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Douglas E. Rosenthal Constantine Cannon, LLP v. Sonnenschein Nath & Rosenthal

December 24, 2009; as amended March 18, 2010

DOUGLAS E. ROSENTHAL CONSTANTINE CANNON, LLP, APPELLANTS/CROSS-APPELLEES,
v.
SONNENSCHEIN NATH & ROSENTHAL, LLP, APPELLEE/CROSS-APPELLANT.



Appeals from the Superior Court of the District of Columbia (CAB7607-05) (Hon. Melvin R. Wright, Trial Judge).

The opinion of the court was delivered by: Farrell, Senior Judge

Argued November 13, 2009

Before BLACKBURNE-RIGSBY and OBERLY, Associate Judges, and FARRELL, Senior Judge.

These consolidated appeals present a welter of issues arising from a dispute over the compensation that a law partner was owed by his firm for work done chiefly on behalf of parties claiming damages from the Libyan government for the destruction of Pan Am Flight 103 over Lockerbie, Scotland in 1988.

Appellant/cross-appellee Douglas E. Rosenthal (hereafter Rosenthal) was awarded more than $3.7 million in compensation by a Superior Court jury for breach of the implied covenant of good faith and fair dealing by his former law firm, Sonnenschein Nath & Rosenthal (hereafter SNR).*fn1 Rosenthal appeals, arguing mainly (though not only) that the trial judge erroneously reduced the damage award because Rosenthal had retired from SNR during one of the two relevant contract periods of employment. SNR, as cross-appellant, counters that Rosenthal is precluded from challenging his compensation for the first of the relevant contract periods because he agreed to accept the compensation number at the time; and, as to the second period, argues that the evidence failed to support a cause of action for breach of the implied covenant under governing Delaware law. For its part, SNR won damages of $300,000 from the same jury from Rosenthal and his new employer, the law firm Constantine Cannon, LLP, for tortious interference with SNR's retainer agreement with a former client and the firm's entitlement to $1.6 million in attorney fees resulting from the Libya litigation.

We hold that Rosenthal could not properly recover for the first employment period in question (2003-2004), but that the jury's sizable award of damages for the second period (2005-2006) is supported by the evidence. Moreover, the trial judge erred, as to that period, by reducing the damage award to the extent of compensation Rosenthal would have been entitled to from SNR had he not retired from the firm. At the same time, the judge erred prejudicially in limiting Rosenthal's proof of the compensation he should have received during the 2005-2006 period, which entitles him to a new trial on compensatory damages. For that reason, we will order the unusual but permissible disposition of permitting Rosenthal to elect on remand between a new trial on damages and acceptance of the jury verdict reduced as required by our decision. See D.C. Code § 17-306 (2001) (court of appeals on review may "direct the entry of such appropriate order . . . or require such further proceedings . . . as is just in the circumstances"). Finally, we reverse the judgment holding Rosenthal and Constantine Cannon liable for tortious interference, because that suit amounted to a claim for wrongful involvement in litigation and SNR did not meet the requirements as a matter of law for that cause of action.

I.

In 1993, Rosenthal and others filed a law suit against the nation of Libya for its role in the destruction of Pam Am Flight 103 on behalf of families of persons lost in the disaster. In 1994, Rosenthal joined SNR as an equity partner in the firm's Washington, D.C. office and continued to pursue the Libya litigation along with his other work. According to the firm's 1995 Partnership Agreement (hereafter "the Agreement"), which Rosenthal signed, each equity partner receives a percentage of the firm's annual income. The Agreement vests in the Policy and Planning (P&P) Committee the authority to set, and re-adjust every two years, the percentage of net firm income to be earned by each equity partner "in accordance with procedures established from time to time by the P&P Committee." At the relevant times, a partner's compensation for a given two-year period was determined by a two-step process: first by setting a "contract number," which was the base profit share for each partner at the beginning of the two-year period, then by decreasing or increasing this number at the end of each year to reflect the firm's actual financial performance for that year. At trial, the parties disputed the relative importance, under criteria adopted by the P&P Committee, of factors such as collections, billable hours, and how billing was credited for contingent fee cases (such as the Libya litigation) in setting contract numbers.

