DENVER (Legal Newsline) - An agreement requiring a family-practice lawyer to pay more than $1,000 for each client he took with him when he left his former firm is unenforceable, a Colorado appeals court ruled, although another type of penalty might comply with ethics rules.
Modern Family Law sought to enforce a contract against Grant Bursek after he left the firm in March 2019, billing him $18,963 to reflect a charge of $1,052 he agreed to pay for each client who left with him. Bursek challenged the contract as unenforceable under Colorado Rule of Professional Ethics 5.6(a), which prohibits agreements that restrict an attorney’s right to practice.
The rule is based upon model rules promulgated by the American Bar Association that a majority of U.S. courts, including high courts in New York and New Jersey, have interpreted to prohibit any contracts imposing financial penalties on lawyers when they leave a firm. A minority of courts, however, have allowed some penalties under the theory that law firms are entitled to compensation for the financial impact of an attorney’s departure.
“Plainly, the rule is intended to preserve the professional autonomy of attorneys who depart from a firm,” Colorado’s Division One Court of Appeals said in an April 28 decision. But “the majority view does not account for the legitimate interests of law firms facing the reality of increased lawyer mobility in modern practice.”
Ruling for the first time in Colorado on the enforceability of such contracts, the appeals court said restrictions on a departing lawyer are allowed as long as they are reasonable and they are not linked to representing specific clients. One unstated purpose for the rule, the appeals court said, is to preserve the ability of clients to be represented by the attorney of their choice.
The majority position prohibiting all such agreements ”erroneously assumes that any restriction on a departing lawyer’s practice is an affront to client choice, and that any burden of compensating the firm is a restriction on the lawyer’s practice,” the appeals court ruled.
Instead restrictions should be judged on factors including the overall cost of practice in the area, hourly billing rates and availability of alternative legal services, the court said.
The penalty in this case fails on that measure, the appeals court said, citing a similar decision in Arizona. While a firm can require departing lawyers to forfeit their capital interests or accounts receivable, the appeals court said, they can’t penalize them for representing specific clients. Such obligations aren’t reached through an agreement among firm partners but are imposed on a new hire with an inferior bargaining position, the court said.
“Where a fee is incurred on a client-by-client basis, it can have a heightened effect on a lawyer’s autonomy and his clients’ choice of counsel,” the appeals court concluded.