Laurilliard v. McNamee Lochner, P.C.

Plaintiffs Kevin Laurilliard and Paul Pastore brought this commercial action against the law firm McNamee Lochner PC as well as nine individuals alleged to be “majority shareholders” of the firm. The defendants moved for dismissal of the complaint.

The plaintiffs’ allegations.

McNamee Lochner PC was an Albany law firm, and the plaintiffs were its long-time shareholder/employees, and defendants Cirincione and Barbour were the firm’s managing shareholders.

On Feb. 19, 2020, a special meeting of McNamee Lochner was held to discuss a potential merger with Whiteman, Osterman & Hanna LLP. The plaintiffs were not supportive of a merger, but the majority of McNamee Lochner shareholders agreed to explore the opportunity. The discussions were conducted by the defendants, who insisted all communications go through them.

On March 13, 2020, Barbour advised Laurilliard that he was offered a “transitional partnership” from Whiteman, Osterman & Hanna. On the same day, Pastore was notified that he did not receive an offer from Whiteman, Osterman & Hanna. On March 16, 2020, Cirincione and the defendants gave all McNamee Lochner shareholders who had offers from Whiteman, Osterman & Hanna until 5:00 p.m. on March 19, 2020, to accept those offers. Laurilliard asked whether McNamee Lochner could continue as a law firm. Barbour responded that responses from partners were unanimous to accept an offer from Whiteman, Osterman & Hanna. “ML will be winding down. Please provide your response by the COB today. Thank you.”

Cirincione then added: “I agree with [Barbour’s email] and will add that I do not see the financial viability of thinking the firm can continue. You were not the only one offered a transitional partnership.” Laurilliard declined to accept Whiteman, Osterman & Hanna’s offer. Administrative staff was reduced, and shareholder compensation was reduced under a new compensation plan. Benefits were also reduced. The plaintiffs continued their employment with McNamee Lochner with little or no secretarial support.

Laurilliard assumed that most of McNamee Lochner’s shareholders would become shareholders at Whiteman, Osterman & Hanna. “Having received no response or updates from Cirincione or Barbour, Laurilliard notified them on April 10, 2020, that he was intending to join the law firm of O’Connell and Aronowitz P.C. with an anticipated start date of April 27, 2020.”

“On April 16, 2020, at 2:17 pm, Cirincione and Barbour emailed Plaintiffs that they had to vacate their ML offices by 5:00 PM on April 17, 2020, after which Plaintiffs would no longer have any access to their ML offices, files or computer system where their client files were maintained and stored.” “As a result, Plaintiffs were forced, during the COVID pandemic and within the arbitrary one-day deadline, to go to their offices to retrieve as many of their personal and client files as possible.” In contrast to the treatment of other shareholders, “Cirincione and Barbour did not permit Plaintiffs access to their files or documents and did not forward Plaintiffs’ emails.”

“On May 2, 2020, Cirincione requested that Plaintiffs surrender their ML shares and offered to each Plaintiff a check in the amount of $100.00.” “To date, Plaintiffs have refused to surrender their respective shares in ML.” The plaintiffs also requested a full accounting of McNamee Lochner’s assets and liabilities from “January 1,2020 to present.” The defendants refused to provide any information.

This litigation.

This action commenced on June 7, 2022. “The Complaint alleges five causes of action: (1) anticipatory breach of plaintiffs’ employment agreements; (2) anticipatory breach of plaintiffs’ shareholder agreements; (3) accounting; (4) dissolution under Business Corporation Law … and (5) breach of fiduciary duty. In lieu of answering, defendants moved for dismissal.”

Analysis. 

Anticipatory repudiation (employment agreements). McNamee Lochner was alleged to have breached the employment agreements by stating that it was ceasing the practice of law in the near future. The defendants sought dismissal on the grounds that the contracts were not enforceable because they were not for a fixed period of employment and did not set forth the salary to be paid. Alternatively, the defendants contended the complaint failed to allege unequivocal repudiation of McNamee Lochner’s obligations under the agreements.

An anticipatory breach was a repudiation of a contract duty before the time for performance had arrived. Such a claim must be supported by evidence of refusal to perform. (Joseph P. Carrara & Sons, Inc. v. A.R. Mack Constr. Co., Inc.) The employment agreements have a commencement date but no termination date. Rather they defined a series of termination events, including “[a]t the option of either Employer or Employee after not less than ninety days’ written notice” (Employment Agreements, § 7 [e]).

“[A] termination in contravention of the notice requirement does not affect the validity of the termination, but it does leave the employer answerable for damages ‘up to the time the contract would have terminated if notice had been given.’” (Delvecchio v. Bayside Chrysler PlymouthJeep Eagle) The court concluded that the plaintiffs were at-will employees of the firm and could be terminated without cause by McNamee Lochner upon written notice. (Naylor v. Ceag Elec. Corp.)

