Opinion
2008/10374.
Decided September 16, 2008.
These are cross-motions for summary judgment brought on by the consent of both parties after conversion of their respective motions for preliminary injunction in both the New York County and Monroe County actions. Also by consent of the parties, the New York County action and the Monroe County action were consolidated, with the venue of the New York County action transferred to Monroe County.
In the Monroe County action, Nixon Peabody LLP ("NP") seeks a declaratory judgment pursuant to CPLR § 3001 together with preliminary and permanent injunctive relief pursuant to CPLR § 6301 for what it considers tortious interference with prospective business relations, inter alia, as a result of a French law firm's alleged wrongful assertion of its purported rights and obligations under a "Mutual Non-Disclosure Agreement." The French law firm, Taylor Wessing France ("TWF"), which appears as a defendant and counter-claim plaintiff in the Monroe County action and as a plaintiff in the New York County action, entered into discussions with NP for a proposed merger of their law firms. The negotiations ultimately broke down in October 2007, after which TWF experienced considerable internal conflict, which ultimately resulted in its founding partner, Arnaud de Senilhes, and twelve so-called non-equity partners, being offered positions by NP in July 2008. Under French law, these TWF personnel remain at TWF pending their move to NP, for either a three or six month notice period to TWF.
In anticipation of the merger discussions, the two law firms executed a "Mutual Non-Disclosure Agreement" on July 31, 2007. This agreement contained a non-solicitation provision stating that neither firm would "for two years from the date of this agreement . . . employ or offer partnership directly or indirectly . . . to any person who at the date of this agreement is a partner, a lawyer, or employee of . . . [the other firm]." The agreement contained both a forum selection clause (any federal or state court in New York) and a choice of law provision ("shall be construed and interpreted in accordance with the laws of the State of New York without regard to the choice of law principles of that or any other jurisdiction").
NP, in its first cause of action for declaratory relief, seeks "an immediate declaration pursuant to CPLR § 3001 that the Agreement is of no force and effect, that the Agreement cannot prevent TWF partners from reconstituting themselves in a partnership to be affiliated with NP, and that the Agreement cannot prevent NP from employing or offering partnership to any partner, lawyer or employee of TWF." In its second cause of action, NP alleges that it has entered into a business relationship with thirteen TWF lawyers and that TWF has tortiously interfered with its prospective contractual relations with those lawyers "by threatening to enforce certain provisions of the Agreement against NP despite the fact that the Agreement is of no force or effect and imposes no continuing obligation whatsoever on NP." The third cause of action seeks a preliminary and permanent injunction enjoining TWF from interfering with NP's asserted right to affiliate itself with the thirteen TWF partners "who have freely chosen or wish to resign from TWF and reconstitute themselves into the necessary legal structure under French law for the purpose of practicing law."
TWF answered the complaint by interposing the affirmative defenses of failure to state a claim upon which relief may be granted, and that NP's claims are barred by the equitable doctrine of unclean hands or bad faith. TWF interposed counter-claims against NP and Richard F. Langan, Jr., a NP partner. The counter-claims parallel TWF's complaint in the New York County action which is discussed next.
In the New York County action, TWF alleges for a first cause of action a breach of the non-solicitation clauses of the Mutual Non-Disclosure Agreement of July 31, 2007, by virtue of NP's solicitation of TWF's non-equity partners and making to them offers of employment. The first cause of action also seeks an injunction preventing NP from proceeding with its plan to employ TWF's non-equity partners. In the second cause of action, TWF alleges that NP aided and abetted a breach of de Senilhes's fiduciary duty to TWF by virtue of assisting de Senilhes in, while he was still a member of TWF, soliciting TWF's non-equity partners to leave TWF and join NP. The second cause of action also seeks a preliminary and permanent injunction enjoining and restraining Langan and NP from taking any further steps to employ or become partners with any lawyer or employee of TWF.
It does not appear that the first cause of action sought to enjoin NP from employing de Senilhes.
The third cause of action charges that Langan and NP conspired with de Senilhes to raid TWF by soliciting TWF's partners. TWF alleges in this cause of action a solicitation by Langan and NP of TWF's partners and that, by virtue thereof, "Langan and Nixon used wrongful means by, . . . [inter] alia, breaching, and inducing the breach of, the July 2007 Agreement." The fourth cause of action simply sought a preliminary and permanent injunction preventing Langan and Nixon from engaging as partners the thirteen TWF's partners.
NP's motion for summary judgment seeks, in the Monroe County action, partial summary judgment in favor of NP and Richard F. Langan, Jr., granting a declaration pursuant to CPLR § 3001 that the Mutual Non-Disclosure Agreement of July 2007 "is of no force and effect, and granting summary judgment to plaintiff, counter-claim defendant, NP LLP and counter-claim defendant Richard F. Langan, Jr., dismissing all of the counter-claims; and in the New York County action for summary judgment dismissing all causes of action asserted by TWF in its amended complaint."
