New Jersey's professional conduct rules permit a law firm to make a departing lawyer pay the firm half of any contingent fee eventually received in cases the lawyer takes with him, the New Jersey Superior Court, Appellate Division, declared July 22 (Groen, Laveson, Goldberg & Rubenstone v. Kancher, N.J. Super. Ct. App. Div., No. A-5640-01T2, 7/22/03).

The court found this firm's provision to be less restrictive than those that were held unenforceable in previous cases. It endorsed the reasoning of decisions from other jurisdictions that have approved similar agreements.

You Keep Half.

The partnership agreement for the law firm of Groen, Laveson, Goldberg & Rubenstone provided with respect to withdrawal that "[i]n the case of contingent fee matters, the fee eventually received for the matter, if any, shall be divided equally between the Partnership and the withdrawing Partner." Mark Kancher signed this agreement while he was with the Groen firm.

When Kancher left Groen and joined Shaffer, Bonfiglio, Scerni & D'Elia, he took with him several contingent fee cases. Kancher agreed to pay his new firm 60 percent of all contingent fees that he received in his practice. When Kancher received contingent fees in the cases taken from Groen, Shaffer kept 60 percent of the fee, and Kancher sent Groen half of his 40 percent share. Therefore, Groen received 20 percent of the fees collected in the Groen cases.

Dissatisfied with this reckoning, Groen filed a complaint against Kancher and the Shaffer firm for an accounting and payment of fees from the cases that Kancher took with him. Groen claimed that it was "shorted" $163,488.24 from the fees Kancher received in completed contingent fee cases.

The trial court awarded Groen summary judgment for that amount, as well as half of any future contingent fees Kancher recovers in matters he took with him. Kancher's arrangement with his new firm did not diminish what he owed his former firm, and the Shaffer firm was liable to Groen for its "ill-gotten gains," the trial court said.

In an opinion by Judge Edwin H. Stern, the appellate division approved the judgment against Kancher, but reversed the judgment against Shaffer and remanded for further proceedings.

Not Too Restrictive.

Kancher and his new firm argued that Groen's fee-split provision deterred lawyers from leaving the firm or taking cases with them upon withdrawal, constituted an unreasonable restriction on law practice, and was unenforceable as a matter of law. New Jersey Rule of Professional Conduct 5.6(a) forbids partnership agreements that restrict a lawyer's right to practice after leaving a firm.

The court acknowledged that the terms of an agreement concerning fee splitting on termination of a partnership can serve as a financial disincentive not to withdraw from a firm, or not to take firm clients, and can impair clients' freedom of choice regarding their representation.

But this agreement, the court said, does not impede a client's right to counsel of choice to the same extent as clauses held unenforceable in previous New Jersey cases. "Moreover, a partner or associate cannot be permitted to devote firm time and resources on a case with a potentially large contingency and then leave without owing the firm for its services," Stern declared.

The court found the provision here to be less restrictive than those struck down in other New Jersey cases such as Apfel v. Budd Larner Gross Rosenbaum Greenberg & Sade, 734 A.2d 808, 15 Law. Man. Prof. Conduct 410 (N.J. Super. Ct. App. Div. 1999). The Groen provision, the court explained, merely required Kancher to remit half of the fee eventually collected in contingent fee cases on which he worked with Groen. Kancher did not show as a matter of fact or "economic reality," the court said, that the agreement hampered his ability to continue his practice or to handle cases that clients wanted him to take from the Groen firm.

The court noted that the underlying purpose of Rule 5.6(a) is to serve the public interest in maximum access to lawyers and to preclude commercial arrangements that interfere with that goal. The clause in the Groen partnership agreement does not conflict with that purpose, the court found.

The court cited a 1989 case in which it granted a lawyer's former firm a quantum meruit award of one-third of the contingent fee from a case that the lawyer took with him when he withdrew from the firm. That case encouraged the use of agreements to avert such disputes, the court observed.

As additional authority, the court relied on cases from Delaware, Louisiana, and Minnesota that held fee-division agreements to be enforceable against withdrawing lawyers, and it also cited Section 9, comment i, and Section 13 of the Restatement of the Law Governing Lawyers.

Judgment Against Firm Reversed.

On the other hand, the court found no basis in the record for summary judgment against the Shaffer firm. The trial court made no factual findings that could justify imposing a constructive trust on funds in the hands of a nonparty to the partnership agreement, the court explained.

"While Shaffer may well have known of the agreement, we do not know when it learned of same or its terms, and we can hardly say it was unjustly rewarded for work done on the cases concluded while Kancher worked there," the court said. Accordingly, the court reversed the judgment against Shaffer and remanded for further proceedings.

Ronald J. Shaffer of Fox Rothschild in Philadelphia, and Kathryn D. Portner of the firm's Atlantic City, N.J., office, represented Kancher and the Shaffer firm.

Charles W. Heuisler and Arthur H. Jones Jr. of Archer & Greiner, Haddonfield, N.J., represented the Groen firm.