Contract requiring exiting lawyer to pay fee for every client he takes can't be enforced, top state court says
The Colorado Supreme Court has ruled that a law firm can’t enforce a contract provision that required departing lawyers to pay $1,052 for each client they take with them when leaving. Image from Shutterstock.
The Colorado Supreme Court ruled Tuesday that a law firm can’t enforce a contract provision that required departing lawyers to pay $1,052 for each client they take with them when leaving.
The state supreme court ruled for Grant Bursek, a former Denver associate at Johnson Family Law, which did business as Modern Family Law, Law360 reports. The firm told Bursek that he was required to pay $18,936 when he left the firm with 18 clients.
The Colorado Supreme Court said the contract provision violated a Colorado ethics rule banning employment and partnership agreements that restrict the right of a lawyer to practice when leaving.
“There may be circumstances in which a firm can seek reimbursement of specific client costs when the client leaves a firm to follow a lawyer,” the Colorado Supreme Court said in its Jan. 16 opinion. “But a firm may not require a departing attorney to pay an undifferentiated fee in order to continue representing clients who wish to maintain their relationship with that attorney.”
The firm had characterized the fee as reimbursement for marketing expenses that were difficult to determine for clients. Bursek signed the agreement in April 2019 and left Modern Family Law in September 2019. Reimbursement applied only to clients gained while Bursek was working with the firm. If he did not pay within 30 days of leaving, the contract said, he would be assessed 1.5% in monthly interest on unpaid amounts.
States that have adopted ethics rules similar to the one cited by the Colorado Supreme Court have adopted differing approaches to agreements that impose financial costs on lawyers leaving firms.
The majority view is that any financial burden imposed on departing lawyers is a violation of the ethics rule, the Colorado Supreme Court said.
The minority view is that financial disincentives to departure are not per se violations of the ethics rule. Instead, disincentive agreements are reviewed based on a balance of interests. On one side are the interests of client choice and attorney autonomy. On the other are a firm’s interest in financial and practice stability.
The Colorado Supreme Court also endorsed the minority view requiring a balancing approach with a reasonableness inquiry. But in Bursek’s case, the “undifferentiated fee” assessed for clients following the departing lawyer is a violation of the ethics rule, the state supreme court said.
The type of fee imposed on Bursek “forces attorneys to make individualized determinations of whether a client is ‘worth’ retaining,” the Colorado Supreme Court said. The fee incentivizes lawyers “to retain clients in high-fee cases and to jettison clients with less lucrative claims.”
Reimbursement might be justified, however, when a firm advances litigation costs for a client or expends unusual funds to attract a particular client, the state supreme court said. But in Bursek’s case, “we are not presented here with any client-specific cost scenario.”
The case is Johnson Family Law v. Bursek.