NP's answer in the New York action alleged a number of affirmative defenses, including failure to state a cause of action; a bar by reason of waiver, estoppel and unclean hands; and a bar by virtue of written waiver and release (which refers to a November 3, 2007, letter of de Senilhes in which he declared "that you [i.e., NP] have given back to us all the confidential information that we have exchanged" and "that our respective firms are free from any obligations arising from our previous arrangements") (while this ground was extensively briefed by the parties it is not reached by the court in view of the disposition below). The affirmative defenses also asserted that the agreement "upon which TWF relies violates the public policy of the State of New York and is consequently void and unenforceable"; that the agreement "is an unreasonable restraint on the right of third party clients to seek and obtain legal counsel of their choice"; and if enforced in the manner TWF seeks would "violate the Disciplinary Rules of the State of New York." The answer also interposed counter-claims against TWF for a declaratory judgment and permanent injunctive relief, which parallels the complaint filed in the Monroe County action.
NP's motion on the "termination" ground depends entirely on its view that the November 3rd letter was a waiver on the part of TWF of the two year non-solicitation provision. Although NP presents a strong argument that the portion of the letter quoted in the text was an unequivocal manifestation of intent to waive "any" aspect of the Mutual Non-Disclosure Agreement, including that part containing the non-solicitation clauses which was intended for prospective application, TWF rightly points out that the first clause of the sentence in question referred only to the confidentiality obligations created by the agreement and that the non-solicitation provision itself unambiguously provides for a two year term. Accordingly, TWF does not present a wholly implausible interpretation of the agreement. Chimart Associates v. Paul, 66 NY2d 570, 573 (1986); Sullivan v. Troser Management, Inc. , 34 AD3d 1233 (4th Dept. 2006). In any event, generally it is not appropriate to make a summary determination that a waiver has occurred under an agreement, In re Caldor, 217 B.R. 121, 133 (S.D.NY 1988). Cf., Fashion Bug No. 2100 of Batavia, Inc. v. 425 West Main Assoc. (Batavia) LLP, 10 Misc 3d 1053(A), 2005 WL 3193702 (Sup.Ct. Monroe Co. 2005) (summary determination of non-waiver appropriate in the circumstances), aff'd on op. below, 32 AD3d 1168 (4th Dept. 2006).
A. The Non-Solicitation Clause in the Mutual Non-Disclosure Agreement of July 31, 2007 is Unenforceable as Violative of the Public Policy of the State of New York
NP established as a matter of law in support of its motion that the non-solicitation clause upon which TWF relies is unenforceable as it violates this state's public policy. Conversely, TWF failed to establish the enforceability of the agreement under New York law sufficient to warrant shifting the burden of proof on summary judgment to NP on the former's motion for summary judgment. Recognizing, as TWF urges, that the non-solicitation agreement in question is not a law firm, partnership, or employment agreement restricting the practice of law of the kind explicitly addressed in DR 2-108(A); 22 N.Y.C.R.R. § 1200.13(a), the court finds that the express terms of the Disciplinary Rule are not meant to delimit the reach of public policy addressed by that rule.
As comprehensively set forth in the lead case on the subject in this state, Cohen v. Lord, Day Lord, 75 NY2d 95 (1989), DR 2-108(A) simply "codified" ( id. 75 NY2d at 99) ABA Formal Ethics Op. 300 (1961) and New York County Lawyers Association Ethics Op. 109 (1943). Both opinions "concluded [that] it was unethical for an attorney to insert a restrictive covenant in a contract of employment with another attorney despite the [then] absence of an express prohibition in the Canons of Ethics." Id. 75 NY2d at 98. Thus, as underscored in New York County Ethics Op. 109, and recounted in Cohen, Canon 7 of the original ABA Canons of Ethics provided in blanket fashion: "Efforts, direct or indirect, in any way to encroach upon the professional employment of another lawyer, are unworthy of those who should be brethren at the Bar." Id. 75 NY2d at 98. The court finds that DR 2-108, entitled "Agreements Restricting the Practice of a Lawyer," addresses in its particular subdivisions only examples of such agreements, and does not exhaust the form of agreements restricting the practice of a lawyer coming within the ambit of the core public policy addressed by the rule.
