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Sheets v. Farhart Law Firm

May 11, 2010

JEFFREY L. SHEETS, PLAINTIFF AND APPELLANT
v.
FARHART LAW FIRM, AND MOODY FARHART, PERSONALLY, DEFENDANTS AND APPELLEES



Appeal from the District Court of Ward County, Northwest Judicial District, the Honorable David E. Reich, Judge.

The opinion of the court was delivered by: Kapsner, Justice.

AFFIRMED.

[¶1] Jeffrey Sheets appeals from a district court decision finding he was entitled to $11,982.18 in additional compensation under the terms of an employment agreement, but offsetting this amount against $13,000 plus interest due under two promissory notes executed in favor of defendants Farhart Law Firm and Moody Farhart. We hold the district court's finding that Sheets was only entitled to $11,982.18 was not clearly erroneous and affirm the judgment in favor of defendants offsetting the two awards.

I.

[¶2] Farhart and Sheets are both attorneys. In July 2004, Farhart contacted Sheets to ask whether Sheets was interested in moving to Minot and joining Farhart's law practice. Sheets agreed and signed a letter agreement regarding "Employment" drafted by Farhart. The agreement provided the name of Farhart's professional corporation would be changed to "Farhart & Sheets, P.C." ("Farhart & Sheets"), and Farhart would continue to personally own Farhart & Sheets "until such time as a written agreement is drafted and executed reflecting a change of ownership." The agreement also described how Sheets would be compensated:

The firm will employ a two-system credit fund concerning fees based on the following percentages, to wit:

a)You shall receive 100% of the fees on all files you are bringing into the office initially.

b)You shall receive 80% fee credit on all files opened after July 1, 2004, by you wherein fees are billed and collected including cases taken on contingency fee basis.

c)You shall be entitled to receive 50% fee credit on all files opened after July 1, 2004, by me wherein fees are billed and collected including contingency fee files.

d)You will be entitled to receive 20% fee credit on all files presently open at my office wherein you render legal services thereon. If any of the files that are open go to trial, you will be entitled to receive 50% credit. I am excluding [four specific cases]. Also excluded are all open accounts to date and judgments entered of record. It is distinctly understood that the above files, judgments, and records shall be owned by me and/or the professional corporation.

The agreement did not address whether Sheets would receive fee credits on case files opened by any other attorneys subsequently hired by Farhart & Sheets. The agreement also did not explicitly state how the firm's expenses would be split, but an example indicated Sheets and Farhart would each pay 50 percent.

[¶3] The employment agreement also mentioned Farhart's future retirement plans. It stated Farhart's "primary concern" was closing out active files, after which he would "be in a position to discuss [Sheets] taking over the entire practice on [his] own." Finally, the employment agreement provided "either of us may terminate our association at any time." If either Sheets or Farhart terminated their association, the agreement called for accounts receivable collected within thirty-five days to be allocated according to the above compensation structure. However, after thirty-five days, the employment agreement stated all accounts receivable became an asset of Farhart & Sheets.

[¶4] After Sheets began working at Farhart & Sheets, the defendants loaned him $3,000 and $10,000, and he executed two promissory notes in their favor. Sheets also helped recruit a third attorney, Bonnie Humphrey, to join Farhart & Sheets in early 2005. Beginning in mid-2005, Sheets and Humphrey began negotiations with Farhart over the purchase of Farhart & Sheets. However, before the parties could agree to terms, Farhart terminated his professional association with both Sheets and Humphrey in October 2005. Two months later, Sheets filed a complaint against Farhart Law Firm*fn1 and Moody Farhart personally, claiming he was owed at least $50,000 for work he performed prior to the association being terminated. Sheets' complaint also claimed that, when he signed the employment agreement, he and Farhart formed a legal partnership. The defendants filed a counterclaim, alleging Sheets actually owed the firm over $11,000 under the employment agreement and $13,000 plus interest under the two promissory notes.

[ΒΆ5] The defendants moved for summary judgment in January 2007. The district court found Sheets and Farhart did not form a partnership because the employment agreement clearly provided Farhart was the sole owner of Farhart & Sheets. The district court also found Sheets owed $13,000 plus interest to the defendants under the promissory notes. Therefore, the district court granted summary judgment in favor of the defendants on those two issues. However, the district court found the parties disputed material facts about whether either party owed money ...


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