Roche Freedman LLP v. Cyrulnik
| Decision Date | 28 March 2023 |
| Docket Number | 21-cv-1746 (JGK) |
| Parties | ROCHE FREEDMAN LLP, Plaintiff, v. JASON CYRULNIK, Defendant. JASON CYRULNIK, Counterclaim-Plaintiff, v. ROCHE FREEDMAN LLP, ET AL., Counterclaim-Defendants. |
| Court | U.S. District Court — Southern District of New York |
The plaintiff, Roche Freedman LLP (the “Firm”) brought this action for declaratory judgment, breach of fiduciary duty, and intentional interference with contract against Jason Cyrulnik, a founding partner of the Firm.[1]Cyrulnik then brought a host of statutory and common-law counterclaims against the Firm and five of its then-attorneys -- Kyle Roche, Devin Freedman, Amos Friedland, Nathan Holcomb, and Edward Normand (the “Individual Counterclaim-Defendants” and, with the Firm, the “CounterclaimDefendants”) -- arising from what Cyrulnik alleges was his wrongful removal from the Firm. See Answer & Counterclaims (“Counterclaims”), ECF No. 72, ¶¶ 103-174. The Individual Counterclaim-Defendants now move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss Cyrulnik's counterclaims against them. ECF No 102 (motion of Roche and Freedman); ECF No. 107 (motion of Friedland, Holcomb, and Normand). For the following reasons the motions to dismiss are granted in part and denied in part.
For purposes of this motion, the Court accepts as true the following allegations from Cyrulnik's Counterclaims.
In 2004, Cyrulnik graduated from law school and joined the law firm Boies Schiller Flexner LLP (“BSF”). Counterclaims ¶ 20. Over the next fifteen years Cyrulnik became an equity partner at BSF and built a substantial client base there. Id. ¶¶ 20-22.
In summer 2019, Roche and Freedman, two more junior attorneys at BSF, left BSF to form Roche Freedman LLP, a law firm focusing on cryptocurrency and other specialized practice areas. Id. ¶¶ 3, 25. Among the Firm's early clients was a technology startup (the “Startup”) that agreed to pay the Firm for its legal services with cryptocurrency known as “Tokens.” Id. ¶¶ 33, 50-55.
Throughout summer and fall 2019, Roche Freedman LLP tried to recruit Cyrulnik, who was also being recruited by several national law firms. Id. ¶¶ 3, 24, 28. In exchange for Cyrulnik's agreement to leave BSF, Roche and Freedman promised him significant stakes in what they described as their high-upside contingency work and in certain assets they had secured. Id. ¶ 28. After extensive negotiations, Cyrulnik agreed to leave BSF to form the law firm Roche Cyrulnik Freedman LLP (“RCF”), a Florida limited liability partnership with offices in Miami, Florida and New York City. Id. ¶¶ 11, 29. On December 27, 2019, RCF's six founding partners -- name partners Cyrulnik, Roche, and Freedman, together with Friedland, Holcomb, and Normand -signed a Memorandum of Understanding to govern the partnership. Id. ¶ 30; see also Counterclaims, Ex. A, ECF No. 72-1 (the “MOU”). The MOU's “Compensation Model” set forth distribution methodologies for revenue earned through hourly and contingency matters. Counterclaims ¶ 31. Beyond compensation from these matters, the MOU also entitled Cyrulnik to 27% of the Firm's equity, the largest share, plus 25% of a fixed allocation of the Tokens to be issued by the Startup. Id. ¶¶ 31, 33.
Two provisions of the MOU governed the departure of a Founding Partner from the Firm. Id. ¶ 35. Under the first section, “Withdrawal from Firm,” a Founding Partner who withdrew from the Firm within 18 months of the Firm's formation would be entitled only to compensation under the Firm's Compensation Model and would be required to return his equity “to the balance of the firm's equity partners pro-rata.” MOU § VI(C) (the “Withdrawal Provision”); see also Counterclaims ¶ 35. The second section, “Partner Removal,” provided that a “Founding Partner cannot be removed without cause” and that, even if cause arose to remove a Founding Partner, that removal would require a two-thirds vote of the Firm's equity partners. Counterclaims ¶ 36; MOU § VI(G) (the “Removal Provision”). In contrast to the Withdrawal Provision, the Removal Provision did not expressly provide that an involuntary removal would result in the forfeiture of any compensation, interests, or assets owed or allocated to a partner under the MOU. Counterclaims ¶ 36; MOU § VI(G).
A week after signing the MOU, on January 4, 2020, Roche, Cyrulnik, and Freedman entered into a separate agreement. Counterclaims ¶ 37; Counterclaims, Ex. B, ECF No. 72-2 (the “Side Letter”).[2]In the Side Letter, Roche allegedly agreed to pay Cyrulnik $850,000 for the right to be listed as the first named partner at RCF. Counterclaims ¶ 37; Side Letter. The Side Letter also provided that Cyrulnik would receive a 25% interest in the Firm's anticipated recovery in a major contingency matter not included in RCF's Compensation Model. Counterclaims ¶ 37; Side Letter.
