Cohen v. Lord, Day & Lord, 75 N.Y.2d 95 (1989)
A clause in a law partnership agreement that conditions the payment of departure compensation on a withdrawing partner refraining from practicing law in certain jurisdictions constitutes an unenforceable and impermissible restriction on the practice of law.
Summary
The New York Court of Appeals held that a law partnership agreement provision requiring a departing partner to forego departure compensation if they continued to practice law in New York or California violated public policy and Disciplinary Rule 2-108(A) of the Code of Professional Responsibility. The court reasoned that such a provision financially penalizes a lawyer for competing with their former firm, thereby restricting a client’s choice of counsel. This restriction, the court found, impermissibly infringes on the client’s right to freely select an attorney. The court distinguished this provision from agreements concerning retirement benefits, which are permissible under DR 2-108(A).
Facts
Plaintiff, a former partner at the law firm Lord, Day & Lord, withdrew from the partnership. The partnership agreement contained a provision (article tenth (B)(d)) stating that departing partners would forfeit departure compensation if they practiced law in New York or California before a specific date. Cohen began practicing with a new firm in New York shortly after leaving Lord, Day & Lord. The firm refused to pay Cohen his departure compensation, citing his violation of the restrictive covenant.
Procedural History
Cohen sued Lord, Day & Lord to recover his departure compensation. The trial court granted summary judgment to Cohen, holding that the restrictive covenant was unenforceable as against public policy. The Appellate Division reversed, finding the provision permissible. The New York Court of Appeals reversed the Appellate Division, reinstating the trial court’s decision and holding the restrictive covenant unenforceable.
Issue(s)
Whether a provision in a law partnership agreement that conditions the payment of departure compensation on a withdrawing partner refraining from practicing law in certain jurisdictions violates public policy and DR 2-108(A) of the Code of Professional Responsibility.
Holding
Yes, because such a provision financially penalizes a lawyer for competing with their former firm, thereby restricting a client’s choice of counsel, which is against public policy.
Court’s Reasoning
The Court of Appeals reasoned that the challenged provision in the partnership agreement created a financial disincentive for departing partners to compete with their former firm, thereby restricting the client’s freedom to choose counsel. The court emphasized that “a lawyer’sীব right to practice should not be fettered” and that “clients are not merchandise.” The court found that DR 2-108(A) codified the existing public policy against such restrictions, stating that “[a] lawyer shall not be a party to or participate in a partnership or employment agreement with another lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement.” The court distinguished this situation from permissible restrictions tied to retirement benefits, as those serve a different purpose and do not directly impede a client’s choice of counsel. The court stated, “The significant and distinguishing factor here is that the financial disincentive to compete with the former firm directly restricts the departing lawyer’s right to practice and, thus, potentially injures the clients by depriving them of the lawyer of their choice.” Dissenting opinions argued that the provision fell within the “retirement benefits” exception of DR 2-108(A) or that it did not violate public policy because it was less restrictive than a complete prohibition on practice. The majority rejected these arguments, emphasizing the potential harm to clients arising from any financial disincentive that restricts a lawyer’s ability to practice.