Opinion
117807/03.
Decided December 14, 2005.
Quinn Emanuel Urquhart Oliver Hedges, LLP, New York, New York, Michael Carlinsky, Esq. and Deborah K. Brown, Esq. Novack and Macey LLP, Chicago, IL, Stephen Novack, Esq. (pro hac vice), Margret M. Caruso, Esq., Redwood Shores, CA, Attorneys for Plaintiff.
Patterson, Belknap Webb Tyler LLP, New York, New York, Sarah E. Zgliniec, Esq., Philip R. Forlenza, Esq. and Laura J. Wood, Esq., Attorneys for Defendants.
In this action, Anthony LoFrisco ("LoFrisco") as a partner in Winston Strawn ("Winton") sues the law firm to recover additional compensation that he claims he is owed under the parties' partnership compensation agreements. LoFrisco moves for summary judgment contending that he satisfied the criteria under the agreements and is thus entitled to substantial additional compensation. Winston cross moves for summary judgment contending that the firm did not breach any agreement, and that, at most, the agreements that plaintiff cites gave the law firm discretion to award LoFrisco bonuses.
For the reasons set forth below, LoFrisco's motion is denied, and Winston's motion is granted with respect to its claims regarding its compliance with the compensation agreement in 2003 and 2004 and denied with respect to its claims regarding 2002.
Facts:
LoFrisco joined Winston as a partner in 1991. In a letter dated October 20, 1994 (the "1994 Agreement"), Winston agreed to pay "additional compensation" to LoFrisco for fiscal years 1995 through 2000, based upon a formulaic percentage of a minimum amount of collections from certain clients including General Electric Company ("GE"). Under that provision, when the clients' collections totaled $5 million or $10 million, LoFrisco would receive 15% or 13%, respectively, of the collections. The formula also provided that the percentage of the client collections would be applied to a "point value" tied to the firm's overall profits. In addition, the 1994 Agreement provided that beginning in 2001, LoFrisco would continue to receive the percentage of collections but his additional compensation would be reduced by 25% in 2001, 50% in 2002, 75% in 2003, and 100% in 2004. This compensation step-down or "decompression" applies to all partners in the firm when they reach the age of 65.
According to the 1994 Agreement, the law firm's primary purpose for entering into a written compensation agreement with LoFrisco was to "induce [LoFrisco] to use [his] best efforts to build a long term relationship between the Firm and the clients mentioned." In addition, the "Working Attorney" provision of the 1994 Agreement stated that LoFrisco would be "expected to continue the type and level of effort [he has] exerted on behalf of the Firm as a practicing attorney since [he] joined Winston Strawn."
At the end of 2000, LoFrisco contacted the partners on Winston's Executive Committee (the "Committee"), seeking to obtain certainty regarding his future compensation, to extend the 1994 Agreement, and to avoid the decompression schedule. According to the Managing Partner and Executive Committee member, James Neis ("Neis"), "I [Neis] was very concerned that he [LoFrisco] would leave the firm if we didn't pay him that bonus, or, if we didn't pay him the bonus, he would stay at the firm and become a disruptive influence with the GE relationship." In October 2000, LoFrisco and three partners including Neis, the firm's Chairman Governor James Thompson ("Thompson"), and the head of the firm's litigation practice, Dan Webb ("Webb"), had a dinner meeting at the NoMI restaurant in Chicago where they discussed LoFrisco's compensation for upcoming years. All of the individuals present at the dinner meeting have been deposed and have either disparate recollections or no recollection of what, if anything, was said at the meeting about LoFrisco's compensation. The Committee, including Thompson, Webb, and Neis met on December 19, 2000 to review the 1994 Agreement. After the December meeting, Neis drafted a letter dated January 29, 2001 (the "2001 Agreement") that explained the Committee's action at the December meeting. The letter provided that:
The Firm will for the fiscal year ended January 31, 2001, in addition to the amount to be paid to you pursuant to the Agreement [the 1994 Agreement] pay you a bonus in an amount equal to the amount of the reduction in additional compensation' as contained in paragraph 3 of the Agreement plus an amount equal to 7.5 points multiplied by the value of the point for that fiscal year. The bonus will be paid to you on or before April 15, 2001. The motivation for the Committee's action is primarily based on your efforts to build a long term relationship between the Firm and those clients identified in the Agreement.
The second paragraph in the 2001 Agreement pertains to LoFrisco's compensation in fiscal years following 2001 and states,
The Committee will consider your request for similarly structured bonus payments in fiscal years subsequent to January 31, 2001 on a year by year basis. Specifically, that consideration will consist of the same analysis of your contributions to the Firm as conducted in this fiscal year, as well as prior fiscal years.
The 2001 Agreement referenced continued compliance with the 1994 Agreement and provided that:
The Committee expects that you will continue to comply with the terms and conditions of the Agreement [the 1994 Agreement] and the Firm's Partnership Agreement. To the extent that this letter, or the actions contemplated hereby, constitute a waiver of non-compliance with any terms or conditions of the Agreement or the Firm's Partnership Agreement, it is not a waiver of future non-compliance with any such terms or conditions.
