# McFarland v. Schneider

> Massachusetts Superior Court · February 17, 1998 · 11 Mass. L. Rptr. 704

URL: https://www.frixlaw.com/law-library/cases/8322774

## Case

- **Full name:** Duncan M. McFarland v. Arnold C. Schneider, III
- **Court:** Massachusetts Superior Court
- **Decided:** February 17, 1998
- **Citations:** 11 Mass. L. Rptr. 704
- **Precedential status:** Published
- **Opinion:** Opinion of the court by McHugh
- **Judges:** McHugh
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

McHugh, J.
I. BACKGROUND
This is an action in which four of the partners of Wellington Management Company seek on behalf of themselves and their partners injunctive relief and damages against a former partner who left the firm to start his own business. 1 Pursuant to Mass.R.Civ.P. 42(b), the claim for injunctive relief was severed before trial from the claim for damages. 2 The injunction claim then proceeded to trial, without a jury. Without objection, direct examination generally proceeded by way of affidavits and cross examination proceeded in the customary fashion. Following completion of the courtroom phase, the parties submitted deposition transcripts 3 and requests for findings of fact and conclusions of law. Based on the testimony presented during the course of the trial, the exhibits there introduced, the deposition testimony admitted after the trial, and the reasonable inferences I have drawn from all of those sources, I find and conclude as follows:
II. FINDINGS OF FACT
A. PARTIES
Plaintiffs Duncan M. McFarland (“McFarland”), Robert W. Doran (“Doran”), John R. Ryan (“Ryan”) and Paul D. Kaplan (“Kaplan”) are partners of Wellington Management Company, LLP (“Wellington” or the “Partnership”), a limited liability partnership registered under the laws of the Commonwealth of Massachusetts.
Messrs. McFarland, Doran and Ryan are the Managing Partners (the “Managing Partners”) of Wellington. At all times relevant to this action, Mr. Kaplan was a member of Wellington’s Executive Committee. When this lawsuit was filed, Wellington had 51 partners (collectively the “Partners” and individually a “Partner”).
Defendant Arnold C. Schneider, III (“Mr. Schneider”) is a former Partner ofWellington. He was removed from the Partnership on December 4, 1996 pursuant to the vote of the Wellington Partners the preceding day. Mr. Schneider is a citizen of the Commonwealth of Pennsylvania. He is a Chartered Financial Analyst, a former president of the Financial Analysts of Philadelphia and is currently on that group’s Board of Directors. Mr. Schneider now operates his own investment management company, Schneider Capital Management, L.P. (“SCM”).
B. WELLINGTON MANAGEMENT COMPANY 1. General
Founded in 1928, Wellington provides investment advisory and management services for several hundred clients located in the United States and in more than 20 foreign countries. Currently, the firm manages over $133 billion of its clients’ assets. Those clients are primarily institutional investors (such as retirement plans or endowments) and mutual funds.
Wellington is organized as a Massachusetts limited liability partnership and currently has 54 Partners, all of whom are actively engaged in Wellington’s business. In addition to the Partners, Wellington employs approximately 600 employees, consisting of about 160 investment professionals, 120 non-investment professionals and a support staff of320. Included among the investment professionals are 24 equity portfolio managers with an average of 25 years of experience and an average of 19 years with Wellington. There are also 16 fixed income portfolio managers representing an average of 16 years of experience and 9 years with Wellington. Wellington is headquartered in Boston but also has offices in Valley Forge, Atlanta, and San Francisco. 4
Wellington’s business has grown steadily over the years since it was formed. Most of its contracts are terminable by either side on thirty days notice to the other. Although Wellington loses, and expects to lose, some clients each year for a variety of reasons, it also gains, and expects to gain, new clients annually as well. Despite those annual ebbs and flows, Wellington’s overall number of clients and the overall amount of money it manages have shown consistent increases.
When a client contracts with Wellington for investment services, a portfolio manager typically is assigned to the client’s account. The portfolio manager typically is assigned to the client’s account by Wellington’s Chief Executive Officer (“CEO”) based on recommendations from line managers. In assigning portfolio managers, the CEO attempts to match a manager’s skills and style with client needs and objectives rather than to reward origination of business. Almost invariably, however, the client is consulted about the identity of the prospective portfolio manager before a final decision is made. Moreover, the client typically has the right to reject a manager proposed by Wellington either as a consequence of an express term of the management contract between the client and Wellington or as a practical consequence of Wellington’s desire to maintain good client relations. Once assigned to an account, the portfolio manager is the Wellington employee primarily charged with making investment decisions regarding the client’s funds in the account for which he or she is responsible. 5
Wellington charges its clients an annual fee for the services it provides. Typically, that fee is determined by a percentage of assets under Wellington’s management on a specific date or dates. All of the revenues derived by Wellington from all of its activities belong to the Partners as a whole. Those revenues are divided between and among the Wellington Partners and employees pursuant to various criteria, all of which are *706 designed to provide incentives for performance at high levels.
Wellington Partners, like Mr. Schneider, are compensated by means of a draw, participation in the firm’s year-end profits and incentives tailored to the individual Partner. Wellington typically uses benchmarks to determine incentive-based distribution to those of its Partners who manage portfolios. The incentive compensation those managers receive therefore depends, in large part, on how the funds they are handling during a given period perform in relation to performance of the funds included in the benchmark. Mr. Schneider’s benchmarks always were the S&P 500 or the Russell 1000 Value, indices that tracked performance of securities issued by the some of the largest companies in the United States.
Although the portfolio manager is ultimately responsible for investment decisions regarding the accounts he or she is managing, one person working alone typically cannot acquire and digest all of the vast amount of information typically necessary for sound investment decisions. Wellington, therefore, provides support to all of its portfolio managers in many different ways. Three of those ways are of primary importance. First of all, Wellington typically assigns teams of analysts to work for individual portfolio managers. Those teams often are critical to the manager’s success for, over time at least, they come to know his or her investment “style,” the kinds of information he or she needs in order to make sound decisions and the kinds of data he or she regards as important. Accordingly, while an individual manager’s insights, judgment and experience are critical to his or her overall success, those qualities require the support of an experienced and competent team of analysts in order to reach their full potential.
Second, in addition to the team of analysts assigned to each manager, Wellington maintains a large central research group with analysts devoted to following particular industries and companies within those industries. All portfolio managers have access to services and reports the central research group generates.
Finally, every morning, all of Wellington’s investment professionals gather for a morning meeting during which investment information is discussed and analyzed. The Valley Forge office participates in that morning meeting by conference call and is on-line with three monitors used to display investment information to all in attendance at the meeting at whatever site. During the meeting or at some other time during the morning, Wellington distributes to all managers listings of all transactions made by all Wellington portfolio managers the previous day.
Wellington’s overall management was designed in a manner the designers thought was likely to allow investment professionals to concentrate on their investment-related responsibilities with an almost single-minded intensity. Specific Wellington employees other than the portfolio managers are responsible for such things as marketing and business development, client service, regulatory affairs, administration, finance, investment services, portfolio management and other areas. Each of those individuals is responsible for seeing that his or her specific functions are performed throughout the organization.
In keeping with its desire to allow investment professionals to focus on investments and investing, Wellington does not rely on its portfolio managers to originate new business and does not directly compensate them for business they do originate. Instead, Wellington has developed marketing teams dedicated to that task. Similarly, Wellington’s clients generally receive administrative services from specific service managers who are part of dedicated client service groups within the firm, not from the client’s portfolio manager.
2. The Partnership Agreement and Structure
The Wellington Partnership was formed in 1979 when Wellington, at the time a public company with approximately 2,000 shareholders, became privately owned. Wellington’s Articles of Partnership (the “Partnership Agreement”) were originally adopted on August 31, 1979 and have been amended several times since then. The most recent amendment became effective on September 30, 1996.
The Partnership Agreement provides for a Managing Partners Committee to oversee partnership matters and for an Executive Committee to oversee business matters. The Managing Partners Committee consists of three Partners elected by vote of all the Partners. Currently, the Managing Partners Committee consists of John Ryan, Robert Doran and Duncan McFarland. Among other things, the Managing Partners Committee is responsible for determining Wellington’s annual net profit or net loss and each Partner’s allocable share of that net profit or loss. 6 The Managing Partners Committee elects the firm’s Chief Executive Officer (“CEO”), currently Duncan McFarland. The Committee also has the exclusive authority to appoint Associates (who are senior, non-Partner professional employees), to nominate persons for admission to the Partnership and to recommend removal of a Partner from the Partnership. Actual removal of a Partner, however, requires the affirmative vote of at least 75% of the Partners. 7
Article XV of the Partnership Agreement, the provision lying at the heart of the present controversy, is entitled “Agreement Not to Compete.” 8 That Article contains two separate but related undertakings by each Partner, one dealing with Wellington’s clients and employees and the other dealing with competition generally. Article XV also contains a waiver provision. In material part, those provisions read as follows:
Each Partner recognizes and acknowledges that, in connection with the performance of his or her *707 duties as a Partner, he or she will obtain access to, and become familiar with, confidential and proprietary information of the Partnership, its affiliated companies and its customers, clients and employees, and that he or she will obtain personal knowledge of and influence over the identity and business needs of the Partnership’s customers, clients and employees. Each Partner further recognizes and acknowledges that, as a result of the above, he or she has an ability to cause harm to the Partnership after he or she withdraws or is removed as a Partner, and that the terms of this Article XV are a fair and reasonable means of preventing such harm.
Each Partner also recognizes that the extent to which the activities of a withdrawn or removed Partnership may cause harm to the Partnership is a matter best determined by the facts and circumstances of each case, recognizing that there are many activities in which a withdrawn or removed Partner may engage which will not constitute harm to the Partnership. Therefore, the Managing Partners, acting by majority vote, shall have the authority on behalf of the Partnership to fairly and reasonably determine whether the activities or proposed activities of the withdrawn or removed Partner are appropriate or constitute misappropriation or will adversely affect the Partnership’s good will (including especially its relationships with its customers, clients and employees) and its confidential and proprietary business information. In the event that the Managing Partners conclude that the activities or proposed activities of a withdrawn or removed Partner constitute such harm to the Partnership, the Managing Partners shall give due consideration to the reasons and circumstances of the Partner’s withdrawal or removal in determining what actions, if any, shall be taken to remedy the violation.
Except to the extent waived by the Managing Partners, each Partner agrees that, for a period of five years following such Partner’s withdrawal or removal as a Partner, he or she will (i) not solicit or accept business from any client of the Partnership on behalf of himself or herself or any entity engaged in competition with the Partnership, (ii) refrain from hiring, enticing or in any other manner persuading or attempting to persuade any Partner, employee, independent contractor, client or customer of the Partnership to discontinue his, her or its relationship with the Partnership, or to violate any Agreement with the Partnership, and (iii) notify the Partnership of any change in his or her address and of each employment or other business activity in which he or she engages.
Except to the extent waived by the Managing Partners, each Partner further agrees that, during the time he or she is a Partner, and for the initial three year period after such Partner’s withdrawal or removal, he or she will not participate in any business engaged in competition with the business of the Partnership or any of its affiliated companies, including a business engaged in providing investment advisory or investment management services. For purposes of this paragraph, the phrase “participate in a business” shall include, but not be limited to, consulting to, being employed by, or having a direct or indirect ownership interest (other than ownership of less than 5% of a class of securities registered under the Securities Exchange Act of 1934, as amended) in, any business or entity which engages in the business or activity in question.
Each Partner understands and agrees that any decision by the Managing Partners to waive the provisions of this Article XV in a particular case shall not be deemed a waiver of the Partnership’s right to fairly and reasonably enforce the provisions of this article in any other instance. In the event that any one or more provisions of this Article XV shall for any reason be held to be invalid, illegal, or unenforceable shall not affect [sic] any other provisions of these Articles. If any one or more of the provisions of this Article XV shall for any reason be held to be excessively broad as to duration, geographical scope or subject, it shall be construed by limiting and reducing it so as to be enforceable to the maximum extent compatible with applicable law as it shall then appear. 9
Article XV sprang from a variety of different considerations, all of which centered on the Partners’ desire to give Wellington — which, like many professional corporations, resembles a holding company for boutiques each of which is able to survive and perform, although usually not as well, on its own — a substantial measure of institutional stability. In part, Article XV was designed to give employees who hoped to become Partners some assurance that the partnership they ultimately achieved would warrant their investment of years of effort. The Article also was designed to help create and maintain an environment of professional collegiality and openness so that all Partners could collaborate on providing all Wellington clients with high quality services without fear that their efforts ultimately would enrich another Partner at their own expense. Finally, Article XV was designed to promote Wellington’s stability and thus its continued ability, among other things, to produce the revenues necessary to make payments to which withdrawn Partners are, and will be, entitled under Article XIV of the Partnership Agreement.
