Nature of the Case
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Facts
The casebook merely gives you a glimpse at just one small issue in a litany of disputes that never seem to end. The partnership assets were placed under a receiver, and this is just one of the many determinations of that receiver and the disputes related to it. Haymond objects to the Receiver’s proposed treatment of a $150,000 'partnership expense,' paid in the form of a referral fee to F. Emmett Fitzpatrick, Esq. ('Fitzpatrick'). John Kelly ('Kelly') was hurt in an accident at the Bellevue Hotel and retained Fitzpatrick’s firm to represent him in a subsequent personal injury action. Fitzpatrick did what was necessary to file a complaint. On May 29, 1998, Kelly told Fitzpatrick that he wanted to retain Lundy, through H&L, instead of Fitzpatrick. Lundy promised Fitzpatrick reimbursement for his costs and he also offered to pay a customary referral fee to retain Fitzpatrick’s goodwill if Lundy were successful: this unsolicited action was allegedly the customary practice of members of the Philadelphia personal injury bar. Lundy, writing to Fitzpatrick on June 5, 1998, memorialized this agreement. Lundy first reimbursed Fitzpatrick’s costs, and then stated: 'This matter will, of course, be handled on a referral basis and I would appreciate your participation in the case.' The Kelly case settled for $2,468,750: the attorney’s fees portion of the settlement was $996,500. One-third of this sum, the 'referral fee' claimed by Fitzpatrick, was $332,166.66. Lundy, after negotiating with Fitzpatrick, agreed to pay him $150,000. Lundy wrote the Receiver asking for approval of this settlement. Heller first granted approval on the condition that no objections were heard, and then, at Haymond’s objection, reconsidered and took the matter under advisement. Heller concluded that the referral fee was a partnership expense. On November 19, 2001, the court ruled that Fitzpatrick was owed $150,000 because of Lundy’s apparent authority to contract with him, but the relative responsibility of each partner for this expense remained an open question. Lundy’s ability to create partnership expenses was limited by the partnership agreement. The Partnership Agreement, states that partners may bind the partnership without approval of a majority of the partners only in a limited number of circumstances; if a partner 'purchases or disposes of any material asset,' he must get the permission of a majority of the partners if the asset’s value exceeds $10,000. Lundy argues that it was not the custom of the partnership to treat referral fees as material assets; and (2) the court and the Receiver, not Lundy, bound the partnership to pay Fitzpatrick. The Receiver agrees with Lundy’s position.
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