$20,000 punitive damages for BC lawyers fired after botched deal to buy firm from boss
Judge found Rebecca Darnell breached $250,000 deal to sell her law firm - whose business she had valued at $4 million - to former employees Emerald Chhina and Shawan Das
A judge has awarded $20,000 in punitive damages against a Langley, B.C. lawyer for her conduct as a deal to sell her firm to two employees went up in flames.
According to B.C. Supreme Court Justice Elizabeth McDonald’s ruling – which has been appealed – Darnell Law Group owner Rebecca Darnell attempted to fire Emerald Chhina and Shawan Das within weeks of breaching an agreement to sell them her firm.
The punitive damages award related to a further “status quo” agreement between the parties once the disputed sale had descended into litigation.
The judge rejected Darnell’s claim that she was acting in response to Chhina and Das’ own status-quo violation in making new offers of employment to DLG staff, noting that those offers were not only contemplated as part of the original deal, but were conditional on the transaction completing.
“Awards of punitive damages are not to be made lightly. However, I have concluded that Ms. Darnell undertook steps to terminate the plaintiffs when she was aware of the status quo agreement,” Justice McDonald wrote, adding that her conduct since then “warrants denunciation by the court.”
“She has acted in a highhanded, vindictive manner towards the plaintiffs. In effect, she sought to punish the plaintiffs for acting as if the Agreement was binding, and I have found that the Agreement was indeed binding,” the judge added.
According to McDonald’s ruling, Darnell built her firm from a sole practice in 1995 into a team of 15 – including four lawyers and two articling students – by the summer of 2020.
Over close to a decade at the firm, Darnell developed close relationships with both Das and Chhina, with the latter even named as a beneficiary and executor of her boss’ will.
The judgment says Chhina approached Darnell as early as 2017 about purchasing the firm, but things gathered pace in 2020 following Darnell’s diagnosis with cancer.
Discussions got off to a rocky start in May 2020 when Darnell mentioned a $4-million valuation she had received for DLG’s business, only for Das and Chhina to follow up with an opening offer that Justice McDonald wrote “appears to have offended Ms. Darnell.”
By June 2020, the decision says Darnell suggested mediation as a route to settlement after back-and-forth negotiations spilled out into “verbal skirmishes” in front of clients and staff.
A full-day session at the end of that month resulted in a memorandum of settlement that set the purchase price for DLG’s assets at $250,000, and committed the new firm – named Darnell China Das LLP – to a three-year office lease with Darnell’s holding company.
In court, Darnell argued the memorandum of settlement was merely an unenforceable “agreement to agree,” rather than a binding agreement – based on the lack of detail on the value of assets and the terms of the lease, as well as an invalid restrictive covenant governing Darnell’s right to practice following her break with the new firm.
However, Justice McDonald sided with Das and Chhina:
“In my view, it matters not that the parties contemplated further execution of formal contracts, such as a lease and a purchase agreement. As the court stated in Bawitko, the fact that a formal written document to the same effect will be prepared and executed later does not alter the binding validity of the original contract,” she wrote. “Therefore, I have concluded that the parties, who are each experienced lawyers, entered into a binding contract for the purchase and sale of DLG and they recorded the essential terms in the Agreement.”
In addition, Justice McDonald found that Darnell committed an anticipatory breach of the agreement in late August 2020, accepting Chhina’s evidence that Darnell said she was walking away from the deal because it made no financial sense to her.
“Ms. Darnell was totally rejecting her obligations under the Agreement and she had no justification for her conduct,” the judge wrote.
According to the decision, the status quo agreement took effect on Sept. 1, 2020, providing that Darnell would take no steps to alter Das and Chhina’s relationship with DLG until their application for a summary trial could be heard. However, the pair launched their injunction application when Darnell moved to fire them on Sept. 14.
Still, Justice McDonald declined Das and Chhina’s request for specific performance of the sale agreement, concluding that they had not met their burden of showing that damages would be an inadequate remedy.
“I agree that the sale would have provided the plaintiffs with control of the law firm. However, with respect to the plaintiffs' position that they have an interest in the contract that is not reflected in the market value, I disagree.” The judge wrote. “I am not persuaded on this point because just as the goodwill and value associated with Ms. Darnell's refusal to practise law with the plaintiffs can be measured and compensated for with damages, so too can the plaintiffs' contributions to DLG, whether based on billable hours or otherwise, be valued and compensated for with damages.”
When it came to the assessment of damages, Justice McDonald adjourned the matter to give both sides a chance to gather evidence and make submissions on the issues.
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