Paul v. Deloitte & Touche, LLP, Del. Supr., No. 336, 2008 (May 20, 2009), read opinion here. This Delaware Supreme Court decision involves a dispute between Deloitte & Touche LLP and a partner that it had terminated. Delaware’s High Court reviewed de novo an appeal from a summary judgment granted by the trial court.
The issue on appeal was one of contract interpretation.
The appellant was a partner in Deloitte’s Boston office, in their Lead Tax Services Section. He had previously been a partner with Arthur Andersen and was part of a group of about 160 Arthur Andersen partners that had joined Deloitte in 2002 pursuant to various written agreements between and among the parties. The central factual dispute, which was interwined with the legal question of contract interpretation, revolved around: (i) the date by which the terminated partner had to have been given notice of termination; or (ii) the date by which the partner’s termination had to have been completely effectuated.
After reciting the basic principles under Delaware law of contract interpretation, the court parsed the language of the agreement, performed a grammatical analysis of the sentence at the core of the case, and even performed something akin to a diagram of the sentence, which some of us may remember from grammar school. The court’s reasoning deserves to be excerpted verbatim:
The parties’ differing interpretations are, at bottom, a grammatical dispute. The word “specified” can act either as a verb or as an adjective. Paul advocates treating the word “specified” as an adjective describing the word “date” and the phrase “within two years after May 7, 2002” as an adjective phrase also modifying the word “date.” However, this reading ignores the remainder of the clause which includes the additional phrase “by the Committee of 6.” The only way to read the entire clause giving effect to this second phrase is to treat both as adverbial phrases describing the verb “specified,” and not the noun “date specified.” This is illustrated by removing the word “specified” from the sentence: “You shall be deemed to have severed your association with each Firm as of a date … within two years after May 7, 2002 by the Committee of 6.” While the phrase “within two years after May 7, 2002” would still make sense within the context of the sentence, the phrase “by the Committee of 6” would not. Therefore, the phrase “by the Committee of 6” describes the word “specified” by indicating who or what specifies, and the placement of the phrase “within two years after May 7, 2002” in medio indicates that it also describes the word “specified” by indicating when the specification must occur. As a result, § 5(b) did not require the effective date of Paul’s severance to occur before May 7, 2004; instead, it required only that the Committee of 6 notify Paul of the effective date of his severance by May 7, 2004.
Accordingly, the Superior Court erred in interpreting the clear and unambiguous language of § 5(b) of the Admission Agreement.
However, the Supreme Court agreed with the trial court’s ruling that the terminated partner could not prove damages even if a breach were found to have been occurred. In essence, the court read the contract to allow Deloitte to terminate the partner and so the partner did not have an expectancy that he would be employed for any fixed period of time. As the Delaware Supreme Court explained:
Assuming arguendo that Deloitte was in breach of the Partnership Agreements, in assessing the damages of such a breach, the non-breaching party is entitled to recover “damages that arise naturally from the breach or that were reasonably foreseeable at the time the contract was made.”11 Contract damages “are designed to place the injured party in an action for breach of contract in the same place as he would have been if the contract had been performed. Such damages should not act as a windfall.”12 “Expectation damages are measured by the losses caused and gains prevented by defendant’s breach.”13 Paul argues that at the time of entering the Partnership Agreements, he had a clear and distinct reasonable expectation that he would remain a partner in Deloitte until he reached the mandatory retirement age of sixty-two and was therefore an employee for a defined period. Of course, as Deloitte points out, that was not the whole of Paul’s expectations, he also had a reasonable expectation that he could be severed without cause (a) within the first two years by vote of the Committee of 6; and (b) at any time by vote of the Board and approved by vote of a majority of all active parties. Thus, even after the two-year period elapsed, Paul remained subject to termination without cause—the only thing that changed was the identity of the decisive body. In addition, Paul had a reasonable expectation that he could be severed for cause at any time by vote of the Board for certain enumerated conduct. Therefore, Paul’s status with Deloitte was indefinite and not, as Paul claims, for any definable or fixed term. (citations in footnotes omitted)