Court Opinion

ID: 6047471
Source: CourtListenerOpinion
Date Created: 2022-01-13 14:30:44.801734+00
Date Added: 2024-06-11T08:50:30.963508
License: Public Domain

Saxe, J.
(concurring in part and dissenting in part). Much has been written about the ethical and fiduciary obligations of attorneys upon withdrawal from their law firms, particularly with regard to their solicitation of firm clients (see, e.g., Graubard Mollen Dannett & Horowitz v Moskovitz, 86 NY2d 112; Hillman, Law Firms and Their Partners: The Law and Ethics of Grabbing and Leaving, 67 Tex L Rev 1; Johnson, Solicitation of Law Firm Clients by Departing Partners and Associates: Tort, Fiduciary, and Disciplinary Liability, 50 U Pitt L Rev 1). However, rather than involving the improper solicitation of former clients, this case concerns claims of wrongful “solicitation” or “taking” of a withdrawing attorney’s own partners, associates, and support staff. We are also required to address the propriety of departing attorneys removing the duplicate copies of letters and memos in their possession that they personally prepared and issued over the preceding years, which plaintiffs term “desk chronology files” or “correspondence chronology files.”
In view of the limited case authorities directly on point, resolution of this appeal requires a review of the general principles concerning client solicitation and attorneys’ covenants not to compete, as well as the general policy considerations discussed in numerous scholarly articles concerning the competing interests in law firm breakups. The trial court’s liability determination runs counter to these principles and policies and it is not supported by the evidence. Therefore, I would reverse the judgment in its entirety. To the extent the majority affirms one aspect of the liability determination, I dissent. As to the remainder of the majority opinion, I concur in the result, based upon the following discussion.
This lawsuit concerns the 1991 move of the core of the trusts and estates department of Breed, Abbott & Morgan (Breed, *191Abbott) to Chadbourne & Parke (Chadbourne). According to the findings of the trial court, plaintiff Charles Gibbs, a partner in the trusts and estates department of Breed, Abbott, began making inquiries into joining another firm, and spoke with his colleague in the trusts and estates department, plaintiff Robert Sheehan, about the possibility of their moving as a team, ultimately convincing him. Once plaintiffs accepted offers to join Chadbourne, they notified Breed, Abbott. A few days later they provided Chadbourne with a list of four out of the seven associates and support personnel remaining in Breed, Abbott’s trusts and estates department, containing salary information that Sheehan had compiled a few months earlier. Shortly after Gibbs and Sheehan left Breed, Abbott, Chadbourne made employment offers to those four employees: two of the department’s three associates, one of its two paralegals and one of its two accountants; all of them accepted the offers. Finally, upon leaving Breed, Abbott, plaintiffs took with them their “desk chronology files” or “correspondence chronology files,” containing duplicate copies of their memos and correspondence from the previous years, although the firm’s copies of this correspondence remained with the firm, filed in the appropriate client files.
The trial court concluded that plaintiffs breached their fiduciary duty to their former partners in several ways. First, that plaintiff Charles Gibbs improperly “solicited” his partner Robert Sheehan to leave Breed, Abbott with him; second, that it was improper for the two attorneys to take their chronological correspondence files with them; lastly, that the plaintiffs furnished to their new law firm, prior to their departure from Breed, Abbott, confidential information regarding their support staff, whom Chadbourne then hired. The trial court also explicitly found that plaintiffs’ move to Chadbourne & Parke was “orchestrated to cripple” Breed, Abbott.
The evidence before the trial court fails to support its findings that plaintiffs violated their fiduciary duty to their partners at Breed, Abbott. I agree with the majority’s holding that Gibbs’s predeparture discussions with Sheehan cannot constitute a breach of Gibbs’s fiduciary duty to Breed, Abbott, and that plaintiffs’ removal of their desk chronology files breached no obligation to their former partners. However, I disagree with the conclusion that defendants are entitled to damages based upon plaintiffs having provided Chadbourne with information about other employees of the firm’s trusts and estates department, which information was provided in *192the interests of bringing these employees along with them in their move to Chadbourne.