In Cohen, the court was not faced with a direct restriction on the practice of law, but instead was faced with an indirect restriction which, it found, came within the ambit of the Disciplinary Rule. In analyzing the indirect restriction, it held that the only function of the court was to determine whether the prohibition in the employment agreement was "certainly a restriction on . . . [a] right to practice.'" Id. 75 NY2d at 99, quoting Gray v. Martin, 63 Or. App. 173, 182, 663 P.2d 1285, 1290). The overall policy was also identified, in a subsequent portion of the opinion in Cohen. This made clear that the court's duty was to determine whether the particular provision in question "undermin[ed] the prohibition against restraints on lawyers practicing law." Id. 75 NY2d at 100. Accordingly, our Court of Appeals has identified generically the broad public policy addressed by the Disciplinary Rule to be just as the title of the DR suggests ("Restraints on the Practice of Law"). The court made no effort to apply the policy objectives of DR 2-108(A) solely to the particular partnership or employment agreements which are the subject of the rule, as TWF contends. See, BDO Siedman v. Hirschberg, 93 NY2d 382, 390 n. 1 (1999)("decisions invalidating anti-competitive clauses in such [law firm partnership] agreements were based . . . upon enforcement of the public policy reflected in DR 2-108(A)") (emphasis supplied); Hackett v. Milbank Tweed, Hadley McCloy, 86 NY2d 146, 156 (1995) (also defining the public policy broadly: "The provision violated the public policy against anti-competition clauses")("ineffective if the clause was to improperly deter competition"). Indeed, in Denburg v. Parker Chapan Flattau Klimpl, 82 NY2d 375 (1993), the court underscored that "out-right prohibitions on the practice of law" are per se illegal, but that indirect prohibitions involving financial disincentives may be enforceable "depend[ing] on the particular terms and circumstances." Id. 82 NY2d at 385. This case, in the courts opinion, involves an "out-right prohibitio[n] on the practice of law." Id.
Contrary to TWF's primary thesis that Cohen v. Lord Day, Denburg and Jacobs are simple applications of DR 2-108(A) which cannot have application outside the context of law firm, partnership, or employment agreements containing anti-competitive covenants, DR 2-108(A) does not subsist in a vacuum of particularized public policy. Our Court of Appeals has observed that the holdings contained in these cases are not an application of the common law rule-of-reason approach generally applicable to agreements in restraint of trade. BDO Seidman, 93 NY2d at 390 n. 1. This observation about the precise tests the courts use to determine the unreasonableness of a restraint of trade in this or that context cannot but underscore that the policies embraced by DR 2-108(A) are but a part of a much larger mosaic of public policies generally applicable to combinations in restraint of trade which are deemed "unreasonable" under our law. 6 Richard A. Lord (ed), Williston on Contracts § 13:1 — § 13:4 (4th ed. 1995). Denburg establishes that "out-right prohibitions on the practice of law" require application of a per se rule, 82 NY2d at 385, and it, together with the nearly unanimous collection of authorities on the subject (California follows a contrary rule), shows that the per se rule will be applied no matter in what form the restriction takes, so long as "the effect" of its application, Hackett, 86 NY2d at 156; Denburg, 82 NY2d at 381, is an "out-right prohibitio[n] on the practice of law." Denburg, 82 NY2d at 385. This is another way of saying that the law firm self preservation rationale that appears in the cases involving departing lawyer compensation suits, and which in limited circumstances involving countervailing public policies allows nondiscriminatory or "competition neutral" offsets or reductions on a departing lawyer's compensation, Hackett, 86 NY2d at 156-57, does not justify an "out-right prohibitio[n] on the right to practice law" such as we are faced with in this case.
That the policy embraced by the rule is not limited to the particular agreements described in DR 2-108(A) can also be gleaned from the ABA's recent amendment of Model Rule 5.6(a) to include references to "shareholders, operating, . . . or other similar type of agreement[s] that restric[t] the right of a lawyer to practice . . ." This change was made necessary because the "reference to partnership agreement [wa]s underinclusive." ABA Model Rule 5.6(a), Reporter's Explanation of Changes ¶ 1. In addition, Oregon State Bar Association Ethics Op. 2005-29 (August 2005), interpreting Oregon's adoption of revised Model Rule 5.6(a), opined that its "language . . . compels the conclusion that lawyer covenants against competition are impermissible and that lawyers may not provide in any agreements between them that a withdrawing lawyer pay any sort of penalty as a precondition to engaging in competition." (emphasis supplied). See also, Dist. Colum. Bar Op. #325 (October 2004) (declaring unethical a pre-merger agreement to distribute receivables earned at the time of merger only to partners who continue to practice in the post-merger firm).
"The rationale for the rule is to protect the autonomy of lawyers and the ability of clients to freely choose counsel." Charles W. Wolfrom, Modern Legal Ethics § 16.2.3, at 885 n. 45 (1986). See ABA Model Rule 5.6, comment 1 (restrictive covenant among lawyers "not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer"). An important aspect of attorney autonomy is the "promotion of attorney mobility [which] is the unstated — but real — purpose of the rule." Association of the Bar of the City of New York, Committee on Professional Responsibility, Ethical Limitations on Restricting a Practice of a Departing Lawyer, at 10 (1993), reprinted as Ethical Issues Arising When a Lawyer leaves a Firm: Restrictions on Practice, 20 Ford. Urban L. J. 897, 903 (1993). As observed by id., 20 Ford. Urban L. J., at 897, and Geoffrey C. Hazard, Jr., W. William Hodes, The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct § 47.4 (3d ed. 2001), The Model Rules counterpart to DR 2-108(A), Model Rule 5.6(a) "is designed, in part, to protect lawyers, particularly young lawyers, from bargaining away their right to open their own offices after they end an association with a firm or other legal employer." Id. § 47.4, at p. 47-5. A fortiori, the policy protected by the rule is invoked when, as in this case, the senior partners of two law firms execute an agreement containing an "out-right prohibitio[n] on the practice of law," Denburg, 82 NY2d at 385, which the younger lawyers, described in this case as non-equity partners, had no part in and, as the undisputed proof in this case shows, no knowledge of.
