Johnson Family Law, P.C. v. Bursek

• Decision Date: 28 April 2022
• Docket Number: Court of Appeals No. 20CA2043
• Parties: JOHNSON FAMILY LAW, P.C., d/b/a Modern Family Law, Plaintiff-Appellant, v. Grant BURSEK, Defendant-Appellee.
• Court: Colorado Court of Appeals

515 P.3d 179

2022 COA 48

JOHNSON FAMILY LAW, P.C., d/b/a Modern Family Law, Plaintiff-Appellant,

v.Grant BURSEK, Defendant-Appellee.

Court of Appeals No. 20CA2043

Colorado Court of Appeals, Division I.

Announced April 28, 2022

Rehearing Denied June 9, 2022

Cohen Black Law, LLC, Nancy Cohen, Denver, Colorado, for Plaintiff-Appellant

Spencer Fane, LLP, Troy R. Rackham, Denver, Colorado, for Defendant-Appellee

Opinion by JUDGE FOX

¶ 1 As the late Chief Justice Rehnquist observed, attorneys "in law firms have become increasingly ‘mobile,’ feeling much freer than they formerly did and having much greater opportunity than they formerly did, to shift from one firm to another and take revenue-producing clients with them." William H. Rehnquist, Dedicatory Address, The Legal Profession Today , 62 Ind. L.J. 151, 152 (1986). When an attorney so departs a firm, their withdrawal from and competition with the firm can cause a great financial strain. To protect their commercial interests, firms may contractually impose various restrictive covenants on a departing attorney. Such agreements, however, risk running afoul of Colo. RPC 5.6(a) ’s prohibition on "agreement[s] that restrict[ ] the right of a lawyer to practice."

¶ 2 Courts have invariably held that Rule 5.6(a) prohibits agreements that directly restrict an attorney's right to practice. But what about financial disincentives that may indirectly do so? This opinion explores, for the first time in Colorado, whether an agreement that imposes a fee on a departing attorney for each client that departs with him violates Rule 5.6(a). We conclude that such a fee may violate the rule, but only if it is unreasonable under the circumstances. We further conclude that a contractual provision that violates Rule 5.6(a) is necessarily void as against public policy.

¶ 3 Plaintiff, Johnson Family Law, P.C., doing business as Modern Family Law (MFL), appeals the district court's order finding that its agreement with a former associate attorney, Grant Bursek, violated Rule 5.6(a) and was thus unenforceable. We conclude that the agreement's imposition of a $1,052 fee per client that departed with Bursek was unreasonable, and thus we agree with the district court that the fee violated Rule 5.6(a). We disagree, however, that the violation rendered the entire agreement unenforceable and conclude that only the provisions imposing the fee are void. Accordingly, we affirm in part and reverse in part the judgment of the district court.

I. Background

¶ 4 MFL, a law firm specializing in family law matters, hired Bursek in April 2018 to join its Denver office as a "Business Development Attorney." Initially, Bursek's primary responsibilities were to find potential clients for the firm and conduct initial consultations. However, in December 2018, MFL offered Bursek a position as an associate attorney, and Bursek began directly representing clients who retained the firm. He was paid a semi-monthly salary of $3,333. On March 1, 2019, MFL reduced his salary to $2,083.33, but allowed him to receive a commission on cases to which he contributed.

¶ 5 In April 2019, MFL asked Bursek to sign a "Reimbursement Agreement" (Agreement). Should Bursek leave the firm, the Agreement required Bursek to pay MFL $1,052 for each client that departed with him. Specifically, the Agreement provided that,

[i]n the event Attorney's employment with [MFL] terminates, either voluntarily or involuntarily, Attorney agrees to reimburse [MFL] for marketing expenses related to any client, case or active matter which Attorney takes with them ... and continues representation of the client begun during their employment with the firm.

It stated that "[t]he amount of reimbursement for each client is based on actual expenses at each firm location and," for the Denver office, "shall be ... $1,052." The Agreement further directed that

[i]n the event a client elects to terminate [the] Agreement with [MFL] and retain Attorney, Reimbursement Amount ... shall be due from Attorney to [MFL] for that client ... with[in] thirty (30) days of each client's election.

¶ 6 Notably, the Agreement also explained how the reimbursement costs were calculated:

These Reimbursement Amounts are determined based on [MFL]’s historic costs directly related to marketing expenses for each client at each location. The parties hereto recognize that actual expenses may be difficult to determine and agree that these Reimbursement Amounts, based on historic costs, shall act as [liquidated] damages. Each party hereto agrees to be bound by these amounts rather than a specific calculation for actual marketing expenses.

¶ 7 Though unsure of its enforceability, Bursek signed the Agreement.

¶ 8 When Bursek resigned from MFL in September 2019, eighteen of MFL's clients left with him. MFL requested that Bursek remit payment of $18,963 per the terms of the Agreement, but Bursek refused, claiming that the Agreement was unenforceable.

