The Partner the Firm Wants Out

Question 51: The Partner the Firm Wants Out

Your role

You represent Hallowmere Advisory Partners, a 12-partner financial-consulting firm in the fictional State of Creston. Ten partners want to expel partner Rafi Dorn over alleged performance and confidentiality failures. Rafi recently reported billing manipulation, and the firm's own emails suggest that some partners want to avoid paying his upcoming profit allocation.

Governing law

Assume the following Creston rules and partnership terms apply:

1. A partner may be expelled for cause by a two-thirds vote of disinterested partners after written notice of specific grounds, access to the supporting material, and a meaningful opportunity to respond.

2. Cause includes material breach of confidentiality, repeated failure to perform assigned duties after written warning, fraud, or conduct causing substantial client harm. Ordinary disagreement, protected reporting, or a desire to reallocate profits is not cause.

3. An expulsion power must be exercised in good faith and consistently with the partnership agreement. Expulsion primarily intended to appropriate an earned distribution, suppress a report, or force a below-value buyout breaches fiduciary duty even if another concern exists.

4. A partner who made a good-faith report of suspected legal or billing misconduct may not be expelled because of the report. Protected status does not immunize independently proven misconduct.

5. Partners with a material personal interest in the outcome may not vote. A partner gains a material interest when expulsion directly reallocates a specifically identified distribution or eliminates personal exposure from the reported conduct.

6. Pending investigation, the firm may impose proportionate access restrictions or paid administrative leave to protect clients. It may not withhold access to information reasonably needed to answer charges.

7. Upon valid expulsion, the firm must pay capital and earned allocations under the agreement. The firm may not forfeit earned compensation unless the agreement expressly and lawfully permits it.

8. A court may enjoin a procedurally defective or bad-faith expulsion and award lost distributions, buyout value, fees, and other proven damages.

9. The firm must preserve billing records, client files, the report, vote communications, comparator discipline, and materials relating to the proposed expulsion.

Facts

Rafi has been a partner for seven years. On March 2 he reported to the audit committee that two senior partners directed staff to bill a fixed-fee client for hours never worked so that the engagement would appear profitable. He attached time-entry edits and a message stating, "load the bench hours here before month end." The audit is ongoing.

Rafi is scheduled to receive a $920,000 earned profit allocation on June 30 based on the prior fiscal year. If he is expelled before June 30, the managing partner claims the agreement permits the amount to be redistributed, although the agreement states that "earned fiscal-year allocations vest at fiscal year end" and that fiscal year ended December 31.

There are genuine concerns about Rafi. In January he emailed a confidential draft client presentation to his spouse's account so he could print it at home. The file contained strategy but no personal data. He deleted the personal copy after information security contacted him. Two other partners committed similar personal-email transfers in the past three years and received written warnings.

Rafi also missed two internal report deadlines in February. No written warning was issued. His client satisfaction scores remain above the firm median.

After Rafi's billing report, the managing partner wrote to three partners:

"If we move before June, his pool comes back to us and the audit loses its loudest witness."

Another replied:

"Use the spouse email. It is cleaner than arguing about his attitude."

The two senior partners named in Rafi's report are among the ten proposed voters. Each would receive part of any redistributed allocation and faces possible clawback if the billing report is substantiated.

The proposed notice says only that Rafi engaged in "conduct inconsistent with partnership values" and schedules a vote in three days. It does not attach evidence or offer an interview. The managing partner wants to disable all of Rafi's access immediately and withhold the $920,000 if the vote passes.

Assignment

Analyze:

• Whether the existing record establishes contractual cause.
• The relevance of the personal-email incident, comparator discipline, missed deadlines, and absence of warning.
• The protected billing report and the partners' emails.
• Which partners are disinterested and may vote.
• Notice, evidence access, response, and timing requirements.
• Lawful interim access or leave measures.
• Treatment of the $920,000 earned allocation.
• The risks of the proposed three-day vote and broad access cutoff.
• The narrower lawful path if independent misconduct is substantiated.
• Whether Hallowmere should proceed, pause for an independent investigation, negotiate separation, or take another course.

Q51 key (Partner the Firm Wants Out)

1. Existing cause is weak. The personal-email event is real but was cured and drew only warnings for comparable partners; two missed internal deadlines without warning and above-median client scores do not establish repeated failure. Missed: a pretext record is mislabeled as settled cause.
2. Rafi's billing report is protected, and the managing-partner emails directly evidence retaliation, profit appropriation, and suppression motive. Missed: the worst documents are treated as irrelevant tone.
3. The two reported senior partners are interested because they face audit exposure and allocation gain. The managing partner and any recipient expecting redistribution may also be interested depending on the allocation mechanics. They should not vote. Missed: a nominal two-thirds vote is counted with disqualified voters.
4. The proposed notice is insufficient. Give specific charges, evidence, comparator information, reasonable response time, and a hearing before disinterested decision-makers. Missed: even provable misconduct cannot support the defective expulsion.
5. Proportionate temporary access controls or paid leave may protect clients, but Rafi must retain access to material needed to answer and the firm must preserve all evidence. Missed: a lockout becomes retaliation and prevents a defense.
6. The $920,000 vested at fiscal year end under the supplied text and cannot be forfeited merely by pre-June expulsion. Pay or escrow it subject only to a valid, separate claim. Missed: the firm creates the exact appropriation injury its emails describe.
7. Pause the vote, appoint independent investigators and disinterested decision-makers, complete the billing and confidentiality reviews, and then use the cause procedure only if materially stronger independent misconduct emerges. A negotiated separation with full earned value is safer than immediate expulsion. Missed: Hallowmere converts manageable issues into an injunction, fiduciary-duty, and fee case.