"There has been no question that an agreement among lawyers purporting to proscribe all competition following its termination — a traditional covenant to compete — is unethical, and that courts will refuse to enforce such agreements on the ground that they adversely affect the client's right to choose counsel freely and, secondarily, the lawyer's right to engage in his or her profession, and thus are contrary to public policy." Steven C. Krane, Proceed with Caution: Mitigating Damaging Departures After Denburg', N.Y.L.J. vol. 210, no. 103, at 1, vol. 1 (Monday, November 29, 1992).
Also without merit is TWF's contention that no court has held that DR 2-108(A) or its ABA Model Rules counterpart (Rule 5.6(a)) extends to a non-solicitation of fellow lawyers and employees clause. As early as ABA Informal Op. 1417 (June 27, 1978), the ABA Committee on Ethics and Professional Responsibility declared that a contract which prohibited a partner leaving his or her firm from hiring or otherwise being associated with any associate employed by the firm at the time of the departure for a stated period, while not directly "restricting the right of association between attorneys[,] it restricts such right indirectly and so falls within the prohibition of DR 2-108(A)." Similarly in Jacob v. Norris, McClaughin Marcus, 128 N.J. 10, 607 A.2d 142 (1992), the New Jersey Supreme Court, in a celebrated case, declared against public policy a contractual provision prohibiting departing lawyers from soliciting other professional and paraprofessional employees of the law firm to engage in the practice of law with the departing member. Id. 128 N.J. at 31-32, 607 A.2d at 152-54.
In that case, the court also focused, not so much on the right of the departing partner who signed the restrictive anti-raiding provision, but on what it considered an undue constriction of "the right to practice of those attorneys who would have liked to have accompanied a departing lawyer, but who were not informed of that partner's interest due to an agreement creating a disincentive against their being contacted." Id. 128 N.J. at 31, 607 A.2d at 153 (adding: "The effect is all the more objectionable when the ignored attorney is an associate who is not a party to the agreement establishing the restriction.") Fully embracing ABA Inf. Op. 1417, and a similar opinion of the Legal Ethics Committee of the District of Columbia Bar, District of Columbia Bar Association Op. 181 (1987), the court "conclude[d] that the unrestricted practice of law' includes the right to solicit both attorneys and those members of the paraprofessional staff that attorneys believe are necessary to provide the best legal service for their clients." Id. 128 N.J. at 31-32, 607 A.2d at 153. The court continued that, as a general matter, "we believe that discouraging solicitation still constitutes an improper interference with the practice of law." Id. 128 N.J. at 32, 607 A.2d at 153.
These authorities have been woven into the fabric of New York case law. First, in the Cohen case, the court described the progress of the law in this area as at that point "prohibit[ing] agreements forbidding arrangements for lawyer associates to accompany a withdrawing partner," Cohen, 75 NY2d at 99 (citing ABA Inf. Op. 1417). Second, in Gibbs v. Breed, Abbott Morgan, 271 AD2d 180 (1st Dept. 2000), the court fully embraced the principle that "partners may not be restrained from inviting qualified personnel to change firms with them." Id. 271 AD2d at 187 (citing Jacob v. Norris, McClaughin Marcus, supra). See also, Denburg, 82 NY2d at 382 (citing Jacob with approval for a separate proposition). The American Law Institute agrees. A.L.I., Restatement (Third) of the Law Governing Lawyers § 13 comment b, Reporter's Note (2000) (fully embracing the rule of Jacob v. Norris, McClaughlin Marcus, supra, as holding "that penalties for otherwise-permissible recruitment of other firm lawyers or non-lawyer personnel are also unenforceable as unfairly restricting the career mobility of such persons"). Accordingly, the strong public policy considerations animating DR 2-108(A) include a non-solicitation covenant of the kind presented in this case.