From 1983 until 1990, only three Partners withdrew from Wellington and all three adhered voluntarily to the far more rigorous provisions of the non-competition provisions then in effect. After Article XV was created in 1990, eight Partners withdrew. 10 One or two of the eight simply retired completely from all work. Their departure thus provided no occasion for *708 considering the Article’s reach and impact. Others undertook activities that clearly fell outside the scope of the Partnership’s business. Those activities, too, furnished no occasion for interpreting the Article’s terms.
For a variety of reasons, Wellington personnel did not tell their clients about the terms of Article XV either when the clients signed their contracts with Wellington or at a later date. Wellington viewed the issue as one relating chiefly to internal governance, not to client relations. Moreover, no Wellington Partner who left Wellington in the past had done so in order to start his or her own investment management firm. Thus questions about who had precisely what rights upon a Partner’s departure had remained largely academic. For the same reasons, Wellington never had an occasion to tell a client that a portfolio manager would be unavailable to manage its funds after his departure from Wellington.
On four occasions, however, the Managing Partners were asked to grant waivers of the type that Article XV contemplates. On three of the four occasions, they granted the request 11 and, on the fourth, they did not. 12 Nevertheless, before Mr. Schneider’s departure, Wellington had not faced an “unfriendly” departure from the firm and had never faced a request for a waiver from the provisions of Article XV that involved either the prospect of direct competition at a significant level 13 or continued provision of services by the withdrawing Partner to several of the firm’s then-existing clients. Thus, when the relevant events began to unfold during the summer of 1996, Wellington had neither a well-formulated approach to the problems for its own guidance nor a tested template for use by others.
C. THE SCHNEIDER-WELLINGTON RELATIONSHIP 1. The Inception
Mr. Schneider joined Wellington upon his graduation from college in June 1983. When he joined the firm, Mr. Schneider had no experience in the investment management business and, like many in his position, brought no clients with him. Mr. Schneider began by working as an analyst in Wellington’s Valley Forge office under the direction of John Nyheim, a now-departed Partner who was responsible for managing several of Wellington’s accounts. As he progressed, Mr. Schneider was given more and different responsibilities and began to assume some coordinate responsibility for the portfolios Mr. Nyheim was managing. Mr. Schneider, along with others, also made presentations to prospective clients Wellington’s marketing department was soliciting.
Mr. Nyheim and his team of analysts were known throughout Wellington as the Value/Yield team. 14 In early 1992, the Value/Yield team was managing portfolios for 18 Wellington clients with a total of approximately $3 billion in assets under Wellington management. Among those clients were Frank Russell Trust Company (“FRTC”), 15 RJR-Nabisco (“RJR”), PECO Energy, the Colonial Williamsburg Foundation (“Colonial Williamsburg") and the State of Utah Retirement System (“URS”).
Mr. Schneider was elected a Wellington Partner in December of 1991, effective January 1, 1992. He signed the Partnership Agreement shortly thereafter. 16 Although no one had discussed the terms of the Partnership Agreement with him at the time he was hired or at any time before his election to Partnership, 17 he was given a copy of that Agreement after his election and before he was asked to sign it. In . addition, Mary Ann Tynan (“Ms. Tynan”), a Wellington Partner who serves as Wellington’s Director of Regulatory Affairs, discussed with Mr. Schneider the Agreement as a whole and several of its provisions, including Article XV. Ms. Tynan had that discussion with Mr. Schneider, and others who had been elected to Partnership with him, as part of her regular practice of discussing, inter alia, the terms of the Partnership Agreement with all newly elected Partners. Ms. Tynan encouraged Mr. Schneider to review the terms of the Partnership Agreement in detail, and in particular the non-competition provisions, and to refer any questions about the Agreement or its terms to her, to his own legal advisers or to the firm’s Managing Partners.
Before signing the Agreement, Mr. Schneider read it. He also reviewed, its content with his attorney and with members of his family. He raised no questions about any provision of the Agreement with Ms. Tynan or any other Wellington Partner. Mr. Schneider knew when he signed the Agreement that it contained the non-competition agreements in Article XV, he understood what the agreements meant and he understood what they prohibited him from doing. At the time, however, he was concerned with advancing his own career at Wellington, had no plans to leave and thus was not concerned in the slightest with the restrictions those agreements imposed. He signed the Partnership Agreement freely and willingly — indeed, enthusiastically — consumed, as he was, with anticipation about what a Wellington Partnership would mean for him.
Later in 1992, Mr. Nyheim tendered his resignation from Wellington. His resignation was accepted effective December 31, 1992. After Mr. Nyheim announced his resignation, Mr. Nyheim, Mr. Schneider, Mr. Ryan and John H. Gooch, another Wellington Partner, began a coordinated effort to retain for Wellington the clients whose accounts Mr. Nyheim had been managing. The effort ultimately included a consulting arrangement between Mr. Nyheim and Wellington that continued for approximately one year while Wellington’s retention and transition efforts progressed. Overall, the transition process lasted some twenty months and had Mr. Nyheim’s full cooperation and effort. Ultimately, Wellington retained 15 of the 18 portfolios Mr. Nyheim had been managing. Mr. Schneider became the account *709 manager for 10 of those 15. Those 10 had committed a total of $1.3 billion to Wellington’s management. Mr. Ryan succeeded to management of another five clients representing aggregate managed assets of over $1.4 billion. Three other clients, with assets of approximately $190 million, left the firm and were shortly thereafter joined by a fourth.
Wellington’s retention of the vast majority of the portfolios Mr. Nyheim had been managing, and the transfer to Mr. Schneider of some of those accounts, proved quite profitable to Wellington and to Mr. Schneider. In fact, Mr. Schneider’s compensation more than quintupled from 1992 to 1993, so that he received well more than $ 1 million in total compensation for 1993. His distributions remained at that high level for the next two and a half years. In 1995, he received distributions from Wellington in the total amount of $1,463,999.
2. Prelude to Disharmony
In early to mid June of 1996, Mr. Schneider telephoned Duncan McFarland, Wellington’s CEO, to say that he was concerned about the impact that some of the Wellington’s moratorium and allocation policies were having on his performance and that he wanted to speak to Mr. McFarland on the subject the next time the latter was in Valley Forge. Both of those policies had been in existence at Wellington for some time and both had counterparts at other large investment management firms throughout the United States. Both had caused extensive internal discussions at Wellington through the years, discussions that became more or less intense as the investment climate shifted and changed.
The moratorium policy provides, in essence, that Wellington portfolio managers’ combined holdings of a given security cannot exceed 14% of the issued and outstanding shares of that security. 18 The policy is designed to facilitate Wellington’s compliance with regulatory requirements imposed on those who hold large blocks of an issuer’s shares. The policy is also designed to avoid problems in liquidating shares of a security if Wellington’s managers collectively decide that the shares should be sold. When the 14% moratorium limit is reached, Wellington’s fund managers are not permitted to buy shares of that security until Wellington’s aggregate holdings again drop below 14%.
In essence the allocation policy is designed to distribute shares when the block Wellington possesses is insufficient to satisfy the demands of all portfolio managers. When Wellington portfolio managers place orders to buy securities for more than one client at approximately the same time and at approximately the same price, the orders are combined for purposes of execution and all clients receive the same average price for all trades executed through same broker on the same day. For many reasons, all of the orders placed and executed in that fashion may not be completely filled that day or ever. There may be insufficient shares available in the market at the desired price. In the case of an initial or secondary public offering, the underwriter may allocate fewer shares to a particular investment management firm than the firm has sought. 19
When all orders for a security cannot be filled, it is necessary for Wellington to allocate between and among client portfolios the total shares purchased at the price the several portfolio managers requested. When purchases from the secondary market are involved, Wellington typically makes the allocation to each portfolio based upon the relative size of that portfolio’s order in relation to the total orders from all portfolios. When initial public offerings or purchases that approach the moratorium limit are concerned, Wellington typically allocates on the basis of account size rather than order size. Allocation of initial public offerings, however, is also subject to other discretionary factors typically overseen and executed by one of Wellington’s Partners. 20
Application of the allocation policy sometimes can result in a phenomenon known as “crowding out.” If a portfolio manager with, say, two billion dollars under management and a manager with, say, ten billion dollars under management both sought the same amount of the same security under circumstances that triggered the allocation policy, the manager with ten billion dollars under management would likely receive five shares for every share received by the manager with two billion dollars in her portfolio. The latter, therefore, would be “crowded out” of all the shares she desired because of the order placed by the manager of the bigger portfolio or portfolios. As a result of being “crowded out,” some portfolio managers sometimes were unable to achieve the overall position in a security they sought to achieve and that they felt would be of greatest benefit to their portfolio.
Wellington disclosed its allocation and moratorium policies to its clients both in its Form ADV 21 and in more detail upon request. The clients, all of whom are highly sophisticated asset custodians or managers, were aware that firms like Wellington typically had such policies even if they were not always aware of the precise terms of each policy. The clients were not generally concerned about those policies as long as they were treated in a fair and equitable manner. Both policies, after all, were the product of Wellington’s size and consequent presence in the market, a size and presence that produced a number of benefits unavailable to smaller firms and their clients.
In any event, Mr. McFarland met with Mr. Schneider in June of 1996 in Valley Forge. 22 The two discussed the moratorium and allocation policies and Mr. Schneider’s contention that their application was adversely affecting his performance. 23 Toward the end of the conversation, Mr. Schneider raised with Mr. McFarland the possibility of some different form of affiliation between himself and Wellington. Essen *710 tially, Mr. Schneider stated that he wanted an arrangement with Wellington under which he, or an entity with which he was affiliated, would have access to Wellington’s information and facilities but unencumbered by Wellington’s moratorium and allocation policies.
Mr. McFarland told Mr. Schneider to put his proposal in writing so that he could discuss it with Messrs. Doran and Mr. Ryan, the other Wellington Managing Partners. Immediately after his meeting with Mr. Schneider, Mr. McFarland told both men about Mr. Schneider’s request. He also asked Ms. Tynan, the head of Wellington’s regulatory affairs department, to consider, in principle, Mr. Schneider’s proposal and to advise the Managing Partners about both the regulatory issues it raised and about the extent to which Wellington’s policies and procedures would have to apply to such an affiliate.
Under the Partnership Agreement, Partners were required to give six months notice of resignation or ■withdrawal from the Partnership. June 30, therefore, was the deadline for a notice of a withdrawal that would be effective on December 31. Shortly after the meeting between Mr. McFarland and Mr. Schneider, Mr. Schneider sought from Wellington and received a two-week extension for submitting a resignation. In the wake of Mr. McFarland’s conversation with Mr. Schneider, the latter’s request for an extension was not a complete surprise. It did, however, give rise to concern and comment within Wellington’s higher management circles.
On or about June 28, 1996, Mr. Schneider submitted to Mr. McFarland a written affiliation proposal. The proposal was essentially an outline that contained very little detail. Mr. Schneider had consulted with neither a lawyer nor a business advisor about the content of the proposal before he gave it to Mr. McFarland.
