Litigator of the Week: Cantor Fitzgerald Fights Off Former Partners’ Antitrust Claims Over Post-Employment Pay
Earlier this year David Paul, the co-head of litigation at Cantor Fitzgerald, nabbed Runners-Up honors for Litigator of the Week alongside his outside counsel Benjamin Nagin and Tacy Flint of Sidley Austin when the trio secured a key reversal from the Delaware Supreme Court finding the forfeiture-for-competition provisions in the financial services firm’s partnership agreements valid under state law.
Those provisions allowed Cantor Fitzgerald to withhold distributions otherwise owed to former partners who went on to compete in certain ways with the firm.
This week Paul, Nagin and Flint are taking home the top spot after defeating follow-on antitrust litigation filed in federal court. U.S. District Chief Judge Colm Connolly this week granted Cantor Fitzgerald’s motion to dismiss a proposed antitrust class action brought on behalf of former partners. The judge wrote that although the plaintiffs described their alleged injury as “suffering forfeitures as punishment for competing,” that alleged harm didn’t pass muster under the federal antitrust laws.
Litigation Daily: What was at stake here for Cantor Fitzgerald and its affiliates?
David Paul: Plaintiffs filed a purported class action on behalf of all former partners of the company who did not receive additional compensation when they chose to compete. The lawsuit was filed against Cantor Fitzgerald’s three major businesses: Cantor, an investment bank and broker dealer; BGC, a publicly-traded interdealer brokerage; and Newmark, a publicly-traded real estate brokerage. The number of participants in the class was potentially quite large. The claims were brought under the Sherman and Clayton Acts, which impose automatic treble damages plus attorneys’ fees and costs. The complaint sought damages of more than $10 million, but with the large plaintiff population and significant damages, the scope of this case was potentially many multiples of that.
How did Sidley get involved in this matter?
Paul: We previously worked with Sidley on a few transactional and other matters. While we handle the vast majority of disputes through our in-house team, given the complexity and the antitrust claims, we wanted to engage subject matter experts in the antitrust field. Ben Nagin knows antitrust issues cold, and he brought an interdisciplinary team to support a strategic approach to these cases. After a competitive bidding process with several other major firms, Sidley won the work.
Who was on the team, and how have you divided the work—both in this case in federal court and the one that preceded it that was decided by the Delaware Supreme Court?
Ben Nagin: From Sidley, we had a lot of substantive and strategic firepower. When we started this matter, Cantor Fitzgerald had just received an adverse Chancery Court decision on the forfeiture-for-competition provisions under Delaware law and had been sued in the antitrust class action. The two cases were challenging the same forfeiture-for-competition provisions from different perspectives: one case under Delaware law and one case under the antitrust laws. I have my partner Tacy Flint on speed dial for these sorts of matters. She is an absolute appellate superstar and, in my view, among the very best at the appellate and trial levels in knowing what arguments will work and how best to articulate them. Eric Hoffman, counsel in New York, who advises clients day to day on these sorts of provisions from the employment lawyer perspective, provided critical guidance on that landscape and the various contract claims. Our two associates, James Horner and Zachry Tannis, rigorously found the right law and refined the arguments at every turn.
Tacy Flint: The sophistication and rigor of the in-house team at Cantor Fitzgerald is incredibly impressive. David Paul led the charge with clear-headed strategic thinking and off-the-charts litigation instincts. His team included Samantha Springer, SVP & assistant general counsel, and Mitchell Nobel, VP & assistant general counsel. They are superstars in their own right. We also had a terrific Delaware counsel team at Young Conaway Stargatt & Taylor—Barr Flinn, Anne Shea Gaza and Robert Vrana.
Nagin: We really worked as a totally integrated team. For the briefs in both cases, we would have long team calls where we presented and tested the arguments with everyone chiming in to challenge or titrate or sometimes just jettison theories. Sidley would then draft a very detailed outline for the briefing in both matters and after that, Sidley and Cantor would divide up the actual brief writing. As you probably recall, David himself argued the successful appeal before the Delaware Supreme Court. We had several very rigorous moots in advance of the argument. It all paid off and David nailed the argument.
David, you argued the earlier case at the state’s high court and were involved in briefing the motion to dismiss here. How often does the in-house team at Cantor Fitzgerald take such an active role in litigation?
Paul: Almost always. Our in-house team handles the majority of the firm’s litigation work without engaging outside counsel. Under a shared services model, our litigation team supports all of the businesses in the Cantor Fitzgerald family of companies, which focus primarily on financial services and real estate. Our team is comprised of talented trial lawyers who run every aspect of cases A to Z in state and federal court and arbitration. Our practice is varied: we handle any and all types of matters implicating our businesses. We also regularly provide traditional general counsel advice. We partner with outside counsel selectively and strategically and when we do, we partner closely with them so our talent and institutional knowledge is used for maximum impact.
What can firms like Cantor Fitzgerald take from this decision?
Paul: Further confirmation that Delaware law protects valuable company interests and that forfeiture-for-competition provisions serve to protect legitimate business interests without unreasonably restraining individual employees. This has been a hot area with a lot of national conversations about restrictive covenants and specifically balancing the interests of individuals and employers. There are some interesting big-picture policy issues at stake and the states vary in their view. Many states look to Delaware as the baseline for corporate matters. The rulings in these two cases provide important guidance for the market. These cases were closely watched by the market. The antitrust theory was somewhat novel and cutting-edge during a time when various enforcers and antitrust plaintiffs arguably were pushing the legal envelope. For many years, there has been an effort to use the antitrust and other laws to invalidate labor-related restrictive covenants, including forfeiture-for-competition provisions. This new decision provides important support and antitrust guidance for firms, especially investment management firms, that use forfeiture-for-competition provisions.
What can other defendants learn from how Cantor Fitzgerald defended itself in these matters?
Paul: It is important to be thoughtful and strategic about how one defends itself in high-stakes litigation. The traditional school of thought when facing a high-stakes complex case or cases has often been to simply hand the keys over to an outside firm. By partnering intentionally with subject matter experts and driving the litigation strategy, Cantor maximized the expertise that Sidley brought to the table, which was incredibly valuable, effectively utilized its in-house capacity and institutional knowledge and maximized efficiencies. The results were great.
What will you remember most about this matter?
Nagin: Those long calls where we battle tested ideas with super-smart lawyers and knowing that the work paid off with two big wins in the Delaware Supreme Court and in federal court.
Flint: The successful deployment of the team’s immense and varied expertise. This team brought to bear an understanding of the intricacies of antitrust law, industry knowledge and top-notch writing and argument skills—it all came together to bring about outstanding results.
Paul: The high-caliber collaboration. Sidley and Young Conaway brought fantastic expertise to the table and our team stepped up to dismantle these complex high-stakes cases that are meaningful to our firm.
