MITCHELL, BREWER, RICHARDSON, ADAMS, BURGE & BOUGHMAN; GLENN B. ADAMS; HAROLD L. BOUGHMAN, JR. and VICKIE L. BURGE, Plaintiffs,
COY E. BREWER, JR., RONNIE A. MITCHELL, WILLIAM O. RICHARDSON, and CHARLES BRITTAIN, Defendants.
in the Court of Appeals 2 May 2017.
by defendants from orders entered 26 February 2013, 18
September 2015, and 19 February 2016 by Judge John R. Jolly,
Jr. in Cumberland County Superior Court No. 06 CVS 6091
Everett Gaskins Hancock LLP, by E.D. Gaskins, Jr., James M.
Hash and Fiona K. Steer, for plaintiffs-appellees.
M. Mitchell and Coy E. Brewer, Jr., pro se, for
appeal involves a number of issues surrounding the break-up
of the Mitchell, Brewer, Richardson, Adams, Burge &
Boughman, PLLC law firm. Upon remand of the case following
our resolution of the parties' initial appeal, the trial
court dissolved the law firm and appointed a referee to
conduct an accounting and distribution. Ronnie M.
Mitchell and Coy E. Brewer, Jr. (collectively
"Defendants") now appeal from the trial court's
orders appointing a referee, adopting the report of the
referee, and granting the motion for summary judgment of
Glenn B. Adams, Harold L. Boughman, Jr., and Vickie L. Burge
(collectively "Plaintiffs") as to Defendants'
remaining counterclaims. We affirm each of the trial
and Procedural Background
full factual background relating to the break-up of the firm
is set out in our prior opinion. See Mitchell, Brewer,
Richardson, Adams, Burge & Boughman, PLLC v. Brewer,
209 N.C.App. 369, 705 S.E.2d 757 (hereinafter
"Mitchell I"), disc. review
denied, 365 N.C. 188, 707 S.E.2d 243 (2011).
Accordingly, we only discuss below those facts relevant to
the present appeal.
lawsuit arose out of a dispute between the members of the
Mitchell, Brewer, Richardson, Adams, Burge & Boughman,
PLLC law firm, which resulted in the firm breaking up in the
summer of 2005. Plaintiffs subsequently formed a new firm
called Adams, Burge & Boughman, PLLC
("AB&B"), while Brewer, Mitchell, William O.
Richardson, and Charles Brittain continued to practice law
together as Mitchell, Brewer, Richardson. In the aftermath of
the break-up, numerous disagreements arose between the
parties regarding the ownership of certain PLLC assets -
including future profits from unresolved contingent fee cases
brought into the PLLC before the break-up.
July 2006, Plaintiffs filed the present lawsuit in Cumberland
County Superior Court against Brewer, Mitchell, Richardson,
and Brittain in which they asserted claims for (1) an
accounting to the PLLC; (2) an accounting to Plaintiffs; (3)
a "liquidating distribution"; (4) constructive
fraud and breach of fiduciary duty; and (5) unfair and
deceptive trade practices. In connection with these claims,
Plaintiffs sought a judicial dissolution and winding up of
the PLLC. Plaintiffs asserted these claims both individually
and derivatively on behalf of the PLLC. Plaintiffs
subsequently amended their complaint on 1 August 2006, 23 May
2007, and 17 February 2009.
lawsuit was designated a complex business case pursuant to
N.C. Gen. Stat. § 7A-45.4 and assigned to the Honorable
John R. Jolly, Jr. of the North Carolina Business Court. On 1
November 2006, Defendants moved to dismiss Plaintiffs'
complaint, and the trial court denied the motion by order
entered on 8 May 2007. Defendants subsequently filed an
answer on 13 June 2007, raising multiple defenses and
asserting the following counterclaims: (1) a request for a
declaratory judgment that Plaintiffs "voluntarily and
unilaterally withdrew" from the PLLC; (2) a declaratory
judgment that Plaintiffs were equitably estopped from denying
that they had agreed to a dissolution of the PLLC pursuant to
the terms of a memorandum drafted by Brewer; (3) breach of
fiduciary duty in connection with Plaintiffs' misuse of
PLLC assets, failure to meet financial obligations of the
PLLC, and failure to account for fees generated through PLLC
business; (4) conversion and misappropriation of PLLC assets;
(5) unjust enrichment for failure to account to the PLLC; (6)
a request for imposition of a constructive trust, equitable
lien, or resulting trust; (7) breach of fiduciary duty in
connection with "the defense of [a] malpractice
action[;]" (8) unjust enrichment in connection with
"the defense of [a] malpractice action[;]" (9)
breach of fiduciary duty based on ultra vires acts;
and (10) a request for a statutory distribution of assets.