In truth and in fact, escape, not a tight or loose affiliation, was at that point uppermost in Mr. Schneider’s mind. By that time, he wanted to leave Wellington to start his own firm and believed that he could carry clients with him when he left. His desire to go had entrepreneurial roots and was not borne of an adverse reaction to allocation or moratorium policies. Unbeknownst to Mr. McFarland or to anyone in Wellington’s upper management, Mr. Schneider already had begun preparations for a new venture. In April, he had contacted a “head hunter” to help him find a marketing person, he had interviewed potential marketing directors, he had contacted a candidate for a back office position and he had looked at office space. He had informed Dennis Trittin (“Mr. Trittin”), his contact at Russell, Mr. Schneider’s largest client, that he was seriously considering resigning from Wellington. He had said the same thing to Mr. Nyheim, the former Wellington Partner for whom he had initially worked at Wellington and with whom he maintained a friendship after Mr. Nyheim departed. Indeed, in late June, Mr. Nyheim told Mr. Schneider that the William Penn Foundation, on whose board Mr. Nyheim sat, might be in need of a new investment manager some time in 1997. Mr. Schneider and Mr. Nyheim discussed the possibility that Mr. Schneider could fill that role and arranged an August meeting at which Mr. Schneider could make a presentation to the William Penn board. 24 Mr. Nyheim and Mr. Schneider agreed that the William Penn opportunity was intended for Mr. Schneider personally, and not for Wellington. As a result Mr. Schneider made no mention of that opportunity to anyone at Wellington. 25
Unaware of Mr. Schneider’s true plans and thoughts, Mr. McFarland considered Mr. Schneider’s proposal and gave copies of it to Ms. Tynan and to Mr. Gooch, Mr. Schneider’s direct supervisor, for their consideration and comment. A few days later, Ms. Tynan delivered to Messrs. McFarland, Doran and Ryan a memorandum analyzing the potential regulatory consequences and issues Mr. Schneider’s proposal raised. Those issues and potential consequences led the three to conclude that they did not want Wellington to participate in an affiliation of the type Mr. Schneider had proposed. 26
Mr. McFarland and Mr. Ryan next met with Mr. Schneider in Valley Forge on July 10, 1996. They gave Mr. Schneider a copy of Ms. Tynan’s memorandum and told him that they were rejecting his affiliation request. They also told him that they were willing to explore different assignments for him within Wellington, such as organizing a hedge fund for him to manage, restricting his book of business to a smaller amount of assets and a number of other alternatives. During the July 10 meeting, Mr. Schneider’s comments focused chiefly on the impact his performance had on his compensation, compensation that was dependent in part on the incentives described earlier, and that his compensation would be greater if he were not hobbled by the allocation and moratorium policies. At the conclusion of the meeting, Mr. Schneider said that he would respond to Mr. McFarland on the Wellington alternatives discussed during the meeting’s course.
3. The Split
On Friday, July 12, 1996, two days after the meeting in Valley Forge, Mr. Schneider handed Mr. Ryan a memorandum saying that he intended to resign as a Partner effective at year’s end. In response to Mr. Ryan’s questions regarding what he intended to do after his resignation, Mr. Schneider stated that he intended to explore a variety of options for staying in the investment management business including starting his own firm, joining another firm and starting a hedge fund. He also told Mr. Ryan that he was thinking, at least in a broad sense, about ways to preserve his existing client relationships. He told Mr. Ryan that many of his clients were likely to leave Wellington after *711 his departure, and that it therefore made business sense both for him and for Wellington to work out some kind of revenue-sharing plan so that, if the clients joined him, Wellington would not be completely deprived of revenues they had theretofore produced. He added, however, that all of his plans and thoughts were tentative and that he had no clear and targeted focus.
In fact, by July 12, Mr. Schneider was firmly committed to starting his own firm and continuing to perform the same kind of investment management services he had been performing at Wellington. Indeed, on the very next day, Mr. Schneider signed a Form ADV for an entity called “Schneider Investment Partners, L.P.,” and mailed the completed form to the SEC the following Monday. Filing and approval of the Form ADV was a precondition to Mr. Schneider’s ability to conduct an investment advisory business for institutional clients. The Form ADV was 21 pages long. It is an important document and Mr. Schneider clearly had begun its preparation long before July 13. 27
On Monday, July 15, 1996, the first business day following announcement of his resignation, Mr. Schneider telephoned Russell’s Mr. Trittin. During the course of that day, he had another telephone conversation with Mr. Trittin and with Ms. Nola Williams, another Russell investment manager. During those telephone conversations, Mr. Schneider informed Mr. Trittin and Ms. Williams that he had submitted his resignation to Wellington and would be starting his own investment management business. He also told them that he had filed his Form ADV with the SEC and was waiting to hear from the agency regarding its approval. Mr. Schneider advised Mr. Trittin and Ms. Williams that, if he were terminated from Wellington as a result of submitting his resignation, he would likely have a trader and analyst and would be otherwise ready to conduct his own business as early as September 1, 1996. During those conversations, Mr. Schneider also discussed with Mr. Trittin and Ms. Williams the non-competition Agreement he had signed. He specifically told them-that he was subject to such an Agreement and that it was possible that a restraining order might enter to prohibit him from accepting business from Wellington clients such as Russell. He did not inform any Wellington Partners or employees that he had had those conversations.
4. Client Plans
When Mr. McFarland learned, through Mr. Ryan, that Mr. Schneider had delivered his resignation notice, Mr. McFarland’s thoughts immediately turned to retention of the clients whose accounts Mr. Schneider was managing and to designation of successor managers for those accounts. Although Mr. Schneider’s comments to Mr. Ryan had been somewhat vague as to the details of his future plans, Mr. Schneider’s resignation, the context in which the resignation occurred, the prelude to the resignation and the content of Mr. Schneider’s discussion with Mr. Ryan at the time he tendered his resignation led Mr. McFarland, and other Wellington managers to a strong belief, if not a conclusion, that Mr. Schneider intended to stay in the investment advisory business and that, notwithstanding the terms of his non-competition agreements, he might well seek to retain some of the clients he had served while at Wellington.
Based on his experience with other withdrawal and transition matters, albeit none quite like this one, Mr. McFarland, who, as Wellington’s CEO, was in overall charge of handling the withdrawal and transition matters, had concluded that Wellington’s efforts to retain the clients would be maximized if Wellington followed a two-step process. First, the Managing Partners and Mr. Schneider would come to some kind of an agreement and understanding regarding Mr. Schneider’s plans after he withdrew. Completion of the first step depended on determining whether Mr. Schneider in fact had any interest in keeping the clients he had served while at Wellington and, if he did, persuading him not to try to do so.
Once an agreement and understanding between Wellington and Mr. Schneider were reached, Mr. McFarland hoped that Wellington and Mr. Schneider then would jointly inform the clients Mr. Schneider was serving — and other Partners, employees, industry consultants — of what the future held. Mr. McFarland was of the opinion that the transition process would proceed most smoothly from Wellington’s standpoint if Mr. Schneider, and not Wellington, informed the clients that he would not be available to continue managing their accounts after his withdrawal.
With all of those' thoughts and considerations in mind, Mr. McFarland told a number of Wellington Partners, including Pamela Dippel, Eugene Record and Jonathan Payson, all of whom were involved with client services, John Gooch, who had had a longstanding relationship with many of Mr. Schneider’s clients, and Nancy Lukitsh, Wellington’s marketing director, that they should meet to develop a plan for informing clients and consultants that Mr. Schneider would be leaving the firm at the end of the year and for seeking to retain their business after Mr. Schneider left. The group began those plans.
Mr. Schneider was approaching things from a very different perspective. He very much wanted to stay in the investment advisory business. He believed that there was a very strong likelihood that he could take at least Russell and URS and possibly other clients with him when he left. He was a talented investment manager and he knew that the clients whom he served while at Wellington both recognized his talent and appreciated the performance of their portfolios under his tenure. Mr. Schneider had never been a “team player” and thus he had not acquainted his client representatives with others at Wellington with whom he worked and upon whose efforts he depended for at *712 least some part of his success. He regarded the non-competition agreements in Article XV as potential obstacles to be overcome en route to his chosen objective rather than as solemn undertakings surrounded by fiduciary obligations. He believed that his keys to success were three in number: The first was to signal the clients whose money he managed that he would be available to manage their funds after his departure. The second was to remain vague regarding his specific plans during his conversations with Wellington personnel so that Wellington would not be provoked into litigation until the clients had manifested their intention to leave Wellington. Third and finally was to do everything he could possibly do to ready himself for business so that he instantly could begin managing money in his own firm if it became necessary or possible for him to do so before the end of the year.
Those very different expectations, hopes and desires probably doomed from the outset any hope of an agreeable separation protocol. What in fact materialized was a five-month fencing match that ultimately resulted in Mr. Schneider’s expulsion from the Partnership and this litigation.
5. The Summer Interactions
Armed with their very different hopes and plans, Mr. McFarland, Mr. Ryan and Mr. Schneider met in Valley Forge on July 19. In light of Mr. Schneider’s July 12 suggestion to Mr. Schneider that he wanted to preserve existing client relationships, Mr. McFarland and Mr. Ryan told Mr. Schneider of his obligations under Article XV of the Partnership Agreement, including his obligation not to solicit or accept business from Wellington clients and not to compete with Wellington without obtaining a waiver from the Managing Partners. In response, Mr. Schneider said that, in his view, non-competition agreements were invalid and thus that he did not believe Article XV could be enforced. When Mr. McFarland replied that the Managing Partners believed the clause was enforceable and intended to enforce it, Mr. Schneider said that there really was no need to discuss the issue further because he believed it would be immoral to “pick off’ clients and had no intention of doing so. When he made that statement, however, he fully intended to take with him to his new firm at least Russell and URS and any others who were willing to come.
Mr. Schneider then repeated his statement of July 12 to Mr. Ryan to the effect that he believed only a few of his clients would stay at Wellington and that, as a consequence, Wellington should consider a revenue-sharing arrangement that allowed clients whose accounts Mr. Schneider had been managing to go with him if they so desired. Mr. McFarland said that he would not agree to Mr. Schneider’s taking clients with him even if those clients could not be persuaded to stay with Wellington after Mr. Schneider’s departure. Mr. McFarland told Mr. Schneider that he strongly disagreed with Mr. Schneider’s views regarding the enforceability of Article XVI that Wellington had put a great deal of thought into Article XV, that it was different from a standard non-competition agreement in many ways and that Wellington intended to hold him to its terms.
During the course of the meeting, Mr. McFarland specifically asked Mr. Schneider on several occasions about his future plans and about what steps, if any, Mr. Schneider was taking to implement those plans. Mr. Schneider, despite all of the concrete steps he had taken to set up his business and the clear vision he had regarding the direction in which he planned to go, responded by saying that his plans were uncertain and • that he was still considering a number of options. The meeting ended without any resolution.
On July 24, 1996, Mr. McFarland, Mr. Ryan, Mr. Gooch and James Walters, a Wellington Partner who was a lawyer and headed Wellington’s Special Projects Group, telephoned Mr. Schneider to inquire about Mr. Schneider’s plans and about transitional matters. Mr. Schneider said again that he had not decided what he would do after he left Wellington. With that statement as background, the group discussed what Mr. Schneider should say if clients asked him directly what he would be doing after his departure from Wellington. Mr. Schneider suggested that, because his plans were vague, his response to clients should be vague. Mr. McFarland agreed. He did so because, at that point he still was trying to determine precisely what Mr. Schneider proposed to do and to reach an agreement with him before Mr. Schneider disclosed to Wellington personnel or clients Mr. Schneider’s specific post-Wellington plans. 28
On August 8, 1996, Mr. Ryan and Mr. McFarland met briefly with Mr. Schneider in Valley Forge. By this time Wellington had begun some transitional steps and Mr. McFarland told Mr. Schneider of them. Mr. McFarland asked Mr. Schneider once more if he had decided what he was going to do after leaving Wellington and whether he had taken any steps toward implementing his plans. Mr. Schneider responded by saying that he had done nothing and was still considering a variety of options. Mr. McFarland again brought up the non-competition and waiver issues and Mr. Schneider said that he understood his obligations in that regard. By this time, however, he was very hard at work on his new venture, so much so that in a conversation he had with Russell’s Mr. Trittin one week later, he was able to state that his new firm would occupy space as of December 1, 1996 and would be open for business on January 1, 1997 and that he had notified the “brokerage community” of his plans in order to insure that his trading needs would be fully met when his operations began. 29
On August 28, 1996, Mr. Gooch met Mr. Schneider in Valley Forge to discuss the general subject of Wellington’s retention of the clients whose portfolios Mr. Schneider was managing. At that meeting, Mr. *713 Gooch told Mr. Schneider that his objective was to retain for Wellington the client accounts Mr. Schneider had been managing. To that end, Mr. Gooch said, he wanted Mr. Schneider’s thoughts regarding successor managers whom Wellington might designate. Mr. Schneider responded that he did not view it as part of his responsibility to assign or to help to assign successor managers and that Wellington should assign proposed successors on its own. Mr. Gooch then asked Mr. Schneider what he would say if a client asked him for an evaluation of successors Wellington had proposed for his accounts. Mr. Schneider replied that the clients he was serving paid him “to pick stocks, not people.”
