On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-1469-00.
Before Judges Stern, Coburn and Collester.
The opinion of the court was delivered by: Stern, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Defendants, a former partner of plaintiff law firm and his new firm, appeal from an order of March 5, 2002 entered in favor of plaintiff in the amount of $163,488.24, with interest, for contingent fees in cases taken by plaintiff's former partner, defendant Mark Kancher, Esq., upon his withdrawal from plaintiff firm, and for 50% of any future attorneys fees in such contingency cases. A motion for summary judgment on non contingent fee cases was denied, without prejudice, pending an accounting. The matter was certified as final by order of May 31, 2002, and at a Civil Appeal Settlement Program conference, the open claims were dismissed. Hence, we deal only with the dispute relating to the contingent fees.
Defendants, Kancher and his new firm, argue that"the partnership agreement, as construed by the trial court, contains a financial disincentive to withdrawing partners, constitutes an unreasonable restriction on the practice of law and is unenforceable as a matter of law." They also claim that"the trial court's interpretation of the agreement was inconsistent with its plain meaning," and the trial court erred in granting summary judgment against Kancher's new firm and in denying that firm's cross motion for summary judgment.
Under plaintiff's partnership agreement executed by defendant Kancher, the contingent fees in cases he took with him upon withdrawal"shall be divided equally between the Partnership and the withdrawing Partner." The agreement provided in relevant part:
All clients shall be deemed to be clients of the Partnership, and not of the Partner or Partners who brought them to the Partnership or who provide services to them. Upon the withdrawal of a Partner from the Partnership for any reason, all client files shall remain with the Partnership, subject, however, to the wishes of the clients and the requirements of laws and regulations governing the conduct of attorneys-at-law.
In the event any client requests that his file be transferred to the withdrawing Partner, then:
A. In the case of non-contingent fee matters, the earned but uncollected fees pertaining to the matter, together with all expenses advanced by the Partnership in respect of the matter, shall be paid to the Partnership either by the client or the withdrawing Partner when the file is delivered to the withdrawing Partner.
B. In 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. The expenses advanced in respect of the matter shall be reimbursed dollar-for-dollar at the time the expenses or fee for the matter is received from the client or the adverse party. The first funds received from any source shall be applied to expenses advanced by the Partnership, then to expenses advanced by the withdrawing Partner, and finally on account of fees. In the event no fee or expenses are received, then the withdrawing Partner shall have no responsibility for the expenses advanced by the Partnership before the transfer of the file.*fn1
The terms of an agreement concerning fee splitting on termination of a partnership or an attorney's relationship with a law firm could well impact on the decision of the partner or associate to leave a firm, or to do so with cases. Such agreement can affect an attorney's decision, or that of his or her potential new firm, to take cases notwithstanding a client's desire to remain represented by the attorney who left the previous firm. And if the disengaging attorney has spent considerable work on the case, the client can be disadvantaged if he or she cannot retain the departing lawyer who may be unwilling to devote his resources, or those of the new firm, to such a case when the benefits of his work effort will go elsewhere. Under this view, the partnership agreement both has a"financial disincentive" not to withdraw from a firm, or not to take firm clients, and could impact on the clients'"freedom of choice" with respect to representation. See Rules of Professional Conduct ("RPC") 5.6. See also, e.g., Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10 (1992); Leonard & Butler, P.C. v. Harris, 279 N.J. Super. 659 (App. Div.), certif. denied, 141 N.J. 98 (1995).
However, we are not dealing with an agreement that has the same impact on the client's right to counsel of choice as in Jacob v. Norris, McLaughlin, supra, or any other case involving a restriction on the withdrawing attorney's ability to continue the representation of a client. 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. On balance, we uphold the agreement in dispute and the judgment against Kancher. However, there is at least a question as to the knowledge of the Shaffer firm regarding the scope of the agreement, independent of the ability to enforce it against a non-party, and we reverse the judgment against the Shaffer firm and remand for further proceedings against it.
In mid-July of 1999, Kancher decided to leave plaintiff Groen and join defendant Shaffer, Bonfiglio, Scerni & Delia (Shaffer).*fn2 He brought with him several cases originally with the Groen firm on a contingent fee basis (Groen cases). Kancher entered an agreement with the Shaffer firm (Shaffer Agreement) to give Shaffer 60% of all contingent fees received by Kancher in his cases. When he received fees in the Groen cases, Shaffer retained 60% of the fee, and Kancher sent Groen 50% of his 40% share. Therefore, Groen received 20% of the fees collected in the Groen cases.
Groen filed a complaint against Kancher for violating their Agreement and against Shaffer for the fees to which Groen was entitled.*fn3 Groen asked the court to require Kancher and Shaffer to provide a full accounting of the fees received and to"compel said defendants to pay over to plaintiff an amount equal to reimbursement of all costs incurred by plaintiff while it was counsel of record in the matter and 50% of the total fee remaining after deduction of expenses." Similar demands were made with respect to completed and pending non-contingent fee cases.
Following discovery, each party moved for summary judgment. Groen claimed that it was"shorted" $163,488.24 from the fees received in completed cases involving a contingent fee arrangement. The judge concluded that Jacob v. Norris, McLaughlin, supra,"is certainly not factually apposite here," because"[i]t doesn't involve [a] contingent fee agreement." He found that the term in the agreement was"crystal clear" that any fee received in the Groen cases had"to be divided equally between the Groen partnership and Mark Kancher." He further found that"[i]f Mark Kancher then decided that he's going to split his 50 percent share with his new firm, that's his business, but that should certainly not operate to penalize the Groen firm." The judge found"no violation of any ethical principles," and stated that the issue presented was"not a financial disincentive matter." He decided that Shaffer was liable to Groen for its"ill-gotten gains." Accordingly, the judge awarded plaintiff"the amount of $163,488.24, together with interest on the amount due in each contingent fee case calculated from the date of disbursal" and to"continue to account for and remit to plaintiff fifty per cent (50%) of any future attorneys' fees recovered in the contingency fee matters taken by defendant Kancher upon his withdrawal."
Defendants moved for reconsideration, contending that the court could not hold Shaffer liable to Groen and that the"fee split" was not fair or valid. The judge restated his conclusion that Shaffer was not entitled to the amount of fees that it collected because of the validity of the agreement between Kancher and Groen. As previously ...