Paraphrasing Mark Twain, reports of the humble partnership’s demise are greatly exaggerated.
More than three decades ago, when New York enacted the Limited Liability Company Law, some believed the partnership might go the way of the dodo. But still, we regularly encounter and write about noteworthy partnership business divorce decisions.
Lawyers presumably know better than most the risks and uncertainties of operating in the form of a traditional partnership. But for whatever reason, they continue to form, and continue to dissolve, a hefty share of the partnership entities we write about (you can read many law firm breakup stories here).
When law firm partnerships happen to be contingency fee businesses, the owners’ ability to separate cleanly and without litigation can be painfully out of reach.
No one knows that better than New York County Commercial Division Justice Melissa A. Crane, who’s had the misfortune of spending the better part of three years trying to unravel a modest, two-attorney law firm partnership formerly known as the Law Office of Vaccaro & White, LLP (“VW”).
White v Vaccaro (Decision After Trial [Sup Ct, NY County June 22, 2026]), is a lesson about why it is so difficult to unwind contingency fee law firm partnerships when the partners cannot agree upon a method of division of ongoing client-matters the departed partners take with them to their new firms.
Link to The Unfinished Business Doctrine, Jewel, and Thelen The Unfinished Business Doctrine, Jewel, and Thelen
Much of the problem splitting up contingency fee law firm partnerships derives from a New York Court of Appeals decision from a dozen years ago, In re Thelen LLP (24 NY3d 16 [2014]).
Pre-Thelen, New York courts recognized the “unfinished business doctrine,” a rule of law derived from a decades-old California case, Jewel v Boxer (156 Cal App 3d 171 [Cal Ct App 1984]).
Jewel was a personal injury contingency fee law firm breakup. The Jewel Court ruled under the Uniform Partnership Act – the same general partnership statute New York enacted in 1919 and continues to follow – that a “dissolved partnership continues until the winding up of unfinished partnership business,” and “absent a contrary agreement, any income generated through the winding up of unfinished business is allocated to the former partners according to their respective interests in the partnership.”
Under Jewel’s unfinished business doctrine, any “contingency fee cases pending in the firm on the date of dissolution constitute partnership assets subject to distribution unless the partners in question had agreed otherwise” (Dwyer v Nicholson, 193 AD2d 70 [2d Dept 1993] [citation modified]).
But Thelen jettisoned the unfinished business doctrine, ruling that legal matters are “not partnership ‘property’ or ‘unfinished business’ within the meaning of New York’s Partnership Law. A law firm does not own a client or an engagement, and is only entitled to be paid for services actually rendered” through the date of dissolution. Thelen ruled that ongoing client-matters belong to the client, not the law firm, “given the client’s unfettered right to hire and fire counsel” as a matter of public policy and under the ethical rules governing lawyer conduct.
So for contingency fee cases, “where a lawyer departs from a dissolved partnership and takes with him a contingent fee case which he then litigates to settlement, the dissolved firm is entitled only to the value of the case at the date of dissolution, with interest. Stated conversely, the lawyer must remit to his former firm the settlement value, less that amount attributable to the lawyer’s efforts after the firm’s dissolution.”
Later courts have elaborated upon the correct method of allocation: a “discharged attorney may elect to receive compensation immediately based on quantum meruit or on a contingent percentage fee based on his or her proportionate share of the work performed on the whole case” (Parker Waichman, LLP v Mauro, 215 AD3d 869 [2d Dept 2023]).
A quantum meruit legal fee analysis is fact sensitive, almost guaranteeing a trial by requiring courts to consider “such factors as the time and labor required, the difficulty of the issues involved, the skill required to handle the matter, and the effectiveness of the legal work performed” (id.).
Link to Thelen “Encourages Chaos” Thelen “Encourages Chaos”
These rules of law surprise some of New York’s smartest judges.
In early 2023, VW imploded. Adam White (“White”) sued and Stephen Vaccaro (“Vaccaro”) countersued. White immediately moved for a temporary restraining order and preliminary injunction prohibiting Vaccaro from distributing any legal fees attributable to any matters on which VW worked, and requiring him to deposit into escrow 50% of the net proceeds of ongoing firm matters for future division with White. White argued Jewel. Vaccaro argued Thelen.
After a multi-day evidentiary hearing, in her preliminary injunction decision, Justice Crane could hardly believe the state of the law:
Plaintiff contends that all future incoming contingency fees from any case that VW took up, during the time the parties were partners, should be divided 50/50 pursuant to each sides’ partnership interest. Defendant propounds a much more complicated solution. According to defendant, fees realized from pre-termination engagements, that he names ‘Legacy Cases,’ must only reflect the value of the legal services VW performed pre-termination. In keeping with this analysis, defendant also argues that fees realized from post-termination engagements belong exclusively to whichever attorney the client actually retained.