Mr. Gooch also told Mr. Schneider that he wanted to obtain his thoughts regarding where to place within Wellington the people who then were on Mr. Schneider’s support staff, or team, in Valley Forge. Mr. Gooch asked Mr. Schneider if he thought that any members of that team were qualified to manage any of the accounts Mr. Schneider was managing. Mr. Schneider said that none was. Mr. Gooch and Mr. Schneider then discussed the strengths and weaknesses of the individual members of Mr. Schneider’s staff and whether they should be retained as Wellington employees following Mr. Schneider’s departure. Mr. Schneider avoided stating any express opinion as to the qualifications of those individuals and declined to recommend that any be retained. Indeed, Mr. Schneider said that he would not get involved in making any recommendations regarding any members of his team and that Wellington should reach an independent judgment regarding whether they should be retained. Mr. Gooch told Mr. Schneider that he and others at Wellington would try to reach that independent conclusion. In fact, at the time he talked to Mr. Gooch, Mr. Schneider was so impressed by the quality and ability of his team members that he wanted to have them join him at new business if he could find a way to do so. 30
On at least two other occasions during the course .of the summer, Mr. McFarland had talked to Mr. Schneider about the latter’s plans. On one occasion, Mr. McFarland had heard from others that Mr. Schneider was talking to a trader at a company called Delaware Investments about potential employment. Mr. McFarland telephoned Mr. Schneider to ask him if this were true. Mr. Schneider said that it was not, that he did not know where rumors like that were coming from and that he had told Mr. McFarland the nature of his plans to the extent he had formed them.
On another occasion, Mr. McFarland telephoned Mr. Schneider to tell him that he had heard that Mr. Schneider had been discussing with members of his Wellington team the possibility of their joining him at a new firm after he left Wellington. Mr. Schneider said that he had not had any such discussions and again stated, falsely, that he had informed Mr. McFarland in full detail about all of his plans to the extent that he had formed them.
On September 23, 1996, Mr. Doran, Mr. Ryan and Mr. McFarland again met with Mr. Schneider to discuss his withdrawal. Mr. Doran asked Mr. Schneider if he had had any contact with clients about his future plans. Mr. Schneider said that he had received telephone calls from some of his clients but had not gone beyond telling them that he would remain a Wellington Partner and would manage their assets until the end of the year. At least with Mr. Trittin, of course, he had by then gone well beyond that and he had told representatives of URS, RJR-Nabisco and the Mentor Group at least that he intended to remain in the investment advisory management business. Mr. McFarland again asked Mr. Schneider if he had developed any plans for the future and Mr. Schneider again responded that he had no definite plans. By this time, however, Mr. Schneider had in fact hired a trader and a back office manager for Schneider Investment Partners, had signed a five-year lease for office space in the name of Schneider Investment Partners and paid a $13,000 rental deposit for that space.
On October 3, 1996, Mr. Gooch met again with Mr. Schneider in Valley Forge. Mr. Gooch told Mr. Schneider that he was having difficulty finding any place at Wellington for the members of his staff and asked him if he had any thoughts on their strengths, weaknesses or qualifications in addition to the non-committal thoughts he had expressed on August 28. Mr. Schneider said that he had no such thoughts and reiterated that it was up to Wellington to decide whether to retain or discharge his staff members.
Mr. Gooch in fact tried without success to place the members of Mr. Schneider’s staff elsewhere at Wellington. He had done so, however, with restrained enthusiasm. Mr. Gooch thought that Mr. Schneider, as the staffers’ direct supervisor, was in the best position to know their strengths, weaknesses and capabilities. Consequently, he felt that Mr. Schneider’s non-committal statements masked substantial reservations Mr. Schneider had about their qualifications. After Mr. Gooch was unable to find other places for the staffers within Wellington, Wellington ultimately notified them that they would be discharged at year’s end.
Wellington’s notice to the staffers of their year-end dismissal, however, did not end the efforts Mr. Gooch made to place them elsewhere. On or about October 21, 1997, Binkley Shorts, another Wellington portfolio manager, talked with Mr. Gooch about adding another person to the staff working for him. Mr. Gooch told Mr. Shorts that Wellington had given notice of termination to Mr. Schneider’s staff and that all of those staff members were available for Mr. Shorts to work with him if he chose to work with them and they chose to stay. Mr. Gooch told Mr. Shorts that he should talk to Mr. Schneider to see if any of those people might be compatible with Mr. Shorts’s needs. Mr. Shorts tele *714 phoned Mr. Schneider for that purpose and, in response to Mr. Shorts’s questions, Mr. Schneider said, in substance and effect, “If I were you, I wouldn’t hire any of these people. They wouldn’t meet your standards.” Indeed, Mr. Schneider told Mr. Shorts that it would not even be worthwhile to interview those employees. As to one of them, Mr. Schneider said that he “would never be more than a research assistant.” He also disparaged the academic background of another member of his team, saying that he had “only attended Penn State.” Because of Mr. Schneider’s statements, Mr. Shorts pursued none of the members of Mr. Schneider’s staff. He did, however, expand the staff working for him by hiring another person from within Wellington.
After Wellington announced to Mr. Schneider’s team members that they would not be retained beyond the end of the year, Mr. Schneider hired many, if not all of them, for his new firm. Staffing always had been an important consideration in Mr. Schneider’s plans and he believed, correctly, that he would obtain a marketing advantage for his new firm if he were able to represent to clients that he had brought his team with him intact from Wellington. It was with that thought and plan in mind that Mr. Schneider had discouraged Wellington’s retention of them. 31
6. The Dinner Invitation
In early October, Mr. Ryan received an invitation to a dinner honoring John C. Bogle, Chairman of the Vanguard Group, Wellington’s largest client. Listed on the invitation as one of the dinner’s sponsors was an entity called “Schneider Investment Partners,” the company Mr. Schneider had formed on August 13. On October 8, Mr. Ryan sent Mr. McFarland a copy of that invitation. After Wellington employees consulted various public listings, Mr. McFarland and the others learned that Schneider Investment Partners, L.P., had been registered with the Pennsylvania Secretary of State on August 13, 1996, that Mr. Schneider was the principal in the entity and that Schneider Investment Partners had been registered with the Securities and Exchange Commission as an investment adviser.
As stated, Mr. McFarland and others at Wellington had had suspicions from the outset that Mr. Schneider was seriously contemplating starting his own investment advisory business. Indeed, Mr. Schneider had stated when he tendered his resignation that his post-Wellington options included starting his own investment management business. Nevertheless, the dinner invitation was Wellington’s first confirmation regarding Mr. Schneider’s actual plans. 32
Armed with the information from the public records and from the invitation, Mr. McFarland telephoned Mr. Schneider to ask him about the dinner invitation and the formation of Schneider Investment Partners. Mr. Schneider said that his firm’s appearance as a dinner sponsor had been a mistake and that he had not authorized use of the firm’s name when he made a contribution to the dinner. Mr. McFarland told Mr. Schneider that his mistake had been forming Schneider Investment Partners without informing the Wellington Managing Partners of his plans and receiving their permission and that he had violated the Partnership Agreement by doing so. Mr. Schneider replied by saying that he had not violated the Partnership Agreement because he had only taken preparatory steps towards going into business and was continuing to work full time at Wellington. He also said, falsely, that he had formed Schneider Investment Partners merely to keep his options open. The conversation ended with Mr. McFarland telling Mr. Schneider that he was extremely troubled by his actions and would let him know of Wellington’s response to those actions.
Following the conversation, Mr. McFarland sent Mr. Schneider a letter dated October 10, 1996 in which he discussed Mr. Schneider’s withdrawal from the Partnership, the information he then had regarding Mr. Schneider’s future plans and factors the Managing Partners would take into account in determining Mr. Schneider's merit distribution for 1996. Among other things, Mr. McFarland told Mr. Schneider that he expected him to help Wellington retain the accounts Mr. Schneider then was managing. Mr. McFarland also stated that Wellington expected Mr. Schneider to comply with the terms of Article XV of the Partnership Agreement.
After sending Mr. Schneider the October 10 letter, Mr. McFarland left on a long-planned overseas business trip. On October 24, 1996, following his return to the United States, Mr. McFarland telephoned Mr. Schneider to seek more detail about Schneider Investment Partners and to discuss rumors that Mr. McFarland had by then heard that Mr. Schneider was hiring people for his new firm. Mr. Schneider denied the rumors, saying that he did not know what the source of those rumors could possibly be. He again said that he had no specific plans to do business as Schneider Investment Partners but was merely protecting his options.
Mr. McFarland, Mr. Ryan and others continued to hear rumors about Mr. Schneider’s plans over the next few days and weeks. Among them were that Mr. Schneider’s brother had resigned from his position with an investment advisory firm to join Mr. Schneider’s new firm and that Mr. Schneider was claiming he would open his new business with $1 billion under management.
In fact, by the end of October, Mr. Schneider was in a position where, as he told Mr. Trittin on or about November 11, the only additional staff person he needed to open the doors of his new business was someone to handle marketing and client services. He had office space, analysts, a senior trader, a “back-office” manager and the necessary trading arrangements with other firms. At about that time, Mr. Ryan, Mr. Doran and Mr. McFarland began to discuss the *715 possibility of removing Mr. Schneider from the Partnership as a consequence of what they viewed as his violations of the Partnership Agreement.
On October 30, 1996, Mr. McFarland sent another letter to Mr. Schneider. The October 30 letter was far stronger in tone than the earlier letters had been and, among other things, instructed Mr. Schneider to provide Wellington the complete details of his proposed business arrangements and his contact with Wellington clients no later than November 8. The letter also instructed him to refrain from activities that violated Article XV of the Partnership Agreement.
After receiving Mr. McFarland’s letter of October 30, Mr. Schneider told Mr. Ryan on November 6, 1996, that he wanted to talk to the Managing Partners about the letter’s content. 33 A conference call was arranged for the same day. Participating in Boston were Mr. McFarland and Mr. Doran. Mr. Ryan and Mr. Schneider participated from Valley Forge. During the conference, Mr. Schneider told the Managing Partners for the first time about discussions he had had with Daniel Ludeman of the Mentor Group in early August 34 and about the discussions earlier described that he had had with the William Penn Foundation. He said that he had not mentioned the Mentor meeting earlier because it had not led to anything and that he had not mentioned the William Penn meeting because it was just a brief meeting focused solely on his investment style. Mr. McFarland asked Mr. Schneider about the rumor he had heard regarding Mr. Schneider’s claims that he would be starting his business with $ 1 billion of assets under management. Mr. Schneider did not answer that question but said instead that he would address all such issues in a written document he would provide to the Managing Partners by November 8, 1996.
On November 7, 1996, Mr. Schneider wrote to the Managing Partners the letter he had promised during the November 6 telephone conference. The letter purported to set forth a full chronicle of Mr. Schneider’s activities after he announced his resignation and his post-Wellington plans. In fact, it presented a picture of future plans that was far more undefined and fluid than in fact was the case and it presented a history of client contacts and discussions far more passive than in fact had occurred. Moreover, among other things, the letter stated that several firms had approached Mr. Schneider about “running money” for them after he left Wellington but all involved his joining their firms, that he had not solicited any Wellington clients, that he had had only brief discussions with clients about his future plans and that he was a “long way from being able to commence business.” Those statements were simply false. Beyond that, his letter wholly omitted any description of the by-then extensive and detailed discussions Mr. Schneider had had about his future plans with Russell’s Mr. Trittin.
7. The November 14 Meeting
On November 14, 1996, Messrs. Doran, Ryan and McFarland met with Mr. Schneider to discuss his letter of November 7, 1996. Among other things, the four discussed Mr. Schneider’s communications with Wellington’s clients. Mr. Schneider told them, for the first time, that he had engaged in detailed conversations with employees of Russell regarding his business plans. He said that he had provided Russell with information about those plans in response to specific questions Russell employees had asked him. Mr. Schneider also said, again for the first time, that, for two principal reasons, he felt free to accept business from any Wellington clients who offered it to him if those clients were going to leave Wellington in any event. The first reason he proffered was that his acceptance of business from clients who were planning to leave in any event would cause Wellington no harm. Second, Wellington had by then notified all of the members of his “team” that they would not be rehired. He intended, he said, to do only “all-cap value” investing and Wellington’s decision to disband his team meant that no “all-cap value” managers would remain at Wellington after he left. Accordingly, he said, he and Wellington would not be in competition with each other.
