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Among the rules of professional conduct, New Jersey’s RPC 5.6(a) seems one of the simplest: A partnership agreement cannot restrict a departing lawyer’s practice, but a retirement benefits plan can. That’s why they call retirement agreements “golden handcuffs,” says Glenn Clark. If partners want to quit for greener pastures, they are not going to get the juicy retirement package that was a reward for loyalty unless they really stop the private practice of law. Last Monday, the state’s Appellate Division suggested it’s a bit more complicated. In an opinion that is mandatory reading for managing partners like Clark, the court struck down the retirement benefits agreement at his firm, Riker, Danzig, Scherer, Hyland & Perretti in Morristown, N.J., saying it failed to qualify for the exception under RPC 5.6(a). The retirement plan is actually an impermissible termination agreement that “is anti-competitive because it imposes financial disincentives to continue the practice of law with any firm other than Riker,” the court said in Borteck v. Riker, Danzig et al., A-4142-01T5. In another decision last week, Groen, Loveson, Goldberg & Rubenstone v. Kancher, A-5640-01T2, the Appellate Division ruled that clauses requiring defecting partners to hand over fees from cases they take do not run afoul of the no-compete doctrine. The Riker Danzig ruling is particularly important because the firm’s retirement benefits agreement is common in the profession, according to Clark. What’s more, the firm is appealing, making the case a likely vehicle for the first state Supreme Court decision setting the rules under which firms can put no-compete clauses in retirement plans. Plaintiff Robert Borteck, a trusts and estate lawyer, left the firm in 2000 after 11-1/2 years and solicited clients to join him at his new firm, Short Hills’ Edwards & Angell. When he sought pension benefits available to Riker Danzig partners with 10 years of service, the firm invoked the agreement and said no. Under the agreement, equity partners like Borteck receive their capital contribution, plus varying amounts in the form of 96 semi-monthly pension payments, depending on their age and years of service in the firm. In addition, the firm requires 90 days’ notice of retirement, though that can be waived. The retiring partners cannot practice privately but can work as lawyers in public service by taking, for example, government, teaching or judicial positions. The appellate court said, however, “although Riker’s plan purports to have definitive age, longevity and notice requirements, the notice provision is subject to waiver and the age provision is inappropriate when a partner enters public service, a form of practice which is not competitive with Riker.” Riker’s expressed intent to encourage lawyers to participate in public service is laudable, the court added. “Once the age requirement and, to a lesser extent, the notice requirement are subject to waiver, however, the purported retirement plan resembles a termination plan rather than a retirement plan,” the court said in an opinion by Judge Mary Cuff and joined by Judges Stephen Skillman and Steven Lefelt. In essence, the court found that the retirement agreement is no more acceptable than termination agreements struck down since Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10 (1992), established the principle that no-compete clauses violate the public policy of preserving clients’ freedom to select counsel of their choice. “It’s almost getting boring,” Borteck says of repeated affirmations of the Jacob principles, including the one in his case. Firms that have sought to tweak their agreements to avoid the anti-competitive rules have failed in every final appeals forum, he notes. TRUTH IN RETIREMENT Riker Danzig’s plan predated the Jacob decision by three years. But Edwards & Angell partner Robert Novack, who represented Borteck, says that other firms have created similar agreements in recent years to try to take advantage of the retirement-benefits exception to the no-compete doctrine. “I think it makes very plain that unless your agreement really in substance and form is a true retirement agreement it is not going to be enforced,” Novack says. Novack was a plaintiff in a similar dispute in which an appeals court struck down a retirement plan that sought to take advantage of the benefits exception, Apfel v. Budd Larner, 324 N.J. Super. 133 (1999). In that case, the court invalidated an agreement that required retirees to abstain from practicing law in any state in which the firm had an office. “If a retirement plan was completely nondiscriminatory and everyone who was a partner was subject to age and vesting requirements, longevity requirements and notice requirements, it might pass muster but this agreement does not,” he says of the Riker Danzig pact. Clark says his appeal will give the state Supreme Court an opportunity to tackle two important issues, the permissibility of notice provisions and the public service exception that doomed the agreement in the eyes of the Appellate Division. “You have an ironic finding by the Appellate Division that what is an admittedly laudable effort by a law firm to subsidize and encourage public service renders an otherwise valid eligibility requirement to collect retirement benefits invalid,” he says. He cites decisions by courts in other jurisdictions, including the highest tribunals in Washington, D.C., and Illinois, that have upheld agreements that make a distinction between lawyers who continue in private practice and those who take public sector work. He says the opinion’s attack on the notice provision was not based on any law or analysis and the result could hurt many firms. “The court made this decision in the context of Riker Danzig and if one of our partners leaves we can handle it,” he says. “But it also applies to a three- or five-lawyer shop. That can put a firm under.” By Clark’s reckoning, the appeals court decision rewrites the exception in RPC 5.6 (a). “By definition, a retirement benefit is anticompetitive in the sense it induces you not to leave. That’s why they’re called golden handcuffs.” A lawyer who lectures on management, Patrick Stanton of Morristown’s Stanton Hughes Diana Cerra Mariani & Margello, says he understands why the court was concerned about the effects of a 90-day notice on clients. “It’s a period of time that basically a law firm can use to freeze the individual out of the client relationship while trying to establish their own relationship,” he says. Unfortunately, he adds, the court did not give parameters of what a reasonable notice would be, “which really leaves people with notice provisions out there hanging as to what is going to be enforceable.” Stanton says the opinion is likely to cause firms to redesign their plans to have rigid age and length of service provisions not subject to waiver with a provision that you are not retired if you engage in the practice of law. A TROUBLESOME EXCEPTION D. Jeffrey Campbell, the managing partner at Morristown’s Porzio, Bromberg & Newman, says he is not surprised the court disdained the 90-day notice provision he calls “anti-competitive.” But he and Laurence Orloff of Roseland’s Orloff, Lowenbach, Stifelman & Siegel say the decision does not hinge on the notice problem, but on the age and longevity disparities and the public service exception. Orloff says he is troubled that the public service exception helped bring down Riker Danzig’s plan, because that “ought to be a public policy that trumps the other policy,” insuring competitiveness. He also says it does not seem right that any plan with exceptions will fall. “You get paid your retirement benefits as long as you truly retire but if you move out of state and you want to dabble in semi-retirement, I guess that’s not going to be allowed either,” he says. Orloff, who represented Budd Larner in the Apfel case, says the problem with most post- Jacob decisions is that the courts look at the potential anti-competitive effect without requiring proof that the agreement at issue put a cloud on competition. That cannot be said about the other opinion last week in the Groen Laveson case. The court ruled Tuesday that an agreement requiring a departing lawyer to pay 50 percent of the fees in contingency cases originating with the old firm did not violate RPC 5.6. At issue was whether Mark Kancher, now a partner in Mount Laurel’s Shaffer & Scerni, owed $163,488 in fees to his former firm, now Groen, Lamm, Goldberg & Rubenstone in Jenkintown, Pa., for files he originated there and finished at his new firm. It’s true that fee agreements can have an impact on clients’ freedom to choose a lawyer, Appellate Division Judges Edwin Stern, Donald Coburn and Donald Collester suggested in an opinion by Stern. But fee divisions are not as restrictive as no-compete clauses, the court found. In the case at hand, the court said, “there is no showing in the record that the agreement prevented, as to a matter of fact or economic reality, Kancher’s ability to continue his practice or to handle cases that clients wanted him to take from plaintiff firm.”

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