## Facts

- In 2004, Mark E. Overland and three other lawyers formed a limited liability law partnership originally known as Overland Borenstein Scheper & Kim LLP.
- The partners never executed a written partnership agreement and did not reach a single comprehensive oral agreement defining ownership percentages.
- Firm decisions were made by consensus, giving each partner an equal voice in management, but the partners did not consistently divide profits equally.
- The firm required no capital contributions, retained no working capital from year to year, and distributed profits annually.
- The partners set profit shares informally near the end of each year using a merit-based approach that gave significant weight to business generated and earnings brought to the firm.
- Over the firm’s first five years, Overland’s profit percentage declined; for the year ending about four months before he left, his profit share was 4%.
- In 2010, Overland announced he was leaving and requested a buyout of his partnership interest, contending that as one of four founders he was entitled to 25% of the firm’s value.
- Partner Diann Kim told Overland she had consulted a partnership lawyer who supposedly advised that no buyout was likely because the firm’s liabilities exceeded its assets; the lawyer later testified he did not recall giving that advice and denied telling Kim that.
- The parties stipulated that, at the time Overland left, the firm’s equity was $2,850,000 and Overland owed the firm $21,084 for insurance premiums.
- The firm refused to pay Overland any buyout, demanded reimbursement for the insurance premiums, and did not pay him any profit share for the year he departed.
- After a bench trial, the trial court found Overland’s partnership share for buyout purposes was 4%, calculated the buyout on that basis, offset the insurance-premium debt, and entered a net buyout award of $91,916.
- The trial court also awarded Overland attorney’s fees and costs of $97,146 under the buyout statute, but in an amount lower than he sought, and awarded prejudgment interest at 7%.
- Overland appealed, challenging the 4% share finding, the reduced attorney’s fee award, and the prejudgment interest rate.

## Issues

1. Under Corporations Code § 16701 (buyout after partner dissociation), did the trial court err by valuing Overland’s interest at 4% rather than 25%?
2. Did the trial court abuse its discretion by awarding less attorney’s fees and costs than Overland requested under Corporations Code § 16701(i)?
3. Did the trial court apply the wrong prejudgment interest rate to the buyout award?

## Decision

- The Court of Appeal held substantial evidence supported the trial court’s finding that Overland’s partnership share at dissociation was 4%, and it affirmed the buyout calculation based on that percentage.
- The court rejected Overland’s argument that he was entitled to 25% merely because there were four original partners and each had an equal say in management.
- The court affirmed the attorney’s fee award, concluding the trial court acted within its discretion in reducing the amount requested on the record presented.
- The court held the trial court used an incorrect prejudgment interest rate; where the Uniform Partnership Act creates an obligation to pay interest and the rate is not specified, the default is 10% under Civil Code § 3289, as applied through Corporations Code § 16104(b).
- Disposition: affirmed in part and remanded with directions to modify the judgment to apply the correct prejudgment interest rate, leaving the 4% share determination and the fee award intact.

## Legal Principles

- Under Corporations Code § 16701, a dissociated partner is entitled to the fair value of the partner’s actual “partnership interest”; the statute does not require equal ownership by headcount when the partners did not agree to equal economic interests.
- In the absence of a written or comprehensive oral partnership agreement fixing ownership percentages, a court may determine a partner’s economic share from the partners’ course of conduct, including recurring profit-allocation practices.
- A trial court’s determination of a partner’s share based on disputed facts and inferences from conduct is reviewed for substantial evidence on appeal.
- Attorney’s fee awards authorized by Corporations Code § 16701(i) are reviewed for abuse of discretion; a court may reduce requested fees based on reasonableness and results obtained, and a party challenging the award bears the burden of providing an adequate appellate record.
- When the Uniform Partnership Act creates an obligation to pay interest but does not specify a rate, Corporations Code § 16104(b) directs use of the Civil Code § 3289 default rate (10%), rather than the 7% constitutional rate sometimes used for other judgments.

## Conclusion

Overland v. Scheper Kim & Harris LLP held that, for a dissociated law-firm partner in a partnership with no written agreement, the buyout required by Corporations Code § 16701 is based on the partner’s economic share shown by the firm’s established profit-sharing practice, which supported a 4% interest rather than 25%; the court also upheld the trial court’s reduced attorney’s fee award and remanded only to correct the prejudgment interest rate to 10%.


Overland v. Scheper Kim & Harris LLP, 2013 WL 4027455 (2013)