At some point, the conversation turned to a rumor Mr. McFarland had heard regarding Mr. Schneider’s alleged claims that he would open his business with $ 1 billion of assets under management. Mr. McFarland had asked about the rumor during his November 6 telephone conversation with Mr. Schneider. Mr. McFarland said that he saw no reference to that issue in Mr. Schneider’s November 7 letter. Mr. Schneider said that it was addressed in the letter through his statement that he would accept business from clients who followed him on a wholly unsolicited basis.
8. Attempts at a Waiver
On November 15, 1996, the day after the meeting just described, Mr. McFarland sent Mr. Schneider a letter stating that Mr. McFarland considered his November 7 letter and his statements during the previous day’s meeting to be an inadequate response to the Managing Partner’s concerns about Mr. Schneider’s adherence to what the Managing Partners believed were the terms of the Partnership Agreement. The letter closed with a statement that, absent a waiver of a type described in Article XV itself, Mr. Schneider was prohibited from preparing for or engaging in the investment advisory business.
• Mr. Schneider responded with a letter dated November 19, 1996. In his response, Mr. Schneider disputed Mr. McFarland’s statement of his obligations under the Partnership Agreement and presented his own views regarding'contractual obligations, competition with the Partnership, accepting business from Partnership clients and what did and did not constitute harm to the Partnership. Although he did not explicitly *716 seek a waiver of a type Article XV contemplated, he did say that he thought Wellington should make a good-faith determination regarding whether his acceptance of business from his existing clients, if they were to leave Wellington in any event, would cause any harm to Wellington. Finally, Mr. Schneider stated that he was prepared to come to Boston to discuss the situation further if the Managing Partners so desired.
On November 19, 1996, Mr. Schneider telephoned Mr. Doran to ask whether he could hire the members of his Wellington “team.” Mr. Doran responded that that issue might be appropriate to consider in the context of working out a waiver agreement under Article XV, but that Mr. Schneider had made no such waiver request. Mr. Doran also told Mr. Schneider that any waiver request should include a precise and specific statement regarding the nature and contours of the business in which Mr. Schneider would like to engage. During the course of their conversation, Mr. Doran told Mr. Schneider that if the request included permission to manage money for his current clients, the Managing Partners would have “real difficulty with that.”
In fact, Mr. Doran’s statement was accurate. Neither Mr. Doran nor either of the other Managing Partners had any intention, then, earlier or later, of entering a waiver agreement that had the effect of allowing Mr. Schneider to take Wellington clients with him to his new firm. They believed in fact, and in good faith, that at least those provisions of Article XV which prohibited departed partners from providing investment advisory services to Wellington clients were of paramount importance to the firm. Although they viewed the remaining provisions of the Article as important, they had not ruled out in their own minds by this time the possibility of waiving the Article’s three-year ban on all competition.
Mr. McFarland followed Mr. Doran’s comments with a letter dated November 21, 1996. In his letter, Mr. McFarland said, among other things, that any waiver of the terms of Article XV Wellington was prepared to give would be based on an undertaking that Mr. Schneider would not provide solicited or unsolicited investment advisory services to any Wellington client without the Managing Partners’ consent and that he would not solicit or hire Wellington employees without consent of those Partners as well. Mr. McFarland followed the letter with a telephone call to Mr. Schneider in which he asked him to come to Boston to meet with the Managing Partners. Mr. Schneider agreed.
Five days later, on November 26, Mr. Schneider met with Mr. McFarland and Mr. Doran in Boston. Mr. Ryan, the third Managing Partner, participated in the meeting by telephone from his office in Valley Forge. Before the meeting, the three Managing Partners had prepared a list of five points they considered essential to any waiver agreement they were prepared to make. Those essential points included an agreement not to provide solicited or unsolicited investment advisory services to Wellington clients for a five-year period. That point was drawn directly from Article XV of the Partnership Agreement. The Managing Partners were, however, prepared to waive the provisions of Article XV prohibiting acceptance of investment advisory business from other clients during the first three years after Mr. Schneider’s departure.
The topic the four discussed on November 26 was the proposed agreement not to accept business from Wellington clients. Mr. Schneider said that he would not agree not to accept business from Wellington clients for five years because he did not need a waiver .to accept business from clients who were going to leave Wellington in any event. Mr. Schneider continued by saying that the clients had rights and that Wellington could not tell the clients what to do. The meeting quickly came to loggerheads and did not progress beyond that first point. Obviously, the two sides reached no agreement. 35
10. The Expulsion
The November 26 meeting between Mr. Schneider and the Managing Partners had taken place in the shadow of Wellington’s preparation for a Partnership meeting at which the Managing Partners would seek, if necessary, Mr. Schneider’s expulsion from the Partnership if no acceptable waiver agreement could be negotiated. On November 23, 1996, Ms. Tynan, at Mr. McFarland’s request, had notified Mr. Schneider and all other Partners that a special meeting would be held on December 3, 1996. Later, Ms. Tynan sent to Mr. Schneider and all other Partners a package containing a chronology of events as the Managing Partners saw them, copies of all correspondence between Mr. Schneider and Mr. McFarland and a letter from Mr. Schneider to all Partners. In his letter, Mr. Schneider requested am opportunity to speak to all Partners and present in person his views regarding what had occurred.
Because no Agreement was reached on November 26, the special meeting of the Partnership was held in Wellington’s Boston office beginning at 8:00 AM on December 3, 1996. All Wellington Partners, including Mr. Schneider, attended the meeting, most in person and a few by telephone. Mr. McFarland opened the proceedings with a brief statement that the meeting’s purpose was to consider removing Mr. Schneider as a Partner. He referred to the package of materials that had been sent to everyone in advance. Mr. McFarland then told Mr. Schneider to take whatever time he desired to make any statement he wished to make. Mr. Schneider spoke for about fifteen or twenty minutes. Mr. Schneider’s comments were followed by a question and answer period during which Mr. Schneider answered questions asked of him by various Wellington Partners. After the question and answer period concluded, Mr. McFarland asked Mr. Schneider to leave the room. A discussion among the remaining Partners *717 ensued. During the course of that discussion, one Partner suggested that, instead of voting to expel Mr. Schneider immediately, the firm vote to expel him unless he agreed by 10:00 AM the next day to the terms of the waiver the Managing Partners had proposed on November 26. A vote on that issue was taken by secret ballot. Mr. Schneider received a ballot and voted. The vote was 47-5 in favor of expulsion unless Mr. Schneider signed the proffered waiver agreement. The vote thus was substantially in excess of the 75% the Partnership Agreement required for removal.
Following the vote, Mr. McFarland went to the nearby conference room where Mr. Schneider was waiting and informed him of the outcome. Mr. McFarland gave Mr. Schneider a letter containing the waiver terms and a space for his signature. The substantive terms of the letter were identical to those the Managing Partners had set out on November 26. In essence, the letter sought Mr. Schneider’s agreement to accept no business from existing Wellington clients for a five-year period in return for which he would be relieved from Article XV’s prohibition on acceptance of business from other clients and Wellington would not challenge his right to hire the employees who were being terminated as a consequence of his withdrawal. Mr. Schneider took the letter and left the office, saying he would call Mr. McFarland the following morning with his response. The following morning, Mr. Schneider telephoned Mr. McFarland and said that he could not accept the terms of the letter. His expulsion from Wellington thereafter became effective at 10:00 AM.
D. THE CLIENTS
As stated, when Mr. Schneider submitted his notice of resignation in July 1996, he was managing accounts for eight Wellington clients: Russell, RJR-Nabisco, the State of Utah Retirement System, Colonial Williamsburg Foundation, PECO Energy, Mentor Investment Group, Bell Atlantic and Consolidated Freightways. Two of those clients, PECO Energy and Mentor Income Group, remained with Wellington. Two others, Bell Atlantic and Consolidated Freightways, left Wellington to go to unrelated management, although Bell Atlantic officials indicated to Wellington personnel that Bell Atlantic would be searching for new managers when its merger with NYNEX concluded and that Wellington would be considered along with others.
Russell moved the four accounts Mr. Schneider managed to his new firm in December 1996. Russell remained, and remains, a Wellington client on other accounts. The State of Utah Retirement System and RJR Nabisco, a long-term Wellington client, left Wellington in December 1996 and transferred their assets to Mr. Schneider’s firm. Colonial Williamsburg terminated its relationship with Wellington and indicated its intention to transfer its funds to Mr. Schneider at his new firm. The preliminary injunction this Court entered on December 30, 1996 prohibited Mr. Schneider from accepting those funds [ 6 Mass. L. Rptr. 459 ].
The way Mr. Schneider and Wellington dealt with all eight, and particularly the latter four, before and after Mr. Schneider announced his resignation is worthy of some detailed examination.
1. Frank Russell Company
A relationship between Russell and Wellington existed for many years. In 1989, Mr. Nyheim began to manage a Russell portfolio for Wellington. In January 1990, Mr. Schneider became the assistant portfolio manager for the account. In May 1991, before he became a Wellington Partner, Mr. Schneider became the Russell portfolio manager for the Russell funds Mr. Nyheim theretofore had been managing. His succession to that role was approved by Russell. In May 1992, Russell opened a second portfolio with Wellington and specifically indicated that Mr. Schneider should manage that portfolio. In August of 1994, Russell placed two different sets of funds with Wellington, again with the explicit requirement that Mr. Schneider manage those funds. All of the contracts under which Wellington managed money for Russell provided for immediate termination by either side at any time and without penalty.
From the outset, Russell was an important client to Mr. Schneider, as it was to Wellington generally, not only because of the money that Russell had directly under management at Wellington — the approximately $800 million Mr. Schneider eventually managed for Russell accounted for one-third of all the funds he managed — but also because Russell was a widely-respected national firm that acted as an advisor and consultant to many trustees and other asset-holders throughout the Nation. In that capacity, Russell was in a position to advise its clients regarding their selection of asset managers. Indeed, Russell and Wellington have many joint clients. 36
In early 1993, Russell managers observed that the Russell portfolios Mr. Schneider was managing were “migrating” from a large cap average, i.e., investments in companies that, on average, had capitalizations greater than $5 billion, to a mid-cap average, i.e., investments in companies that, on average, had cap-italizations between $1 billion and $5 billion. The migration was of some concern to the Russell managers because Mr. Schneider had not discussed it with them in advance and it affected the overall mix of the Russell investments. 37 Russell examined what Mr. Schneider was doing, approved of his objectives and results and ultimately rebalanced the distribution of its assets among its portfolio managers to accommodate the changes Mr. Schneider had made.
Mr. Schneider’s chief contact at Russell was Dennis Trittin, a senior portfolio manager. As part of his normal routine with all portfolio managers handling Russell assets, Mr. Trittin spoke to Mr. Schneider at *718 least twice each year. During the course of those conversations, Mr. Trittin sometimes asked Mr. Schneider about how long he thought he would remain at Wellington. At one point in late 1995, Mr. Schneider said that he might leave someday because of the “crowding out” issues that existed at Wellington. 38 In the spring of 1996, Mr. Trittin spoke again with Mr. Schneider and again asked him how long he intended to remain at Wellington. This time, Mr. Schneider was more definite and stated that he was thinking about leaving Wellington because of crowding out issues.
In light of this information, Mr. Trittin thereafter telephoned Mr. Schneider frequently for updates regarding his plans. When Mr. Trittin spoke to him in June, Mr. Schneider said that he definitely planned to leave Wellington unless he could work out a satisfactory arrangement regarding what he characterized as the “crowding out” problem. 39 Mr. Trittin asked Mr. Schneider to let him know of his plans as soon as he had made a final decision.
As stated earlier, Mr. Schneider telephoned Mr. Trittin on July 15, 1996, to tell him that he had tendered his resignation to Wellington the previous Friday, July 12. In that first conversation, Mr. Schneider told Mr. Trittin that he was going to form his own investment management firm. Later that day, Mr. Schneider spoke with Mr. Trittin and with Ms. Williams. In that subsequent conversation, Mr. Schneider said that he thought he would be capable of going into business by September 1, 1996 if it were necessary to do so. He thought, he said, that he would have a trader and back office analysts ready to go by then. He told Ms. Williams and Mr. Trittin that he had filed the form ADV with the Securities and Exchange Commission but that he was still waiting for approval.
