationship among the three lawyers in the small Washington office.17
He refuses to adopt a bright-line rule protecting all good-faith reports.18 He notes that the facts of this case do not require resolving whether expulsion for a correct report would ever breach fiduciary duty.19
Joined by Phillips, C.j.
Justice Spector dissents.20 She argues that the fiduciary relationship among law partners must incorporate the Disciplinary Rules of Professional Conduct, including the duty to report suspected violations that raise substantial questions about honesty.21 She would hold that the partners violated their fiduciary duty by beginning a retaliatory course of action against Bohatch immediately after her good-faith report and before any investigation.22 This punished compliance with professional obligations.23
She contends that allowing such retaliation sends an inappropriate signal that ethical rules are subordinate to firm interests.24
Whether the firm breached the partnership agreement by reducing Bohatch's tentative distribution share without notice and terminating her monthly draw before she left the firm?25
The partnership agreement guarantees a monthly draw of $7,500 per month regardless of the tentative distribution, and the firm's right to reduce the bonus is contingent upon providing proper notice to the partner.26
Yes. The rule requiring notice before reducing the tentative distribution and guaranteeing the monthly draw applies to the established facts.27 In January 1991 the firm reduced Bohatch's tentative 1991 distribution share to zero without any notice.28 In June it paid her final monthly draw three months before she secured new employment and left in September.29 This directly breached the agreement's terms on draw and notice.30
The firm breached the partnership agreement when it reduced Bohatch's tentative distribution for 1991 to zero without notice and terminated her draw before she left the firm.31