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Katchen v. Wolff & Samson

Decided: July 20, 1992.

WILLIAM S. KATCHEN, PLAINTIFF-APPELLANT,
v.
WOLFF & SAMSON, A PROFESSIONAL CORPORATION, JOEL A. WOLFF AND DAVID SAMSON, INDIVIDUALLY, DEFENDANTS-RESPONDENTS



On appeal from the Superior Court of New Jersey, Law Division, Somerset County.

Bilder, Stern and Keefe. The opinion of the court was delivered by Keefe, J.A.D.

Keefe

The opinion of the court was delivered by

KEEFE, J.A.D.

The issue presented on appeal is whether a 1984 agreement executed by plaintiff, a New Jersey attorney, that provided for the forfeiture of plaintiff's equitable interest in the defendant law firm upon voluntary withdrawal from the firm violates RPC 5.6 and is unenforceable. The Law Division Judge, relying substantially on our opinion in Jacob v. Norris, McLaughlin & Marcus, 247 N.J. Super. 266, 588 A.2d 1287 (App.Div.1991), held that the agreement was enforceable and granted defendants' motion for summary judgment. This appeal followed.

During the pendency of the appeal, the New Jersey Supreme Court reversed our decision in Jacob. Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 607 A.2d 142 (1992). In doing so, it held that "[f]inancial-disincentive provisions" contained in partnership termination agreements that have "indirect

restrictions on the practice of law" are as violative of RPC 5.6 as direct restrictive covenants and are, therefore, unenforceable. Id. at 20-22, 607 A.2d at 148.*fn1 For the reasons stated herein, we hold that the principles announced by the Supreme Court in Jacob apply to the facts of this case and require a reversal of the judgment under review and a remand for further proceedings.

For the purposes of this opinion we must accept the facts alleged by plaintiff as true and interpret those facts in a light most favorable to him. On January 1, 1983, plaintiff became a member of the defendant law firm, Wolff & Samson, P.A., without a written agreement, issuance of stock, or an understanding of what percentage of stock he would eventually acquire in the firm.*fn2 Plaintiff testified at depositions that when he joined the firm it was his understanding that Irwin Kimmelman, who was then Attorney General and a former partner in the firm, would be rejoining the firm in the near future at which time it would be "reconstituted" and plaintiff's name would be included in the firm title. It was also plaintiff's understanding that the issuance of stock certificates to members of the firm and the renaming of the firm would occur at that time.

On May 9, 1984, plaintiff and three other non-stockholder partners executed an agreement in which they were designated as "Equitable Stockholders" (The 1984 Agreement). Neither plaintiff nor the other three attorneys contributed to the capital

of the firm. In recognition of "numerous valid reasons which [made] it impractical to issue stock of the Corporation to the Equitable Stockholders at [that] time or . . . determine the number of shares which the respective Equitable Stockholders [would] be entitled to purchase" the announced purpose of the 1984 Agreement was to "provide the Equitable Stockholders with the same rights regarding death and disability benefits as that provided to other stockholders of the Corporation."

Paragraph one and two of the 1984 Agreement set forth the benefits payable to the legal representative of a deceased equitable stockholder and those payable in the event of sickness or disability. Paragraph four established the value of the equitable stockholders' interest in the corporation as it related to death and disability. Paragraphs five and six of the agreement addressed procedural matters. We quote from that part of the agreement which is pertinent to this appeal:

3. Withdrawal. If an Equitable Stockholder shall voluntarily withdraw from the Corporation, he shall be deemed to have forfeited his equitable interest in the Corporation and the Corporation shall not be required to make any ...


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