Mr. Trittin asked Mr. Schneider if there were any reason why Mr. Schneider could not take the Russell assets he was managing to his new firm with him. In reply, Mr. Schneider said that there was a non-competition agreement in his contract with Wellington and that he thought there was at least a possibility that Wellington would seek an injunction to prevent him from continuing to manage Russell’s assets. Mr. Trittin believed that Wellington would not seek to enforce the agreement and, at least by downplaying its importance, conveyed his impression to Mr. Schneider. Mr. Schneider offered no other reason why he could not accept Russell’s business after his departure. 40
Mr. Trittin wanted very much to keep his options open with respect to Mr. Schneider’s continued management of Russell’s funds. Accordingly, he and Mr. Schneider agreed that, as the months progressed, Mr. Schneider and he would talk about Mr. Schneider’s plans but that Mr. Schneider would provide information only in response to questions Mr. Trittin asked. The two men followed that procedure during the rest of their conversations over the ensuing weeks and months. 41
During the following week, Mr. Trittin had several additional telephone conversations with Mr. Schneider during which he asked Mr. Schneider for details regarding his plans for the new venture. Mr. Schneider gave to Mr. Trittin the details he requested, details Mr. Schneider simultaneously was telling his Partners at Wellington he did not have because his plans were indefinite.
During the period between July 21 and December 4, 1996, Mr. Schneider spoke repeatedly to Mr. Trittin and other Russell employees about his plans for his new business. Mr. Schneider understood throughout this period that Russell was considering whether or not to move its assets to his new firm and that his conversations with Mr. Trittin and the others at Russell were part of Russell’s due-diligence investigation.
By September 24, Mr. Schneider had told Mr. Trittin, among other things, that he had hired a trader and a back office person for the new firm, both of whom would be available to start on January 2, 1997, he had received assurances from the brokerage community that his new firm would be covered from the moment it opened its doors, he had ample financial resources to support the new firm, including the ability to sustain operations for two years without revenues, he had substantial financial backers, including Mr. Nyheim, who were willing to invest additional capital in the firm, he would be maintaining the style of investment management that he had employed at Wellington and that URS would move its account to his new firm.
During a conversation Mr. Trittin and Mr. Schneider had on August 14, 1997, Mr. Trittin asked Mr. Schneider about whether he would be bringing with him to his new firm the members of the team of analysts who had worked with him at Wellington. Mr. Schneider replied that he had been advised by his lawyer not to approach the members of his team about joining him and that he was interviewing analysts unaffiliated with Wellington to supplement or to substitute for those individuals if they ultimately were unavailable. From Mr. Trittin’s questions, and from an earlier conversation he had had with Mr. Trittin during the week of July 15, Mr. Schneider knew that Mr. Trittin valued the stability that would flow from bringing his support team to his new venture. As a consequence, Mr. Schneider formulated a strategy, execution of which was described earlier, that was designed to minimize the likelihood that Wellington would retain those staffers and kept Mr. Trittin informed of the relationship between himself, Wellington and those staffers, at least in a general way, thereafter. Indeed, on November 11,1996, by which time Wellington had notified the staffers that they would be terminated at year’s end and Mr. Schneider had made some arrangement with them regarding employment at his *719 new firm, Mr. Schneider suggested that Mr. Trittin call them at home to discuss with them directly their future plains. For that purpose, he gave Mr. Trittin the staffers’ home telephone numbers. Mr. Trittin in fact never called them.
The closeness of the relationship between Mr. Schneider and Mr. Trittin and the high regard in which the latter held the former’s services had not gone unnoticed by other Wellington Partners. By August 2, 1996, the Wellington personnel involved in making transition plans generally believed it was unlikely that the Russell funds Mr. Schneider was managing would remain at Wellington after Mr. Schneider left. On August 16, 1996, Mr. Trittin confirmed that belief when he told Pamela Dippel and Nancy Lukitsh, two Wellington Partners, that Russell was considering moving its portfolios to Mr. Schneider after he left Wellington although Russell was also considering other options, including keeping the funds at Wellington under management by someone who followed Mr. Schneider’s slyle or some Wellington manager who followed another style. Later that month, Mr. Trittin told Mr. Ryan by telephone that he intended to write to Russell clients, including clients who had money under management at Wellington, to tell them of Mr. Schneider’s departure from Wellington and to urge them to “consider their options” regarding future management of their funds.
Faced with what Wellington management perceived as Russell’s likely desire to move assets Mr. Schneider had been managing to his new firm, Wellington decided to concentrate its efforts on persuading Mr. Schneider to make himself unavailable to Russell rather than directly telling Russell that it intended to hold Mr. Schneider to the terms of an agreement that would have the effect of making him unavailable. Accordingly, Ms. Dippel, Ms. Lukitsh and Mr. Ryan did not mention to Mr. Trittin anything about the terms of the restrictive covenant during their conversations with him.
In late September 1996, Mr. Trittin, Ms. Williams and Mark Thurston, another Russell employee, had a telephone conversation with Ms. Lukitsh and Mr. Gooch of Wellington. During this call, Ms. Lukitsh and Mr. Gooch offered Russell two different approaches to replacing Mr. Schneider after he left Wellington. The first alternative Wellington offered was management of the funds by a man named James Morby. Mr. Morby was an analyst who had never managed a portfolio. The second alternative was management of the funds by Saul Pannell, a manager with extensive experience and a known track record. After discussing the alternatives, Mr. Trittin requested that Wellington send him a detailed written proposal regarding the two proposals. Wellington did so in early October 1996.
Mr. Trittin was not favorably impressed by either of the alternatives Wellington proposed. Indeed, by the time he received Wellington’s written proposal, he was of a mind that, unless unforseen information appeared or unforseen developments occurred between then and the time Mr. Schneider actually left Wellington, Russell’s best option would be to move the Russell funds Mr. Schneider was managing at Wellington to Mr. Schneider at his new firm. Nevertheless, in November, Mr. Trittin arranged to meet with Wellington representatives on December 10, 1996 to discuss the two alternatives Wellington had proposed. Mr. Trittin also scheduled a meeting with Mr. Schneider for the same day.
On or about December 4, 1996, Mr. Trittin received a telephone call from Mr. Schneider in which Mr. Schneider told him that Wellington had terminated him. Shortly thereafter, Mr. Trittin and another Russell representative spoke to Mr. McFarland who told them that Mr. Schneider had been terminated because of his refusal to agree to live up to a provision in the Wellington Partnership Agreement prohibiting Partners from soliciting or accepting Wellington client assets for five years after leaving Wellington. Mr. Trittin told Mr. McFarland that he was surprised that Wellington would pursue such a provision and stated that the provision restricted the ability of Wellington clients to choose the investment managers they desired. Mr. McFarland replied by saying that Wellington had not yet decided what action, if any, it intended to take if Mr. Schneider accepted existing Wellington clients at his new business but that Wellington “wanted to take the high road and wished [Mr. Schneider] well.”
Mr. Trittin’s conversation with Mr. McFarland on December 4 was the first notice Mr. Trittin had from Wellington about what Wellington considered to be the scope, although not the existence, of the non-competition provisions of the Partnership Agreement and the value Wellington placed on those provisions. For the reasons stated earlier, Wellington had not discussed those provisions with him previously. Moreover, notwithstanding all of the discussions Mr. Schneider and Mr. Trittin had had about Mr. Schneider’s plans during the period after July 12, Mr. Schneider never had mentioned to Mr. Trittin the statements Mr. McFarland had made to him about the value Wellington placed and intended to place on holding him to what Wellington perceived were the terms of his non-competition agreement.
On December 10, 1996, Mr. Schneider met with Mr. Trittin, Mr. Thurston, Ms. Williams and two other Russell employees. 42 During the meeting, Mr. Schneider told the Russell representatives that, under the Partnership Agreement, he could accept business from Wellington clients if to do so would not cause harm to the Partnership. Mr. Schneider further informed Mr. Trittin and the other Russell employees that the key question was whether the assets he had been managing would remain at Wellington after Mr. Schneider’s departure even if they did not go with him to his new firm. Mr. Schneider told the group that if *720 Russell’s assets would not remain at Wellington under those circumstances, then he was free to accept Russell’s business. That was not, of course, what Article XV of the Partnership Agreement said nor was it what Mr. McFarland had said was Wellington’s view of what it meant.
Mr. Schneider also told Mr. Trittin on December 10, 1996 that there was a remote chance that Wellington would sue him and seek an injunction against his accepting client assets. He further stated that if a client were to move its assets to Mr. Schneider’s new firm before any injunction entered, it was unlikely that the Court would undo that move. Mr. Trittin and other Russell employees agreed with the latter assessment and in fact acted thereafter in the belief that their interests would be advanced if they entered management contracts with Mr. Schneider’s new firm before legal proceedings began. Finally, at the December 10, 1996, meeting Mr. Schneider showed Mr. Trittin and the other Russell representatives an organizational chart that listed his three Wellington analysts, Paul Sloate, Nancy Neary and Pat O’Brien, as analysts at his new firm. In addition, Mr. Schneider generally described the strengths of his new venture including the absence of allocation problems he claimed to have had at Wellington.
Later that day, the Russell representatives also met with Wellington representatives to discuss the proposal Wellington had made to have Mr. Morby manage the assets Russell then had at Wellington. Before December 10, Russell had rejected the option of having Mr. Pannell manage those assets and had notified Wellington of that decision. The December 10 meeting did nothing to change Mr. Trittin’s initial negative feelings about having Mr. Morby manage the Russell funds and Russell rejected that option, too.
On December 13, 1996, Mr. Trittin contacted Mr. Schneider and informed him that the relevant Russell boards had met and had decided to offer him a portion of their pension plan assets to manage. Mr. Trittin also informed Mr. Schneider that Russell had decided that it would not retain Wellington if Mr. Schneider was unavailable because Wellington’s products did not fit Russell’s needs. On December 18, 1996, Mr. Schneider entered into three separate agreements with Russell, the effect of which was to provide him with more than $800 million of Russell’s pension plan assets to manage. The agreements are terminable by Schneider Capital Management on thirty days notice.
2. State of Utah Retirement System
At the end of 1989, the State of Utah Retirement Systems (“URS”), a public agency in and for the State of Utah, retained Mr. Nyheim at Wellington as a portfolio manager for approximately $100 million of its pension plan assets. The management contract was signed after Mr. Nyheim and Mr. Schneider traveled to Utah and made presentations to the URS staff and Board. 43 When URS signed its management contract with Wellington, it specifically approved of Mr. Nyheim as the portfolio manager and of Mr. Schneider as the assistant portfolio manager. Neither, however, is mentioned in the contract. Before executing the contract, Wellington did not inform any URS representatives that the Wellington Partnership Agreement contained a restrictive covenant. The contract provided for termination by either side on written notice to the other.
In 1992, after Mr. Nyheim announced his retirement, URS representatives decided that they wanted Mr. Schneider to succeed Mr. Nyheim in management and oversight of their funds. Wellington agreed and Mr. Schneider became manager of the portfolio. 44
During the next two years, URS representatives, like their counterparts at Russell, observed that, under Mr. Schneider’s management, their portfolio was “migrating” downward from a large to a mid-sized “cap.” The migration occurred without prior discussion and consultation between Mr. Schneider and URS and URS was concerned about it. Ultimately, however, after internal discussions, discussions with URS consultants and discussions with Mr. Schneider, URS determined that the “migration” was acceptable. Indeed, URS concluded that Mr. Schneider’s chief strengths lay in his knowledge of and approach to investments in “mid-cap” stocks. 45
Under Mr. Nyheim and Mr. Schneider’s management, URS’ initial investment of $100 million grew substantially. Accordingly, at some point after he became portfolio manager, URS provided Mr. Schneider with an additional $150 million in new pension-plan assets to manage. 46 URS and Wellington agreed that the new assets would be managed by Mr. Schneider and that no portfolio manager could be substituted for him without URS’ consent.