January 2008, the parties each filed motions for partial
summary judgment. Plaintiffs' motion requested judicial
dissolution of the PLLC and dismissal of Defendants'
counterclaims that were "predicated on the proposition
that no such dissolution occurred." Defendants'
motion requested an order declaring that Plaintiffs had
"withdrawn" from the PLLC as opposed to there
having been a dissolution of the firm. On 15 August 2008,
Defendants filed a second motion for summary judgment as to
all of Plaintiffs' claims on the grounds that the PLLC
lacked standing to bring this action on its own behalf and
the individual plaintiffs lacked standing to bring this
action derivatively on behalf of the PLLC.
trial court issued an order on 31 March 2009 ruling, in part,
that Plaintiffs were equitably estopped from denying that
they had withdrawn from the PLLC. Therefore, the court held,
all of the parties' claims would be evaluated in the
context of a withdrawal by Plaintiffs from the PLLC rather
than a dissolution of the PLLC. Mitchell I, 209
N.C.App. at 375-76, 705 S.E.2d at 762-63. All of the parties
appealed to this Court from the trial court's order.
Mitchell I, we affirmed in part the trial
court's order, reversed in part, and remanded for further
proceedings. With respect to the issue of standing, we held
that Plaintiffs possessed standing under N.C. Gen. Stat.
§ 57C-8-01(a) to assert derivative claims on behalf of
the PLLC. Id. at 382-87, 705 S.E.2d at 767-70. We
further ruled that because "withdrawal pursuant to N.C.
Gen. Stat. § 57C-5-06 was not available as a remedy at
law for the parties[, ]" the dismissal of
Defendants' counterclaims premised upon an alleged
withdrawal by Plaintiffs was proper. Id. at 390, 705
S.E.2d at 772. We also held that pursuant to N.C. Gen. Stat.
§ 57C-6-02 dissolution of the PLLC was necessary because
there was a deadlock in its management. Id. at
390-91, 705 S.E.2d at 772.
respect to dissolution and the need for a liquidation and
distribution, we explained as follows:
Here, since 14 June 2005, there has been a deadlock between
the PLLC members as a result of their disagreement regarding
division of profits derived from pending contingent fee cases
when three members of the PLLC left the PLLC, and plaintiffs
and defendants began practicing separate and apart beginning
on 1 July 2005. Although there were communications between
plaintiffs and defendants addressing the assets of the PLLC,
none resolved this deadlock. Because the three plaintiffs
were no longer willing to practice with defendants, the PLLC
could "no longer be conducted to the advantage of the
members generally[.]" See [ N.C. Gen. Stat.
§ 57C-6-02]. Liquidation of the PLLC's assets
"is reasonably necessary for the protection of the
rights or interests of the complaining member[s]" as the
PLLC's members have been unable to reach any agreement
regarding profits from the disputed pending contingent fee
cases. See id. Also, there is evidence that profits
made by defendants since the deadlock from one of the
disputed contingent fee cases were not distributed to the
members or accounted for by defendants. Therefore, there is a
potential that the PLLC's assets are being misapplied.
Accordingly, plaintiffs have forecast facts which would
permit judicial dissolution pursuant to N.C. Gen. Stat.
§ 57C-6-02. As defendants had "a full and complete
remedy at law[, ]" the business court erred in not
applying this legal remedy and instead applying the
principles of equity to resolve the issues arising from this
we determined that "because the business court
improperly applied equitable estoppel in this situation, it
abused its discretion by not ordering judicial dissolution of
the PLLC." Id. at 392, 705 S.E.2d at 773. We
then concluded as follows:
Accordingly, we reverse the business court's judgment
granting partial summary judgment in favor of defendants on
the basis of equitable estoppel and remand to the business
court for [the] granting of summary judgment in favor of
plaintiffs on the issue of judicial dissolution pursuant [to]
N.C. Gen. Stat. § 57C-6-02, for a decree of dissolution,
and directing the winding up of the PLLC pursuant to N.C.
Gen. Stat. § 57C-6-02.3 (2007). Given this ruling,
plaintiffs' derivative claims for an accounting to the
PLLC (claim one), an accounting to plaintiffs (claim two),
and a demand of liquidating distribution (claim three), as
well as defendants' counterclaim for a demand for
statutory distribution of assets (counterclaim ten), will be
addressed by the business court in its directing the winding
up of the PLLC.
Id. at 393, 705 S.E.2d at 773. Finally, we reversed
the trial court's dismissal of Plaintiffs' Claims
Four and Five and Defendants' Counterclaims Three through
Six and Nine on the ground that the trial court had dismissed
those claims based upon its incorrect determination that a
withdrawal had occurred. Id. at 393, 705 S.E.2d at
remand, the trial court held a hearing on 17 August 2012 in
order to consider the parties' arguments regarding the
potential appointment of a referee to oversee accounting and
distribution issues in connection with the dissolution of the
PLLC. Prior to the hearing, the parties submitted briefs
setting forth their respective positions regarding the
appointment of a referee and the methodology that should be
employed in valuing disputed contingent fee engagements.
