McCroskey, Feldman, Cochrane & Brock, P.C. v. Waters, Docket No. 136266

• Decision Date: 07 December 1992
• Docket Number: Docket No. 136266
• Citation: 494 N.W.2d 826,197 Mich.App. 282
• Parties: McCROSKEY, FELDMAN, COCHRANE & BROCK, P.C., Plaintiff-Appellee, v. James L. WATERS, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 826

494 N.W.2d 826

197 Mich.App. 282

McCROSKEY, FELDMAN, COCHRANE & BROCK, P.C., Plaintiff-Appellee, v. James L. WATERS, Defendant-Appellant.

Docket No. 136266.

Court of Appeals of Michigan.

Submitted Oct. 6, 1992, at Grand Rapids.

Decided Dec. 7, 1992, at 10:05 a.m.

Released for Publication Feb. 17, 1993.

McCroskey, Feldman, Cochrane & Brock, P.C. by J. Walter Brock, Muskegon, for plaintiff-appellee.

James L. Waters Law Firm, P.C. by James L. Waters, Muskegon, for defendant-appellant.

Before RICHARD ALLEN GRIFFIN, P.J., and NEFF and CORRIGAN, JJ.

RICHARD ALLEN GRIFFIN, Presiding Judge.

Defendant appeals as of right a December 3, 1990, order of the Muskegon Circuit Court entering judgment on an arbitration award in favor of plaintiff. We affirm.

I

At issue in this appeal is the enforceability of an employment agreement entered into between defendant and his former law partners. Defendant is a former veteran director of plaintiff law firm. On or about January 31, 1988, defendant left the firm to start his own practice. About a year before his departure, defendant signed an employment contract containing the following provision, paragraph 17, governing the allocation of fees:

If a director considers leaving or leaves the corporation and desires to compete with the corporation or continue professional contact with clients he has represented while an employee of the firm, the following procedures will be followed:

* * * * * *

d. All files referred by a departing director to another counsel while an employee of the corporation shall remain the sole and exclusive property of the corporation, as well as any referral fees that may become due from such other counsel. In the event a referred client maintains his professional relationship with the departing director and a recovery is realized, the departing director must return all costs, and 75% of the fee to the corporation.

e. In the event any of the departing director's clients, other than those clients who are the subject of "d" above, should choose to have their case handled by the departing director, the departing director, in the event of recovery in such case(s), pending for trial or awaiting filing, shall immediately return to the corporation all case costs and 25% of all fees realized. 50% of any fee in excess of $20,000, shall be returned to the firm. E.G.--total fee = $30,000, 25% of first $20,000 = $5,000 and 50% of $10,000 = $5,000 or a total fee to the firm of $10,000.

f. All cases on appeal shall remain the sole and exclusive property of the corporation. In the event the departing director's client requests him to continue handling a case that is on appeal, without regard to whether or not briefs have been written, arguments have been completed, or the case has been returned for new trial, the departing director, in the event of recovery, shall immediately reimburse the corporation for all case costs and 75% of any fee recovered.

According to defendant, he paid plaintiff approximately $100,000 in fees pursuant to these provisions in the several months following his departure. Defendant thereafter disavowed the agreement, purportedly on the basis that the payments were unduly burdening his new law practice. Pursuant to a separate provision of the contract, the parties' dispute was submitted to arbitration. At the arbitration hearing, defendant testified that when he left the firm, he took with him approximately 180 client files. Of these files, approximately ninety-six were pending trial, thirty were on appeal, and the rest were unfiled. With regard to the agreement itself, defendant conceded that he was a member of the committee that drafted the agreement and that he voted in favor of it. Defendant also admitted that he told a previously departing director that he felt that the fee-splitting arrangement was valid and enforceable.

There was conflicting testimony at the hearing regarding the parties' intent in drafting the employment agreement. Defendant testified that the agreement was modified several times during the 1980s and that the modifications were intended to make departure unattractive by penalizing departing directors. In contrast, Robert Chessman, a director in plaintiff law firm, testified that the primary purpose of the fee allocation provision was to avoid the tedious and overwhelming task of having to divide the fee for each individual file on a quantum meruit basis. Although Chessman conceded that the percentages used for dividing a fee could have been more detailed and specific, he testified that the figures used were fairly reflective of the firm's contribution to any given file. Finally, Chessman testified that defendant directly advocated the adoption of several of the provisions at issue.

The arbitrators ruled in favor of plaintiff, finding that the employment agreement was valid and enforceable. Plaintiff then petitioned the circuit court for entry of judgment, and defendant moved to vacate the arbitrators' award. Following a hearing, the circuit court agreed with the arbitrators that the agreement was valid and entered judgment in favor of plaintiff.

II

On appeal, defendant contends that the fee-allocation provisions of the employment contract should not be enforced because they violate public policy. Specifically, defendant argues that paragraphs 17(d) through (f) provide for improper fee splitting and result in an unreasonable restriction on his ability to practice law. We disagree.

Defendant's argument is premised on the assertion that the agreement in this case violates rules 1.5(e) and 5.6(a) of the Michigan Rules of Professional Conduct. These rules provide, in pertinent part:

Rule 1.5(e). A division of a fee between lawyers who are not in the same firm may be made only if:

(1) the client is...