Taylor Wessing has lost its battle to stop Nixon Peabody hiring 12 partners after a trial judge ruled the US firm violated no law despite agreeing to a two-year moratorium on recruiting from Taylor Wessing in the wake of failed merger talks, reports The American Lawyer.

The ruling by Judge Kenneth Fisher calls into question the kind of non-compete agreements that make merger talks between firms possible, says Dreier name partner Marc Dreier, who represented Taylor Wessing in litigation stemming from those failed talks.

Nixon management praised the ruling.

"From the start, we were convinced these claims should never have been filed," Richard Langan, the firm's managing partner, said in a statement. "Nixon Peabody looks forward to welcoming a team of dynamic partners from Taylor Wessing France to join our firm."

As The Am Law Daily has reported, Nixon and Taylor Wessing's Paris office struck an initial agreement in July 2007 over merger discussions. Talks, though, collapsed in November, when Taylor equity partners concluded they were dissatisfied with Nixon's financial offer and Taylor non-equity partners rebelled at the thought of working under the American billable hours system.

Taylor Wessing's larger UK and German practices also pressed the Paris office to abandon the talks.

The dispute turned on the actions of Arnaud de Senilhes, managing partner of Taylor's Paris office, who continued talks with Nixon and eventually convinced a dozen non-equity partners to come with him. A fellow equity partner learned of de Senilhes' talks when he found pages from a PowerPoint presentation intended for Nixon management left sitting on a Taylor Wessing printer.

Taylor Wessing sued in an upstate New York court, claiming Nixon breached the non-compete agreement. The European firm sought $5m (£2.8m) and an injunction blocking the hirings. Nixon counter-sued, claiming Taylor Wessing was unfairly restricting the freedom of its partners to change jobs.

Judge Fisher ruled for Nixon on 11 September, saying, in essence, the non-compete agreement was unenforceable under New York law. Fisher compared the agreements to other banned "restrictive covenants," including contract clauses, long since deemed illegal, that prevented partners from taking associates with them when they left one firm for another.

Taylor Wessing managing partner Michael Frawley told Legal Week: "We are obviously surprised by the judge's findings and we are in the process of reviewing the judgment for possible appeal, on the advice of our lawyer in New York.

"What is disappointing is that Nixon Peabody agreed to this restriction, only for them to assert subsequently that the restriction was always unenforceable."

The decision surprised Ward Bower of the consulting firm Altman Weil. He says such non-compete agreements are common between firms in merger talks -and that both sides usually honor them.

Fisher mostly limited his analysis to New York law, so the impact of the ruling remains unclear. According to Dreier, "no firm will feel comfortable" entering into merger talks without a non-compete agreement.

Frawley also pledged that Taylor Wessing would rebuild its practice in France despite the recent departures. He said: " We are in the process of rebuilding Taylor Wessing France and, with eight partners and around 30 fee earners, it remains a sizeable force in the French legal market."

The Am Law Daily is the website of The American Lawyer, Legal Week's US sister title.

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