There is one portion of the Jacobs opinion which gives pause. In rejecting on the facts an argument that the departing lawyers in that case should not recover their compensation on equitable principles because they signed the agreement held void as against public policy, the court posited "that equitable principles might bar a plaintiff's recovery if the plaintiff had been a senior partner instrumental in drafting a restrictive covenant, imposing it on his or her fellow partners or employees, and then s[eeking] to have the provision declared unenforceble when he or she decided to leave." Id. 128 N.J. at 36, 607 A.2d at 155. Here, the undisputed proof is that de Senilhes, or someone at TWF, drafted the non-solicitation provision when NP's draft Mutual Non-Disclosure Agreement was found wanting by TWF. TWF does not argue that, for this reason (as opposed to others it advances), NP is not on equitable grounds entitled to a declaration of unenforceability. We are not here involved with a lawsuit by a departing lawyer seeking enforcement of his right to compensation despite participation in the creation of the restrictive covenant. Cf. Denburg, 82 NY2d at 384-85, which in any event Williston describes as "completely consistent with the approach of other courts in holding that the departing firm member, even though he participated in the unlawful restrictive covenant, should be entitled to enforce his right to compensation." 6 Richard A. Lord (ed.), Williston on Contracts § 13:7, at 425 (4th ed. 1995).
de Senilhes is only named in his representative capacity for, and aligned with, TWF in both actions, not with NP.
Moreover, the policies peculiarly applicable to this anti-raiding covenant identified in the leading case on the subject, Jacobs, 128 N.J. at 30-32, 607 A.2d at 152-54 (protection of the non-signatory lawyers who unknowingly fall victim to the senior partner's creation of the covenant), would in this case find no avenue for vindication if NP is held disabled from obtaining a declaration of invalidity on equitable grounds merely because it signed the agreement at the behest of the partner it now seeks to take in. As noted above, TWF does not seek an injunction prohibiting NP from hiring de Senilhes. No case has been called to the attention of the court, and none has been uncovered by the court's research, which applies this caveat in Jacobs outside of the context of a lawsuit to obtain compensation. New Jersey courts have severely limited its application. Weiss v. Carpenter, Bennett Morrissey, 143 N.J. 420, 446-48, 672 A.2d 1132, 1146-47 (1996)("our observation in Jacob about equitable estoppel should be understood to refer to a unique and extraordinary exercise of control by a dominant partner in a law firm, one who initiated and demanded the inclusion of the forfeiture provision in the firm's agreement and subsequently exerted a dominating influence in insisting that the forfeiture provision be enforced against withdrawing partners") (emphasis supplied); Apfel v. Budd Larner Gross Rosenbaum Greenberg Sade, 324 N.J. Super. 133, 143-44, 734 A.2d 808, 813-14 (1999)("no evidence that he played a unique role in perpetuating or enforcing the forfeiture provision") (emphasis supplied). Although the record reveals that de Senihiles requested inclusion of the non-solicitation provision in the Mutual Non-Disclosure Agreement, it does not reveal whether he did so on his own or as part of general firm policy. The record also establishes that he did not take any steps to enforce the provision such as would call for application of Jacobs caveat. Finally, the court finds that the party seeking enforcement of the non-solicitation provision, TWF, is not entitled to invoke equitable estoppel to deny NP's assertion of illegality because it was TWF which insisted upon its inclusion in the agreement. Pierce v. Hand, Arendall, Bledsole, Greaves Johnson, 678 So.2d 765, 769 (Sup.Ct. Ala. 1996).
Moreover, this Alabama case questions whether facts fitting the Jacobs dictum ( Jacobs is not cited) even fits within the common law doctrine of equitable estoppel. Pierce, 678 So.2d at 768.
Accordingly, the court finds that, under New York law, summary judgment dismissing TWF's breach of contract claim in each action should be, and hereby is, granted, and that the declarations of invalidity on public policy grounds requested by NP in connection with the same be given the force of judgment.
B. Aiding and Abetting a Breach of Fiduciary Duty
Turning to TWF's second cause of action alleging that NP aided and abetted de Senilhes's breach of fiduciary duty to avoid soliciting TWF's non-equity partners to leave TWF and join NP while he was still a partner of TWF, NP establishes on this record as a matter of law that it is entitled to summary judgment dismissing this claim. Inasmuch as this cause of action is not based upon the Mutual Non-Disclosure Agreement, it is not necessarily governed by New York law. The parties' briefings to the court on their respective motions for summary judgment identify only New York authorities, although it was suggested at oral argument that French law might govern whether de Senilhes committed a breach of fiduciary duty by soliciting the non-equity partners to leave TWF before he left TWF himself or gave notice to TWF of his planned departure. Because the parties have briefed the issue solely in terms of New York law, the court turns to an examination of that law for a resolution of each party's motion for summary judgment in connection with that cause of action.
