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Law Firm Break-Ups: Lawyers Suing Lawyers in a Business Divorce Battle Royale

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By: Neal A. Jacobs, Esq. and Joshua Gelman, Esq.

Doctors can get sick. Bankers can go broke. Accountants can be audited. Cobbler’s children are often barefoot and even cowgirls get the blues. So, it ought to come as no surprise that lawyers can find themselves stuck in the courtroom going through a bitter business divorce. Lawyers are not immune to the matters that can cause a business divorce. Even the most pragmatic and rational attorney can eventually lock horns with their partners. Indeed, many lawyers are known as being smart, aggressive, argumentative, strong-willed, outsized egos, tough negotiators and willing to embrace conflict. As such it should come as no surprise that many law firms have had to deal with split-ups, partner defections, arguments over, origination of clients, credit for work done, titles, leadership, not to mention, money. As a result, many law firms go through business divorces.

The larger a law firm grows, the more opportunities for disagreements, hurt feelings, injured egos, perceived betrayals and arguments over the splits of money. These growing pains can lead to law firm break-ups or business divorce litigation. One example of a firm that experienced growing pains together with a business divorce is the Chartwell Law Offices, which aggressively sought to grow its Florida presence through hires and acquisitions. Amongst its hiring, Chartwell hired all the lawyers from the Fort Myers office of Schwartz Campbell, which caused that firm to close its Florida office. Schwartz Campbell did not take Chartwell’s actions lightly and brought suit against Chartwell for, among other things, tortious interference for poaching its attorneys, staff, and clients. Schwartz Campbell has also sued its former attorneys alleging they breached their operating agreement by affiliating with Chartwell before withdrawing from Schwartz Campbell. This 2012 litigation is set for a 10-day trial in the Philadelphia Court of Common Pleas in February 2018.

The Chartwell Law Offices also sought to grow its Florida presence through the September 2015 acquisition of the Florida firm Wadsworth Houtt. This marriage of businesses was not long-lasting. By November 2015, a large amount of the Wadsworth Houtt attorneys and staff, including the managing partner, left Chartwell and returned to practicing under the Wadsworth name. This has resulted in a litigation seeking millions in damages from the failed acquisition.

One of the significant issues of dispute in the Chartwell v. Wadsworth litigation is whether an agreement was ever entered. According to the pleadings in the case, on September 3, 2015, Wadsworth’s managing partner emailed Chartwell’s CEO setting forth an outline of the acquisition’s terms and stating that there was no need for a “formal contract. A simple email from you conforming is good enough for me.” Chartwell’s CEO emailed back the same day stating, “[y]es, that’s the deal. I don’t need anything more formal, unless you want something,” While the pleadings are silent on whether the deal was ever reduced to a formal contract, that same day, Wadsworth’s managing partner emailed the firms’ attorneys and staff that: “Wadsworth Huott will be incorporated into the Chartwell Law Offices” with the transition to Chartwell to be completed by October 5, 2015.

Chartwell continues to maintain a solid, multi-office presence in Florida, but its enthusiasm towards growth also bore potentially avoidable litigation. This presents a cautionary tale for businesses, including law firms, to be more proactive in managing growth. A great way to be proactive to minimize risk is through the engagement of experienced business attorneys.

We will update this blog on this case as new events warrant.

The Jacobs Law Group has considerable experience representing law firms and attorneys through the pitfalls of a law firm’s business divorce and need for delicacy, discretion, and confidentially that is so intertwined in the breaking up of such a business. In addition to litigation of partnership disputes, Jacobs Law Group’s commercial lawyers know how to handle the non-compete and non-solicitation issues that can arise as attorneys or practice groups join or leave firms. Our business attorneys are experienced in the drafting and negotiation of merger and acquisition agreements with an eye towards clarity and avoidance of problems down the line. When problems do arise, we are also adept at negotiating and overseeing the transactions necessary to finalize the business divorce. Contact us today.

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