Don’t Leave and Tell
Partners breached duty to old firm by revealing secrets, court says
BY HOPE VINER SAMBORN
A recent decision on the duties of partners leaving law firms may
provide some guidance to others making the leap.
The New York appeals court decision focuses on withdrawing partners
who try to entice associates to join them. The July 13 opinion found
that partners breach a fiduciary duty to their old firm when they
disclose pay- and billing- rate information of associates to a new
employer seeking to hire them.
An Acceptable Short List
However, the court said departing partners may solicit other partners,
recruit associates after giving notice of intent to withdraw, and
remove duplicate client letters and memos from their former firm.
Gibbs v. Breed, Abbott & Morgan, No. 3040-3041 (N.Y. App. Div.).
"This is the blueprint of what partners can do when they leave
law firms," says Leslie D. Corwin, a lawyer with Greenberg
Traurig in New York City who represented the departing partners.
The case touches on lively issues—associate recruitment and
disclosure of firm information, says Robert W. Hillman, a professor
at the University of California at Davis School of Law. "It
will be one of the most important cases in the law-firm-breakups
area."
The plaintiffs, Charles Gibbs and Robert Sheehan, were the only
trust and estate partners at the New York City firm of Breed, Abbott
& Morgan in 1991 when Gibbs began interviews with other firms.
He then asked Sheehan to leave with him.
In late June, the pair told Breed Abbott they accepted an offer
to join Chadbourne & Parke in New York City. The plaintiffs
then sent their new firm a memo listing the personnel in Breed Abbott’s
trust and estate department, their salaries, their annual billable
hours, and the rate at which Breed Abbott billed for their work.
The two men also took from their old firm chronological files of
duplicate client memos and letters.
Subsequently the former partners brought an action for money due
them under their partnership agreement with Breed Abbott. The firm
counterclaimed, alleging that the former partners breached their
fiduciary duty to the partnership.
The trial court held several plaintiffs’ acts were disloyal
and a breach of duty, including the recruiting of a partner and
firm employees, the taking of duplicate documents, and the transmission
of confidential information. It awarded $1.9 million in damages.
The appellate court reversed several findings of the trial court
but found the plaintiffs should not have released the salary and
billing information. That action by the partners well in advance
of their departure along with the luring away of personnel was "an
egregious breach" of fiduciary duty, the court held.
The court remanded the case for a determination of damages. At
deadline, neither side had decided whether to appeal.
If the lower court had been affirmed, "It would have been
impossible to change firms," says Hillman. That opinion was
"an extreme statement of fiduciary standards," he adds.
"The appellate opinion is a more moderate opinion, a realistic
opinion. It corrects the excesses."
Paul Grand, the New York City attorney who represented Breed Abbott,
says the trial court decision is not extreme. In his view, the appellate
court substituted its judgment concerning the partners’ credibility
for that of the trial court.
Corwin defends the departing lawyers’ recruitment efforts
as in the best interests of their clients. "Those associates
may be more in touch with the clients’ needs than the partners,"
he says.
Down Memory Lane
Hillman cautions departing lawyers who want to take employees with
them that it may be better to recruit only after they leave. However,
he says the transmission of confidential information at any time
would likely be a breach of duty, even if the information was contained
in the partners’ memory rather than in documents.
"I don’t think that we should reward the people who have
good memories," says Hillman. However, he concedes that an
old agency doctrine allows an agent of a firm to use information
from memory rather than paper without it being a disloyal act. "I
think it is a distinction without a difference," he adds.
FROM THE SEPTEMBER 2000 ABA JOURNAL
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