Eisenstein v. Conlin

Citation: 444 Mass. 258

Court: Massachusetts Supreme Judicial Court; May 16, 2005; Massachusetts; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

In 1999, Ronald Eisenstein and David Resnick resigned from the law firm Dike, Bronstein, Roberts Cushman LLP (DBRC) to become partners at another firm, where they continued to serve clients previously associated with DBRC. This led to litigation concerning the enforceability of DBRC's partnership agreement provisions, which required departing partners to pay a portion of fees earned from current and former DBRC clients to the firm. DBRC appealed a Superior Court's summary judgment favoring Eisenstein, Resnick, and their new firm, which deemed the provisions unenforceable as they conflicted with public policy favoring client choice in representation. The legal analysis emphasized the public interest in allowing clients to select their legal counsel freely, referencing the case Meehan v. Shaughnessy. The court affirmed the lower court's decision, determining that the contractual obligations imposed on former partners were not enforceable under these circumstances. The partnership agreement, established in 1971 and amended over the years, included provisions for crediting partners based on client origin and required payments for work performed on clients attributed to other partners for four years post-departure. Eisenstein and Resnick, having been partners at DBRC since 1989 and 1995 respectively, filed a complaint in 2001 for accounting and payment of profits and capital contributions after their departure.

Defendants filed a twenty-two count counterclaim against Eisenstein and Resnick, alleging unjust enrichment, breach of contractual and fiduciary duties to DBRC, failure to make payments under paragraphs 5A and 5B of their agreement, unauthorized disclosure of confidential client information to Nixon Peabody, and unfairly diverting clients from DBRC. Additionally, DBRC parties initiated a third-party claim against Nixon Peabody and an unnamed partner for intentional interference with advantageous relations and civil conspiracy. On August 16, 2001, Sewell P. Bronstein, P.C. also sued Eisenstein and Resnick on similar grounds. After various motions and extensive discovery, Eisenstein, Resnick, and Nixon Peabody moved for summary judgment in March 2003, arguing that the claims were based on provisions in the agreement that were void and unenforceable. The Superior Court ruled in favor of the defendants in April 2003, leading to an appeal by DBRC and Sewell P. Bronstein, P.C.

Eisenstein, Resnick, and Nixon Peabody contended that the provisions underlying DBRC's counterclaims violated Massachusetts Rule of Professional Conduct 5.6, which prohibits partnership agreements that restrict a lawyer's ability to practice after leaving a firm, except for retirement benefits. This rule aims to protect clients’ interests by ensuring they can freely choose their counsel, thus preventing practices that limit the pool of qualified attorneys. The court emphasized that the public interest in client choice outweighs any professional benefits from restrictive provisions, as demonstrated in previous cases where similar agreements were deemed unenforceable due to their discouraging effect on competition among attorneys. The rule's broad application necessitates careful judicial examination of any partnership clauses that impose financial penalties on attorneys who leave and compete with their former firm. The document concludes with a commitment to review the specific contractual provisions in question.

Paragraphs 5A and 5B of the partnership agreement are deemed unenforceable due to their imposition of significant economic disincentives to competition with no legitimate justification for DBRC’s interests. These provisions require withdrawing partners to pay a higher percentage of non-credited client billings compared to remaining partners and extend to all fees received by a new firm from DBRC clients, regardless of any pre-existing relationship. The provisions also apply to any work done by the new firm's partners or associates, creating punitive effects on withdrawing partners. This structure discourages former partners from representing DBRC clients, pushing them to favor clients where they can retain a larger percentage of the billings. Such enforcement would restrict client choice and competition in violation of professional conduct rules.

DBRC's assertion that material facts prevent summary judgment on additional claims against Eisenstein and Resnick for breach of good faith, estoppel, unjust enrichment, and against Nixon Peabody for tortious interference is rejected. Claims relying on the unenforceable provisions cannot stand, as contracts voided for public policy cannot be enforced through alternative theories such as promissory estoppel. Additionally, allegations of breaches of fiduciary duty and conspiracy related to client consent are found to be without merit.

