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Apfel v. Gross

July 27, 1999

KENNETH S. APFEL AND DENNIS M. REZNICK, PLAINTIFFS, AND ROBERT NOVACK, PLAINTIFF-RESPONDENT,
v.
BUDD LARNER GROSS ROSENBAUM GREENBERG & SADE, A PROFESSIONAL CORPORATION, DEFENDANT-APPELLANT.



Judges Havey, P.g. Levy and Lesemann.

The opinion of the court was delivered by: Lesemann, J.s.c. (temporarily assigned).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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

The law firm of Budd Larner Gross Rosenbaum Greenberg & Sade (Budd Larner) appeals from a summary judgment invalidating a provision in its Shareholders Agreement which denied certain termination benefits to plaintiff Robert Novack, who was leaving defendant with the intention of practicing law with another firm in this State. In granting summary judgment, the Law Division concluded that the provision was anti- competitive and a violation of RPC 5.6. We agree with the court's reasoning and its Conclusion that invalidation is required under the decisions in Weiss v. Carpenter, Bennett & Morrissey, 143 N.J. 420 (1996); Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10 (1992); and Katchen v. Wolff & Samson, 258 N.J. Super. 474 (App. Div.) certif. denied, 130 N.J. 599 (1992). Thus, we affirm.

Budd Larner is a law firm based in Short Hills. It also maintains offices in New York and Pennsylvania. Novak joined the firm as an associate in 1979, became a shareholder in 1984, and later became managing shareholder, a position he held until his resignation on September 19, 1997. *fn1

In 1988, Budd Larner adopted a Shareholders Agreement (the Agreement) which remained in effect, essentially unchanged, throughout the period involved here. The dispute between Novak and Budd Larner turns on paragraphs five and six of the Agreement. Paragraph five sets out a formula for payment to one who, in the language of the Agreement, "retires, as hereinafter defined." One who does "retire," and who has been a shareholder for at least ten years, receives substantial payments of so-called "deferred income." In Novak's case, those payments amount to approximately $400,000.

Paragraph six contains a formula for termination benefits for one who leaves but does not "retire." Those benefits are substantially less and are paid over a period of time so that, in Novak's case, they would approximate $300,000--roughly $100,000 less than he would receive under paragraph five.

Thus, the right to have one's termination benefits computed under paragraph five or paragraph six, turns on whether one "retires." The Agreement defines that term in Section 5(e) as follows:

"(e) For the purpose of this Agreement a Shareholder shall be deemed to be retired if the Shareholder ceases the practice of law within all states in which the corporation maintains an office, determined as the date of retirement. Notwithstanding the foregoing, appointment as a member of the judiciary or engagement as a full-time employee attorney by organization or individual other than by a law firm, shall be deemed retirement. If a shareholder returns to the practice of law within two (2) years of the date of his or her retirement, such Shareholder shall return to the Corporation all payments received on account of deferred income and all future payments of deferred income shall cease even if the Shareholder may subsequently retire . . ."

RPC 5.6 states that,

"A lawyer shall not participate in offering or making:

(a) A partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement."

The trial court held that the Agreement violated that provision. The court focused on the definition of "retirement" and found that, in essence, the question of whether a withdrawing shareholder would be deemed "retired," turned almost exclusively on whether he or she was competing with Budd Larner. If the person were continuing to practice law at a firm in any of the three states in which Budd Larner practiced law, the person, no matter how little or how much work he or she performed, would be deemed not retired. On the other hand, if the person were practicing law at a firm in any state other than those three, then, despite how little or how much work he or she performed, or if the person was employed as a Judge, corporate counsel or in a non- legal job, he or she would be deemed "retired." The court concluded that the provision was "anti-competitive" because "the definition of retirement is specifically geared to drawing a distinction between competing shareholders and non-competing retiring shareholders . . . ." While the distinction was purportedly based on whether or not a departing shareholder was retiring, it was in reality based on whether the attorney would be competing with Budd Larner. If the answer was "yes," the individual would receive the lesser compensation package; if the answer was "no," he or she would receive the larger package.

The trial court referred to the three decisions noted above, and we agree that those cases, particularly Jacob v. Norris, McLaughlin ...


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