Richard Cherry (“Mr. Cherry”), the Chief Investment Officer at URS, was the principal contact at URS for Wellington and for Mr. Schneider. On or about July 15, 1996 Mr. Record telephoned Mr. Cherry to tell him that Mr. Schneider had decided to withdraw from Wellington at the end of 1996. Mr. Cherry responded by saying that URS had been pleased with Mr. Schneider and would likely follow him to a new management company if that is where he went after he left Wellington. Mr. Record, in response, said that URS could do what it wished but that Wellington would like the opportunity to present URS with some alternatives to Mr. Schneider for its consideration. Mr. Cherry agreed to receive a Wellington presentation whenever Wellington was prepared to make it, but in fact he was essentially committed from the outset to recommend to his board that URS move its assets to Mr. Schneider’s new firm if Mr. Schneider were able to accept those assets there. 47 During their conversation, Mr. Record did not tell Mr. Cherry that a restrictive covenant in the Partnership Agreement might affect Mr. Schneider’s ability to manage URS funds in 1997 after his departure from Wellington nor did he suggest to Mr. Cherry that *721 Wellington might be unwilling to allow Mr. Schneider to continue management of URS funds after he left.
Shortly after talking to Mr. Record, Mr. Cherry telephoned Mr. Schneider to discuss his upcoming departure. Mr. Schneider did not provide Mr. Cherry with any specific details regarding his post-Wellington plans but he did say, in substance and effect, that he intended to continue managing money for others. In response, Mr. Cherry told Mr. Schneider that URS would likely ask Mr. Schneider to continue to manage the money he then was managing if he were open for business in 1997. Mr. Schneider responded affirmatively to Mr. Cherry’s expression of interest. He, too, said nothing at that point about the restrictive covenant in his Partnership Agreement with Wellington.
Mr. Schneider and Mr. Cherry spoke several additional times over the course of the summer. During those conversations, Mr. Schneider told Mr. Cherry-that he did in fact intend to open his own firm and to bring with him to that firm his Wellington analysts if he could do so. Mr. Schneider also told Mr. Cherry that he intended to continue at his new firm the same investment process he had used at Wellington, that he expected to receive the same level of coverage from the Wall Street brokerage houses he had been receiving while at Wellington and that he expected some Wellington clients to join him at his new firm.
During the course of their summer conversations, Mr. Schneider told Mr. Cherry at some point that his contract with Wellington contained a non-competition Agreement. He also minimized its likely impact in his plans. He did not tell Mr. Cherry about the conversations he had by then had with Mr. McFarland in which Mr. McFarland had told him that Wellington planned to enforce the agreement nor did he tell Mr. Cherry that he and Mr. McFarland disagreed with each other regarding the Agreement’s scope and validity.
On August 27, 1996, Mr. Ryan and Mr. Record met with Mr. Cherry and his staff in Utah to propose alternatives to Mr. Schneider after Mr. Schneider’s departure. In essence, they proposed two options, one involving management of URS assets by Mr. Ryan and one involving management by Mr. Pannell. In preparation for the meeting, Mr. Ryan and Mr. Record discussed, among other things, whether they would tell Mr. Cherry about the restrictive covenant if he, or others, suggested that URS wished to have Mr. Schneider continue to manage URS’s money. They ultimately decided not to inform Mr. Cherry or the others of the covenant’s existence or content if the subject of continuing to work with Mr. Schneider arose. The subject, of course, did arise and they neither disclosed the covenant’s existence nor suggested that Wellington might seek to restrain Mr. Schneider from managing URS’s money after his departure. At the end of the meeting, Mr. Cherry told Mr. Ryan and Mr. Record that he wanted to talk to Mr. Schneider about his plans before making a decision regarding the Wellington alternatives discussed at the meeting.
After their visit, Mr. Cherry discussed with Mr. Schneider the proposals Mr. Ryan and Mr. Record had made. Mr. Schneider told Mr. Cherry that Mr. Pannell was an outstanding portfolio manager but declined to comment on Mr. Ryan’s abilities. Mr. Cherry took Mr. Schneider’s response as an indication that Mr. Schneider did not have a positive opinion of Mr. Ryan’s abilities, as Mr. Schneider knew he would. 48
At some point in late September 1996, Mr. Cherry told Mr. Schneider that he wanted Mr. Schneider to meet with representatives of URS in Utah to talk about the future of the Utah portfolio, including whether Mr. Schneider would manage that portfolio at his new firm beginning in 1997. A few days later, Mr. Schneider went to Utah to meet Mr. Cherry , and other URS representatives. Before leaving Philadelphia for that meeting, Mr. Schneider told Mr. Gooch that he was going to Utah to meet with Mr. Cherry at Mr. Cherry’s request. He did not, however, tell Mr. Gooch that part of the agenda for the meeting was a discussion of whether he would be available to manage URS assets after he left Wellington. Mr. Gooch thanked Mr. Schneider for telling him of the upcoming meeting and reiterated Wellington’s desire to have Mr. Schneider maintain normal relations with clients until he actually departed. In fact, Mr. Gooch, and others at Wellington whom Mr. Gooch told of Mr. Schneider’s upcoming meeting, suspected that Mr. Schneider’s availability to manage URS assets after he left Wellington was at least a part of the agenda for Mr. Schneider’s meeting.
During Mr. Schneider’s meeting with Mr. Cherry and other URS representatives, Mr. Cherry asked Mr. Schneider a series of questions about his new firm. Mr. Schneider answered all of those questions in detail and told the URS representatives that he would be able to manage their assets at his new firm if they wanted him to do so. By the time the meeting ended, Mr. Cherry had all of the information he felt he needed in order to recommend that URS retain Mr. Schneider’s new firm as its investment manager and had decided to make that recommendation. At the end of their meeting, he told Mr. Schneider of his conclusions and forthcoming recommendations. Mr. Schneider responded that he very much wished to continue managing the URS account and looked forward to doing so. The non-competition provisions of Mr. Schneider’s Agreement with Wellington were not discussed at any point during the course of the meeting.
Several days after the meeting between Mr. Cherry and Mr. Schneider, Mr. Cherry telephoned Mr. Record and told him that URS wanted Mr. Schneider to continue managing after his departure the URS assets he had been managing at Wellington. Mr. Cherry reiterated that desire in a second telephone conversation he had with Mr. Record in late October 1996. On neither *722 occasion did Mr. Record tell Mr. Cherry that the Agreement between Mr. Schneider and Wellington contained a restrictive covenant or that Wellington might seek to enforce that covenant. At the end of October, Mr. Cherry was authorized by URS to begin negotiations with Mr. Schneider to transfer to him the URS assets when he left Wellington and began business on his own.
On December 5, 1996, Mr. Record telephoned Mr. Cherry and told him that Mr. Schneider had been expelled from the Wellington Partnership. Mr. Cherry responded by saying that URS intended to follow Mr. Schneider to his new firm. The conversation ended with Mr. Record wishing Mr. Cherry well. The same day, Mr. Cherry contacted'Mr. Schneider and formally offered him a contract to manage the URS assets. URS and Schneider Capital Management entered a formal management agreement on December 9, 1996, under which URS placed with him for management at his new firm the approximately $400 million he had been managing at Wellington. That agreement is terminable by either side on thirty days notice.
3. RJR-Nabisco
Toward the end of 1987, RJR-Nabisco (“RJR”) retained Wellington as a portfolio manager for approximately $100 million of its pension plan. Wellington, with RJR’s approval, assigned Mr. Nyheim to manage the account. In 1989, Mr. Schneider became the assistant portfolio manager and Mr. Nyheim gave him broad discretion with respect to management decisions.
Mr. Schneider’s principal contact at RJR was John MacMurray (“Mr. MacMurray”). Mr. MacMurray’s relationship with Wellington began while Mr. MacMurray was employed at Bell Telephone of Pennsylvania and predated Mr. Schneider’s employment with Wellington.
The contract between Wellington and RJR was terminable by either side on thirty day’s notice and required Wellington to notify RJR if there were “any substantial change in the duties” of Mr. Nyheim or Mr. Ryan. In July 1991, after discussions between Mr. MacMurray and Wellington, Mr. Schneider became the portfolio manager for the RJR assets Wellington had contracted to manage. 49
After becoming manager of the RJR portfolio, Mr. Schneider began to make the kinds of changes in the securities the account held that he ultimately made in the Russell and URS accounts. When he assumed management of the RJR assets, the account held largely “large cap” securities. Mr. Schneider began investing in securities in companies with a smaller capitalization. Consequently, the account as a whole, like the Russell and URS accounts, began to “migrate” toward securities in the “mid-cap" range.
Before making his changes in investment strategy, Mr. Schneider did not seek specific permission from Mr. MacMurray or other RJR representatives. Instead, they, like their counterparts at Russell and URS, learned of the changes after they had occurred. Nevertheless, after analysis, RJR representatives concluded that the changes were beneficial and told Mr. Schneider to continue with his approach. 50
Wellington managed only a portion of RJR’s overall pension assets. Like Russell, RJR balanced its overall portfolio through investments in a variety of different kinds of securities in the manner RJR thought most beneficial to its overall investment objectives. A change in the type of securities in the account at Wellington thus led to RJR’s changes in other, non-Wellington accounts as RJR sought to “rebalance” its investments in the wake of Mr. Schneider’s altered investment strategy.
Mr. MacMurray first learned of Mr. Schneider’s decision to leave Wellington in early August when Mr. Gooch and Mr. Doran telephoned him to report Mr. Schneider’s decision. Mr. MacMurray was surprised because Mr. Schneider had not previously mentioned to him any dissatisfaction with Wellington or with any Wellington policies. During their August telephone conversation, neither Mr. Doran nor Mr. Gooch told Mr. MacMurray that the Wellington Partnership Agreement contained a restrictive covenant that might affect RJR’s ability to have Mr. Schneider manage its funds in 1997 after his departure from Wellington, nor did either of them suggest that Wellington might take steps to prevent Mr. Schneider from accepting RJR funds after he left.
Shortly after his conversation with Mr. Doran and Mr. Gooch, Mr. MacMurray telephoned Mr. Schneider to ask about Mr. Schneider’s plans to resign. During the conversation, Mr. MacMurray asked Mr. Schneider about his post-Wellington plans. Mr. Schneider responded that he intended to stay in the investment management business but provided few further details. In response, Mr. MacMurray told Mr. Schneider that he wanted Mr. Schneider to continue to manage the RJR assets he then was managing. Mr. Schneider did not say that he would or would not do so. In that conversation or shortly thereafter, however, Mr. Schneider told Mr. MacMurray that he had a non-competition agreement with Wellington. He did not tell Mr. MacMurray that he had by then had several discussions with Mr. McFarland during which Mr. McFarland had expressed an intention to enforce the agreement or that he and Mr.' McFarland disagreed over the Agreement’s scope and validity.
On September 3, 1996, at a regular quarterly meeting of the RJR Pension Investment Committee (“Committee”), Mr. MacMurray referred to Mr. Schneider’s upcoming departure from Wellington. He suggested that RJR’s best interests would be served if it moved its account to Mr. Schneider’s new firm if RJR were satisfied that the new firm had been established on a sound business and financial basis, employed an *723 appropriate staff and had in place appropriate procedures and controls. Mr. MacMurray also told the committee that he thought Wellington and Mr. Schneider had some work to do to sort out at least some of the details of their contractual relationship and that that process might take several months. In making those remarks, Mr. MacMurray was fully aware that a non-competition agreement between Wellington and Mr. Schneider lay at the heart of the contractual “sorting out” he thought the two sides had to do.
On October 15, 1997, Mr. Schneider met with Mr. MacMurray and with Edward Robertiello, another RJR employee, at RJR’s headquarters in New York to discuss Mr. Schneider’s future plans. Mr. MacMurray had asked Mr. Schneider to meet with him in New York specifically to discuss those plans. Before the meeting, Mr. Schneider telephoned Mr. Gooch at Wellington to tell him of the planned meeting. Again, however, he did not tell Mr. Gooch that at least a part of the agenda for the meeting concerned Mr. Schneider’s future plans.
During their October 15 meeting, Mr. Schneider told Mr. MacMurray and Mr. Robertiello that he was opening his own firm and discussed his by then detailed staffing plans. Mr. MacMurray repeated his desire to have Mr. Schneider manage RJR’s money in 1997 after he left Wellington and Mr. Schneider replied that he fully expected to be in a position to do so when he moved to his own firm. By the close of the meeting, Mr. MacMurray believed that following Mr. Schneider to his new firm was a viable option, one Mr. MacM-urray thereafter pursued to the exclusion of all others save consideration of the proposal Wellington itself later made to him. At no time during their meeting, or at any time thereafter, did Mr. Schneider suggest that he would be unavailable to manage RJR money after moving to his new firm nor did he say anything to discourage Mr. MacMurray from considering Mr. Schneider’s new firm as an investment manager for RJR.
