It has been a minute since I’ve had a decent reason to write a post regarding efforts of law firms to try to come up with ways around the ethical restriction imposed by RPC 5.6(a) in jurisdictions that track the Model Rules.
A recent Colorado case does the trick. (And, thankfully it does, because otherwise I was going to find myself writing about the bananas nonsense that lawyers in Texas are helping Greg Abbott pursue that could lead to a new civil war.) That case — Johnson Family Law (doing business as Modern Family Law) v. Bursek involved a law firm that decided to sue its former associate for slightly more than $18,000 because 18 of the firm’s clients decided to leave with Bursek when he left the firm.
Loyal readers of the site will probably immediately react by thinking … well that’s a bad idea. You are correct. But the details of the situation also don’t help.
In April 2019, Bursek—an associate attorney at MFL in Denver—signed a “Reimbursement Agreement” that required him “to reimburse [MFL] for marketing expenses related to any client, case or active matter” that left the firm and followed him. Recognizing that “actual expenses may be difficult to determine,” the agreement provided that “historic costs directly related to marketing expenses” for each client of the Denver office were $1,052. Thus, for each client who chose to continue being represented by Bursek, the agreement required him to pay MFL $1,052, whether or not there was evidence that MFL had expended marketing funds on that client. If Bursek did not pay the total amount owed under the agreement within thirty days of departing the firm, he would owe interest accruing at a rate of 1.5% per month (18% per year) on any unpaid amounts. The agreement also contained a provision requiring Bursek to pay MFL’s “court costs and expenses, including reasonable attorneys fees” for any litigation about the agreement, regardless of whether MFL prevailed in that litigation. Finally, the agreement included a severability clause providing that, if any “part” or “provision” was “held to be void or unenforceable,” such a holding would not “invalidat[e] the remaining provisions.”
Bursek left MFL in September 2019. Eighteen clients elected to leave the firm and continue their attorney-client relationship with him. MFL demanded $1,052 for each client—a total of $18,936—as reimbursement under the agreement. The agreement made an exception for clients or matters that Bursek had brought with him to the firm.
When Bursek refused to pay, the firm sued for breach of contract.
The courts ultimately determined that such a “per client” charge in a set amount was incompatible with the prohibition in the ethics rules on restrictions on lawyer’s ability to practice.
This outcome is not at all surprising. After all, even though the Colorado Supreme Court decided to align itself with a minority of jurisdictions and conclude that a “reasonableness” analysis rather than a per se prohibition was the right standard, it was easily able to brush aside the notion that such a per client fee could ever be reasonable:
Of particular concern, such a fee forces attorneys to make individualized determinations of whether a client is “worth” retaining and incentivizes them to retain clients in high-fee cases and to jettison clients with less lucrative claims. This direct intrusion on the attorney-client relationship is quite different from financial disincentives that might indirectly affect client choice by making it more costly for an attorney to leave a firm. No reasonableness analysis is needed to determine that per-client fees of the sort at issue here violate Rule 5.6(a).
The fact that the firm in question put such a provision into their contract with the attorney also, sadly, isn’t surprising. The economic issues in law firms and the viewpoint that prevails often that firms should be able to protect themselves from having lawyers leave and take clients with them often pushes lawyers to tread up as close to the line as possible to try to disincentivize something that the rules say is fair game.
But the fact that the firm decided to file a lawsuit over $18,000 and put their partners at substantial risk of discipline when the associate refused to pay is quite surprising. And when I say, “quite surprising,” I mean it more like this:
It appears clear from the opinion that they had able counsel to represent them in the litigation, but I am highly curious about whether those lawyers ever got the opportunity to try to talk the firm out of filing such a suit or not.