The state Supreme Court is deciding whether three lawyers should be disciplined for entering into a postsettlement agreement in a landlord-tenant case, in which one of them voluntarily agreed to not represent clients against a particular defendant.

In the consolidated cases, argued Tuesday, the Office of Attorney Ethics is seeking an admonishment for Sean Smith, an associate at Roseland’s Brach Eichler, and reprimands for his superior, partner Charles Gormally, and for Jersey City solo Cathy Cardillo, the lawyer who agreed to the restriction.

All three are charged with violating Rule of Professional Conduct 5.6(b), which bars a lawyer from offering or making an agreement that limits a lawyer’s right to practice as part of a case settlement.

The Disciplinary Review Board said Smith’s infraction was minor, and ordered that he be allowed into a diversionary program. The OAE, on the other hand, says it has the sole authority under R. 1:20-3 to determine whether diversion is permissible and says Smith cannot be allowed into the program since he has steadfastly refused to admit wrongdoing, which is a requirement for entry.

Diversion involves a nondisciplinary handling of charges for minor unethical conduct and typically requires lawyers to take specific remedial steps. If the lawyer fails to do so, the ethics case goes forward.

An attorney representing Gormally and Smith denied any impropriety and said the agreement was meant to avoid future arguments over conflicts of interest, while Cardillo admitted to violating the rule and said she would accept a reprimand if the court believes she deserves one.

Brach Eichler represented landlord Bloomfield 206 Corp. in a rent dispute with Cardillo’s clients who alleged they were overcharged by about $150,000. They sued under the Consumer Fraud Act for treble damages and legal fees.

Gormally and Smith moved to disqualify Cardillo, claiming she had a conflict because of her prior representation of Bloomfield 206 principals.

The case settled for $150,000 in cash and rental credits on Aug. 28, 2007, before the motion was decided.

In a separate confidential agreement negotiated at the same time and signed the next day, Bloomfield 206 and its principals waived any conflict by Cardillo in the rent case and she agreed not to represent anyone adverse to them or take a position adverse to them in any future action.

Cardillo later claimed the restrictions “made no difference” to her because she was planning to retire soon and was not aware they were unethical, though she raised the possibility of an RPC 5.6 violation in an email to Smith during the negotiations.

She claimed she learned of the problem from American Bar Association materials, prompting her to return to court seeking to void the agreement on the ground it was unenforceable as a matter of public policy.

Gormally argued in opposition that the agreement with Cardillo was separate from the settlement and intended to resolve future conflicts.

Hudson County Assignment Judge Maurice Gallipoli granted Cardillo’s request. He found the two agreements were intertwined and said: “You’d have to be deaf, dumb and blind not to appreciate” that the agreement violated RPC 5.6. The Appellate Division affirmed in 2010 and Gallipoli, who has since retired and now sits on the DRB, referred the matter to ethics authorities.

OAE Director Charles Centinaro told the court on Tuesday that it was clear that the three attorneys violated the rule and that discipline was warranted. He also argued that as for Smith, the OAE had the right to deny diversion.

“The DRB erred in disregarding the OAE’s determination that Smith should not be offered diversion,” he said. “The DRB’s action was clearly improper. The decision is in the sole discretion of the director. The rule is clear and unambiguous.”

Smith continues to deny he engaged in any misconduct, said Centinaro. Because of that, he said, the OAE could not conclude that his actions were minor. As for Smith and Cardillo, they both knew or should have known that the agreement was improper, and Centinaro added that Cardillo later acknowledged that she violated the rule.

Centinaro also argued that it is for judges, not lawyers, to determine whether a conflict of interest exists in a particular case.

The lawyer for Gormally and Smith, Michael Griffinger, said there was no violation of the rule. Rather, he said, the agreement was an attempt to avoid further disputes over representation.

“The idea of having to avoid conflicts of interest issues was an attractive alternative,” said Griffinger, of Gibbons in Newark. “Nothing was withheld from the court. This was all done in good faith. Nothing was hidden. Nothing was kept secret.”

Griffinger also took issue with Centinaro’s argument that lawyers do not decide whether there are conflicts of interests.

“I disagree when he says it’s not their call to make,” he said. “Lawyers do that every day. They look at [potential conflicts] and worry about them.”

Griffinger said his clients have no history of prior disciplinary infractions and should not be punished. “I don’t think there’s any concern about their ethics,” he said. “Is there clear and convincing evidence of an ethics violation? I think not.”

Cardillo was contrite.

“Yes, I violated RPC 5.6,” she said. “I accept responsibility, and I’ve done it all the way through. I accept discipline. This will never happen again.”

Appearing as amicus, the State Bar Association asked the court to use the case against Smith to amend R. 1:20-3 to remove the requirement that there be an admission of wrongdoing and to allow for interlocutory appeal, which is currently not an option.

“Admission of culpability in borderline cases doesn’t make any sense,” said the bar’s lawyer, Medford solo David Dugan III, adding that defendants in criminal cases who are being considered for admission into pretrial intervention do not usually have to admit guilt.

Dugan said attorneys who may be eligible for diversion have a narrow window for acceptance. Diversion must be applied for between the filing of a grievance and the OAE’s decision to lodge a formal complaint. Diversion, he said, should be an option throughout the entire disciplinary process.

The justices in disciplinary cases generally ask few questions, but Justice Jaynee LaVecchia said expanding the time allowed for admission into a diversionary program could drain the disciplinary system’s time and resources.

“Justice is more important that efficiency,” Dugan said.

The cases are In the Matter of Charles Gormally, D-36-11; In the Matter of Sean Alden Smith, A-98-11; and In the Matter of Cathy Cardillo, D-37-11.