Much to this court’s surprise (the court had assumed a pending case was an asset of the partnership and therefore any incoming fees had to be split 50/50 in accordance with the partnership agreement), it is defendant’s view that is in keeping with New York law. Under the seminal case of In re Thelen LLP, 24 NY3d 16, 29 (2014), the Court of Appeals said, in the context of contingency fees, a dissolved law firm’s pending matters are not partnership ‘property’ or ‘unfinished business’ within the meaning of the Partnership Law, but rather belong to the client. The dissolved firm is only entitled to the value of the services it provided prior to dissolution. . . . By this reasoning, a dissolved partnership has no claim for fees derived from cases that were opened after the partnership dissolved . . . .
Justice Crane lamented that Thelen’s rule of law encourages bad lawyer behavior – “scrambling to take physical possession” of client-matters and files, “precisely what occurred here,” which the Court felt “contributed to the extreme acrimony between the parties.”
“In light of these concerns,” Justice Crane wrote, “this court does not understand why completing the executory contingency fee contract is not part of winding up the firm’s business, such that fees therefrom should be split according to the partnership agreement. This approach also encourages parties to abide by their fiduciary duties. However, the Thelen court has seen fit to approach this problem differently. Until it is overturned, this court is constrained to follow it.”
Follow Thelen the Court did, spawning much additional litigation, including not one, but two motions seeking modification or vacatur of the Court’s injunction decision.
In the first decision, the Court denied White’s motion to reargue, complaining again of the problems with Thelen:
The Thelen rule . . . encourages chaos. Application of Thelen and its progeny means the parties and the court are stuck in an endless cycle of figuring out, by quantum meruit, who deserves what part of each contingency fee that materializes after dissolution–a situation that could carry on for years until all pending cases are tried or settled. It also encourages former fiduciaries, upon dissolution, to scramble to take possession of the most remunerative of the cases–precisely what occurred here . . . .
In the second decision, the Court denied Vaccaro’s motion to vacate the portion of the preliminary injunction requiring him to keep 50% of VW’s legal fees in escrow, blaming Vaccaro in part for his own plight of having to tie up so much cash — “it is defendant who has insisted, as is his right, on the cumbersome allocation process that application of the rule from In re Thelen, 24 NY3d 16, 29 [2014], requires. Defendant could have agreed to abide by the allocation of fees in the partnership agreement he signed.”
Link to The Post-Trial Decision The Post-Trial Decision
The case progressed to a bench trial on the merits.
Article 8 of VW’s partnership agreement required “unanimous approval of all of the partners” for “dissolution” of the firm. Originally, White tried to argue that Vaccaro committed a wrongful partnership dissolution (see Congel v Malfitano) by sending an email writing: “This email will serve as notice to you that our partnership is dissolved.”
But the Court concluded that White consented to dissolve VW, and did dissolve it, less than two weeks later by sending an email writing: “it is clear to me that we need to dissolve our firm and separate our practices entirely” and “I agree that we will need to work with a skilled mediator we both trust to dissolve our firm as expeditiously and reasonably as possible.”
The Court then returned to Thelen, expressing its view that even assuming arguendo the parties allegedly agreed in a much earlier “affiliation agreement” to split post-dissolution contingency fees 50/50, an agreement of that sort is unenforceable:
Even if the parties had agreed to a 50/50 split, it would be irrelevant. This is because the fee schedule violates the rule set forth in In re Thelen, 24 NY3d 16 (2014). As discussed at length in prior decisions in Thelen, the Court of Appeals determined, on public policy grounds, that a client’s legal matter belongs to the client, not the lawyer. Thelen thus held, in contingency fee cases, the dissolved partnership is entitled only to the value of its services and that a contingency fee case is not an asset of the partnership (citation modified).
The Court “Adjudged, Decreed and Declared that the law firm of Vaccaro and White LLP is dissolved as of March 29, 2023, and that the fees are to be allocated quantum meruit per Thelen.”
After three years of legal battle, on the all-important question of “how much,” the Court did not decide anything, referring the case to a judicial hearing officer or special referee to hear and report the “proper allocation of contingency fees each party is owed, on a quantum meruit basis in accordance with In re Thelen LLP, 24 NY3d 16, 29 (2014).” So White and Vaccaro can and should expect years of further litigation before their case finally ends.
Link to Open Questions Open Questions
How can law firm partners operating contingency fee businesses in the partnership form avoid expensive, prolonged litigation over how to divide fees on matters the firm originated pre-dissolution? According to Justice Crane, partners cannot opt out of the Thelen rule because the rule derives from public policy. But law partners can still agree in their contracts on a method for valuing cases originated pre-dissolution. For example, partners can agree on valuing cases as an escalating fixed percentage based upon the maturity of the litigation at the time of dissolution – pleadings, paper discovery, depositions, note of issue, summary judgment, trial, etc. Or, if their contracts lack such a provision, partners can work together post-dissolution on a sensible method for division. But if law partners are acrimonious and divided, litigation over the dissolved firm’s quantum meruit value of pending contingency fee cases at the time of dissolution is almost inevitable.
Does Thelen apply to non-partnership law firms, like corporations or LLCs? Surprisingly, it seems there is no reported New York decision addressing this question. But one suspects that insofar as Thelen derives from ethical rules and public policy principles, courts may be inclined to extend Thelen to law firm corporations and LLCs. If so, any shareholder or operating agreements purporting to characterize pending contingency fee matters as firm property or assets post-dissolution may not be so enforceable.