On January 30, 2001, LoFrisco signed the 2001 Agreement and returned it to Neis. He then sent Neis a letter confirming his understanding of the Executive Committee's actions toward him. It included several matters not at issue here. That letter stated that LoFrisco understood that:
1. Home Depot will be added to the list of clients in the October 20, 1994 agreement.
2. I [LoFrisco] am authorized to hire an executive assistant with ½ her salary (approximately $90,000) to be deducted from my compensation.
3. In years where collections fall between $5 million and $10 million, there will be a smooth transition from 15% to 13%.
On January 31, 2001, Neis sent an e-mail saying that ". . . I confirm your understanding."
During the fiscal years 2001 through 2004, Winston paid LoFrisco $2,432,196, $2,266,355, $1,300,000, and $350,000, respectively.
Contentions:
LoFrisco contends that the 2001 Agreement that provides that the firm will use the "same analysis as prior fiscal years" when considering his requests for bonuses entitles him to the formulaic calculation without decompression in each year that he satisfies the minimum collections requirement. LoFrisco contends that interpreting the 2001 Agreement to mean that Winston had unfettered discretion in granting bonuses renders the 2001 Agreement illusory. LoFrisco avers that he satisfied the criteria by obtaining the minimum amount of collections from the clients as set forth in the 1994 Agreement and thus was entitled to receive $3,255,291 in 2003 and $4,782,432 in 2004. In the alternative, LoFrisco contends that if both parties allege reasonable interpretations of the 2001 Agreement, then the language is ambiguous, precluding summary judgment. LoFrisco argues that Neis admitted that "reasonable men could differ" on the interpretation of the 2001 Agreement. LoFrisco alleges the firm miscalculated his compensation in 2002, continues to owe him $40,393, and refuses to pay this amount because of vindictiveness and bad faith. LoFrisco claims that the firm did not properly consider his contributions in 2003 and 2004, and that the sharp decrease in compensation in those years evidence bad faith.
Winston contends that the 2001 Agreement suspended decompression for 2001 and then provided that the Committee would revisit the issue of LoFrisco's compensation each year by considering LoFrisco's contributions to the firm. Thus, Winston contends that the 2001 Agreement did not obligate Winston to automatically apply the 1994 Agreement formula and avoid the decompression provision, but rather the 2001 Agreement granted Winston discretion to award bonuses. Winston avers that the 2001 Agreement supplements but does not revoke nor extend the 1994 Agreement. Thus, the formula tied to client collections ends in 2004, and the firm could then treat LoFrisco like every other "decompressed partner." In the alternative, Winston contends that if LoFrisco's interpretation of the 2001 Agreement is correct, Winston's payments to LoFrisco in 2003 and 2004 were proper because LoFrisco breached the compensation agreements by not remaining a "working attorney" in the firm.
The 2001 Agreement:
The threshold issue is whether the 2001 Agreement is plain or ambiguous. The issue of whether contractual language is plain or ambiguous is a question of law. W.W.W. Associates, Inc. v. Giancontieri, 77 NY2d 157 (1990).
The language of the 2001 Agreement is unambiguous, and, thus, the plain meaning of the terms control. See Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002). The contract committed the firm to pay LoFrisco a bonus according to the 1994 Agreement formula without applying decompression. Thereafter, the Agreement provided that the firm would "consider" LoFrisco's requests for additional compensation on a yearly basis. The word "consider" signifies discretion in awarding bonuses because "consider" involves contemplation and not automatic action. Neis, the drafter of the 2001 Agreement, testified at his deposition that "this entire paragraph [the second paragraph] is replete with words that carry with it a meaning of discretion. The committee will consider, doesn't say we'll pay. It says it [the Executive Committee] will consider." At Thompson's deposition, he deferred to Neis on the 2001 Agreement's meaning because Neis drafted it. LoFrisco contends that the 2001 Agreement defines the word "consider" with the sentence, "Specifically, that consideration will consist of the same analysis of your contributions to the Firm as conducted in this fiscal year, as well as prior fiscal years." However, that sentence does not change the plain meaning of the word "consider." Instead that statement clarifies what the firm will consider when it determines LoFrisco's compensation.
Under the 2001 Agreement, the Committee's consideration should consist of LoFrisco's contributions to the firm, using the "same analysis of your [LoFrisco's] contributions to the Firm as conducted in this fiscal year, as well as prior fiscal years." The word "contributions" is broad and is not limited to client collections, as LoFrisco contends. In "this fiscal year" or 2001, the firm primarily considered LoFrisco's efforts in connection with client relations. The firm could also consider contributions relevant in "prior fiscal years" under the 1994 Agreement. Thus, although LoFrisco's "contributions" primarily involved client relations, "primarily" is not equivalent to "exclusively," and the firm could also consider whether LoFrisco employed his "best efforts" and whether he remained a "working attorney" at the firm.