The parties do not invite the court to undertake a choice — of — law analysis. Caselaw holds that a court must in the ordinary case identify first whether there is a conflict between domestic and foreign law on the subject. In re Allstate Ins. Co., 81 NY2d 219, 223 (1993); Elson v. Defren, 283 AD2d 109, 114 (1st Dept. 2001). The burden, however, is on the party which contends that foreign law should be applied, and "in the absence of proof of contrary applicable foreign law, the law of the forum should be applied." Gangel v. DeGroot, 41 NY2d 840, 842 (1977). See Kardas v. Union Carbide Corp. , 22 AD3d 640, 641 (2d Dept. 2005). See generally, Watts v. Swiss Bank Corp., 27 NY2d 270, 276 (1970)("in the absence of manifest injustice, the court will allow the parties by default in pleading or proof to agree or acquiesce that forum law applied"). Although "a total failure to raise or prove foreign law should not inevitably prevent the application of foreign law," in this case, as in Watts, the court concludes that "[i]n theory and effect the parties have consented that the forum law be applied to the controversy." Id. 27 NY2d at 276. See Bank of New York v. Nickel, 14 AD3d 140, 149 (1st Dept. 2004)("where, as here, the record reveals a total failure' to prove foreign law, the parties have consented that the forum law be applied to the controversy.'") (quoting Watts); Knieriemen v. Bache Halsey Stuart Shields, Inc., 74 AD2d 290, 296 (1st Dept. 1980). Cf., Lerner v. Karageorgis Lines, Inc., 66 NY2d 479, 487-88 (1985).
Under New York law, it would not be a breach of fiduciary duty for a partner in a law firm, before departing that law firm, to "discus[s] . . . a joint move to another firm" with a fellow partner. Gibbs v. Breed, Abbott Morgan, 271 AD2d 180 at 185 (1st Dept. 2000). In Gibbs, the court found a breach of fiduciary duty by reason of a partner's conduct in supplying a prospective new employer with confidential memoranda containing descriptions of the firm, "salaries, and other confidential information such as billing rates and average billable hours, taken from personnel files." Id. 271 AD2d at 186. But in this case there is no evidence, or allegation even, that de Senilhes did any of that; he denies committing a breach of fiduciary duty and TWF raises no issue of fact concerning the same in regard to TWF's confidential information. Similarly, there is no evidence of "improper client solicitation and there is no evidence of pre-withdrawal recruitment of TWF staff employees, the latter of which "is generally allowed" once the departing partner gave notice to the firm of his intention to withdraw. Id. 271 AD2d at 186.
The question thus devolves to whether de Senihles's conduct in recruiting the so-called non-equity partners, prior to his giving notice to TWF of his planned departure, amounts to a breach of fiduciary duty. The Gibbs case cited above does not answer this question, although the dissenting justices would have drawn a distinction between law firm support staff and associate lawyers. Gibbs, 271 AD2d at 195-96 (Saxe, J., dissenting). The majority opinion may be seen at one level to lump "associates" and "support staff" into the same category for purposes of the rule that recruitment of support staff prior to notification of the partner's intention to withdraw is a breach of fiduciary duty. Id. 271 AD2d at 186. But the majority opinion did not explicitly say as much, and its opinion was primarily directed to the partner's breach of fiduciary duty by reason of the pre-notification disclosure of the associates' salary, bonus and billable hour history to prospective new employers. Id. 271 AD2d at 188. No other case in New York gives guidance on the subject in the law firm context.
At oral argument, NP's counsel acknowledged that such recruitment occurred, albeit not otherwise in circumstances making the solicitation a breach of fiduciary duty.
The American Law Institute refuses to draw a distinction between partners and associates for this purpose, and only prohibits pre-departure and pre-notice of intention to withdraw solicitation of clients. A.L.I., Restatement (Third) of The Law Governing Lawyers § 9(3)(a). The comment states categorically:
With respect to other firm lawyers and employees, a lawyer may plan mutual or serial departures from their law firm with such persons, so long as the lawyers and personnel do nothing prohibited to either of them (including impermissibly soliciting clients, as above) and so long as they do not misuse firm resources (such as copying files or client lists without permission or unlawfully removing firm property from its premises) or take other action detrimental to the interests of the firm or of clients, aside from whatever detriment may befall the firm due to their departure.
Id. comment i. See also, Joint Phila. and Pa. Bar Association Ethics Op. 99-100 (April 1999)("departing lawyer is free to solicit at-will employees of the former firm" unless solicitation of "multiple employees" is intended to cripple or destroy the business or there is a solicitation of an employee subject to an employment contract, in which case "the departing lawyer may be liable to the former firm for interfering with these contractual relationships").
Hillman's treatise collecting conflicting authority on the subject, Robert H. Hillman, Hillman on Lawyer Mobility: The Law and Ethics of Partner Withdrawals and Law Firm Breakups § 4.8.4, n. 62, at pp. 4:119-4:120 (2d ed. 1998), and offers an aspirational analysis positing generally that "recruitment of firm employees is permissible on a more limited basis than solicitation of clients," id. at p. 4:121, but which does not purport to synthesize current law.
These two authorities appear consonant with New York law.