Persuading a Partner to Leave the Firm as a Team
Turning first to the trial court’s finding that Gibbs “actively encouraged” or “persuaded” Sheehan to leave the firm with him, and “orchestrated” their move to cripple Breed, Abbott’s trusts and estates department, there is no established fiduciary duty that can be stretched to cover Gibbs’s conduct. The standard employed by the trial court, if applied generally, would too severely restrict attorneys’ rights to change affiliations, compete with former partners, and offer clients full freedom of choice with respect to retaining counsel.
Initially, the “solicitation” of one’s own partners to make a joint move simply does not qualify as a breach of fiduciary duty. Indeed, Graubard Mollen Dannett & Horowitz v Moskovitz (86 NY2d 112, supra), which actually involved a joint move by several partners, only discussed a breach of fiduciary duty regarding the solicitation of firm clients.
In Graubard Mollen (supra), defendant senior partner Irving Moskovitz, along with two other partners from his department, left plaintiff law firm and joined another firm, LeBoeuf Lamb Leiby & MacCrae. Prior to announcing their departure, the senior partner had arranged meetings between members of LeBoeuf and a major client, F. Hoffman LaRoche & Co., Ltd. (Roche); allegedly, LeBoeuf would not finalize any arrangement with Moskovitz and the colleagues going with him, unless Roche agreed to transfer its business to go along with defendants’ move.
In affirming a denial of Moskovitz’s motion for summary judgment, the Court of Appeals articulated certain basic principles regarding which conduct is clearly proper and which is clearly improper in withdrawing from a law firm. The Court recognized that an attorney’s fiduciary duty is not violated by “taking steps to locate alternative space and affiliations” (Graubard Mollen Dannett & Horowitz v Moskovitz, supra, at 120). The Court also noted that “departing partners have been permitted to inform firm clients with whom they have a prior professional relationship about their impending withdrawal and new practice, and to remind the client of its freedom to retain counsel of its choice [citations omitted],” although it added that “[i]deally, such approaches would take place only after notice to the firm of the partner’s plans to leave [citations omitted]” (supra, at 120).
Among the clearly improper conduct identified by the Court as “[a]t the other end of the spectrum” was “attempting to lure *193firm clients (even those the partner has brought into the firm and personally represented) to the new association” (supra, at 120). “[A]s a matter of principle, preresignation surreptitious ‘solicitation’ of firm clients for a partner’s personal gain * * * exceeds what is necessary to protect the important value of client freedom of choice in legal representation, and thoroughly undermines another important value — the loyalty owed partners” (supra, at 119-120).
The “solicitation” of one’s own partners to make a joint move is fundamentally different than the solicitation of firm clients; the analysis which concludes that surreptitious solicitation of clients or secreting client files is improper is irrelevant to partners’ conduct toward one another. “Soliciting” another member of one’s firm does not involve the same concerns.
Although clients are not, technically, an “asset” or “property” of the firm, subject to possession, the rules regarding their solicitation treat them as something of an equivalent (see, Hillman, Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms, 55 Wash & Lee L Rev 997, 1010 [“Graubard rests on the assumption * * * that clients ‘belong to the firm’ rather than its members * * * ignoring] the reality that clients are not ‘assets’ susceptible to ownership”]; see also, Hillman, Law Firms and Their Partners: The Law and Ethics of Grabbing and Leaving, 67 Tex L Rev 1, 29 [1988]; ABA Comm on Professional Ethics Formal Opn 300 [1961]). The wrongfulness in preresignation solicitation of clients lies in directly and unfairly competing with the firm for business, while still a partner of it, taking unfair advantage of knowledge the firm lacks.
While it is arguable whether clients should be treated, for purposes of this analysis, as assets of the firm, it is clear that partners in a law firm cannot be treated as such.
