Retainer Agreements/In The News . . . . New York Voids Retainer Agreement Terms Discouraging Clients From Following An Exiting Attorney

 

Attorney Lien “Penalty” Provision Also Invalidated.

     As reported by both the American Bar Association Journal and Buffalo News in January 10, 2012 posts, New York Supreme Court Justice John A. Michalek voided two provisions in a retainer agreement apparently designed to encourage clients from following an exiting attorney to another legal firm. The ruling came in a lawsuit by Cellino & Barnes against departing attorney Paul B. Becker by which the firm sought a determination he had violated the retainer agreement.

     First, the justice found that a provision forbidding a departing lawyer from informing clients of his impending exit is unenforceable and violated governing attorney ethics rules.

     Second, the justice also voided a contract provision saying that the old firm could put a 43.56% lien on future work done for a client by the exiting lawyer who went elsewhere, labeling the provision a penalty. He noted that the percentage reserved to cover case acquisition costs had not changed since 2005 such that the percentage was a penalty because it bore no relationship to actual damages or expenses of the firm. Also, “[t]o the extent that a departing lawyer ... must continue to pay the firm’s overhead in the amount of 43.56 percent of the fees that he earns if he represents a former firm client, that penalty serves as a strong disincentive for him to represent any client who wishes to follow him.”

Above:  Prisoners in shackles.  1905 – 1915.  Photographer:  Sergeĭ Mikhaĭlovich Prokudin-Gorskiĭ (1863-1944).  Library of Congress.