February 2013, the trial court issued an "Opinion and
Order Dissolving Company and Appointing Special Master"
(the "Reference Order"). In this order, the court
entered a decree of dissolution retroactively dissolving the
PLLC as of 1 July 2005 (the "Dissolution Date").
The trial court noted that "[t]he parties agree that a
dissolution of the [PLLC] is required, as well as an
accounting and distribution of its assets" but that
"[t]he parties dispute various aspects of the financial
and accounting records of the [PLLC] and the amounts owed by
and to the respective parties." The court observed that
"[a] primary point of contention between the parties is
the appropriate accounting method for profits derived from
the contingent-fee engagements that the [PLLC] entered into
prior to dissolution but were resolved post-dissolution by
Defendants ('Contingent Fee Engagements')." The
court stated that
[t]he difficulty in liquidating contingent-fee engagements by
conventional means leads inevitably to the conclusion that
the only way in which they may be converted to value
following dissolution is by pursuing them to resolution.
Further, it is unrealistic to suppose that all former members
will collaborate in order to resolve contingent-fee
engagements following dissolution. As is often the case in a
law-firm setting, only a few of the members, perhaps only
one, will have been involved personally in the engagement
prior to dissolution and possess an adequate familiarity with
the client and the subject matter of the litigation to
proceed with representation following dissolution.
Therefore, the task of pursuing such engagements following
dissolution is likely to fall to those members who pursued
the engagements prior to dissolution, usually at the
affirmative direction of the client. Practically, this means
that following dissolution an individual member or members
will pursue the engagements using individual effort and skill
without collaboration with former members.
trial court then concluded that
the appropriate measure of the value of the Contingent Fee
Engagements to the [PLLC] is the reasonable value of the
services provided by or in behalf of the [PLLC] up to the
date of dissolution. Under the present circumstances, the
best means by which to measure the reasonable value of
pre-dissolution services is to determine (a) the total
attorney hours ("Time") expended on a particular
Contingent Fee Engagement, both prior to and after
dissolution, (b) the percentage of Time that was expended
prior to dissolution and (c) the net profit ultimately
realized from the Contingent Fee Engagement. The reasonable
asset value to the [PLLC] of each such matter would be
determined by the percentage of pre-dissolution Time expended
relative to the net profit ultimately realized on that
matter. As an example, if a total of 100 attorney hours were
expended on a particular Contingent Fee Engagement and 50 of
those hours were performed prior to dissolution, the net fee
ultimately received by Defendants should be shared 50/50 with
Plaintiffs. This method, as opposed to others, best accounts
for the risk borne by the [PLLC] in initially taking on the
Contingent Fee Engagements and also reflects the parties'
expectations at the time they entered into the Contingent Fee
The court therefore will direct the winding up of the [PLLC]
in accordance with the findings and conclusions above. In
doing so, the court observes that the reasoning relative to
liquidation and sharing between the [PLLC] and Defendants of
ultimate profits from Contingent Fee Engagements ordinarily
also would hold true for any professional engagements
("Other Engagements") initially undertaken by the
[PLLC] but completed and billed for post-dissolution by
Defendants. This Opinion and Order is intended to encompass
such Other Engagements.
trial court proceeded to determine that the appointment of a
referee "to conduct an accounting of the [PLLC] as to
the Contingent Fee Engagements and any Other Engagements . .
. will be in the best interest of the parties."
Accordingly, the trial court ordered as follows:
 The [PLLC] is DISSOLVED, pursuant to G.S. 57C-6-02. The
dissolution of the [PLLC] shall be effective as of July 1,
2005 ("Dissolution Date").
 The court appoints Craig A. Adams, CPA, as Special
Master, pursuant to Rule 53. . . .
 In undertaking and performing this engagement, the
Special Master is authorized to engage the professional
services of other members of his accounting firm, at their
customary and usual hourly rates, as he reasonably determines
 The Special Master shall take an account of the [PLLC]
and the Defendants, consistent with the provisions of this
Opinion and Order, and shall:
(a) Take control of and secure the financial records, or
appropriate copies thereof, of the [PLLC];
(b) Secure the financial records, or appropriate copies
thereof, of the Defendants, as they relate to the Contingent
Fee Engagements or any Other Engagements;
(c) Assess the state of the financial records of the [PLLC];
(d) Assess the state of the financial records of the
Defendants as they relate to the Contingent Fee Engagements
or any Other Engagements;
(e) Direct and assist in the preparation of financial
statements that state the financial condition of the [PLLC]
with reasonable accuracy;
(f) Investigate and report to the court the nature and extent
of the outstanding assets and ...