Pension Answer Book Not Firm Asset

The New York Appellate Division for the First Judicial Department affirmed a judgment on behalf of a departing lawyer against his former law firm but remanded for a recalculation of damages. The court held:

The finding as to the fair value of petitioner’s equity share in thefirm was substantiated by the evidence offered by petitioner’s expertappraiser, which included his report, with supporting documentation,and testimony. The asset values recommended by the expert were based ona cost/asset analysis, and the basis for the final values proposed bythe expert can be gleaned from the record. Respondents elected not tosubmit a counter appraisal.

However, petitioner’s expert’s inclusion of the Pension AnswerBook, that was co-written by Stephen J. Krass, one of the respondentpartners, prior to formation of the firm, as an asset of the firm isunsupported by the record. The Referee found that while, during their1984 discussion about merging their firms and forming a new law firm,petitioner and Mr. Krass discussed the book becoming an asset of thefirm, that was never reflected in the firm’s financial records. Krassnot only owned and controlled the royalties paid on the book, and wastaxed individually for the book’s earnings but, although the royaltieswere listed on internal firm documents as a line of fee income, thefirm’s distributions to him were reduced by the amount of royalties hereceived. The fact that several of the firm’s lawyers contributed legalwork (on firm time) to subsequent revisions of the book, which wasdeemed a marketing tool for the firm, does not render it a firm asset.

Additional cash assets of the firm that allegedly had been earmarked for bonus compensationand other incentive payments to be distributed within a month after thefiling of the petition on November 20, 2001 were properly treated asassets of the firm and subject to valuation. These cash assets remainedwithin the firm’s control to dispose of as necessary.

(Mike Frisch)