Law partners “are bound by a fiduciary duty requiring ‘the punctilio of an honor the most sensitive’ ” (Graubard Mollen Dannett & Horowitz v Moskovitz, 86 NY2d 112, 118, supra, quoting Meinhard v Salmon, 249 NY 458, 464). Yet, neither this duty nor any rules of ethics prohibit partners in a law firm from leaving the firm, or from competing with their former firm immediately upon their departure, or even from making plans while still a member of the firm to compete with it following their departure (see, Hillman, Loyalty in the Firm: A Statement of General Principles on the Duties of Partners Withdrawing from Law Firms, 55 Wash & Lee L Rev 997, 1002 [1998]; Meehan v Shaughnessy, 404 Mass 419, 435, 535 NE2d *1941255, 1264). What is prohibited is actual competition with the firm while still a member of it (see, Hillman, Loyalty in the Firm, op cit., at 1010).
An over-all guiding principle limiting the conduct of departing partners is that the process must be handled properly and fairly (see, Johnson, Solicitation of Law Firm Clients, 50 U Pitt L Rev 1, 100-101, op. cit), so that the withdrawing partner, while in possession of information that the firm lacks (namely, his impending departure), may not take unfair advantage of that information (see, Hillman, Loyalty in the Firm, op. cit., at 1012; Meehan v Shaughnessy, supra, 404 Mass, at 441, 535 NE2d, at 1267). Thus, where a partner surreptitiously approaches firm clients to obtain assurances that the clients will remain with him if he forms a new law firm, the partner has breached his duty to his partners and his firm (see, Graubard Mollen Dannett & Horowitz v Moskovitz, supra, at 119; Meehan v Shaughnessy, 404 Mass 419, 435, 535 NE2d 1255, 1264, supra; Kantor v Bernstein, 225 AD2d 500). The prohibition against secretly soliciting clients, or removing client files, prior to one’s resignation, is founded upon the prohibition against taking unfair advantage of the knowledge of his impending departure, while his partners are still unaware of it. It constitutes not a mere plan to compete in the future with his former law partners, but a present act of direct competition with those to whom he still owes a duty of loyalty.
An equally important principle in these circumstances, providing something of a counterweight to the duty of loyalty partners owe one another, is “the important value of client freedom of choice in legal representation” (Graubard Mollen Dannett & Horowitz v Moskovitz, 86 NY2d 112, 120, supra). Imposition of a limitation which restricts the ability of a departing partner to offer the client the ability to continue to serve as counsel may violate the ethical prohibition against restricting an attorney’s practice of law (Code of Professional Responsibility DR 2-108 [a] [22 NYCRR 1200.13 (a)]; see, Denburg v Parker Chapin Flattau & Klimpl, 82 NY2d 375; Cohen v Lord, Day & Lord, 75 NY2d 95).
A partner planning a move necessarily makes numerous arrangements in anticipation of withdrawal, to ensure a smooth transition, including ensuring the capability of continuing to serve those former clients who choose to retain the departing partner (see, Meehan v Shaughnessy, supra, 404 Mass, at 435, 535 NE2d, at 1264). The same considerations apply equally when two partners plan a joint move (see, e.g., Meehan v *195Shaughnessy, supra). The fact that one partner conceived of the move first and approached the other with the idea, or even convinced an initially content colleague to embark upon a joint departure, cannot change the attorneys’ right to leave their firm.
Nor is there is any evidence that Sheehan’s decision to interview jointly with Gibbs or to leave Breed, Abbott was anything other than his own considered decision. The testimony that he felt “under pressure” from a number of sources does not alter the fundamental fact that he was always free to make that decision for himself. Merely approaching another partner, in order to broach and explore the subject of a joint move to another firm, even to attempt to convince him of the advantages of such a joint move, simply cannot serve as the foundation for liability to the firm.
Furthermore, should the two partners finally agree on a move, and ultimately arrive at an arrangement with another firm acceptable to both, the “orchestration” of the move cannot serve as a basis for liability in the absence of a type of sneaky or malicious conduct present in Kantor v Bernstein (225 AD2d 500, supra) and Graubard Mollen Dannett & Horowitz v Moskovitz (supra) but absent here.
