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Gibbs v. Breed, Abbott & Morgan

Appellate Division of the Supreme Court of the State of New York
Volume and Reporter Unknown, Page *182-*199 (2000)
ELI5:

Rule of Law:

A partner breaches the fiduciary duty of loyalty by secretly disseminating confidential partnership information, such as employee salaries and billing rates, to a competitor firm prior to announcing their intention to withdraw from the partnership.


Facts:

  • Charles Gibbs and Robert Sheehan were the only two partners in the trusts and estates (T/E) department at the law firm Breed, Abbott & Morgan (BAM).
  • In January 1991, Gibbs, dissatisfied with BAM, began interviewing with other law firms and persuaded Sheehan to explore leaving with him.
  • On April 26, 1991, while still partners and months before announcing their departure, Sheehan compiled a memorandum containing confidential data on BAM's T/E employees, including their salaries, bonuses, billable hours, and billing rates.
  • Gibbs and Sheehan provided this confidential memorandum to competitor firms they were interviewing with, including Chadbourne & Parke (Chadbourne), to discuss recruiting certain BAM employees.
  • On June 19, 1991, Gibbs and Sheehan formally notified BAM that they had accepted offers to join Chadbourne.
  • Between their notice and departure, Chadbourne used the confidential information to interview and extend employment offers to four key BAM employees, who all accepted.
  • Upon their departure in July 1991, Gibbs and Sheehan took their personal 'chronology' or desk files, which contained duplicates of correspondence maintained in BAM's main client files.
  • Following the partners' and employees' move, 92 of BAM's 201 T/E clients transferred their business to Chadbourne.

Procedural Posture:

  • Plaintiffs Charles Gibbs and Robert Sheehan sued their former law firm, Breed, Abbott & Morgan (BAM), in the Supreme Court of New York County (the trial court) for monies due under their partnership agreement.
  • BAM (defendants) filed counterclaims against the plaintiffs, alleging breach of fiduciary duty.
  • The counterclaims were severed and a nonjury trial was held on those claims alone.
  • The trial court found that the plaintiffs had breached their fiduciary duty and awarded BAM $1,861,045 in damages for lost profits.
  • Gibbs and Sheehan (plaintiffs-appellants) appealed the trial court's judgment on the counterclaims to the Supreme Court, Appellate Division, First Department (this court).

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Issue:

Does a law firm partner breach their fiduciary duty to the partnership by, prior to announcing their departure, providing a competitor firm with confidential information about the partnership's employees, including salaries and billing rates, to facilitate the recruitment of those employees?


Opinions:

Majority - Mazzarelli, J.

Yes. A law firm partner breaches their fiduciary duty to the partnership by providing a competitor firm with confidential employee information before announcing their departure. Partners owe each other a duty of loyalty and must refrain from acting for purely private gain. While partners are permitted to make logistical arrangements to withdraw, secretly disseminating confidential personnel data—such as salaries, bonuses, and billable hours—is an act of disloyalty that gives the competitor an unfair advantage in recruiting. This breach occurred when the memo was prepared and shared in April 1991 and could not be cured by the partners' later notification of their withdrawal. The court found no breach, however, in Gibbs persuading Sheehan to leave the firm or in the partners taking their duplicate desk files, which was considered a common practice.


Concurring-in-part-and-dissenting-in-part - Saxe, J.

No. Providing employee information to a prospective firm does not constitute a breach of fiduciary duty under these circumstances. The dissent argues that the information shared was not a genuine trade secret, as salary and billing information is often widely known in the legal community through publications and recruiters. Because the actual recruitment of employees did not occur until after Gibbs and Sheehan had notified BAM of their departure, BAM was on equal footing to compete for its employees and was not unfairly disadvantaged. Limiting a partner's ability to recruit their team undermines client choice, as clients may need the continuity of the entire legal team. The dissent concurs with the majority that there was no breach related to Gibbs persuading Sheehan to leave or the removal of the desk files.



Analysis:

This decision refines the scope of a partner's fiduciary duty during the withdrawal process, distinguishing between permissible preparations and impermissible disloyal acts. It establishes a key precedent that using one's position to access and disseminate confidential firm data for the benefit of a future employer is a breach of loyalty, even absent improper client solicitation. The case narrows the acceptable range of pre-withdrawal activities, making it clear that leveraging confidential internal information to orchestrate team moves before giving notice crosses the line. This holding will likely guide future courts in assessing the conduct of departing partners, focusing on whether they unfairly exploited their fiduciary status before their exit was known.

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