A Highly Charged Break-Up: How A UK Firm Fought With its Spanish Office
It was back in 2005 that a mutual friend introduced Kennedys to Jesús Vélez and Jose Arauz—a local two-man law firm in Madrid. They soon started working on mandates together and before the end of the year they joined forces, naming the enterprise Kennedys Abogados.
Fast forward 15 years and a bitter dispute emerged with the U.K. firm invoking a clause in the partnership deed to dissolve the relationship and a fight emerging in the courts about who owned the ‘Kennedys’ brand in Spain.
Last month the two sides managed to reach an “amicable settlement”, a joint statement confirmed—an apparent détente being reached, with Kennedys U.K. retaining the rights to its brand in Spain.
But what caused the breakdown in relations in the first place, and what led to the settlement?
The answer appears to depend on who you ask. In an email seen by Law.com International, the firm’s global partnership were informed by senior partner Nick Thomas that the Spanish joint venture was coming to an end, in light of “some very poor behaviours” by Vélez and Arauz.
The email stated that following an attempt to resolve matters, the firm was “forced to the conclusion that there was no way in which their continuing in the office could work for us, and that if we did not grasp the nettle we would be left with no other partners or staff”.
Kennedys Abogados denied such claims of poor behaviour, while a person close to the situation said the relationship broke down due to disagreements during price negotiations regarding a potential buy-out of the Spanish partnership.
Since the two sides parted ways, Kennedys Abogados now comprises Vélez, Arauz and third partner Javier Goizueta, alongside three additional fee earners, who were all new hires. Meanwhile, the U.K. arm’s recently-named ‘Kennedys’ is made up of partners Isidoro Ugena, Alfonso de Ramos and Olivia Delagrange, who moved across, as well as 10 other lawyers and support staff.
‘Cruel and uncivilised’
Three people close to the situation say that the treatment of staff by Vélez and Arauz was inappropriate and not in line with firm values. One says that people were unhappy due to bullying behaviour, while a second person says staff were shouted at and accused of disloyalty.
“They were acting like they owned the place. It was a very old-fashioned Spanish lawyer way of leading”, the first person says, adding that the view was one of “I am the partner and you are my lawyer working for me”.
A former lawyer says other partners were not treated as equals, adding they had the title on their business cards but had no real position otherwise.
“They made it clear that the office was theirs”, says a third person. “You couldn’t tell London what was happening because of the fear you would be considered as betraying them, as this is how they acted.”
In November, a Kennedys Abogados spokesperson said the firm “denied allegations of the dispute beginning from an investigation into certain behaviours”, while a subsequent email from the firm referred to the comments as ”untrue” without providing further information.
A person at a rival firm with knowledge of the saga adds that a mixture of both personal and business issues, including the failure to comply with the deed, meant that the “business became cruel and uncivilised”. He expressed surprise at how things had transpired as they generally regard Vélez as an “extremely polite and charming guy”, which suggests a “personal, confrontational element” to the saga.
The same person adds that an additional problem was that the Spanish founding partners were ultimately unhappy with Kennedys’ London management, believing that they were too preoccupied with numbers. “The feeling is that it was an issue of generational replacement and a confrontation between the young and older partners”.
A former lawyer adds that Vélez and Arauz’s close relationship meant “Kennedys weren’t treated as their family” as a result.
The departure of Isidoro Ugena to help lead the Kennedys second Spanish office surprised some people in the market, as Ugena and the two founding partners were known to be very close friends and “practically family”.
One person said that Vélez and Arauz had aggressively insisted that Ugena support them, but he chose to support London due to the severity of matters.
“It was that very typical Spanish way of thinking, that you’re either with me or against me”, the person said.
Monetary disputes
The original joint venture stipulated a 50-50 ownership split between the U.K. and Spanish partners, and on valuing the balance sheet of the business, they would be given 50% for their shares and be able to set up a rival firm, according to the Thomas email.
However, in the internal email, Thomas stated that the Spanish partners had “consistently refused to engage with us about the value of the balance sheet”.
In November, Kennedys Abogados firmly denied that the dispute arose from behaviours on the part of Vélez and Arauz.
In a subsequent call in December, Vélez told Law.com International that he could not speak English and did not engage any further.
Meanwhile, a person close to Kennedys Abogados says that Kennedys simply wanted to “get hold of the [Spanish] business at a reduced, ridiculous price”.
A second person familiar with Kennedys says the initial offer made was €600,000, which was the “best estimate of one half of the value of the balance sheet at the beginning of what should have been the three-month notice period.” A later counter offer by Kennedys Abogados was €1 million plus the value of the balance sheet, totalling €2.2 million, the person added. No agreement was reached.
The Spanish courts then refused to enforce the wind-up of the Spanish business, with the courts suggesting that the parties may well change their minds and resolve matters.
“[Kennedys Abogados] seem to be saying that London decided to break off the relationship for no reason”, one person familiar with the situation comments, “but of course something had to have happened for it to get to this point”.
Shortly after Law.com International approached both sides with the points raised in this story, a settlement was reached.
A joint statement from both sides said: “We are pleased to advise that the parties have agreed an amicable settlement which settle all the disputes between them.
“It will involve Kennedys Abogados changing their name and releasing all rights in the Kennedys name and trademark, but otherwise being entitled to compete for business without any form of restraint.”
‘A stupid, uncivilised battle’
Something had gone “severely wrong” for the dispute to have escalated so far, an insurance partner at a fellow international firm in Madrid says. They add that a saving grace is that at least no clients had made comments.
Another partner at a competitor firm says it became “personal” and a “fire that is difficult to extinguish”, labelling it as a “stupid, uncivilised battle”.
The real problem, the partner adds, is that the market has been watching: “When there were internal issues at my ex-firm [a different U.K. firm], nobody outside my firm knew. It’s like a contest to see who can hurt the other side more”.
They felt that it was “stupid and odd” that the Spanish partners were given the brand on an interim basis, but point out that this is not an unusual occurrence in the Spanish courts.
“It’s not the first time we’ve seen Spanish courts rule in favour of Spanish companies when the branding clearly belongs to an international business.”
Now, given the settlement, the court battle seems to have come to an end. The next stage is expected to involve Kennedys Abogados rebranding very shortly.
Neither side would confirm what that name would be or when the change would take place. They also declined to share any other terms of the settlement, including financial terms.
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