Gibbs v. Breed, Abbott & Morgan

Supreme Court of New York, New York County · 1999 · Corporations

181 Misc. 2d 346 (1999)

Updated August 22, 2026

CorporationsPartnershipsFiduciary DutyDamageslaw firm partnersforfeiture of compensationpartnership interestcapital account

Facts

Plaintiffs Gibbs and Sheehan were former members of Breed, Abbott & Morgan who left in July 1991 to join Chadbourne & Parke. The court previously found that Gibbs improperly persuaded Sheehan to leave in a way intended at least partly to cripple BAM's trusts and estates department, that both plaintiffs sent Chadbourne a confidential memo about BAM personnel and compensation before leaving, and that they took BAM chronology or desk files when they departed. After their departure, most of BAM's trusts and estates personnel left for Chadbourne, and BAM claimed these acts damaged the department and caused lost profits. Plaintiffs nevertheless sought payment of amounts due under the BAM partnership agreement, while BAM asserted breach of fiduciary duty as both a defense and counterclaim.

Issue

Whether plaintiffs' breaches of fiduciary duty required forfeiture of all financial rights in the partnership, including accrued profits and capital, and if not, what damages BAM could recover for the breaches. The court also considered whether the plaintiffs were jointly and severally liable and whether BAM could recover attorney's fees or punitive damages.

Rule

A partner's breach of fiduciary duty does not necessarily require forfeiture of the partner's entire partnership interest or all compensation. A breaching partner may still recover capital and profits accrued through departure, less damages caused by the breach, but may be denied interests representing future profits; damages for breach of fiduciary duty are measured by the loss sustained, including lost opportunities for profit, and need only be proved with a reasonably sound basis rather than mathematical certainty. Where multiple fiduciaries actively participate in the breach, they may be held jointly and severally liable, and prejudgment interest is available, while attorney's fees and punitive damages are not automatic.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nora Patel and Evan Russo were equity partners at a boutique consulting partnership in Chicago. Before leaving for a rival firm, they shared confidential staffing and compensation information with the rival and arranged their departure so that most of their division left with them, causing serious disruption; after resigning, Nora sued for her unpaid capital account and both partners sued for profit distributions earned before their departure date.

How should a court most likely rule on the former partners' claims if the partnership proves the fiduciary breaches caused substantial post-departure losses?

Explanation. The majority opinion rejected automatic total forfeiture for breaching partners. It held that partners may still recover accrued profits through departure and capital, reduced by damages caused by the breach, while being denied interests tied to future profits where their misconduct damaged the business after departure.