Schoonmaker v. Cummings & Lockwood of Connecticut, PC

Decision Date15 March 2000
Docket Number(SC 16078)
Citation747 A.2d 1017,252 Conn. 416
CourtConnecticut Supreme Court

Officially released March 15, 20001.

McDonald, C. J., and Borden, Norcott, Katz and Peters, Js. Beverly S. Knapp, with whom was L. Douglas Shrader, for the appellant (plaintiff).

William H. Narwold, with whom, on the brief, were Robert P. Dolian and Charles D. Ray, for the appellees (defendants).



This case raises several significant issues on appeal. First, as a matter of first impression for this court, we must determine the proper standard of review that a trial court should exercise in reviewing an arbitration decision involving the interpretation and application of rule 5.6 of the Rules of Professional Conduct.2 We conclude that in such a case, de novo review, rather than the traditional, more deferential review afforded to arbitration decisions, is proper. Second, we must determine whether a forfeiture upon competition provision in an employment agreement, as applied to postemployment benefits that become available to former law firm partners without regard to whether those partners fully retire from the practice of law, violates the public policy embodied in rule 5.6. We conclude that, for the purposes of eligibility to collect such benefits, public policy does not require the absolute cessation of the practice of law as a condition of retirement. Finally, we must determine whether an arbitrator violated public policy by invoking a savings clause provision in an employment agreement in order to preserve a forfeiture upon competition provision that otherwise would have violated the public policy underlying rule 5.6. We conclude that such action, when undertaken pursuant to a valid arbitration agreement, does not violate public policy.

The following facts are pertinent to this appeal. The plaintiff, Samuel V. Schoonmaker III, is a former partner in the defendant law firm of Cummings and Lockwood (firm). He was also a stockholder in the firm's parent corporation, Cummings and Lockwood of Connecticut, P.C., which also is a defendant in this action. As both a stockholder and partner, the plaintiff was subject to the defendants' partnership agreement and employment agreement (agreements), both of which were dated January 1, 1993. Both agreements provided for the distribution of postemployment compensation following an employee's retirement from the firm, and both provided that the parties would arbitrate "[a]ny controversy or claim arising out of or relating to this Agreement...."

The agreements contained nearly identical provisions that provided for the distribution of two different categories of postdeparture benefits. The basic benefit, referred to as the "lx," is payable upon retirement of an employee or stockholder who has been a partner of the firm for at least four years. The supplemental, or "2x" benefit, is payable upon retirement of an employee who has at least twenty years of service with the firm, either as an associate or a partner, and is payable only after the retiring attorney reaches the age of sixty, or has become physically or mentally incapable of continuing to practice law. The sum of the lx and 2x payments takes into account the length of a partner's service and average annual income over a five year period, and is subject to a cap of 100 percent or 200 percent, respectively, of the partner's five year average income. Both categories of benefits are unfunded and are payable to the retiring partner from future firm income in monthly installments for a period of ten years. Any uncollected revenues become payable on the death of a former partner to a designated beneficiary or to the partner's estate.

Only partners who have retired from the firm are eligible for postemployment compensation. As used in the agreements, however, the term "retirement" is defined broadly to include circumstances other than traditional retirement. Paragraph 6 A of the partnership agreement provides: "The term `retire' or `retirement,' as used in this Agreement, shall, in addition to retirement in the usual sense, also include all circumstances (other than by death) under which an individual ceases to be a Partner of the firm (prior to January 1, 1993) or a Stockholder of a Partner, such as resignation or withdrawal or exclusion resulting from amendment of this Agreement." That same definition of retirement applies to the employment agreement. Thus, in effect, a partner who satisfies the requisite age and longevity criteria is eligible to receive postemployment compensation regardless of the partner's motivation for leaving the firm.