The relative weight of these factors was important*fn2 because, in late 2003, the Libya case settled and over the next year SNR received an aggregate of nearly $18 million in attorney fees from the case. The P&P Committee set Rosenthal's contract number at $800,000 for the 2005-2006 contract period, compared to his $325,000 contract number for the previous period of 2003-2004. Believing this to be an inadequate reflection of his work leading to the Libya fee collection and his other work in the past two years, Rosenthal sought reconsideration of the proposed compensation by the P&P Committee, unsuccessfully.

Rosenthal left SNR at the end of July 2005 and subsequently joined Constantine Cannon, LLP. In September of that year he filed suit against SNR in Superior Court, alleging, inter alia, breach of the Agreement's implied covenant of good faith and fair dealing in the determination of his contract numbers for 2003-2004 and 2005-2006. The trial judge instructed the jury on the definition of this covenant under Delaware law,*fn3 and the jury returned a verdict for Rosenthal on that count, awarding him damages of $3,730,000. Specifically, it found that he was entitled to receive $500,000 for each year for the 2003-2004 period, and $1,365,000 for each year of 2005 and 2006. On the other hand, the jury found for SNR on its counterclaim alleging tortious interference by Rosenthal and Constantine Cannon, and awarded SNR $300,000 on that claim.

After both parties filed motions to amend the judgment, the trial judge reduced Rosenthal's damage award to $365,639, reflecting (1) compensation actually received by Rosenthal from SNR and Constantine Cannon during the relevant periods, and (2) the judge's conclusion that Rosenthal was not entitled to damages for the period after what the judge had ruled to be his voluntary retirement from SNR.*fn4 The judge also deducted the $300,000 in damages awarded to SNR, resulting in a final judgment of $65,639 for Rosenthal and against SNR.

II.

SNR, in its cross-appeal, challenges Rosenthal's entitlement to any damages for the 2003-2004 contract period because, after the P&P Committee set his contract number for that period, he signed a "Schedule A" form stating that number and thereby agreed to the base compensation amount for the succeeding two years. The trial judge denied summary judgment on this point, believing that Rosenthal's signature on the form only acknowledged the contract number the firm was proposing and did not constitute acceptance of it. We think SNR's position is the only one fairly supported by the record.

SNR's practice, following determination of an equity partner's contract number for the next two years, was to circulate a Schedule A form for the partner to sign pursuant to Section 3.7 of the Partnership Agreement. That section provided:

[E]ach Equity Partner shall receive . . . the percentage of Net Income to Equity Partners . . . stated in Schedule A . . . as changed from time to time in accordance with this agreement, each initialed for identification by the Equity Partner whose percentage of Net Income . . . is therein stated . . . .

The Schedule A form itself listed the partner's percentage of firm income and stated:

By executing this Schedule A, I also confirm that I have received a copy of the SNR Amended and Restated Partnership Agreement made as of January 1, 1995, and I hereby re-execute said Agreement as modified by subsequent additions and withdrawals of Equity Partners and adjustment of Schedule A in accordance with the terms of said Agreement.

The undisputed testimony at trial was that, to remain an equity partner at the firm, each equity partner had to sign Schedule A for the next two-year period. Accordingly, Rosenthal signed the Schedule A in 2002 for the succeeding two years. (He did not sign one in 2004, however, because the firm was considering a new partnership agreement and thus the schedules were not circulated until after he left the firm in 2005).

Rosenthal argues that SNR, as a law firm, certainly knew how to draft an express waiver of any challenge to the contract number if that had been the intent behind the Schedule A. While that is true - there is a certain periphrastic quality to the language in the Agreement and the Schedule A itself setting forth its meaning and effect - the consequence of Rosenthal's signing the schedule allows for no reasonable doubt. By signing the Schedule A, he "re-executed" the Partnership Agreement "as modified" to reflect the "adjustment[] of Schedule A" stating his ...


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