Cyrulnik's clients followed him from BSF to RCF, and he continued to grow his business in 2020. Counterclaims ¶ 40. That year, Cyrulnik allegedly generated more than 60% of the Firm's revenue and about 70% of its profits. Id. Throughout 2020 and into January 2021, the name partners generally worked well together, although Cyrulnik raised concerns about Roche's attitude toward client billings and Roche's obligations as class counsel, as well as Freedman's alleged efforts to exploit the Firm's Compensation Model through referral fees and discounts. Id. ¶¶ 45-48, 60.
Then, in early 2021, the Tokens issued by the Startup increased more than 15 times in value. Id. ¶ 66. The value of the Firm's Token rights increased to about $250 million, with Cyrulnik's share peaking at over $60 million. Id. ¶¶ 66, 68. At this point, Cyrulnik alleges, his partners no longer needed the revenue from his client base to fund the Firm's operations, and they schemed to remove him. See id. ¶¶ 5-6, 69. On February 10, 2021, Roche, Freedman, Normand, Holcomb, and Friedland convened a “secret meeting,” to which Cyrulnik and the Firm's seventh equity partner, Paul Fattaruso -- allegedly the only partner at the Firm who worked regularly with Cyrulnik on the Firm's core matters -- were not invited. Id. ¶¶ 70, 71.
Two days later, on February 12, 2021, Roche advised Cyrulnik by email that Roche and the other Founding Partners had “voted to remove you for cause from the firm's partnership.” ECF No. 106-3 (the “Removal Email”) at 1; see also Counterclaims ¶ 73.[3]Among the charges were that Cyrulnik “breached the 2019 MOU” by “failing to work together and co-operate in good faith and to fully participate to develop the Firm,” and that Cyrulnik had “engaged in a pattern of conduct that has made it not reasonably practicable to carry on the firm and its operations with your involvement.” Removal Email at 1. Cyrulnik's coFounding Partners asserted that he verbally abused them, exercised “unilateral control over” staffing, created “unsustainable environments for associates,” sought to “undermine the intent of the MOU and marginalize other founding partners,” and refused to “participate in firm-related discussions in good faith.” Id. The Removal Email advised that Cyrulnik would retain “access to your email and client files until at least February 25, 2021,” but that if Cyrulnik did not write back by February 15, 2021, “we will suspend your firm accounts under the assumption that you have refused to work with us in good faith and for a peaceful transition.” Id. at 2. All five Individual Counterclaim-Defendants signed the Removal Email. Id. Cyrulnik alleges that he “had never before had any complaints lodged against him for any improper interactions with any colleague,” and that the Individual Counterclaim-Defendants “had no substance upon which to base their pretextual removal for cause.” Counterclaims ¶ 75.
Cyrulnik asked the Individual Counterclaim-Defendants to retract the Removal Letter or else be held “liable for any resulting damage to Mr. Cyrulnik or his clients.” Id. ¶ 80. Cyrulnik alleges that the Individual Counterclaim-Defendants then tried to pressure him to sign a confidential mediation and binding arbitration agreement to facilitate an “amicable” redivision of his assets and rights under the MOU. Id. ¶ 86. On February 19, 2021, Roche allegedly proposed that Cyrulnik give the Individual Counterclaim-Defendants 75% of Cyrulnik's share of the Firm's allocation of the Tokens. Id. ¶ 87. Cyrulnik responded that if the Individual Counterclaim-Defendants did not commit to providing Cyrulnik everything to which he was entitled under the MOU and the Side Letter, including his 25% full share of the Tokens, he would sue them. Id.
A week later, on February 27, 2021, the Firm brought this action against Cyrulnik. See Compl., ECF No. 1. The original complaint sought a declaration that Cyrulnik had been properly removed for cause, that any distributions to him “are to be governed by the withdrawal provisions” of the MOU, and that he is “not entitled to any further compensation or interests as contemplated in the MOU.” Id. ¶¶ 74, 76, 79(c).
Cyrulnik responded on March 9, 2021 by suing the Firm and the remaining Founding Partners in Florida state court, alleging that he had been wrongly removed without cause and was entitled to what he was allegedly promised in the MOU. See Cyrulnik v. Roche, No. 2021-5837-CA-01 (Fla 11th Cir. Ct. filed Mar. 9, 2021). A month later, the Counterclaim-Defendants sent Cyrulnik an unspecified “portion of the amounts owed” to him, but allegedly “withheld the rest of Cyrulnik's assets” as well as “basic information about the Firm's accounts and revenues.” Counterclaims ¶ 102. Cyrulnik alleges that, despite having been removed, he has not been paid “the rest of his formula compensation or any of the equity...
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