¶ 9 MFL filed a complaint in district court asserting two claims: (1) a breach of contract claim premised on Bursek's refusal to pay the $1,052 per client fee; and (2) a claim for declaratory judgment that a separate contract, a "Confidentiality and Nondisclosure Agreement" (CNA), was enforceable against Bursek. After Bursek answered the complaint, MFL filed a motion for determination of law under C.R.C.P. 56(h), requesting that the court determine whether the Agreement and the CNA were enforceable.

¶ 10 The district court was persuaded that the $1,052 fee in the Agreement violated Colo. RPC 5.6(a) because it constituted "an unreasonable restriction on [Bursek's] right to practice." It then concluded that, accordingly, the Agreement was entirely unenforceable as a matter of law. Thus, it dismissed MFL's breach of contract claim with prejudice.

¶ 11 As to the CNA, the court agreed with MFL that it was enforceable and thus entered judgment in favor of MFL on its second claim.

¶ 12 MFL now appeals.

II. Standard of Review

¶ 13 "We review de novo a district court's order determining a question of law under C.R.C.P. 56(h)." Smith v. State Farm Mut. Auto. Ins. Co. , 2017 COA 6, ¶ 5, 399 P.3d 771.

III. Violation of Rule 5.6(a)

¶ 14 MFL appeals the portion of the district court's order finding, as a matter of law, that the Agreement is unenforceable in its entirety. In doing so, it asks us to consider two discrete, but related, legal issues that have yet to be addressed in Colorado.

¶ 15 We first consider whether an agreement that imposes a financial disincentive — but not a direct prohibition — on a departing attorney's continued representation of a client violates Rule 5.6(a). We conclude that such an agreement can violate the rule, but the inquiry must be case-specific, requiring an assessment of whether a particular disincentive unreasonably restricts an attorney's practice under the unique factual circumstances of each agreement. Because the Agreement's assessment of a $1,052 fee per client who departed with Bursek is unreasonable here, we conclude that the Agreement violates Rule 5.6(a).

A. Financial Disincentives Can Violate Rule 5.6(a)

¶ 16 Rule 5.6(a), titled "Restrictions on Right to Practice," is identical to Model Rules of Pro. Conduct R. 5.6 (Am. Bar Ass'n 2019) (Model Rule 5.6 ). As relevant here, Colorado's rule provides that

A lawyer shall not participate in offering or making:

(a)a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement.

Colo. RPC 5.6(a).

¶ 17 Plainly, the rule is intended to preserve the professional autonomy of attorneys who depart from a firm. See Colo. RPC 5.6 cmt. 1. But comment 1 of the rule clarifies that its purpose is two-fold, acknowledging that "[a]n agreement restricting the right of lawyers to practice after leaving a firm ... also limits the freedom of clients to choose a lawyer." Indeed, "despite its wording in terms of the lawyer's right to practice," the prevailing view is that Rule 5.6(a) ’s primary purpose is "to ensure the freedom of clients to select counsel of their choice." Jacob v. Norris, McLaughlin & Marcus , 128 N.J. 10, 607 A.2d 142, 146 (1992) ; see also Cohen v. Lord, Day & Lord , 75 N.Y.2d 95, 551 N.Y.S.2d 157, 550 N.E.2d 410, 411 (1989) ("The purpose of the rule is to ensure that the public has the choice of counsel.").

¶ 18 The scope of the rule has been the subject of increasing dispute as law firms seek to address a rise in lawyer mobility. Previously, law firms’ investments in the development of clientele was "fairly secure, because the continued loyalty of partners and associates to the firm was assumed." Howard v. Babcock , 6 Cal.4th 409, 25 Cal.Rptr.2d 80, 863 P.2d 150, 157 (1993) (citation omitted). "But more recently, lateral hiring of associates and partners, and the secession of partners from their firms has undermined this assumption." Id. And when attorneys with a lucrative practice leave a law firm with their clients, "their departure from and competition with the firm can place a tremendous financial strain on the firm." Id.

¶ 19 Judicial and ethics opinions throughout the country universally recognize the impropriety of directly restrictive covenants — agreements that prohibit, for example, a departing lawyer from representing certain clients or practicing in a specified area. See, e.g. , Dwyer v. Jung , 133 N.J.Super. 343, 336 A.2d 498, 500-01 (N.J. Super. Ct. Ch. Div.) (recognizing that such agreements are prohibited under the precursor to Model Rule 5.6 ), aff'd , 137 N.J.Super. 135, 348 A.2d 208 (N.J. Super. Ct. App. Div. 1975) ; Jacob , 607 A.2d at 147 ("The case law is clear that [Model Rule 5.6 ] forbid[s] outright prohibitions on the practice of law."); Haight, Brown & Bonesteel v. Superior Ct. , 234 Cal.App.3d 963, 285 Cal. Rptr. 845, 848 (1991) (Under a substantially similar rule, "an attorney may not enter into an agreement to...