May It Please The Court

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May It Please The Court
by Leonard Rivkin
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Law Firm Partnership Agreements Upheld Against Fee-splitting Allegations

If you run a law firm, you might want to be aware of this case.  There's some language in it that you might want to add to your partnership agreements, now that it's been blessed by the Courts.  Seems that an attorney signed a partnership agreement that acknowledged his law firm invested substantial resources to develop its client base.  At the same time, he agreed that if he left, then he would pay 25% of income derived from the firm's clients that went with him to his new firm.

A definite disincentive to leave with clients, and protective of the firm's investment.

The Court that reviewed the provision, here in part of its glory, thought it was reasonable (and a host of other reasons), despite the attorney's position that it was an unlawful fee-splitting arrangement:

“Section 15.8. Liquidated Damages for Open Files. The partners mutually acknowledge that the client relationships of the firm constitute the firm’s most valuable assets, the loss of any of which will cause severe damage to the firm. Such damage would be extremely difficult or impossible to calculate. The partners further mutually acknowledge that the client relationships [with] the firm have been developed using substantial financial, administrative and personnel resources of the firm, such that it would be unfair to the firm for any departing partner to enjoy the benefits of such client relationships without compensating the firm therefor. Accordingly, each partner hereby agrees that if such partner departs from the firm and, subsequent to such departure, renders legal services (directly or through any law firm . . . with which such partner associates subsequent to departure) with respect to any ‘Open Files’ (as that term is hereinafter defined), such partner shall pay over to the firm, as liquidated damages, an amount equal to 25% of the revenues for all legal services rendered on Open Files for 24 months after the departing partner leaves the firm, payable to the firm as received by such partner or such Associated Firm. As used herein, the term ‘Open Files’ means all pending matters with respect to which the firm has been engaged to perform legal services as of, or prior to, the date of the partner[’s] departure from the firm. . . .”

The Court pretty much took the attorney to task for violating the agreement with his partners:  "Having accepted the benefits of his bargain, [the attorney] will not now be heard to complain that he ought to escape its burdens."  It wasn't Christmas for everyone, which is the case in most disputes.

Posted by J. Craig Williams on Thursday, December 22, 2005 at 23:25 Comments (0)


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