An Unenforceable ‘Merger Agreement’

[WSJ_law_blog]

When law firms talk merger, it’s common, apparently, for the smaller firm to protect itself with a non-solicitation agreement. That prevents the larger firm from using merger negotiations as a pretext for poaching lawyers.

Turns out, those agreements may be worthless, according to an opinion last week from a New York court. As AmLaw reports, a Judge Kenneth Fisher ruled that Nixon Peabody was within its rights to recruit a dozen Taylor Wessing partners, even though the two firms had agreed in 2007 not to hire from each other for two years as a condition of merger talks that eventually collapsed. Judge Fisher ruled that non-solicitation agreements, though they may be common, are unenforceable because they restrict the right of lawyers to work where they want.

“This ruling should make law firms considering being acquired feel great trepidation,” says William Brennan, a mergers expert at law firm consulting group Altman Weil. “Once they enter into direct contact with a buyer, they are no longer protected.”

So will Fisher’s ruling chill merger talks? Perhaps not. Lisa Smith, a mergers consultant at Hildebrandt International, calls the contracts mere “gentleman’s agreements.” She adds: “I don’t know if any firm has every thought they were enforceable.”

But Dreier’s Marc Dreier, who represented Taylor Wessing in litigation stemming from the failed talks, contends the type of agreement at issue in the Nixon-Taylor case is different. It is not a blanket prohibition on mobility, but a contract barring a limited number of lawyers from moving to one particular firm. That scenario, Dreier tells AmLaw, does not fall under the case law Fisher cited.

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