Senior lawyer is partner, not creditor

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A contract attorney from a law firm that went bankrupt is a partner, not a creditor, under the firm’s bankruptcy plan, the Seventh Circuit held on April 15.

Because there wasn’t enough money to pay the other creditors, attorney Mark H. Berens will get nothing from the bankruptcy of his former firm, Altheimer & Gray.

The firm, founded in Chicago in 1914, once had offices in 11 cities throughout the world. In 2003, it was forced into involuntary bankruptcy.

The reorganization plan approved by the creditors provided for liquidation, with debts to the partners subordinated to debts owed to other creditors.

Until 1999, Berens was a partner in the firm. In that year, however, he entered into a contract, giving up his right to profits and a role in decision-making. Instead, he was given a salary.

Berens filed a claim in 2004, describing himself as a “non-unit partner,” and seeking $311,000 in capital contributions, unpaid compensation, distributions withheld, and unreimbursed expenses. No one objected to the claim, but it was not paid because the estate did not collect enough to reimburse the other creditors fully.

Berens sought payment in 2008, but the bankruptcy court, the district court and now the Court of Appeals have all held he was a partner entitled to nothing under the plan of reorganization.

It was undisputed that, since 1999, Berens was no longer a “partner” as that term is used under the Uniform Partnership Act. But the court found that irrelevant as to whether he was a “partner” or a “creditor” in the reorganization plan.

The plan used two phrases to delineate traditional partners from salaried partners such as Berens: “unit partners” (entitled to profits) and “non-unit partners” (salaried lawyers).

The court noted, “These extra-statutory phrases reflect the practice at Altheimer & Gray, and many other law firms, of calling certain salaried employees ‘partners’ as an honorific.”

But because the bankruptcy plan defined “partners” to include both unit partners and non-unit partners, the court concluded that the plan’s definition determines the parties’ rights, rather than the definition of “partner” in the partnership act.