The observation of the trial court that plaintiffs’ joint departure “denuded” Breed, Abbott’s trusts and estates department is irrelevant to the issue of breach of fiduciary duty. Where a department of a law firm contains two active partners, a few associates and support staff, a decision by the two partners to withdraw from the firm will of necessity “denude” the department, and may indeed even “cripple” it, at least temporarily. However, it does not follow that the departure violates the duty owed by the departing partners to the firm. Partners’ freedom to withdraw from a firm simply cannot be reconciled with a requirement that their departure be arranged in such a way as to protect the integrity of the department, and ensure its continued profit levels.
Partners who choose to leave a firm and join another presumably believe they will do better at their new affiliation. We can thus assume that as a result of the withdrawal, the old firm may well be economically damaged. Yet, the mere fact of such damage does not make it compensable.
Associates and Other Staff
Once it is recognized that partners in law firms do not breach their duty to the other members of their firm by speaking to *196colleagues about leaving the firm, there is no logic to prohibiting partners from inviting selected employees to apply for a position at the new firm as well, absent contractual obligations not at issue here. Support staff, like clients, are not the exclusive property of a firm with which they are affiliated.
Moreover, the paramount concern of ensuring that clients are completely free to choose which firm will best serve them (see, Graubard Mollen Dannett & Horowitz v Moskovitz, supra, at 120; Meehan v Shaughnessy, supra, 404 Mass, at 435, 535 NE2d, at 1264; Pettingell v Morrison, Mahoney & Miller, 426 Mass 253, 255, 687 NE2d 1237, 1238-1239) can only be protected if lawyers are able to take with them those willing members of their legal team who played an active and important role in the clients’ work (see, Hillman, Loyalty in the Firm, op. cit., at 1029-1030). If departing partners are not free to solicit the employees who have served their clients, those partners may not be able to continue to offer the unhampered capability to serve those clients (see, Jacob v Norris, McLaughlin & Marcus, 128 NJ 10, 30-31, 607 A2d 142, 153).
Even assuming that a partner’s duty of loyalty to the other members of his firm prohibits any recruitment of department support staff before the firm is notified of the partner’s intended departure (see, Hillman, Loyalty in the Firm, op. cit., at 1031-1032), here, there is no showing that members of the staff were contacted prior to the firm being notified. Once the firm is notified of the partners’ planned withdrawal, both the firm and the departing partners are on equal footing in competing for these employees; the departing partners no longer have any unfair advantage.
Since plaintiffs were entitled to inform the department staff at issue of their move, and to invite these individuals to submit applications to Chadbourne themselves, there was no impropriety in the manner in which Chadbourne extended offers to members of plaintiffs’ staff. The real damage to the firm, namely, the loss of the knowledgeable and experienced attorneys and support staff, was caused not by a breach of fiduciary duty, but simply by the departure of these people — an act that each one of them had an absolute right to do, despite the damage their joint departure would qause the firm.
The April 26, 1991 Memo
Under the circumstances, plaintiffs’ preliminary compilation of information regarding the salaries, billable hours and standard billing rates of the employees they sought to bring with them, and their providing it to Chadbourne after giving notice *197to Breed, Abbott, provides no support for a liability determination against them.
First of all, there is no showing, nor did the trial court find, that the purportedly confidential information was provided to Chadbourne — or any other firm — during the period that plaintiffs were interviewing, or at any time before they gave notice to Breed, Abbott. The April 26, 1991 memo was simply a compilation of information of which a lead partner of a practice group is normally aware as a matter of course. Testimony that “the subject of staffing was discussed” during plaintiffs’ interviews with firms — a discussion which we must presume will occur any time partners inquire into the possibility of changing firm affiliations — in no way establishes that the April 26, 1991 memo was turned over at that time. The suggestion of the majority that plaintiffs disseminated this information prior to giving notice to Breed, Abbott is speculation.
