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A Manhattan judge has thrown out a lawsuit by the former managing partner of Fish & Neave and another former partner that charged their old firm improperly altered its partnership agreement to financially penalize them as departing partners. W. Edward Bailey, the managing partner of the firm from 1994 to 2000, and Kevin J. Culligan, who was on the firm’s management committee, left Fish & Neave last May and June, respectively, to join the New York office of King & Spalding. They filed suit in November, shortly after Fish & Neave announced a merger with Boston’s Ropes & Gray. The merger closed in January and the combined firm now uses the Ropes & Gray name. In their suit, Bailey and Culligan claimed the firm owed them a combined $2.4 million in unreturned capital and unpaid compensation. They claimed a May 2004 amendment to the partnership agreement that would defer such payments was void because the vote approving it had not been unanimous. But in dismissing their claims, Supreme Court Justice Benjamin Fried said it was clear that the partnership agreement did not require unanimous approval of business decisions. He noted that even dissolution of the firm could be achieved with a simple majority. “Indeed, it would be anomalous for the Partnership Agreement to permit the firm to be dissolved entirely by majority vote, but then to bar amendment to the partner payment process without unanimous consent,” Fried wrote in Bailey v. Fish & Neave, 650132/04. The May 2004 amendment to Fish & Neave’s partnership agreement was designed to permit the firm to defer payment of accrued income to ex-partners until they turned 65. It also allowed the firm to repay ex-partners’ capital contributions over four years. Bailey claims he is owed $565,436 in capital and $681,381 in income. Culligan claims he is due $291,215 in capital and $836,857 in income. Under the original agreement, accrued income was to be paid to a withdrawn partner as soon as it could be ascertained. Likewise, capital contributions were to be returned within a year. The agreement, adopted in 1970, contained no specific provision for amendment, but Bailey and Culligan argued that, under general partnership law, acts contravening the original agreement must be unanimously approved. They also noted that all previous amendments to the partnership agreement had been by unanimous consent. But the judge said the ex-partners argument “considerably narrows what was clearly intended to be a broad majority rule provision based on the language used.” He also noted that the agreement, though silent on the amendment issue, specified those situations in which a simple majority would be insufficient. Expelling a partner, for instance, required a two-thirds majority. The judge also rejected the ex-partners’ argument that the amendment violated ethical rules barring law firms from restraining lawyers’ right to practice. He said such ethical rules were meant to prevent firms from imposing anti-competition clauses on departing lawyers. The rules did not apply, he said, to the provisions of the Fish & Neave amendment because they applied to all lawyers withdrawing from the firm, not just those leaving to practice law at competing firms. Firms have increasingly sought to discourage partners from defecting to competing firms by including financial penalties in their partnership agreements. As partners have continued to make lateral moves, the number of lawsuits arising from such circumstances has grown. Jeffrey Jannuzzo, the lawyer for Bailey and Culligan, previously represented four former partners at Whitman, Breed, Abbott & Morgan who sought the return of their capital contributions following that firm’s merger with Chicago’s Winston & Strawn. The partners in that case also challenged amendments to the partnership agreement regarding capital return. In 2003, a Manhattan appellate court ruled that the four partners were entitled to the return of their capital contributions. But Fried distinguished that case, noting that the main issue there had been the timing of the amendment and whether it had become effective at the time of the partners’ departure. The appellate court decided the amendment became effective one week after the partners left the firm.

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