Springtime is the season when bulbs start to bloom, buds begin to sprout and law firm partner bonuses are often paid. It is also the season for lateral partner moves.
Some partners who make a lateral move enter as equity partners subject to the new firm's partnership agreement, others are subject to offer letters as contract partners which incorporate portions of the partnership agreement but add specially negotiated terms, and still others join firms on a proverbial and sometimes dangerous handshake.
A recent decision from Justice Melvin L. Schweitzer from the New York Supreme Court Commercial Division provides an interesting and informative look at lateral partner moves, the agreements signed by firms and partners in such situations, and what things look like when the move unfortunately goes wrong. After analyzing the decision, we briefly set forth some observations concerning lateral partner agreements.
'Connoni v. Edwards Angell'
Late last year, in Connoni v. Edwards Angell Palmer & Dodge, Justice Schweitzer denied a motion to reargue his previous decision, which granted in part a lateral partner's motion for summary judgment. The unpublished decision describes a somewhat familiar lateral partner scenario by which a lateral partner is recruited by a firm and enters into a written agreement.
In Connoni, Stephen R. Connoni made a lateral move to join the corporate department of Edwards Angell Palmer & Dodge (EAPD). It is alleged that, while Connoni made no guarantees, he "expected" that certain former clients would follow him to Edwards Angell and that he would originate a certain approximate dollar amount in fees in his first calendar year at the firm. Connoni joined the firm in September 2007 and based his fee prediction in substantial part on his expectation that a client would do an initial public offering in 2008. Of course, at that point, no one knew what havoc 2008 would bring to the world's financial markets.
Edwards Angell and Connoni entered into a letter agreement in September 2007 by which Connoni became a "Contract Partner."
Concerning termination, the agreement provided that the firm's "Executive Committee may remove [Connoni] as a partner in the Firm at any time on or after January 31, 2010 upon at least 90 days prior written notice… [Connoni] may be removed as a partner at any time as provided in the Partnership Agreement." The partnership agreement provided for removal of a partner upon a vote of 75 percent of the partners. Accordingly, for Connoni's removal prior to Jan. 31, 2010, a 75 percent vote of partners was required.
The agreement with Connoni provided for a fixed salary for 2007 and 2008 with compensation in 2009 to be paid on the same basis as the equity partners. More particularly, for 2008, the agreement provided that, if certain performance expectations were met, Connoni would receive a set compensation. In addition, the agreement provided that "[s]hould those expectations not be substantially realized, it is agreed that we may adjust your compensation appropriately."
During the first nine months of 2008, Connoni did not meet the performance expectations. In September 2008, Edwards Angell's managing partner met with Connoni and informed him that the firm was disappointed with his performance and that his employment was being terminated as of Dec. 31, 2008. No breach of the agreement was cited but only that Connoni had fallen short of his expected collection targets. In 2008, Connoni was paid his monthly draws but no additional payments.
A dispute arose concerning whether the firm owed Connoni additional payments for 2008 pursuant to the agreement, and a lawsuit ensued in which Connoni alleged three causes of action. The first cause of action alleged that the firm breached the agreement by failing to pay Connoni the contract compensation for 2008. The second cause of action claimed that the firm breached the agreement by failing to pay Connoni "appropriately" as set forth in the agreement. The third cause of action alleged that Connoni's termination in 2008 was an anticipatory breach of the agreement with respect to the last three months of 2008, 2009 and the first four months of 2010.
Edwards Angell asserted three counterclaims. The first counterclaim was that Connoni made material misrepresentations about the quality and nature of his contacts to induce the firm to hire him as a lateral partner. The second alleged that Connoni breached the agreement by failing to generate business and perform legal work. The third claimed that Connoni breached his fiduciary duties. In particular the firm claimed that Connoni falsely assured the firm that he would have a certain dollar amount in portable business and that they never would have paid him what they agreed without that assurance. The firm claimed that Connoni collected only 6 percent of that benchmark amount set out in the agreement and otherwise did not perform as a partner of the firm.