Under New York law, the solicitation of at will employees by a departing employee, prior to the time of departure, will not amount to a breach of fiduciary duty, unfair competition, tortious interference with contractual relations, or tortious interference with prospective economic advantage, Headquarters Buick-Nissan, Inc. v. Michael Oldsmobile, 149 AD2d 302, 302-03, 303-04 (1st Dept. 1989), unless the departing partner's actions "were not, as claimed, merely planning for new employment after leaving plaintiff's employ," but instead "were acts committed on the time of his employer, and intended to interfere with their existing agreements between his employer and other employees, . . . in a plan deliberately designed to destroy his employer's business." A.S. Rampell, Inc. v. Hyster Co., 3 NY2d 369, 377 (1957). See also, Mayo, Lynch and Associates, Inc. v. Fine, 148 AD2d 425, 426 (2d Dept. 1989); Walter Karl, Inc. v. Wood, 137 AD2d 22, 28 (2d Dept. 1988); Metal Salvage Assoc., Inc. v. Siegel, 121 AD2d 200, 201 (1st Dept. 1986) (recruiting the salesman the departing employee hired for the former employer).
Supposing for the moment that the foregoing does not state applicable New York law, and that the Gibbs case draws a clear distinction between partners and associates for purpose of the recruitment rule, NP prevails on each motion for summary judgment in any event. Whatever the precise functional differences the record discloses between partners and non-equity partners at TWF (one declaration refered to them as "fixed share partners"), the record is undisputed, and TWF's counsel conceded at oral argument, that TWF held the non-equity partners out to the public as partners of the firm. Transcript of oral argument, at 82 ("calling people partners can have many benefits")("It can confer status on them for purposes of how they hold themselves out to the market" — I think it's very useful for marketing employees")("can have certain tax implications"); 83 ("they have certain benefits the employees do not, certain financial benefits that employees do not"). Most important, in a comment fully supported even by the conflicting declarations as between TWF's Amsallen and certain of the non-equity partners, TWF's counsel maintained that the non-equity partners "have [a] certain status different from the employees, from the associates, but they are still not partners," id. at 84, 85, even though "they're treated as partners for purposes of holding themselves out and practicing law." Id. at 83.
Given the conceded differences between associates at an American law firm and a non-equity partner at TWF, Gibbs cannot stand for the proposition that a pre-departure, pre-notification recruitment of them is a breach of fiduciary duty absent the aggravating circumstances present in Gibbs and defined in A.L.I., Restatement (Third) of The Law Governing Lawyers § 9, comment i. This court declines to hold that it was, particularly in view of the three and six month notice period the parties agree French law gave TWF to recover from the departures. In other words, given this French notice requirement, de Senihles could not have precipitously engineered a mass exodus likely to cripple TWF's business in the manner contemplated by A.S. Rampell, Inc. v. Hyster Co., 3 NY2d at 377. TWF does not allege an incipit destruction of its entire business by virtue of these departures, even in its Paris office.
Assuming, however, that de Senilhes breached his fiduciary duty by soliciting the non-equity partners to make the move to NP with him, a claim that NP aided and abetted that breach of fiduciary duty requires as an element "that the defendant knowingly induced or participated in the breach." Kaufmann v. Cohen, 307 AD2d 113, 125 (1st Dept. 2003). See Execulease Corp. v. Jacobs, 188 AD2d 580, 581 (2nd Dept. 1992)("Where such a breach of fiduciary duty is established, third parties who have knowingly participated in the breach may be held accountable"); Schnider Leasing Plus v. Stallon, 172 AD2d 739, 741 (2nd Dept. 1991)(same). In this context, "there must be an allegation that such defendant had actual knowledge of the breach of duty" because "[c]onstructive knowledge of the breach of fiduciary duty by another is legally insufficient to impose aiding and abetting liability." Kaufmann v. Cohen, 307 AD2d at 125. Furthermore, "[a] person knowingly participates in a breach of fiduciary duty only when he or she provides substantial assistance' to the primary violator," by which is meant "when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur." Kaufmann v. Cohen, 307 AD2d at 126 (quoting King v. George Schonberg Company, 233 AD2d 242, 243 (1st Dept. 1996)). "However, the mere inaction of an alleged aider and abetter constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff," id. 307 AD2d at 126, which is not alleged by TWF in these actions.
Here, Langan swears in an affidavit that, prior to the receipt of TWF's letter of July 25, 2008, he was not "aware . . . that Mr. de Senilhes had acted improperly or breached any duties to TWF in his recent dealings with NP or in connection with NP's discussion with, an offers of partnership to, the non-equity partners." Langan Affidavit at ¶ 17. Langan avers further: "No one at NP had any knowledge of any conduct by Mr. de Senilhes that could be construed as improper or a breach of fiduciary duty."
