In a dispute stemming from the death of a law firm partner in a plane crash, a state judge has found her boutique firm did not dissolve when she died, but a question remains whether her firm owes her estate any money.
Marya Lenn Yee was an equity partner at New York intellectual property boutique Donovan & Yee when she died from injuries she sustained in a California plane crash on Dec. 1, 2008. After her death, another firm lawyer, Andrea Calvaruso, was added to the partnership. The estate and the law firm dispute whether Calvaruso's new status allowed the firm to continue and whether the firm may still use Yee's name.
"The court finds that the firm did not dissolve by operation of law upon Yee's death, because Calvaruso was timely added as a partner of the firm" within the meaning of a 1997 partnership agreement, Manhattan Supreme Court Justice Eileen Bransten (See Profile) said in Le Bel v. Donovan, 652200/2010. "The firm has the right to continue to use Yee's name."
The single-engine plane carrying Yee was flying to a Coalinga, Calif., airport when the pilot changed course due to fog and the engine lost power, according to a report in the Fresno Bee the next day.
Yee's estate in 2010 sued the other name partner, Mary Donovan, and the law firm, alleging Donovan continued operating the firm in violation of its partnership agreement and failed to distribute Yee's interest to her estate.
The estate alleged breach of the partnership agreement and breach of fiduciary duty, and sought monetary damages as well as the firm's dissolution and an accounting. The estate also requested a permanent injunction prohibiting Donovan from any use of Yee's name in Donovan's law practice.
Yee and Donovan's 1997 partnership agreement provides that although a partner's interest terminates at her death, the firm would pay to the estate of the deceased partner an amount based on a formula using the deceased partner's net capital account balance and share of unpaid profits for the year.
Another section of the agreement provides that the death of any partners shall not cause the dissolution of the partnership, unless only one partner remains and no additional partner is admitted within 90 days after the death. The agreement states the remaining partners and any new partners shall have the right to continue to use the partnership name.
Before Yee's death, Calvaruso was a nonequity partner who was paid a fixed $180,000 annual salary, a bonus and an amount from her collections. After Yee's death, Donovan and Calvaruso signed an "amended and restated partnership agreement" on Feb. 25, 2009.
Under this agreement, Calvaruso appeared to become a minority equity partner, receiving five of 100 units of participation in the partnership. The remaining 95 units were allocated to Donovan.
Donovan and her law firm contend the partnership continued because Calvaruso was added within 90 days of Yee's death.
But the estate maintained Calvaruso's partnership with Donovan was a ruse to avoid dissolution and Calvaruso never had any of the rights or obligations of an actual partner. The estate said the firm dissolved when Yee died because Donovan was the sole remaining partner.
Calvaruso in testimony said she agreed to become a 5 percent equity partner to avoid dissolution and she was not happy with the terms offered to her. At the end of 2009, Calvaruso, who is not a party in the suit, left the firm.
Bransten said although Calvaruso did not share in any profits or losses for 2009, she testified that she was obligated by the 2009 agreement to share in losses and profits based on her 5 percent interest.
Calvaruso said she would discuss day-to-day decisions with Donovan, but Donovan made major decisions with the firm's accountant, Michael Ferber.
Bransten said Donovan didn't deny that the reason for changing Calvaruso's status to equity partner in 2009 was to prevent the firm from dissolving. Donovan said Calvaruso did not share in any firm profits in 2009 because there were no profits to distribute that year after both of them received guaranteed payments.
After Yee's death, her heirs received $500,000 from a $1 million life insurance policy maintained by Donovan. The other $500,000 was paid to Donovan. Yee had a similar policy on Donovan's life.
Donovan has said that as a result of a 2006 oral agreement with Yee, the insurance payment was in lieu of the accounting and payments due to a deceased's partner under the 1997 partnership agreement.
Yee's estate disputed this change.
The estate interpreted one part of the 1997 agreement to provide that the death of one of the two partners necessarily results in the dissolution of the partnership, Bransten said.
But the judge said the agreement providesifthe firm dissolves because of, among other reasons, the death of one of the two partners, then other provisions of the agreement may be overridden.
"It does not, however, mean that the death of one of two partners necessarily causes a dissolution," the judge said.
"Notably, this document does not require that any new partner be a 50 [percent] equity partner or specify any minimum amount of equity ownership," Bransten said.
"The undisputed testimonial and documentary evidence establishes that Calvaruso and Donovan entered into a written agreement making Calvaruso a 5 [percent] equity partner of the firm and obligating her to share in the profits and losses of the firm up to a 5 [percent] interest," Bransten said.
On whether the firm owes Yee's estate any money, the judge said the law firm and Donovan have raised a triable issue of fact on their claim that the 1997 agreement was amended in 2006 to change how the insurance policies would be paid out.
Even if the agreement was not amended, the judge said, she said she found a triable issue on whether any money is owed to Yee's estate under the formula in the 1997 agreement.
Ferber, the law firm's accountant, said he calculated this amount as zero using a cash method of accounting. However, Ferber also prepared a 2008 financial statement showing about $415,520 in partner's capital.
"Whether Yee's estate is entitled to any payment…is a question of fact that can be resolved in this action, and the firm has prepared at least two accountings for the year ending 2008," the judge said.
Bransten continued the breach of contract and breach of fiduciary duty claims.
An attorney for Yee's estate, Adam Felsenstein of Gallet Dreyer & Berkey, declined to comment.
Amos Alter, the lawyer for Donovan and the Donovan & Yee firm, did not return a message for comment. Donovan herself did not return a message left at her office.
Calvaruso, who is not a party in the suit, left the firm at the end of 2009. She is now a partner at Kelley Drye & Warren.