Law Firm’s “Faithless Servant” Claim Properly Dismissed Against Departing Attorneys, Paralegal

In Parker Waichman, LLP v. Mauro, No. 1215/12, 2019-13054, 2023 N.Y. Slip Op. 02014, 2023 WL 2994962 (N.Y.A.D. 2 Dept., Apr. 19, 2023), the court, inter alia, affirmed the dismissal of plaintiff law firm’s “faithless servant” claims.

The court summarized the black-letter law as follows:

Under the faithless servant doctrine, “[o]ne who owes a duty of fidelity to a principal and who is faithless in the performance of his [or her] services is generally disentitled to recover his [or her] compensation, whether commissions or salary” (Feiger v. Iral Jewelry, 41 N.Y.2d 928, 928, citing Restatement [Second] of Agency § 469). The faithless servant doctrine applies when an employee-agent breaches their duty of loyalty owed to the employer-principal (see Feiger v. Iral Jewelry, 41 N.Y.2d at 928; Two Rivs. Entities, LLC v. Sandoval, 192 AD3d 528, 529; G.K. Alan Assoc., Inc. v. Lazzari, 44 AD3d 95, 101, affd 10 NY3d 941; see also Restatement [Second] of Agency § 13). However, there is no obligation on the part of an employee to remain with their employer in the absence of a contractual agreement (see generally Feiger v. Iral Jewelry, 41 N.Y.2d at 928). Additionally, in the absence of such an agreement, “[t]aking preparatory steps, while still in the employer’s employ, to enter into a competing business is not a breach of an employee’s duty of loyalty as long as the employee does not use the employer’s time or resources to do so” (Jeremias v. Toms Capital LLC, 204 AD3d 498, 499, citing Feiger v. Iral Jewelry, 41 N.Y.2d 928), “never lessen[s] his [or her] work” on behalf of the former employer, and “never misappropriate[s] to his[or her] own use any business secrets or special knowledge” (Feiger v. Iral Jewelry, 41 N.Y.2d at 929). Further, “[a] law firm does not own a client or an engagement, and is only entitled to be paid for services actually rendered,” particularly since “a client’s legal matter belongs to the client, not the lawyer” (In re Thelen LLP, 24 NY3d 16, 22, 29). Indeed, clients have the right to terminate the attorney-client relationship with or without cause at any time (see Matter of Cooperman, 83 N.Y.2d 465, 473). Consistent therewith is the recognition that attorneys departing their law firm-employer may inform clients with whom they have a prior professional relationship about their impending withdrawal and new practice, and remind clients of their freedom to retain counsel of their choice, i.e., the new firm, the current firm, or any other firm.

Applying the law, the court held that the trial evidence supported the lower court’s determination that, during the relevant time period, defendants breached their duty of loyalty to under the faithless servant doctrine.

Rather, the court held, the evidence supports the conclusion that none of them used plaintiff’s time or resources, lessened their work on behalf of plaintiff, or misappropriated for their own use any of plaintiff’s business secrets or special knowledge while taking preliminary steps to form a separate law firm.

Share This: