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Claim Survives That Law Firm Aided Client's Breach of Duty
New York Law Journal
August 11, 2008
A New York state judge has ruled that a law firm had no duty to prevent a key officer from leaving a company but may be liable for aiding and abetting that officer's breach of fiduciary duty.
In an unusual decision issued Aug. 4, Manhattan Supreme Court Justice Bernard Fried threw out legal malpractice and breach of fiduciary claims against Schulte Roth & Zabel stemming from its work for an abortive private jet startup, but permitted an aiding and abetting claim to proceed.
Plaintiff Brin McCagg had an agreement with fellow entrepreneur Alan Clingman to launch a company called Clearjets to offer fractional ownership of private planes. Clingman was the co-founder and former chief executive officer of Marquis Jets, a similar company, and was to be the CEO of Clearjets.
Schulte, Clingman's longtime law firm, handled Clearjets' incorporation in late 2002. But Clingman pulled out a few months later, having signed a noncompete agreement on the sale of his remaining Marquis stake back to Marquis.
According to McCagg, the pullout devastated Clearjets because aircraft manufacturers were only willing to make a deal with Clingman, owing to his previous experience in the industry.
In his suit against Schulte and Clingman, McCagg claimed the law firm knew about Clingman's negotiations with Marquis and committed malpractice by withholding that information from him and Clearjets.
But Justice Fried disagreed with McCagg's contention.
"As counsel to Clearjets, Schulte was under no duty to make efforts to prevent the departure of a key employee, or, absent an independent duty, to disclose the impending departure to other corporate officers," said Fried in McCagg v. Schulte Roth & Zabel, 601566/04.
He also said there is no evidence to support the existence of an attorney-client relationship between Schulte Roth and McCagg individually.
But while there was no duty on the part of the firm, the judge said McCagg may have a viable claim if he can show Schulte "rendered substantial assistance" to Clingman in the execution of his agreement not to compete with Marquis. Clingman's signing of the agreement could be found to be a breach of his fiduciary duty as CEO of Clearjets, the judge said.
The judge noted that firm billing records in evidence "showed that Schulte advised Clingman on 'all aspects of Marquis relationship including ... non-competition and release agreements.'"
Schulte Roth is represented by Jonathan D. Seigfried of Dewey & LeBoeuf.
McCagg is represented Paul H. Levinson and Bruce A. Langer of McLaughlin & Stern.
