Firm founders who sought liquidated damages for early attorney exits should be suspended, conduct board says
The founding partners of a law firm who required lawyers to pay liquidated damages for early exits should be suspended for 90 days, the District of Columbia Court of Appeals’ Board on Professional Responsibility said in a July 30 opinion.
Tully Rinckey lawyers Mathew B. Tully and Gregory T. Rinckey should be suspended for contract provisions that imposed liquidated damages on lawyers in their Washington, D.C., office of up to $50,000 for early departures, the professional responsibility board said. In some cases, the firm claimed that it was due hundreds of thousands of dollars.
The ethical misconduct “was serious, pervasive and struck directly at the public’s interest in the right to their preferred counsel,” the board said.
The Legal Profession Blog noted the recommendation and published highlights.
Tully Rinckey said in a statement it planned to appeal the decision, all the way to the U.S. Supreme Court if warranted.
The board’s opinion described the since-discontinued contract terms at issue.
The contracts imposed liquidated damages if lawyers left before the end of their employment agreement or if they contacted firm clients after their departures.
If departing lawyers took a Tully Rinckey client with them, they were required under some agreements to pay “referral fees” amounting to a portion of the billings at the new firm. Some agreements also required departing lawyers to pay Tully Rinckey’s attorney fees and costs for enforcing the employment contracts, even if the firm did not succeed.
“The damage amounts are untethered to actual damages shouldered by the firm from the departure of these lawyers,” the board said.
The agreements also said departing lawyers were banned from participating voluntarily in investigations or other proceedings that relate to firm matters.
The firm discontinued use of the referral fee clauses by October 2015 and removed all liquidated damages clauses from its templates in 2019.
Tully and Rinckey practiced law mostly in New York. Tully generally worked as the managing partner, but Rinckey would take over that role when Tully was on military leave or otherwise absent. Both also were licensed in Washington, D.C.
Tully and Rinckey “maintained strict control and oversight over the operations of the D.C. office and over the lawyers in that office, which taken together was a factor that contributed to lawyers accepting the terms and conditions of the agreements that violated the rules,” the professional responsibility board said.
One former lawyer at the firm said the oversight was “overwhelming and oppressive.” One example was the installation of a video surveillance system in the D.C. office, so that Tully and Rinckey could observe public areas from the office in Albany, New York.
In one instance, the board’s report said, Tully phoned a lawyer in the D.C. office to advise him “that he should tuck his shirt in.”
The Albany office “also monitored closely the D.C. attorneys’ use of their office computers,” the board said. “For example, on one occasion [an associate] used her computer to order a personal item during her lunch break and later discovered that the website had since been blocked.”
The professional responsibility board said Tully and Rinckey violated Rule 5.6(a) of the District of Columbia Rules of Professional Conduct, which generally prohibits lawyers from making agreements that restrict a lawyer’s right to practice after ending a relationship with a firm.
The board also said the lawyers violated Rule 8.4(a) and Rule 8.4(d) of the Rules of Professional Conduct, which prohibit attempts to violate the conduct rules or conduct that seriously interferes with the administration of justice.
The board found Rule 8.4 violations because “expansive language” in separation agreements “evidenced respondents’ intent that firm employees not voluntarily cooperate with investigations, including investigations by disciplinary authorities.”
Tully and Rinckey had argued that the liquidated damages provision for early exits was really a contract buyout, and that Rule 5.6 was ambiguous. They also pointed to a savings clause that amended contract terms if they were found to be illegal, void as against public policy or unenforceable.
They also argued that the cooperation language in the agreements was generic in nature and did not specifically reference disciplinary investigations. They also pointed to clauses requiring firm attorneys to cooperate in “ethical investigations.”
The board rejected the firm’s arguments. The board also said it didn’t agree “that the fact that they discontinued use of the offensive agreements eight years after their inception or that they no longer serve in managing roles should serve as mitigating factors.”
The board cited other factors in mitigation, however. Neither Tully nor Rinckey had histories of discipline. They also performed pro bono and military service, served on bar association committees, and cooperated in the disciplinary investigation.
The firm gave this statement to the ABA Journal: “We are disappointed by this decision and look forward to challenging the board’s decision on appeal. We acknowledge the board’s finding that there are no disciplinary precedents for Rule 5.6(a) violations in the District of Columbia, underscoring that this is a novel case. It directly addresses contract and intellectual property law provisions that are widely accepted and valid in numerous other U.S. industries. We intend to litigate this matter vigorously through the D.C. Court of Appeals and, if warranted, to the United States Supreme Court.”
See also:
Law firm partners accused of ethics violations for ‘anti-competitive’ employment contracts
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