The actual receipt of benefits is conditioned, however, on the former partner's compliance with the agreements' noncompetition provision. Under that provision, payment is forfeited by "any former [employee or stockholder] who retired prior to the age of seventy (70) and who, for any period of time within the period of three (3) years after the effective date of such retirement, engages, either directly or indirectly, in the practice of law" in Fairfield, New Haven or Hartford counties, or certain designated counties in Florida, where the firm also had offices.

Also included in the agreements is a savings provision that empowers the arbitrator to modify the terms of the agreements to the extent necessary to comply with the rules of ethics. The provision specifically addresses the agreements' broad definition of "retire," and provides that postemployment payments do not become available unless, in addition to meeting the express criteria for eligibility, a partner "also satisfies such other or additional conditions or criteria relating to retirement, if there be any, that are required to qualify such benefits as `benefits upon retirement' within applicable rules of ethics." To that end, the savings clause empowers the arbitrator to construe, and if necessary, reform the agreements "to incorporate any other or additional conditions or criteria required ... so as to preserve the validity of the non-competition condition ... and carry out the basic purposes ... to provide benefits to [partners] upon their retirement." As managing partner of the firm for several years, the plaintiff took an active role in the construction of the retirement benefits plan. The savings clause provision, in particular, was incorporated into the plan largely at the plaintiffs behest. In 1988, in the wake of a challenge brought by two of the firm's former partners against the firm's forfeiture upon competition clause, the plaintiff, acting as comanaging partner, advocated that the firm should enforce the clause to deter other partners from leaving and competing with the firm. Later, while acting as sole managing partner, the plaintiff, concerned about the validity of the lx benefits and the noncompetition clause, declined the suggestion of a fellow partner to extend the length of service requirement and impose a minimum age of eligibility, proposing instead the adoption of the savings clause provision. Thereafter, upon the plaintiffs suggestion, the remaining partners approved inclusion of the savings provision into all future agreements.

In April, 1996, after approximately thirty-five years of employment with the firm, the plaintiff, then age sixty, voluntarily resigned to commence his own practice in Fairfield county. Although the plaintiff satisfied the age and length of service requirements for both the lx and 2x benefits, the firm refused to make any payments of those benefits because the plaintiff had continued to practice law in violation of the noncompetition provision.

The plaintiff filed a demand for arbitration, seeking a declaratory judgment that he was entitled to receive all periodic payments of both basic and supplemental benefits without regard to whether he had engaged in the practice of law in Fairfield county. The plaintiff claimed specifically that the forfeiture upon competition provision violated rule 5.6 by conditioning the receipt of benefits on abstention from the practice of law, and that enforcement of the provision violated the public policy favoring clients' ability to select an attorney of their choice. In an "Arbitration Opinion and Award" dated May 28, 1998, the arbitrator determined that the practice restriction violated neither the rule itself nor public policy. With respect to the 2x benefits, the arbitrator determined that the forfeiture provision qualified under the "retirement benefits" exception to the rule because payments were conditioned on objective age and length of service requirements that are characteristic of traditional retirement plans. In addition, the arbitrator ruled that the public policy behind rule 5.6, which promotes clients' free choice of lawyers, also permits law firms to provide for retirement through the use of retirement plans that condition payment on noncompetition.

With respect to the lx benefits, the arbitrator determined that postemployment payments conditioned on only four years of service would not qualify as retirement benefits under currently accepted judicial interpretations of the ethics rules, and therefore, the forfeiture upon competition provision did not fall within the "retirement benefits" exception to rule 5.6. Nonetheless, the arbitrator invoked the savings clause, over the plaintiffs contention that the clause itself was contrary to public policy, so as to make the lx benefits available under the same conditions as the 2x benefits, and thereby preserve their validity. As to the savings clause, the arbitrator found that the clause represented a good faith attempt by the parties to comply with the dictates of the ethics rules, and therefore was not contrary to public policy. Accordingly, the arbitrator concluded that by practicing law in Fairfield county within three years of his retirement from the firm, the plaintiff had...

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