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FTI Consulting, Inc. v. Graves

July 31, 2007


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Plaintiff FTI Consulting ("FTI") alleges claims for breach of contract against defendant R. Dean Graves ("Graves") and tortious interference with contract against defendants Alvarez & Marsal, Inc. ("AMC") and Alvarez & Marsal Dispute Analysis and Forensic Services, LLC ("A&M DAFS") (collectively, "A&M"). These claims arise out of an Employment Agreement signed between Graves and FTI, and Graves' subsequent decision to leave his job as a consultant at FTI to join A&M.*fn1 Plaintiff moved for summary judgment on all claims and for an injunction barring Graves from competing with FTI for a period of two years, and defendants cross-moved for summary judgment. For the reasons set forth below, plaintiff's motion is denied and defendants' motion is granted in its entirety.


Plaintiff FTI, a Maryland corporation with its principal offices in Annapolis, provides forensic consulting and litigation services and restructuring advisory services. FTI LLC, formally DAS Business, Inc., is a wholly-owed subsidiary of FTI. Defendant AMC is a multi-disciplinary consulting firm which provides a broad range of advisory services through various operational divisions that operate as independent limited liability companies. Plaintiff states that AMC is the majority shareholder of defendant A&M DAFS, a limited liability company which provides analytical and investigative services to clients involved in complex financial disputes. Defendant R. Dean Graves has been employed as a Managing Director of A&M's Houston office since March 1, 2005.

Graves, who had been a partner at Arthur Andersen starting in 1996, then joined KPMG in May of 2002 after the demise of Arthur Andersen.*fn3 Graves served as a partner in KPMG's Dispute Analysis Services ("DAS") division beginning in May of 2002.

In the summer of 2003, KPMG and FTI began discussing FTI's possible acquisition of KPMG's DAS practice. After negotiations, FTI ultimately decided that it would not agree to purchase KPMG's DAS practice unless at least 28 of KPMG's DAS partners agreed to accept employment with FTI, consisting of six key KPMG DAS principals and an additional minimum of twenty-two DAS professionals.*fn4 Accordingly, KPMG offered to pay each partner who accepted employment with FTI a lump sum payment based on a multiple of 1.8 times his or her 2005 annual salary as an incentive to commit to joining FTI. Pursuant to this offer, Graves reached an agreement with KPMG to sign an employment contract with FTI in exchange for $948,000, to be paid by KPMG following the consummation of the sale of the DAS practice.*fn5 As a condition of employment at FTI, each KPMG partner and professional was required to execute an employment agreement containing several post-employment restrictive covenants. Graves executed his Employment Agreement with FTI on October 3, 2003. See Graves Aff. Ex. D. ("Employment Agreement" or "Agreement").

The terms of the Employment Agreement included several post-employment obligations. First, the Agreement provided that during a restricted period -- which the parties agree is two years -- Graves would not "directly or indirectly, be employed by, lend money to, invest in, or engaged in a Competing Business . . . in any Market Area." Employment Agreement ¶ 12. The Agreement defines Competing Business as "any financial restructuring advisory services line of business actively conducted by [FTI] or previously conducted by KPMG in which the Executive is substantially engaged during the period of the Executive's employment with [FTI] and at the time Executive's employment ends."*fn6 Id. ¶ 18(b). "Market Area" is defined as "within a 25 mile radius of any location in which [FTI] has an office and in which [FTI] offers or provides financial consulting or DAS consulting services to clients in the ordinary course of its business." Id. ¶ 18(c). Second, the Agreement contained non-solicitation provisions, whereby for two years after employment with FTI, Graves would: not, directly, or indirectly . . . intentionally: (i) solicit business regarding any case or matter upon which Graves worked on behalf of [FTI] during the term of this Agreement; (ii) solicit any person or entity who is a client of [FTI's] financial consulting business in which Executive was engaged at the time of the termination of Executive's employment with [FTI]; (iii) solicit, induce, or otherwise attempt to influence any person whom [FTI] employs or otherwise engages to perform services . . . to leave the employ of or discontinue providing services to [FTI].

Id. ¶ 13. Third, the Agreement restricted the direct or indirect use, disclosure, or publication of confidential information that Graves may learn or become aware of over the course of his employment with FTI or KPMG. See id. ¶ 14. Paragraph 26 of the Employment Agreement notes that the Agreement is governed by New York law.

Pursuant to the agreement, Graves became employed by FTI to provide forensic litigation consulting services as a Senior Managing Director in its DAS division on or about October 31, 2003. Graves worked at FTI in its Forensics Litigation and Consulting division ("FLC") from November of 2003 through February 28, 2005. On March 1, he began working at A&M's Houston office.

