“Dude I Ate A Big Ass Weed Brownie…”

The Tennessee Court of Appeals affirmed and remanded a Chancery Court decision in a law firm dispute

The plaintiff, a founding member of a law firm, filed this action against other members. The trial court found that the defendant members violated their duty of good faith and fair dealing, breached their contract with the plaintiff, violated their fiduciary duty toward the plaintiff, engaged in a conspiracy, and committed conversion. We affirm the ruling of the trial court.

This appeal arises from disagreement over the management of a new law firm. Matthew Ooten, Linda Betz, and Jason Baril, attorneys licensed to practice law in Tennessee, previously worked together at the Knoxville law firm of Ogle, Elrod and Baril (“OEB”) until they left OEB to start a new law firm, a separate disability practice, a supporting call center, and a holding company. They are the founding members of Ooten Betz & Baril, PLLC (“OBB”); Disability Advantage Group, LLC (“DAG”); Summit Conversions, LLC (“SC”); and Summit Partners, LLC (“SP”) (collectively the “LLCs”). OBB, DAG, SC, and SP were formed as limited liability companies through the Tennessee Secretary of State on December 1, 2018, with delayed effective dates: DAG, December 14, 2018; SP, SC, and OBB, January 1, 2019. Each LLC is member managed. Of these four entities, only OBB is a law firm.

At their former firm

The disability group that Ooten managed at OEB was very profitable, growing from essentially nothing in 2014 to roughly $1.6 million in 2018. Around this time, Baril approached Ooten about leaving OEB with him. Ooten understood that the entire disability practice would be moving from OEB. He thereafter approached [case managers] Freers and Cozart, his team at OEB, about leaving to start the new venture with Betz and Baril.

Initial agreements

Betz, Baril, and Ooten executed four separate documents titled “Partnership Agreements” referencing the LLCs.

But trouble ensued

Betz, who had managed the personal injury practice at OEB, was tasked with implementing the personal injury case management system for OBB. According to Ooten, however, Betz failed to make the personal injury system operationally sound and opposed his efforts to assist her. He claims that she became increasingly hostile, aggressive, and combative toward him when he suggested improvements. Ooten contends that he made good faith efforts to avoid conflict with her by outlining how the ownership of the LLCs could be restructured among the members to avoid interaction between Betz and Ooten.

As set forth below, there was ongoing interaction between Betz and Baril. 

Ooten sought to restructure the agreements

On March 20, 2019, Ooten and Baril were scheduled to go to Las Vegas for the NCAA basketball tournament. That morning, however, Baril texted Freers to ask if she wanted to meet for lunch at Calhoun’s, a Knoxville restaurant. Freers met with Betz and Baril for lunch, at which time Baril inquired if she would stay at DAG and assume the disability practice responsibilities if Ooten departed the firm. Freers informed them that she and Ooten were not a package deal; she would make a decision that was best for her and her family. She indicated, nonetheless, that she hoped things would work out. They discussed a raise if Freers assumed Ooten’s responsibilities. Freers mentioned that Cozart was a vital member of DAG’s leadership team and that she would like to see her remain with the firm. Betz and Baril subsequently invited Cozart as well as Freers to a second meeting. Cozart testified that Betz and Baril informed her that they were planning to meet with Ooten because the members were not all getting along and that Ooten would not be working there anymore. Betz and Baril expressed to Cozart their belief that she was a valuable employee at DAG and their desire for her to stay. As with Freers, an increase in Cozart’s salary was addressed. According to Cozart, she was to make close to six figures when the proposed profit sharing was included. As to Ooten, instead of meeting up with him in Las Vegas as planned, Baril texted him on March 21, 2019, at 10:48 a.m., stating “Dude I ate a big ass weed brownie and just woke up I think so I missed my flight[.] I’ll call you in a couple of hours to talk[.]”

Baril directed his attorney to advise Ooten by letter that the computer passwords and the locks on the doors had been changed at OBB, he had been removed from all partnership bank accounts, and that if he came around the physical premises, law enforcement would be notified. Upon Baril approving the letter, it was hand-delivered to Ooten on April 2, 2019. The letter outlined that if Ooten chose to litigate and/or request a formal market valuation of his vested partnership interest, Betz and Baril, pursuant to the Partnership Agreements, would hold a meeting and vote their majority interest to choose an appraiser to set the market value for the entities.

Two days after Ooten received the letter, the record reflects that Betz and Baril began making draws and distributions from DAG based on a 70/30 split—i.e., 70 percent to Baril and 30 percent to Betz, diminishing Ooten’s interest in the entities to zero. In July 2019, Betz filed for divorce, and she and Baril formally announced that they were a couple to firm personnel. Ooten opines that it can be reasonably inferred that the relationship existed before he was shutout on April 2, 2019.

Upon Ooten’s departure, Freers’ salary increased from $55,000 to $115,000, and Cozart’s salary increased from the low $40,000s to approximately $93,000. Freers took over most of Ooten’s role, and Cozart stepped into Freers’ shoes. Initially, Freers was granted access to Ooten’s emails in order for her to utilize Ooten’s vendor contacts and services as well as to see whether any matters needed to be addressed. Around December 2019, however, she no longer had access to Ooten’s account. Upon notifying Betz and Baril that the account had become unavailable to her, she was advised to ask them if she needed something.

In the inevitable litigation initited by Ooten

Dismissed were claims for punitive damages, intentional interference with business relationships, and a derivative action by Ooten on behalf of DAG. The trial court ordered that Ooten should recover from Betz and Baril, jointly and severally, the amount of $897,913 plus prejudgment and post-judgment interest at the maximum rate allowed by law and reasonable and necessary attorney fees. On January 10, 2023, the court further awarded Ooten discretionary costs pursuant to Rule 54.04 of the Tennessee Rules of Civil Procedure in the amount of $12,039.05. Additionally, on February 28, 2023, the court awarded Ooten attorney fees in the amount of $255,892.50 and expenses (not otherwise recoverable as discretionary costs) in the amount of $28,610.41.

Baril and Betz appealed; Betz’s was dismissed on procedural grounds

Merits and non-applicablity of ethics rule of sale of law practice

Ooten was not selling his disability practice in an arm’s length transaction and leaving the industry—a requirement of Rule 1.17. The disability practice was continued as a going concern without interruption. Further, only one entity involved in this matter was a law firm, OBB. Rule 1.17 would have no application to the other three non-law firm entities.

Ooten’s expert

Harvey demonstrated that he was qualified to testify about the “fair value” of law practices and his opinions were generally accepted in the financial community. His testimony established that he has degrees in accounting and business administration. He is a certified public accountant and accredited in business valuation. Harvey has conducted more than 1,000 business valuations since approximately 1999 and has experience as a broker applying the appropriate valuation approaches to businesses. Harvey observed that he had valued approximately five law practices, the last being three or four years prior to the January 2022 trial.

Conclusion

the judgment of the trial court is affirmed, and the case is remanded for enforcement of the court’s judgment.

Oral argument linked here. (Mike Frisch)