Opinion ID: 1539644
Heading Depth: 2
Heading Rank: 1

Heading: Paul's admission as a partner.

Text: On April 2, 2002, D & T USA and Andersen entered into a Memorandum of Understanding (the MOU), with respect to the possible offer by Deloitte of partnerships to certain Andersen tax partners. On April 19, Deloitte extended a written offer to Paul to join as a tax partner. Paul accepted and Deloitte sent him a document confirming the terms of his admission as a partner (the Admission Agreement). He would serve in the LTS section of Deloitte's Boston office; he would be credited with 780 units of ownership; he would receive an initial biweekly draw in the amount of $10,770; and his required capital investment would be $741,000. Paul executed the Admission Agreement on May 4, 2002. The Admission Agreement provided that Paul's admission was contingent on several events, including the finalization of the transaction between D & T USA and Andersen and Paul's acceptance and execution of two Memoranda of Agreement (each an MOA and collectively with the Admission Agreement, the Partnership Agreements). [1] On May 7, 2002 D & T USA and Andersen executed the definitive agreement contemplated by the MOU and Paul's Admission Agreement (the Andersen Agreement). The Andersen Agreement stated that Deloitte had offered certain Andersen partners, including Paul, admission to the Deloitte partnership. Paul signed the MOAs the next day. The MOAs set forth the partnership terms, such as entity governance, required capital contributions, earnings, retirement, disability and death benefits, and conditions of separation. They provided that a partner could be involuntarily terminated in two ways. First, he could be severed by a vote of the Board, which had to be approved by a majority of all active partners. Under this provision, there was no requirement of cause for termination. Second, a partner could be severed if the Board unanimously voted that the partner had engaged in certain identified conduct, with a supermajority of Board members required for a quorum. The Admission Agreement added a cause-based termination section in § 5(a) and provided for an additional method of involuntary termination without cause in § 5(b). This provision was unique to the partners who, like Paul, joined Deloitte in connection with the Andersen Agreement. During the first two years of their partnerships, the former Andersen partners could be involuntarily severed by vote of an appointed six-person committee rather than the Board and a majority of the partners. Specifically, § 5(b) of the Admission Agreement provided: In addition to those circumstances set forth in the second sentence of Section 7.03 of the Memorandum of Agreement of each Firm, you shall be deemed to have severed your association with each Firm ... (b) as of the date specified within two years after the Effective Date [2] by a committee ..., which shall consist of three tax partners and principals of D & T USA who had been partners of [Andersen] and three tax partners and principals of D & T USA who had not been partners of [Andersen], with the leader of D & T's tax practice able to cast the deciding vote if such committee is deadlocked. This more streamlined method of involuntary severance, unique to the former Andersen partners, placed the severance decision in the hands of what became known as the Committee of 6 for a two year period, the last day of which was May 6, 2004. This system was a logistical necessity because of the virtually simultaneous admission of more than 160 new partners. Bradley Seltzer, a member of the Committee of 6, explained that with such a large influx of new partners arriving at almost the same time, Deloitte could not engage in the due diligence process it normally employed when considering the admission of a lateral partner. Mark Berkowitz, a former Andersen partner who joined Deloitte's Boston office with Paul, described the two-year period as a probation period. Deloitte understood the applicable language to mean that within two years, the Committee of 6 was required to conduct any vote to sever a partner, and to notify the partner to be severed of the date his severance would occur. Since the language did not say a person had to be severed by a date within two years, but rather a date specified within two years, Deloitte believed the actual severance could occur after the two year window as long as the partner was notified of the date of the severance within two years. This was consistent with the language used in the other severance sections of the Partnership Agreements.