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Just 12 years after blowing the whistle on restrictive covenants in law firm partnership agreements, New Jersey’s Supreme Court has made it a whole new ball game. In a nutshell: What can’t be done by a covenant not to compete can be done by a retirement plan. Firms can condition withdrawing partners’ payouts on noncompetitive legal practice as long as the agreement “sufficiently operates as a retirement plan within the contemplation of RPC 5.6,” the justices ruled last week in Borteck v. Riker, Danzig, A-31-03. But in so interpreting that exception to Rule of Professional Conduct 5.6, the justices exposed it as threadbare and paved a path toward its revision. The court directed its Professional Responsibility Rules Committee to determine whether the exception should be further defined or deleted to comport with public policy. “Absent greater specificity in the rule itself, it would be unfair to hold defendant to requirements or standards not embodied in the rule’s present text,” Justice Peter Verniero wrote for the court. “[U]ntil we hear from the Committee on that subject, firms must guard against provisions that unreasonably delay an attorney’s orderly transition from one firm to another, or from the firm to retirement status.” RPC 5.6 states that a lawyer ” … shall not participate in any offering or making … a partnership that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits of retirement.” The public policy underlying the rule is that restrictions on the practice of law work to the detriment of clients by limiting their access to legal services. That was the reason the court, in Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10 (1992), voided a partnership agreement that withheld termination benefits in cases of “competitive departures” — in which defecting partners solicited clients or employees to leave with them. The court concluded that although the agreement was not a direct restraint, it “violate[d] both the language and spirit of RPC 5.6 because it � essentially penalized a withdrawing lawyer who opted for a competitive departure.” Unlike the agreement in Jacob, at issue in the instant case was a provision restricting “retirement” benefits to retiring partners who remained retired. As used in Riker, Danzig, Scherer, Hyland & Perretti’s partnership agreement, “retirement” means “permanent retirement … from the private practice of law, whether or not due to disability,” provided the partner is at least 55 years old. Such partners receive their capital contributions and 96 monthly payments based on their years of service to the firm. Entitlement is conditioned on “continuously remaining in a retirement status.” If retirement status ceases, the payout “shall permanently terminate with respect to all unpaid retirement benefit payments.” Robert Borteck, a Riker Danzig partner for 11 years and the head of the Morristown, N.J. firm’s trust and estates department, abruptly left the firm in September 2000 to join Short Hills, N.J.’s Edwards & Angell, taking several lawyers and clients with him. The firm claimed he forfeited the payout because he wasn’t retired and didn’t give timely notice under the agreement. But Borteck sued and won on summary judgment, the trial court and Appellate Division finding the agreement was contrary to RPC 5.6. In reversing, the justices found nothing in the Riker Danzig retirement provision differentiating competitive and noncompetitive departures, which had been the fatal flaw in Jacob and in a subsequent ruling that reached the same conclusion, Apfel v. Budd, Larner, Gross, Rosenbaum, Greenberg & Sade, 324 N.J. Super. 133 (App. Div. 1999). By contrast, Borteck’s only restriction was that he stay retired, which meant his clients would have to find a new lawyer anyway. “In sum, the circumstances surrounding the agreement before us differ in material respects from the arbitrary or punitive conditions that were present in Jacob and in the other reported decisions cited by plaintiff,” wrote Verniero. He added that Riker Danzig’s provision resembles agreements upheld by courts in other jurisdictions operating under rules with safe-harbor language similar to RPC 5.6. Riker Danzig’s lawyer in the case, managing partner Glenn Clark, says he is not surprised by the ruling because the firm took “great care” to comply with RPC 5.6. “All we asked [in the retirement provision] is adequate notice” and an agreement to not compete. “He [the retiring partner] is free to be un-retired,” says Clark. “He just doesn’t get retirement benefits.” Clark had argued that it is fundamentally unfair for a defector to be competing with his former partners — thus taking bread out of their mouths — while expecting them to keep on paying him benefits, which are largely funded by fees generated after his retirement. Donald Robinson, a partner at Newark’s Robinson & Livelli, agrees with Clark. “If you ‘retire,’ then go back into private practice, the firm you used to work for is competing for the money they are making to pay your retirement benefits. That takes away from that firm’s earnings. “A retired partner has a right to earn retirement benefits as long as he or she is not competing with his or her former firm,” Robinson says. “But once that partner starts competing, the firm has a right to cut him off.” Borteck’s lawyer, Edwards & Angell partner Robert Novack, did not return a telephone call seeking comment.

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