Partners in a law firm hold a fiduciary duty of utmost good faith and loyalty, requiring them to prioritize their copartners' welfare over personal interests. DBRC claims that Eisenstein and Resnick breached this duty by disclosing parts of the partnership agreement and client information to Nixon Peabody, which allegedly prompted wrongful actions by the two partners. However, the partnership agreement, drafted by skilled intellectual property attorneys, does not explicitly mandate confidentiality for the agreement or client-related information, and DBRC fails to provide evidence supporting its claim that the disclosed information was confidential. The situation is not one where Eisenstein and Resnick proactively attempted to take clients from DBRC; rather, DBRC's challenges in retaining clients were largely self-imposed, with testimonies indicating a lack of aggressive pursuit of departing clients due to concerns about client relationships and an overburdened workload. DBRC also struggles to demonstrate harm, as it has not shown reasonable expectations of losses stemming from the disclosures or from Eisenstein and Resnick's prior beliefs about the enforceability of certain provisions. The court affirms that summary judgment is appropriate as DBRC lacks a reasonable expectation of proving essential elements of its claims. Furthermore, DBRC's financial distributions to partners increased significantly after the departure of Eisenstein and Resnick, undermining claims of harm. Consequently, claims against Nixon Peabody are equally unmaintainable, leading to the affirmation of summary judgments in favor of Eisenstein, Resnick, and Nixon Peabody. The partnership agreement includes a provision incentivizing partners to bring clients to the firm, stating that upon retirement, a partner is entitled to 10.5% of receipts from their clients, regardless of who handles the work.

DBRC asserts that paragraph 5A of the partnership agreement is the sole retirement benefit it agreed to provide. Paragraph 5B mandates that upon a partner's termination or withdrawal, for four years, each partner must pay 15% of receipts from clients to the partner credited with those clients. In 1994, the Massachusetts Bar Association's Committee on Professional Ethics evaluated these paragraphs and deemed them ethical but did not comment on their enforceability. The committee's advice predates the decision in Pettingell v. Morrison, Mahoney, Miller, which is relevant to this case. On July 1, 2000, DBRC's remaining partners merged with Edwards, Angel, LLP. Sewall P. Bronstein, P.C. withdrew and entered an “Of Counsel Agreement” with DBRC, which deferred retirement benefits until the agreement's termination, allowing Bronstein to receive benefits as if he had retired the day after the agreement ended. Eisenstein and Resnick successfully claimed money owed under the partnership agreement in Superior Court, a judgment DBRC has satisfied, and Edwards, Angel, LLP is no longer a party to the case. Massachusetts Rules of Professional Conduct Rule 5.6 is noted to be similar to its predecessor, with a limited exception allowing for restrictions where a former partner's actions could threaten a firm's survival. However, the court rejected a blanket prohibition on forfeiture provisions and found that paragraphs 5A and 5B do not prevent a partner from retaining clients who choose to follow them. DBRC's failure to actively retain clients after Eisenstein and Resnick left is acknowledged, as they believed the paragraphs were enforceable. Consequently, the court concluded that the provisions violate Rule 5.6, making it unnecessary to assess their compliance with Mass. R. Prof. C. 1.5.

DBRC's provisions stipulate that fees can only be divided between lawyers outside the same firm with prior client consent, as limited by Mass. R. Prof. C. 1.5(e). The argument that paragraph 5A constitutes an acceptable retirement benefit agreement is rejected; the rule permits agreements that limit a retiring attorney's practice in exchange for retirement benefits, but does not allow for restrictions on non-retired attorneys’ practice, as paragraph 5A does. Consequently, paragraph 5A is unenforceable against Eisenstein and Resnick, making the status of Sewell P. Bronstein, P.C. as a retired partner irrelevant. DBRC has not alleged that Eisenstein and Resnick violated their duty to maintain client confidentiality, nor does the record indicate any client consent for disclosing their identities or billing information. Attorneys must exercise caution when sharing client information with third parties. Resnick followed the American Bar Association's recommended method for contacting DBRC clients post-withdrawal, which DBRC approved. DBRC calculates its claimed damages based on fee-sharing provisions in paragraphs 5A and 5B regarding new business from former clients, but the appropriate measure of loss for breach of fiduciary duty claims is the profit DBRC would have earned from clients it would have retained but for Eisenstein and Resnick's alleged breaches.