On October 30, Mr. MacMurray met with Mr. Gooch, Mr. Doran and Mr. Wardwell, another Wellington Partner, to discuss the manner in which Wellington proposed to manage the RJR assets after Mr. Schneider’s departure. At the meeting, Wellington suggested a number of alternatives, none of which was satisfactory to Mr. MacMurray.
Shortly thereafter, Mr. MacMurray informed Mr. Gooch that, although the proposals Wellington had made were of some merit, Mr. Schneider’s performance had been excellent and that, as a consequence, RJR was inclined to stay with him after he left Wellington. On November 11, 1996, he reaffirmed that intention during the course of an in-person meeting he had with Mr. Gooch. In response, Mr. Gooch told Mr. MacMurray that RJR’s best interests were Wellington’s primary concern. He did not mention the restrictive covenant in the Partnership Agreement nor did he mention Wellington's attitude toward enforcement of that agreement.
Mr. Gooch telephoned Mr. MacMurray on December 5 to tell him that Wellington had terminated Mr. Schneider and that RJR’s assets were being “actively monitored” by Mr. Ryan, who, absent an emergency, would make no significant investment changes until RJR decided what to do with the portfolio as a whole. 51 Shortly thereafter, Mr. MacMurray spoke with Mr. Schneider and learned that Mr. Schneider had opened his new firm, had registered it with the SEC, was occupying new office space, was bringing his team of analysts from Wellington with him to the new firm and had hired some additional personnel. He also learned, through discussions with Mr. Schneider, Mr. Gooch or others, that Wellington did not wish to allow Mr. Schneider to continue managing at his new firm the assets he had been managing at Wellington.
Mr. Schneider met with Mr. MacMurray and Mr. Robertiello in Pennsylvania on December 16, 1996, to discuss whether Mr. Schneider would be able to manage at his new firm the assets he had been managing at Wellington. The three discussed the new firm, its staffing and resources. E>uring this meeting, Mr. Schneider said that he would only accept RJR’s business if RJR had decided not to continue with Wellington. Mr. MacMurray and Mr. Robertiello replied that Wellington’s proposals did not fit RJR’s plan. Both Mr. MacMurray and Mr. Robertiello were favorably impressed with Mr. Schneider’s presentation and neither believed that the alternatives Wellington had proposed would meet RJR’s needs as well.
On the same day he was meeting with Mr. Schneider, Mr. MacMurray received a series of telephone messages from Mr. McFarland. For some reason, he did not return Mr. McFarland’s calls. 52 Through the messages Mr. McFarland left, however, he learned that Wellington was seeking injunctive relief to keep Mr. Schneider from managing RJR assets at his new firm.
On December 19, 1996, after consultation with the RJR Pension Investment Committee and internal discussion of, among other things, the injunction he knew Wellington was seeking, Mr. MacMurray telephoned Mr. Schneider and informed him that RJR had decided to offer him a contract to manage the assets he had been managing at Wellington. Mr. Schneider verbally accepted the offer. Later that day, Mr. MacMurray telephoned Mr. Gooch and told him that RJR was terminating Wellington as portfolio manager effective immediately and faxed him a letter to that effect shortly thereafter. Among other things, the contract between RJR and Schneider Capital Management contains a provision allowing either side to terminate the relationship on thirty days notice.
*724 4. The Others
The relationship between Wellington, Mr. Schneider and the four other clients for whom Mr. Schneider was managing portfolios requires far less discussion.
i. PECO Energy Company. Representatives of PECO Energy Company (“PECO") first learned of Mr. Schneider’s resignation in a July telephone conversation with Mr. Gooch. At no time did Mr. Schneider tell those representatives that he intended to open his own firm nor did they ask about his post-Wellington plans. After announcing his resignation, Mr. Schneider attended three meetings with PECO: (i) a PECO Board meeting at PECO’s offices in Philadelphia in August or September 1996, (ii) a PECO staff meeting at the same time as the PECO Board meeting, and (iii) an annual meeting at Wellington’s offices in Valley Forge with Hewitt Associates, PECO’s consultant. During those meetings, the subject of Mr. Schneider’s future plans did not arise. Ultimately, Wellington discussed with PECO alternatives to Mr. Schneider’s management after his departure. After consideration of those alternatives, PECO decided to remain with Wellington and transferred management of its portfolio to Mr. Ryan.
ii. The Mentor Group. In early August 1996, Mr. Schneider received a telephone call from Daniel Lude-man, the chairman and chief executive of the Mentor Group ("Mentor”). Mr. Ludeman said that he had learned of Mr. Schneider’s resignation and that he wanted to meet with Mr. Schneider about a potential new business relationship after Mr. Schneider departed. Mr. Schneider, without mentioning the plans he already had formed, agreed to meet with Mr. Lude-man the next time the latter was in Philadelphia.
The meeting occurred a few weeks later. Mr. Lude-man started the meeting by informing Mr. Schneider that Mentor was considering a change in the type of assets it was holding in its portfolio and that it might ask Mr. Schneider to manage the reformed portfolio after he left Wellington. Mr. Schneider responded in an equivocal fashion. Mr. Ludeman also told Mr. Schneider that Mentor was seeking an in-house value manager for their institutional and high net worth individual clients and wanted to know if he were interested in filling that position. Mr. Schneider said that he was not. Finally, Mr. Ludeman asked Mr. Schneider whether he would be interested in setting up a firm that Mr. Schneider would own, that would agree to manage up to $500 million of Mentor’s assets and in which Mentor would have an equity stake. Mr. Schneider said that he was not interested in that proposal, either. Mr. Schneider did not discuss in any detail with Mr. Ludeman the plans he already had made, although he did say that he planned to remain in the investment management business is some way. Mr. Ludeman never asked Mr. Schneider to continue managing the funds he had been managing at Wellington and Mr. Schneider did not seek to do so.
After their mid-August meeting, Mr. Schneider and Mr. Ludeman had a few additional telephone conversations during which Mr. Ludeman sought to have Mr. Schneider think seriously about coming in-house at Mentor. Mr. Schneider repeatedly declined to do so. During those conversations, the two men did not discuss the possibility of Mr. Schneider’s management of Mentor funds after he left Wellington.
While these discussions were occurring, Wellington was proposing to Mr. Ludeman a successor to Mr. Schneider after Mr. Schneider left Wellington. In late November 1996, Mentor selected Steven O’Brien of Wellington’s Equity Income Group as the successor .portfolio manager.
iii. Consolidated Freightways. In the summer of 1996, after he tendered his resignation, Mr. Schneider received a telephone call from Linda Lester, the pension analyst at Consolidated Freightways (“Consolidated”) who was responsible for selecting portfolio managers to manage Consolidated’s assets. When the subject of Mr. Schneider’s future plans arose, Mr. Schneider told her that he intended to remain in the investment management business but provided no details regarding his future venture. The two had several conversations over the remainder of the summer, but Ms. Lester did not ask for additional details regarding Mr. Schneider’s business and Mr. Schneider provided none. Wellington made proposals to Consolidated regarding a successor portfolio manager within Wellington but Consolidated did not believe that the Wellington alternatives were consistent with its needs. Ultimately, Consolidated moved its assets to a portfolio manager unaffiliated with Wellington or with Mr. Schneider.
iv. Bell Atlantic. In July of 1996, after Mr. Schneider tendered his resignation, he received a telephone call from Paul Dokas, an investment manager at Bell Atlantic (“Bell”). They discussed Mr. Schneider’s resignation and upcoming departure. They did not, however, discuss Mr. Schneider’s future plans. Mr. Dokas did not ask about the possibility of Mr. Schneider managing Bell’s assets after he left Wellington.
In mid-October 1996, Mr. Schneider met with Mr. Dokas and others at Bell’s Philadelphia offices for a regularly scheduled bi-annual meeting of portfolio managers. During this meeting, the Bell representatives asked Mr. Schneider about his post-Wellington plans. In response, he told them that he was going to remain in the investment management business and intended to open his own firm in 1997. 53 No Bell representative asked Mr. Schneider if he were prepared to manage Bell’s assets at his new firm nor did Mr. Schneider ask for an opportunity to do so. Bell representatives did, however, ask Mr. Schneider what he thought of Mr. Pannell and Mr. Morby as portfolio managers. Mr. Schneider responded that Mr. Pannell was an excellent portfolio manager and that Mr. Morby was an excellent analyst. Ultimately, Bell decided that *725 it did not want to keep its assets at Wellington and, in late October, announced that decision to Wellington and to Mr. Schneider. Bell never offered management of its assets to Mr. Schneider and he never asked Bell for the opportunity to manage them.
v. Colonial Williamsburg. In July 1996, after he tendered his resignation, Mr. Schneider received a telephone call from Jean Puckett, a Colonial Williams-burg Foundation (“CW”) employee who had some responsibility for assets outside portfolio managers were overseeing. The two discussed Mr. Schneider’s withdrawal from Wellington but there was no discussion of Mr. Schneider’s future plans or of CW’s interest in retaining his services after he left.
Neither Wellington nor Mr. Schneider had much contact with CW over the next few months regarding what was to happen after Mr. Schneider left. Indeed, as late as November 21, 1996, Charles Flather, a member of CW’s Investment Committee, told Mr. Gooch in a telephone conversation that Mr. Flather had not talked with Mr. Schneider about his future plans and did not know what Mr. Schneider was going to do after year-end.
After Mr. Schneider’s December discharge, Mr. William Roberts, another CW employee, called Mr. Schneider at home to ask him about the circumstances surrounding the discharge and about his future plans. Mr. Schneider told Mr. Roberts of his discharge, of the firm he had started and that he was available to do the same kind of work he had done while at Wellington. Mr. Roberts expressed an interest in transferring CW’s funds to Mr. Schneider and Mr. Schneider expressed an interest in receiving those funds.
On December 23, 1996, Mr. Roberts called Mr. Schneider to say that CW had decided to hire Mr. Schneider to manage its funds. By then, however, the preliminary injunction had entered in this case and Mr. Schneider told Mr. Roberts that he could not accept CW’s business in light of that injunction. That conversation marked the first time that anyone at CW knew of a non-competition agreement in the Partnership Agreement.
During the period following Mr. Schneider’s resignation, Wellington, had proposed to CW representatives a number of alternatives for management of the CW portfolio after Mr. Schneider’s departure. CW considered those alternatives but ultimately rejected them. After learning that Mr. Schneider was unavailable to continue managing their assets because of the preliminary injunction, CW moved them to a third party.
E. COMPENSATION
As stated earlier, there were several components to Mr. Schneider’s annual compensation. One his alloca-ble share of the firm’s annual net profit. The second was a draw. 54 Third and finally was his incentive distribution based on portfolio performance. 55 In 1995, Mr. Schneider’s total compensation was $1,463,999. Of that $730,224 was his allocable profit share, $100,000 was his draw and the balance of $633,775 was his incentive compensation.
After his discharge from Wellington, the Managing Partners determined that Mr. Schneider’s allocable share of the 1996 Wellington profits would be zero. He was paid $474,794 in incentive compensation for the first six months of 1996 and, at the end of December, his estimated incentive compensation for the last six months was $481,449. That amount, with or without adjustments stemming from client fee payments, was to be paid on March 15, 1997. It was not. The record does not reveal why.
In addition to compensation for services, Mr. Schneider annually received a return on his capital investment in Wellington. He was paid the appropriate amount for 1996 and, after his departure, his capital account was returned to him.
Finally, when it expelled him from the Partnership, Wellington concluded that Mr. Schneider was not entitled to a ten-year series of payments discussed in Article XIV of the Partnership Agreement. 56 It would have made those payments to him if it had not expelled him. Although the record is insufficient to permit calculation of the amount of those payments, the first would not have been less than $50,000.
F. COMPETITION
After Mr. Schneider left Wellington, no one at Wellington managed assets in the particular style and manner that Mr. Schneider had used. That, however, was not surprising for few portfolio managers use exactly the same approach to management of the assets for which they are responsible.
To be sure, the investment management industry often uses labels such as “value," “growth,” “all-cap” and “mid-cap” to describe particular funds or portfolios and the manner in which they are managed. Use of those terms is not limited to the industry and many of them are routinely found on the stock and mutual-fu

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8322774. Public record. Not legal advice.