Given that there isn’t a lot going on in the news that relates to legal issues, I feel obligated to offer lawyers something to read. (I don’t think I’ve ever gone on record here about how badly I wish someone would create and implement a sarcasm font upon which all users could agree. Maybe it would be a way to use comic sans where everyone would be ok with it?)
Back around Thanksgiving, I wrote about a Virginia federal court ruling that laid the framework for a future decision about whether a particular provision in a law firm operating agreement violated RPC 5.6. Specifically, the provision required a departing shareholder who goes on to practice law in competition with the firm to forfeit half of their equity interest in the firm. I concluded my original post by speculating that the outcome would ultimately hinge on how the court interpreted a paragraph in Comment [2] of D.C.’s version of the rule. Sure enough, the court has now ruled, and its ruling did hinge to a significant extent upon application of that language as quoted in this piece from the ABA/BNA Lawyers’ Manual. Interestingly though, much of the fight in the case actually came down to whether half of the shareholder’s equity interest was even a “substantial” financial penalty at all.
In the face of an argument from the firm that it wasn’t substantial because it was significantly less than the departing lawyer’s salary at his new destination, and expert testimony that the fragility of law firms should allow provisions forfeiting equity to avoid a “death spiral” when owners leave unexpectedly, the court looked only at the penalty in its own context:
Moreover, the practical effect of the Firm’s forfeiture clause is to penalize withdrawing members who wish to continue to represent even one of the Firm’s clients by depriving them of a previously accrued equity interest to which they otherwise would be entitled. When Moskowitz left the Firm, he faced a choice: receive the full value of his [ownership interest] and turn down his clients who sought his continued representation, or forfeit fifty percent of his equity interest in the Firm and continue to represent his clients’ interests. There is a clear disincentive attached to the latter option.
Update part two & three – I’ve also tried to keep up with events in Pennsylvania and Texas as they unfold with respect to the fates of their top law enforcement officers, both of whom face criminal prosecution.
In Pennsylvania, the sitting Attorney General had something of a mixed bag of recent events. Her effort to have her law license reinstated denied, but she managed on a first vote to survive being removed from office by the Pennsylvania Senate.
As to the Texas AG, you may recall that back when I first posted about any of this, I mentioned a disciplinary complaint that had nothing to do with, and predated in time, the indictment against him. (Though unlike the events made the subject of the indictment, the disciplinary complaint actually related to the AG’s conduct in office.) Although there have not been any recent events regarding the indictment to catch my attention, there has now been news that the disciplinary complaint which originally was headed toward dismissal, has now been reinstated and will move forward over the AG’s advice to public officials that they could freely disregard the authority of the United States Supreme Court.