The court concluded that the March 19 emails did not demonstrate clear and unequivocal repudiation. The emails cannot be seen as clear and unqualified refusal to perform under the employment agreements, which allowed the firm to terminate the plaintiffs’ employment upon written notice. The plaintiffs had not stated a claim for anticipatory repudiation, thus the first cause of action was dismissed.

Anticipatory repudiation (shareholder agreements). The plaintiffs alleged that the shareholder agreements were breached by saying that McNamee Lochner was “ceasing the practice of law in the near future.” An alleged further breach was the liquidation of McNamee Lochner and distribution of assets to the exclusion of the plaintiffs.

The shareholder agreements were a series of identical agreements between the plaintiffs and McNamee Lochner, and, in fact, to all shareholders, by which each shareholder received one share of McNamee Lochner stock, subject to mandatory buyback upon certain triggering events.

“In the event the Shareholder terminates or has terminated his [or her] employment with the [Firm], then the share owned by him [or her] shall be offered … in accordance with Section 1 of this Agreement” (id., § 4). Section 1, in turn, obliges the shareholder to deliver to an officer of the Firm the offered share, duly endorsed for transfer, and it requires the Firm to purchase the share for $100, payable within six months of delivery.”

The plaintiffs’ terminations were legally effective even without proper notice (because they were at-will employees). Thus, without anticipatory repudiation, the plaintiffs were obliged to tender their shares to the firm within five days of termination, which they did not do. The agreements did not prevent the firm from winding down or “ceasing the practice of law in the near future.” The only obligation on the part of the firm was to pay the $100 per share, and the plaintiffs acknowledged the Firm had tendered its performance. “Thus, it is plaintiffs who are in breach of the Shareholder Agreements by refusing to deliver their shares to ML, duly endorsed for transfer.”

Further, the shareholder agreements did not speak to dissolution, liquidation, winding down, or distribution of assets to members on liquidation, and the complaint did not speak to any provision of the agreements that were breached.

Accounting. “An equitable accounting involves a remedy ‘designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession.’” (Hall v. Louis)

The plaintiffs claimed a right to an accounting as “law partners and fellow shareholders and directors.” As of their terminations, the plaintiffs were required to tender their shares. The court concluded that the plaintiffs had been divested of any rights as shareholders and directors and were, therefore, not entitled to an accounting.

Dissolution. The fourth cause of action sought dissolution. The court found that the plaintiffs lacked standing for a claim of dissolution. The only return that the plaintiffs could expect was $100 on redemption of their shares. The fourth claim was dismissed.

Breach of fiduciary duty. The plaintiffs alleged that the defendants owed a fiduciary duty to the plaintiffs as shareholders, and the defendants breached those duties for multiple reasons (covered in the opinion and most of which are discussed above in this digest). The defendants first argued that the plaintiffs have failed to articulate a fiduciary duty or duties.

“The Court agrees that the parties’ fiduciary relationship was severed by the termination of plaintiffs’ employment, which triggered plaintiffs’ obligation under the Shareholder Agreements to tender their shares to ML for repurchase at the price of $100 per share.”

The defendants also contended that the allegations supporting the breach claims were not sufficiently “particularized.” The court did not find this argument persuasive. The court was satisfied that the complaint met the pleading standard. The plaintiffs alleged they were terminated in order to keep them from sharing in the proceeds of the firm’s liquidation. “Plaintiffs allege, in essence, that the Firm engaged in disparate treatment between two similarly situated groups of shareholders: those who would be joining WOH, including the Firm’s leadership; and the ML shareholders, like plaintiffs, who would not be joining WOH.”

While the plaintiffs’ allegations are sufficiently particularized to meet the pleading standard, the court concluded their allegations did not give them an enforceable right of recovery against the defendants. The bulk of the alleged fiduciary misconduct related to changes in the terms and conditions of their employment, allegedly to drive them out of the firm. But the plaintiffs were not owed any fiduciary duties as employees of McNamee Lochner, and their minority shareholder status did not entitle them to any special employment rights or protections. (Ingle v. Glamore Motor Sales) 

The stronger argument as to breach of fiduciary duties rested in the area of minority shareholder status, where they were entitled to fiduciary duties. “While it might seem self-evident that controlling shareholders of a corporation may not enrich themselves personally by altering the terms and conditions of minority shareholders’ employment to force a buyout at a low price, that is not always the case.” It did not apply when the employees are at will employees and the shares are subject to mandatory repurchase upon termination of employment. (Gallagher v. Lambert) 

Conclusion.

“ORDERED that defendants’ motion is granted, and plaintiffs’ complaint is dismissed.”