Aug. 15, 2014 – Attorneys Scott Winston and Thomas Guelzow mutually agreed to separate their two firms, which had been operating jointly. Recently, a state appeals court decided the fate of contingency fees earned after the separation.
In Winston v. Guelzow, 2013AP2764 (Aug. 12, 2014), the District III Court of Appeals ruled that Guelzow gets the fees, because he continued the representation of personal injury cases that the joint law firm had been working on together before splitting.
In 2002, Winston began work as an associate at Guelzow Law Offices in Eau Claire. Three years later, Winston formed his own firm, Winston Law. The two separate firms jointly practiced law as under an operating agreement that was largely unwritten.
The agreement specified that Winston would provide office space for the firms, pay office staff and front costs and expenses. The firms would attract clients using Guelzow’s name, likely because Guelzow has been in practice more than 40 years.
In addition, Guelzow would work part-time and Winston would be reimbursed for costs and expenses. The firms would split any contingency fees earned. However, the operating agreement did not account for contingency fees if the firms split up.
When the firms agreed to split, they told clients about the situation and suggested they choose Winston, Guelzow, or a new attorney for continued representation. There was a joint recommendation that clients should retain Guelzow for continued representation.
All the clients went with Guelzow. Winston continued to assist on cases for five months. The circuit court found that Winston was acting as an associate on these cases.
Guelzow funded the cases he retained, and reimbursed Winston for $469,000 in costs that Winston had advanced before the firms split. Guelzow kept the contingency fees.
Winston filed an action to recover half of the contingency fees on cases commenced by the joint firm. The circuit court awarded Winston outstanding costs and expenses that he advanced, as well as a fee from one case that the attorneys agreed should be split.
However, the court declined to grant Winston half the contingency fees on cases acquired by the joint firms that were resolved under Guelzow’s continued representation. The court of appeals affirmed, ruling that Guelzow is entitled to the fees.
The court agreed that Winston was entitled to recover the value of services provided before he withdrew from the cases with the clients’ permission, but no fees.
“As the circuit court found, the parties’ agreement did not address what would happen upon dissolution of the combined firm,” wrote Deputy Chief Judge Michael Hoover.
“Further, the agreement required Winston to advance costs and to work on the cases. Once Winston stopped performing under the contract, Guelzow had no contractual obligation to split contingency fees.”
The appeals court also ruled that the circuit court did not err in failing to award Winston prejudgment interest on the one contingency fee the two lawyers agreed to split.