At oral argument, I alluded to the possibility that these allegations might for summary judgment purposes be deemed conclusory in nature. However, with the candid admission of NP's counsel, at oral argument after the court's comment, that de Senihles did recruit the non-equity partners before he notified TWF of his planned departure, despite the lack of direct proof of the same in the record, a different approach is called for. In view of these circumstances, coupled with the undisputed timing of Langan's first contact with de Senihles in London on May 21, 2008, in which he disclosed that the dissension at TWF was such that several of the non-equity partners were considering leaving, I find that the Langan affidavit sustains NP's initial burden on summary judgment to show that it had no knowledge of any breach of fiduciary duty sufficient to trigger aiding and abetting liability if indeed de Senihles committed one. The core fact was that TWF held the non-equity partners out to the public, including NP, as partners, who under American law may discuss possible lateral transfers among themselves without disclosure. TWF does not establish that NP knew of any different approach under French law and, if there is a different approach, constructive knowledge is an insufficient predicate for aiding and abetting liability. Kaufman v. Cohen, 307 AD2d at 125.
Accordingly, NP establishes as a matter of law that it lacked knowledge of a breach, if any, by de Senilhes of his fiduciary duties to TWF. Furthermore, nothing in TWF's responding papers raises an issue of fact on the knowledge issue. Larro, Inc. v. Chase Manhattan Bank, 269 AD2d 188 (1st Dept. 2000)("plaintiff offered no evidence that defendant had actual knowledge of the alleged breaches" by non-parties to the action and that obviated the need to determine whether those non-parties indeed had committed breaches of their fiduciary duty). The conclusory assertions in the Amsallem declaration are insufficient to raise an issue of fact on the knowledge issue, particularly in the absence of any proof that confidential or proprietary information was given to NP by de Senilhes to enable NP to make the offers of employment that it made. No party suggests that additional discovery is needed to inform a decision on this cause of action, and therefore summary judgment in favor of NP is justified without prejudice to any breach of fiduciary duty claim that may be brought against de Senihles before a French tribunal according to French law.
C. Tortious Interference with Contractual Relations
In TWF's Third Cause of Action for tortious interference with contractual relations (both parties have characterized it as such), TWF alleges that Langan and NP solicited TWF's non-equity partners using wrongful means. The wrongful means alleged, however, was a breach of the non-solicitation provisions of the July 2007 Mutual Non-Disclosure Agreement. These allegations would not state a cause of action for tortious interference with either existing or prospective contractual or economic relations because the July 2007 agreement is unenforceable as set forth above. Further, they fail to state a cause of action, because NP's alleged conduct in relation to that agreement would be directed to TWF, not a third party. Carvel Corporation v. Nooman, 3 NY3d 182, 192 (2004)("conduct constituting tortious interference with business relations is, by definition, conduct directed not at the plaintiff itself, but at the party with which the plaintiff has or seeks to have a relationship").
The court must read the pleadings liberally, however, and does so here by interpreting the third cause of action to allege that NP interfered with TWF's established relationship with its non-equity partners via wrongful means. As explained in Carvel Corp. v. Nooman, supra, this states a cause of action for tortious interference only with prospective economic relations, because all parties agree that the non-equity partners were at-will employees except for the three or six month notice requirement demanded by French law. Id. 3 NY3d at 189-90; NBT Bancorp. Inc. v. Fleet/Norstar Fin. Group, Inc., 87 NY2d 614, 621 (1996); Guard-Life Corp. v. S. Parker Hardware Mfg. Corp., 50 NY2d 183, 190-91, 194 (1996). As such, TWF is held to a larger burden of proof to "show more culpable conduct" on the part of NP amounting to "wrongful means," by which is meant "acts that would be criminal or independently tortious," Carvel Corp. v. Nooman, 3 NY3d at 192; see also, Cooper v. Hodgek ,28 AD3d 1149, 1151 (4th Dept. 2006), "extreme and unfair economic pressure' that might be wrongful' under Guard-Life and NBT," id. 3 NY3d at 192-93, or "fraud or misrepresentation, civil suits and criminal prosecution.'" Carvel Corp. v. Nooman, 3 NY3d at 191 (quoting Guard-Life, 50 NY2d at 191. Significantly, the term "wrongful means" does not "include persuasion alone although it is knowingly directed at interference with the contract.'" Carvel Corp. v. Nooman, 3 NY3d at 191 (quoting Guard-Life, 50 NY2d at 191).
Employing this standard, therefore, NP establishes on this record as a matter of law that it did not engage in "wrongful means" to persuade the non-equity partners to leave TWF, and TWF fails to raise an issue of fact to the contrary. Furthermore, NP establishes its own justifiable economic interest in the transaction, and TWF fails to raise an issue of fact that the sole purpose of NP's conduct was to harm TWF. Accordingly, NP is entitled to summary judgment dismissing the tortious interference claim in each action and TWF's corresponding motions are denied.
SO ORDERED.