Contracts imposing $50K in liquidated damages for lawyer departures lead to suspension recommendation

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Tully Rinckey founding partners Mathew B. Tully and Gregory T. Rinckey should be suspended for their “serious” misconduct affecting lawyers at the law firm’s Washington, D.C., office, according to a hearing report by the District of Columbia Court of Appeals. (Image from Shutterstock)

The founding partners of Tully Rinckey should each be suspended for 90 days because of employment and separation agreements that restricted departing lawyers’ right to practice, according to an ethics recommendation by an ad hoc hearing committee in Washington, D.C.

Founding partners Mathew B. Tully and Gregory T. Rinckey should be suspended for their “serious” misconduct affecting lawyers at the law firm’s Washington, D.C., office, according to a Nov. 20 hearing report by the District of Columbia Court of Appeals’ Board on Professional Responsibility Ad Hoc Hearing Committee.

The report was only recently posted online, the Legal Profession Blog reports.

Law360 and Reuters have coverage.

Tully Rinckey’s contract terms varied, according to factual findings by the hearing committee. They included liquidated damages imposed when departing lawyers left without good reason, contacted firm clients, hired firm employees and worked with firm alumni.

In some instances, liquidated damages were as high as $50,000 for leaving without good reason and $100,000 for contacting firm clients when it wasn’t ethically required.

Some separation agreements said departing lawyers were not assigned firm clients, meaning that there was no ethical obligation to communicate that lawyer’s departure to clients.

The hearing committee found that Tully and Rinckey violated Rule 5.6(a) of the District of Columbia Rules of Professional Conduct, which bars a partnership and its shareholders from restricting the right to practice after leaving.

The case appears to be the first time that Rule 5.6(a) has been enforced within the D.C. lawyer disciplinary process, according to the hearing committee report.

The report noted that the District of Columbia Bar’s Legal Ethics Committee issued an ethics opinion interpreting the rule in February 2015 at the request of an attorney representing several lawyers who had left Tully Rinckey.

Known as LEO 368, the opinion said Rule 5.6(a) prohibits imposing liquidated damages on lawyers who compete with their former firm after departure. The opinion also said a firm can’t restrict departing lawyers from associating with firm partners or employees.

The ethics opinion also addressed choice of law issues. Tully and Rinckey primarily worked in the firm’s Albany, New York, office. But the D.C. ethics rules apply to the jurisdiction where the relevant lawyers were admitted to practice and where the predominant effect of the conduct happened, the ethics opinion said.

Tully and Rinckey changed their employment agreement template after the ethics opinion and informed lawyers at the firm that they would no longer enforce provisions that bar departing lawyers from practicing law with firm alumni. But they continued to require liquidated damages for lawyers who left before the expiration of their contracts, the opinion said.

Tully and Rinckey’s “serious” misconduct “continued over many years, even after the issuance of the 2015 LEO that they claim was their first inkling they might be violating the D.C. Rules of Professional Conduct,” the hearing report said.

“Their behavior was oppressive to their employees and struck at the interests of clients and potential clients of lawyer-employees who wished to depart from the firm. In addition to their own direct violations of the rules, they not only countenanced but directed violations by their lawyer and nonlawyer subordinates,” according to the report.

One lawyer who left the firm said she found the working environment overwhelming and oppressive, according to the report.

“There was incessant pressure to bill 40 hours a week, and hours were not counted as qualified billable hours if the client did not have sufficient funds on deposit to pay for them,” the opinion said.

The lawyer testified that she “was terrified that they were going to ruin me, ruin my career, ruin my reputation” if she left the firm.

The Albany, New York, office used security cameras to watch public areas in D.C. and monitored lawyers’ computer use, the report said. In one case, the lawyer used her computer to buy an item from the J.Crew website. Later that day, she found that the website was blocked on her computer.

In another instance, Tully phoned a lawyer in the D.C. office to complain that the lawyer’s shirt was not tucked in, the report said.

The firm said in a statement to Law360 it was appealing the hearing committee’s recommendations “due to factual and legal errors.”

“We do not agree with the committee’s report, which does not adequately address the facts of this matter, nor does it paint the full picture of what was happening during the relevant time frame,” the statement said.

“Not a single identified client was harmed in any way during our 20-plus years of operation,” the statement said. In addition, none of the hearing committee findings “questioned the quality of work performed by the firm’s lawyers.”

In a statement to Reuters, the firm said the ethics probe was “an unprecedented situation alleging relatively minor ethical transgressions involving an obscure ethical rule” that is applied differently in other states.

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