Complex Partnership Litigation- Breach of Contract or Rescission
The choice between seeking money damages for the breach of contract versus rescission of the contract can be an important one. And knowing the rules governing appeals is also crucial. The recent case of Horwitz v Sonnenchein Nath & Rosenthal ,2018 IL App (1st) 161909 illustrates both points.
The Plaintiff was an equity partner in a law firm who exchanged his existing equity stake for a new interest as a partner under a "special partnership agreement" that was supposed to allow him to continue to work for the firm but lower his workload and compensate him differently. The partner claimed that the law firm started breaching the new agreement almost immediately but he continued to work for the firm under the new agreement for six years before he filed suit. He sued for a breach of contract and money damages (for the amounts he should have received under the new agreement) but also sued to rescind the contract to regain his original equity position.
The law firm succeeded in forcing the Plaintiff to try his breach of contract claim first to a jury, where he recovered a judgment for the amounts the jury found he should have been paid under the new agreement. The Plaintiff did not appeal the judgment or seek and new trial or an "additur" to change the amount he was awarded. It appears that if he had succeeded in being restored to his earlier position, he would have been due significantly more than what the jury awarded him. However, the law firm next argued that he had received an adequate remedy at law in the form of the money judgment and therefore was barred from pursuing his rescission claim. The trial court disagreed and allowed the Plaintiff to try his rescission claim, but the Plaintiff lost that claim with the Court finding that the Plaintiff had waited too long to seek rescission and that his claim for the monetary amounts he was seeking were too speculative.
On appeal the court ruled that the Plaintiff's money judgment awarded on his breach of contract claim was an "adequate remedy at law" which then barred his rescission claim. The Court reviewed a number of cases which discussed the issue of whether a claim for breach of contract and a claim for rescission are mutually exclusive. The Court held that here, the damages for the breach of the contract were an adequate remedy that barred his rescission claim as a matter of law.
The case illustrates that in partnership matters, careful thought should be given to whether or not to pursue claims based upon a breach of contract theory versus rescission or some other equitable theory.
The case also highlights that in these complex partnership litigation cases, paying close attention to the rules governing appeals may become extremely important.
By: PETER M. STORM ©
Cooper, Storm & Piscopo handles both complex partnership litigation and appeals.