As noted earlier, the crux of the dispute in this case involves Graves' decision to leave FTI and join A&M. In early January of 2005, Graves was contacted by Sam Pyland, an A&M Managing Director, regarding his potential employment with the company. Pyland and William Abington, another Managing Director at A&M and a long time friend of Graves, had previously attempted to recruit Graves to join the company in 2003, when FTI was in the process of acquiring KPMG's DAG business, but those negotiations had not resulted in an offer of employment. Graves' renewed discussions with Pyland in January of 2005 continued over several weeks. These negotiations culminated on or about January 25, 2005 in a formal offer of employment from AMC to Graves of a position as a Managing Director at A&M DAFS, along with a series of financial incentives, including equity, increased compensation, and a substantial bonus based on an owner-operated business model. Graves executed AMC's offer letter on February 2, 2005, after tendering his resignation to Roger Carlile, Senior Managing Director at FTI. Although Graves' employment agreement with FTI required 90 days prior notice of resignation, Graves requested permission from Carlile to leave prior to the expiration of the 90 day period, since he believed that his matters could be transitioned in less than 90 days. See Graves Dep. Ex. II. Plaintiffs claim that FTI consented to Graves' breach of the Employment Agreement in this regard "solely and exclusively" because of defendants' assurances that Graves' employment with A&M DAFS would not contravene the terms of the Employment Agreement. Amended Complaint ("Am. Compl.") ¶ 26. According to plaintiffs, relying upon those assurances, FTI prepared a consulting agreement for Graves to sign with AMC's and/or A&M DAFS's consent, pursuant to which Graves would provide services on an independent contractor basis to FTI as a way of assisting FTI in meeting client needs and expectations in their ongoing matters with current clients. However, defendants refused to finalize and execute the consulting agreement because, according to plaintiff, Graves was in the process of transferring those clients and ongoing matters to himself as an employee of A&M DAFS. Id. ¶ 28. By contrast, defendants assert that it was Pyland who first proposed such an arrangement to Carlile on April 1, 2005, and that Carlile did not respond to the offer until May 16, 2005, see Affidavit of Sam Pyland (Pyland Aff.) Ex. A., after those clients who wanted to continue to use Graves had already asked FTI for their files so as to cease their use of FTI's services, see Graves Aff. Ex. H-J. Plaintiff claims that AMC and A&M DAFS hired Graves for the express purpose of attaining his sales contacts and confidential information he knew about FTI's business and to induce Graves to breach the terms of his Employment Agreement. Id. ¶ 29. Plaintiff also alleges that Graves was soliciting other clients, matters, and business at the direct expense of FTI. As evidence, plaintiff points to letters from clients of FTI received in March of 2005, requesting that their files be transferred back to them, with the intention of retaining A&M in lieu of FTI.

The amended complaint in this case contains two separate causes of action. The first is a breach of contract claim against Graves, alleging that his actions were in contravention of paragraphs 12 (governing "Non-Competition Covenants") and 14 of the Employment Agreement (governing "Confidential Information of Company"),*fn7 and that he did not give the 90 days notice required by paragraph 9(a) of the Employment Agreement. Am. Compl. ¶ 36. As part of this claim, plaintiff also alleges that Graves breached "his common law duties of loyalty owed to his employer at the time." Am. Compl. ¶ 40. However, FTI in its motions papers argues for summary judgment on Graves' violation of paragraph 13 of the Agreement, governing non-solicitation of FTI's clients and employees, despite the fact that FTI's amended complaint does not allege a violation of paragraph 13. See, e.g., Plaintiff's Memorandum in Support ("Pl. Mem. Supp.") at 20, 25. Although it goes without saying that a memorandum supporting plaintiff's motion for summary judgment is not an appropriate vehicle to amend its pleadings, in light of Rule 15(b) and our interest in resolving all of the potential claims before us, we will examine the enforceability of the non-solicitation provisions of the Agreement. The second claim in the amended complaint is a tortious interference with contract claim against A&M, as plaintiffs allege that despite defendant companies' knowledge of Graves' obligations under the Employment Agreement to FTI, they hired him as a "Managing Director" because they wanted Graves to disclose FTI's proprietary and confidential information, including but not limited to Graves' customer contact information. Am. Compl. ¶ 41-43. Plaintiff moves for summary judgment on all its claims, an injunction ordering Graves to cease his employment with A&M DAFS or any other FTI competitor providing forensic litigation and consulting services for two years, and a trial on monetary damages.

We shall first discuss the standard for summary judgment before turning to each of plaintiffs' claims in turn.


I. Summary Judgment ...

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