## Facts

- Charles F. Gibbs and Robert W. Sheehan were partners and the only partners in the Trusts and Estates department of a New York law firm.
- While still partners, they decided to leave and later joined another firm in July 1991.
- Before leaving, they prepared and transmitted to the prospective new firm a memorandum listing department personnel and internal details, including salaries, billable hours, and bonus structures.
- The prospective new firm interviewed department staff while plaintiffs remained at their original firm, and most of the department later moved after plaintiffs’ departure.
- When they left, plaintiffs took “chronology” or desk files and used them in contacting and soliciting clients.
- The original firm asserted counterclaims alleging breaches of fiduciary duty tied to (i) the personnel memorandum, (ii) Gibbs’s alleged solicitation of Sheehan to depart, and (iii) removal of chronology/desk files.
- After a nonjury trial on the severed fiduciary-duty counterclaims, the trial court found multiple breaches and entered a substantial damages award against plaintiffs; plaintiffs appealed.

## Issues

1. Whether partners breach fiduciary duties by disclosing to a competitor confidential employee and compensation information while still partners.
2. Whether one partner breaches fiduciary duties by persuading or soliciting another partner to leave the firm and join a competitor.
3. Whether departing partners breach fiduciary duties by taking duplicate chronology/desk files and using them in client solicitation.

## Decision

- The appellate court modified the judgment.
- It affirmed liability only for the disclosure of confidential personnel and compensation information to the competitor while plaintiffs were still partners.
- It held that Gibbs did not breach fiduciary duties merely by persuading or soliciting Sheehan to leave with him.
- It held that taking duplicate chronology/desk files, on this record, did not constitute a fiduciary breach.
- It remanded for recalculation of damages limited to harm proximately caused by the actionable disclosure.

## Legal Principles

- Partners may make logistical arrangements to withdraw and compete, so long as they do not act inconsistently with fiduciary obligations while still partners.
- A partner breaches the duty of loyalty by providing a competitor confidential internal personnel information (including compensation-related data) while still owing fiduciary duties to the firm.
- Recruitment or coordinated departure discussions among partners, without more, are not inherently disloyal and do not establish a fiduciary breach.
- Removal of duplicate work materials is not a fiduciary breach absent proof of misappropriation of firm property or unfair impairment of the firm’s ability to serve clients.
- Damages for fiduciary breach must be tied to the specific wrongful conduct and limited to losses proximately caused by that conduct.

## Conclusion

The court drew a line between permissible pre-departure planning and disloyal conduct, holding partners liable for secretly sharing confidential staff compensation information with a competitor while rejecting liability based solely on joint departure planning or taking duplicate desk files, and requiring damages to be recalculated on the narrowed theory.


Gibbs v. Breed, Abbott & Morgan, 271 A.D.2d 180 (N.Y. App. Div. 1st Dep’t 2000)