Appeals court voids firm fee imposed on departing lawyers who take clients with them
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The Colorado Court of Appeals has addressed two issues of first impression that relate to law firm agreements that aim to prevent departing attorneys from taking clients with them.
In its April 28 opinion, the appeals court held that an agreement imposing a fee on a departing attorney for each client who leaves with them may violate Colorado Rule of Professional Conduct 5.6(a), which prohibits agreements that restrict “the right of a lawyer to practice,” if it is unreasonable under the circumstances. The appeals court also said contractual provisions that violate this rule are necessarily void as against public policy.
Law.com has coverage of the decision.
The case arose after associate attorney Grant Bursek resigned from the Denver office of Modern Family Law in September 2019. The firm requested that Bursek pay $1,052 for each of the 18 clients who left with him per the terms of a reimbursement agreement that he signed earlier that year.
When Bursek refused, Modern Family Law filed a complaint asserting a breach of contract claim and a claim that a separate confidentiality and nondisclosure agreement was enforceable against Bursek. A district court found that the $1,052-per-client fee violated Rule 5.6(a), and that the agreement was unenforceable. However, the district court agreed that the second agreement was enforceable and entered judgment in favor of the law firm on that claim.
When considering Modern Family Law’s reimbursement agreement, the Colorado Court of Appeals said, “the close nexus between the fee imposed by the agreement and Bursek’s representation of specific clients is particularly problematic.” The appeals court explained that it could largely impact a lawyer’s autonomy, as well as their client’s choice of representation. The court also pointed out that $1,052 “is not an insignificant sum.”
“That financial burden accumulated for each of the 18 clients that Bursek continued to represent, increasing the likelihood that the $1,052 opportunity cost per client would eventually prove to be a barrier to representation,” according to the court’s opinion. “Thus, at the outset, we conclude that the $1,052 fee, being triggered by the representation of specific clients, had a substantially restrictive effect on Bursek’s practice.”
The appeals court said while the firm’s agreement claimed that the purpose of the fee was to recoup marketing costs, it did not explain why the fee represented a fair estimate of costs for each client. The court noted that the fee was imposed even on clients Bursek brought to the firm without the assistance of marketing.
“As the district court pointed out, the fee appears to be a disguised attempt to penalize competition, rather than a legitimate effort to reimburse the firm for actual marketing expenses,” the opinion said.
While the appeals court also held that a contractual provision that violates Rule 5.6(a) is necessarily void, it said a violation of the rule will not void a contract in its entirety. It reversed the portion of the district court’s order that declared Modern Family Law’s entire agreement unenforceable.
The appeals court held that it did not have jurisdiction to consider the issue over the separate confidentiality and nondisclosure agreement.
