Councilman Rockne Cole faces suit from law partner

Note: This story has been updated to clarify the over-payment allegation against Cole.

Iowa City Council member Rockne Cole is facing a lawsuit from his business partner that asks the court to dissolve their shared law firm and compel Cole to pay about $42,178 back to the firm.

The suit, filed by Dan Vondra on Jan. 4, alleges that Cole has not repaid excess compensation for work he did at Cole and Vondra from 2013 to the end of 2016. Cole's refusal to repay the firm, according to the suit, "has caused and continues to cause irreparable harm to the firm." Vondra also claims in the suit that the firm "has not had sufficient cash flow to pay its ordinary expenses" and has drawn on its line of credit to make payroll payments.

In addition to asking the court to dissolve the firm, Vondra alleges in the suit that the over-payments violated Cole's responsibility to the firm, wasted or misapplied corporate assets and that Cole was "unjustly enriched" by the pay.

"The second and third claims, especially as they relate to waste, are disputed and, in my opinion, are frivolous," Cole said in an interview Sunday. "In terms of the company, we're attempting to resolve it in a way where we can get a fresh start."

According to the suit, when the firm was established in 2009, Cole and Vondra each took a 50 percent stake in the company and established a compensation plan. According to the plan, the suit said, twice-monthly paychecks were considered draws against partners' capital accounts, actual earned compensation was calculated annually and the two were reconciled either through payments back to the firm or to the partners.

Annual earned income constituted a "performance factor," or the percentage of gross revenue a partner generated for the firm multiplied by the net income after the partner paid overhead costs and expenses, the suit said. The amount of a paycheck was determined in advance based on the partner's performance factor for the current quarter and the average of the partner's performance factors for the previous four quarters.

Because the payments were determined in advance, the suit said, a partner's pay could either exceed or fall short of his actual performance. If paychecks exceeded earned compensation, partners were expected to pay the excess back to the firm, and if they fell short, the partner was credited the difference.

"Basically, with law, you can't pay yourself or the firm until you do the work, so you're always going to have about a month of lag time, essentially," Vondra said Sunday. "Basically twice a month, we do paychecks, and then that's reconciled with the overall formula in the compensation agreement."

Cole and Vondra's firm was incorporated around 2013, and while the calculation for compensation remained the same, earned compensation was allocated to salary and dividends, according to the suit. The suit contends that quarterly advance payments were not guaranteed salary or dividends, and the expectation to repay excess income remained.

According to the suit, after the first quarter of 2013, Cole had a surplus of $3,000 and was paid that amount. Through the rest of that year, the suit said, Cole's performance declined but advance payments were not lowered. The suit claims Cole ended 2013 with $26,516 in excess pay, debt that carried over into 2014. For the next two years, the suit said, Cole did not pay that amount back to the firm and while his performance continued to decline, the excess income remained the same. To date the amount of excess pay has reached $42,177.93, the suit said.

"The way the calculation would work out, I would have essentially made $7,000 last year," Cole said. "I dispute the way the formula was calculated. Those amounts were calculated by him, and I dispute that I owe him that in my individual capacity. That's contested, and we will be filing a response and a motion to dismiss."

Cole said Vondra initially approached him in October about dissolving the firm. Cole said he offered some proposals, planned to enter mediation and was willing to discuss the issue more. But by Dec. 15, Cole said, he received a letter from an attorney representing Vondra demanding that the firm be dissolved and repayments made.

"To me, it's essentially a situation where he never objected to the salary I was taking and it was only after, in my view, that this issue came up about his desire to separate that the issue of the objection of the salary became known," Cole said.

He received two more letters from Vondra's representation on Dec. 20 and 22, Cole said, allowing for two weeks of negotiation over the holiday season.

"I indicated that because it was the holiday season, I wasn't willing to negotiate in that time frame," Cole said. "My expectation is that when you're part of a tenured partnership, you need more time to wind up your affairs and to be fair not only to yourself but to your clients and to everything."

Cole said, to his knowledge, the firm is up to date on its expenses.

Asked whether he had approached Cole about the alleged over-payments between 2013 and the time the suit was filed, Vondra said he and Cole communicated about quarterly numbers but he had not demanded repayment.

"I didn't demand payment from him quarterly because he always had a big case coming or there was something big on the horizon," Vondra said. "I'm not going to micromanage him. He's half owner, so however he wants to deal with his numbers is kind of his issue. My assumption was always that he was going to."

Gail Brashers-Krug, the attorney representing Cole in the case, said she is working with Cole to draft a settlement agreement but, if that fails and the suit proceeds, she said there will be a motion to dismiss. Vondra said the suit may be amended in the coming days.

"I'm still hopeful we can find a settlement," Vondra said. "Hopefully we can still work it out and not have to get a judicial resolution. That's in everybody's best interest, I think."

Reach Andy Davis at 319-887-5404 or at aldavis@press-citizen.com, and follow him on Twitter as @BylineAndyDavis.