LoFrisco contends that Neis admitted that "reasonable men could differ" on the meaning of the second paragraph in the 2001 Agreement. However, the plaintiff takes Neis' statement out of context. When the plaintiff's lawyer questioned Neis at his deposition about whether the second paragraph was ambiguous, Neis testified that, "I think it's clear." After the plaintiff's lawyer asked whether Neis would be surprised if other witnesses testified to inconsistent understandings of what the language meant, Neis stated that ". . . Lawyers can disagree about almost anything."
This is a case between sophisticated and experienced attorneys who know that words in legal documents are meticulously chosen, and each word is significant. If Winston had aimed to revoke the decompression provision or to extend the application of the 1994 Agreement's formula, then the 2001 Agreement could have established those aims using explicit language. However, the 2001 Agreement used language such as "consider" that implies discretion, and it explicitly stated that the letter did not constitute a "waiver of future noncompliance" with any of the 1994 Agreement provisions. The plain meaning of the language and common sense supports the fact that the Executive Committee retained discretion subject to good faith in making compensation decisions that affect the economic future of the firm.
Parties' Compliance with the Compensation Agreement:
The next issue is whether the firm complied with the unambiguous language of the 2001 Agreement in good faith when it awarded LoFrisco compensation in 2002, 2003, and 2004. In 2002, the Committee voted to pay LoFrisco the full 1994 Agreement formula amount without applying decompression. However, LoFrisco alleges that because of a clerical error, the firm paid the agreed upon amount but with a shortfall of $40,393. LoFrisco alleges that Winston refused to correct the error because, at that time, LoFrisco was disputing his 2003 compensation. However, Winston avers that the amount was based on a preliminary point value and there was no resulting shortfall nor vindictive intent. Thus, an issue of fact remains regarding LoFrisco's alleged entitlement to an additional $40,393 in 2002.
In 2003, LoFrisco argues that the firm improperly used a different analysis as opposed to the "same analysis" and wrongfully reduced his compensation. However, Winston applied the 1994 Agreement formula and decompression provision which resulted in compensation of about $800,000. In addition, the firm exercised its discretion under the 2001 Agreement and paid LoFrisco a $500,000 bonus, making his 2003 compensation $1.3 million. The firm considered factors just as it had considered under the 1994 Agreement such as the transition of client relationships to other partners, institutionalizing clients, and LoFrisco's status as a working attorney. There is no showing of arbitrariness or bad faith in the Executive Committee's "consideration." See Behren v. Warren Gorham Lamont, Inc., 2005 WL 3291238 (1st Dept. 2005) (upholding the dismissal of a breach of implied covenant of good faith claim because the plaintiff failed to show that defendant's action was arbitrary or irrational).
LoFrisco contends that after John F. Welch, Jr., GE's chief executive officer ("Welch"), retired in September 2001, the firm sought to escape its contractual obligations and change its compensation methods, and thus demonstrated bad faith. However, Welch retired one month before the Committee met to discuss LoFrisco's fiscal year 2002 compensation, where it decided to grant LoFrisco the full 1994 Agreement formulaic amount without decompression. In addition, to the extent that Welch's retirement affected Winston's relationship with GE, that was a permissible factor to consider under the 1994 and 2001 Agreements.
In 2004, the 1994 Agreement including the decompression provision, expired. Nothing in the 2001 Agreement specifically extended it. LoFrisco contends that LoFrisco's January 30, 2001 letter that Neis confirmed by e-mail refers to LoFrisco's compensation for upcoming "years" and the word "years" encompasses all future years that LoFrisco is employed at Winston. However, the sentence in the January 30, 2001 letter that provides for a "smooth transition" in "years" where collections fall between $5 million and $10 million pertains to the method of calculating the formula in the 1994 Agreement and thus is only relevant so long as the 1994 Agreement is operative. When the 1994 Agreement expired in 2004, the firm could determine LoFrisco's compensation just as they determined other "decompressed partners" compensation. In 2004, the Executive Committee considered the decreasing profitability of LoFrisco's work related to GE, and compared LoFrisco's compensation with other partners' compensation, concluding that LoFrisco had billed fewer hours than other "decompressed partners." There is no showing of arbitrariness or irrationality in Winston's 2004 decision.
Conclusion:
The 2001 Agreement is unambiguous and Winston complied with the agreement in 2003 and 2004. An issue of fact remains regarding whether LoFrisco is entitled to an additional $40,393 in 2002. Because Winston used good faith in its consideration of LoFrisco's compensation, there is no need to determine whether the decreased bonuses were justified because LoFrisco breached the "working attorney" provision.
Accordingly, it is
ORDERED that LoFrisco's motion for summary judgment is denied, and it is further
ORDERED that Winston Strawn's motion for summary judgment is granted to the extent that Winston did not breach the compensation agreement in 2003 and 2004, and denied with respect to LoFrisco's claims for $40,393 in additional compensation in 2002, and it is further
ORDERED that the clerk is directed to enter judgment accordingly.
Parties shall contact the Court no later than December 22, 2005 to determine whether they wish to proceed.