Furthermore, although the salaries and bonuses paid to associates may be termed “confidential,” in fact this information is often the greatest unkept secret in the legal profession. Unlike the earnings of law firm partners, which vary widely even within most firms, depending upon such factors as billable hours and “rainmaking” ability, the earnings of associates and support staff at large firms are relatively circumscribed, with each firm setting standard rates for both salaries and bonuses. Such information is widely known outside the firms themselves: the salary levels and bonuses paid to associates at large New York firms are regularly published in professional publications such as the New York Law Journal. Salary levels, bonuses and other financial information regarding employees’ billing rates are well known to professional “headhunters,” the agencies that specialize in recruiting and placing lawyers and law firm support staff, and associates’ background information is available from sources such as the Martindale-Hubbell directory.
Therefore, while plaintiffs obtained the salary information regarding the associates and staff in question through their position as partners at Breed, Abbott, it was information that could as easily have been obtained elsewhere. The concept that this information is some sort of trade secret does not comport with the realities of the practice of law.
Indeed, the characterization of this financial and employment information concerning Breed, Abbott associates and staff as confidential information would logically lead to the conclusion that it may not properly be disclosed by the partners at any time, even after their withdrawal, to their new partners. *198Yet, an absolute prohibition against disclosing financial and employment information about, firm employees once a partner has a new affiliation would be unworkable.
I conclude that the information plaintiffs disclosed to Chadbourne should not be treated as a “trade secret” or “confidential matter” since if it were, a departing attorney might have a continuing obligation not to disclose it, even after leaving the firm (see, Hillman, Loyalty in the Firm, op. cit., at 1032, citing Restatement [Second] of Agency § 396 [b]).
It is only the partners’ fiduciary duty, rather than the label “confidential information,” that limits their right to disclose information about their present firm to members of a contemplated new affiliation, and this limitation applies only where disclosure of the information would constitute an act of direct competition with their present firm.
Finally, assuming that plaintiffs had a duty not to disclose financial information known to them concerning the department staff prior to June 19, 1991,1 fail to see how Chadbourne obtained any unfair advantage in recruitment. Since no actual recruitment took place until Breed, Abbott knew of plaintiffs’ intentions, Breed, Abbott’s ability to take appropriate steps to attempt to retain the employees was in no way diminished. Consequently, no actionable damage can have been suffered by the disclosure of the information.
Desk Chronology Files
As to the finding of the trial court that plaintiffs breached their fiduciary duty to their former partners by taking their desk chronology files, in this respect, too, the trial court imposed a nonexistent duty. While the Court of Appeals has remarked that “abandoning the firm on short notice (taking clients and files) would not be consistent with a partner’s fiduciary duties” (Graubard Mollen Gannett & Horowitz v Moskovitz, supra, at 121 [emphasis added]), the Court’s reference to the taking of files cannot be understood to prohibit the removal, not of client files belonging to the firm, but of duplicates of correspondence and memos the partners themselves sent or issued.
Individual attorneys may be answerable subsequently for actions taken while still a member of their former firm. In such circumstances, these documents could be necessary to defend against, for example, claims of ethical violations or malpractice. As long as the removal of duplicate documents properly in their possession does not hinder or interfere with the former *199firm’s ability to continue serving as counsel for the clients, there is no reason why retaining the duplicates would constitute a breach of fiduciary duty. It does not give plaintiffs an unfair advantage in the competition for clients.
I perceive nothing in plaintiffs’ conduct constituting any violation of fiduciary duty, and accordingly, I would reverse and dismiss the counterclaims in their entirety.
Rosenberger, J. P., and Lerner, J., concur with Mazzarelli, J.; Wallach and Saxe, JJ., concur in part and dissent in part in a separate opinion by Saxe, J.
Order, Supreme Court, New York County, entered October 1, 1998, which, after a nonjury trial on defendants’ counterclaims, determined that plaintiffs had breached their fiduciary duty to defendants, modified, on the law, to limit such conclusion to the act of disseminating confidential employee information, and otherwise affirmed, without costs. Order, same court, entered on or about June 29, 1999, reversed, on the law, without costs, the damage award vacated, and the matter remanded for recalculation of damages in accordance with this Court’s Opinion.