Miles & Stockbridge PC was within its rights to not pay a former equity principal when he left the firm because he was overdrawn on his salary, the president and CEO testified Monday.
Joseph W. Hovermill walked a Baltimore City Circuit Court jury through the firm’s process for setting its budget, including annual revenue, expenses and anticipated profits. The profit is divided among equity principals based on an allocated percentage, Hovermill testified.
Hovermill was the first witness for the firm’s defense against a suit from Donald E. English Jr., a former equity principal who alleged he was shortchanged when he left to join a competitor.
Miles & Stockbridge, in court filings, has said its pay for equity principals draws against their projected earnings but that money is not necessarily earned when the attorney is paid the money. Instead, Hovermill testified, the money is paid in advance based on estimates about firm’s planned profits for the year.
The firm usually gets close to its planned profit goal, Hovermill said. He estimated the firm “made plan” five of the last 10 years and once went over their target by 3 percent in the past five years.
Hovermill said the firm tries to be “transparent” about its compensation process so equity principals can both feel that “they’re sharing the pie fairly” and are “comfortable with the size of the pie.”
When an equity principal leaves the firm, the salary is calculated based on the attorney’s share of the profits at that point in the year or a prorated amount based on how long the attorney has worked there that year, with the firm paying the lesser of the two, Hovermill said.
That payment can be “set off” from the equity principal’s capital contribution, depending on whether they owe money to the firm, Hovermill said, citing the firm’s stockholder agreement.
English, Hovermill noted, was in such a situation when he resigned last July after 13 years with the firm, the last four as equity principal. He is now a non-equity partner at Jackson Lewis PC in Baltimore.
“If you leave in June, your piece of the pie is less than what we were paying you,” Hovermill said, adding that the “overwhelming majority” of equity principals who leave do so at the end of the year or the first of the year so they don’t draw payments for the next year.
English claims after he resigned, Miles & Stockbridge reduced his salary and “clawed back” nearly $60,000 the firm had paid him, the lawsuit states. The firm also refused to pay English for his work on the last three days of the job as well as his salary and benefits through the end of the month and any prorated bonuses, according to the lawsuit.
The firm’s board of directors had considered making an exception for English, based on his service to the firm and work in the community, Hovermill said. But English’s share was on the lower end of equity partners and the board worried that it would “set a precedent” that larger equity partners could use against the firm in the future.
The firm previously made an exception for former equity partner J. Mark Coulson, who was appointed a magistrate judge in U.S. District Court in Baltimore in June 2014. Coulson was overdrawn but was kept on as counsel for a month and paid $80,000, Hovermill testified. The firm made that arrangement, Hovermill said, because of the prestige of Coulson’s new position, the fact that Coulson did not have any control over the timing of his new job, among other reasons. (Miles & Stockbridge attorneys do not appear before Coulson to prevent any conflicts of interest.)
Kenneth Ravenell, one of English’s lawyers, pressed Hovermill on cross-examination on his knowledge about other departing equity partners having complaints about their compensation. Several attorneys who left Miles & Stockbridge in February to open the Baltimore office of Nelson Mullins Riley & Scarborough LLP testified last week that they were not paid their last paycheck and had not heard from their old firm about their capital contribution. Other equity principals who left before English have also said they did not get their capital contribution money they felt they were owed by Miles & Stockbridge.
Hovermill admitted Monday he was aware the attorneys had complained but said the Nelson Mullins lawyers left too early in the year to get a share of the firm’s profits. He added he was aware those attorneys weren’t given their last paycheck.
Miles & Stockbridge CFO Belinda Jones took the stand Monday afternoon.
The trial is scheduled to resume Tuesday in the case, Donald E. English, Jr. vs Miles & Stockbridge PC, 24C17004438.