[P]artners owe each other a fiduciary duty of "the utmost good faith and loyalty." As a fiduciary, a partner must consider his or her partners' welfare, and refrain from acting for purely private gain. Shelley, supra. Holmes, supra. Partners thus "may not act out of avarice, expediency or self-interest in derogation of their duty of loyalty."
Meehan v. Shaughnessy
Plaintiffs were partners of the defendant's law firm, Parker Coulter, who left to start their own firm, MBC. Before they did so, they had confidential discussions with some other partners and some associates about leaving with them, and one prepared lists of cases he considered to be his. He also encouraged associates to find cases they could take with them and focus on those. Although the partnership agreement required three months' notice, plaintiffs only gave thirty days' to avoid the uncomfortable situation that could cause, although one of the defendants later waived this requirement for plaintiffs. In the mean time, each maintained his usual standard of work until departing and denied rumors of their departure.
When plaintiffs did give notice, they also sent letters on Parker Coulter's letterhead to each client they anticipated to remove to notify them of the situation and request authorization to remove their cases. They then waited two weeks to give a requested list of people they intended to remove to defendants.
Ultimately, ~142 of the ~350 cases at Parker Coulter were removed to MBC. A provision in the partnership agreement allowed a partner to, for a "fair charge," remove cases he was working on that he attracted, which ~39 of the 142 qualified as.
Plaintiffs sued to recover amounts they claimed they were owed under the partnership agreement, and to obtain a declaration as to how much they owed defendants for work done at Parker Coulter on cases they removed to MBC. Defendants counterclaimed that plaintiffs violated their fiduciary duties, breached the partnership agreement, and tortiously interfered with their advantageous business and contractual relationships in withdrawing cases and clients from the firm and inducing employees to join the new firm.
Trial court rejected all of defendants' claims, found that plaintiffs were entitled to removed the amounts owed to them, and determined the amount defendants were entitled to recover for time and expenses spent on the cases plaintiffs removed.
Did plaintiffs breach their duty of loyalty to defendant?
- Page 255
- Page 256
A partner has an obligation to "render on demand true and full information of all things affecting the partnership to any partner."
Plaintiffs did not breach their duty of loyalty in their work or by secretly setting up the new firm. However, in secretly preparing and sending the letters to the clients, they obtained an unfair advantage over defendants in breach of their fiduciary duties.
Defendants denied that they had any plans to leave the partnership on three separate occasions while they were secretly communicating with clients, even using the firm's letterhead, to be ready to persuade them the instant they gave notice to defendants. They used their position of trust and confidence to Parker Coulter's disadvantage. They delayed providing defendants with a list of clients until after he had already obtained authorization from a majority of them. Defendants' announcement was also unfairly prejudicial to Parker Coulter and did not effectively present remaining at Parker Coulter as an alternative to MBC.
Yes, plaintiffs breached their duty of loyalty by preparing and sending the letters, delaying notification to defendants, and denying the facts when defendants asked. Reversed and remanded.