Thursday, April 18, 2024

Non-Compete Provisions As Ethics Violations

A very interesting oral argument was held today before the District of Columbia Board on Professional Responsibility in the Tully and Rinckey disciplinary matters.

The matter involves a rare if not unprecedented disciplinary action involving non-compete provisions in employment agreements. 

My prior coverage of the proceedings

I have closely monitered the proceedings against two Respondents in the District of Columbia and was thus surprised that a November 2023 Hearing Committee report finding misconduct was only recently posted on the Bar's web page

The Hearing Committee concludes that each Respondent has committed multiple violations of each Rule cited by Disciplinary Counsel other than Rules 5.1(a) and 5.3(a)—twenty-eight by Mr. Tully and thirty-four by Mr. Rinckey—and recommends a ninety-day suspension for each Respondent.

I had previously blogged on the "cutting edge" charges.

Respondents refer to themselves as the “Founding Partners” or “Managing Partners” of Tully Rinckey. Until 2020 and at all relevant times, they were the only lawyers with an equity interest in the Firm. Respondents actively managed the Firm. All other lawyers reported to them either directly or indirectly. Respondents established, delegated, approved, and enforced Firm policies, practices, and procedures, many of which were set forth in the Firm’s Standard Operating Procedures (SOPs). Respondents also approved and enforced the provisions of certain document templates, including engagement agreements (aka retainer agreements), employment agreements, confidentiality agreements, and separation agreements.

Findings

The Respondents were well aware of—and indeed, directed and ratified—repeated conduct of their lawyer and non-lawyer subordinates that violated the D.C. Rules of Professional Conduct. This conduct included the provisions in employment agreements and separation agreements that levied liquidated damages, mandated referral fees, prohibited client contact, and prohibited post-employment association with other Firm alumni. Indeed, the Respondents have not claimed that their subordinates acted without their knowledge, and the record amply demonstrates that during the period in question, micromanagement by whichever Respondent was serving as the Firm’s overall managing partner was the order of the day at Tully Rinckey. This course of conduct by the Respondents violated Rules 5.1(b), 5.1(c)(1), 5.1(c)(2), and 5.3(b).

The Firm had a practice of transferring the clients of departing lawyers to other Firm lawyers, barring the departing lawyers from contacting those clients in connection with their departures, and advising those clients—sometimes unilaterally and sometimes by a joint letter—that their matters had been transferred to other lawyers in the Firm. E.g., FF 58-60, 68, 71, 73, 80-81, 88. Numerous separation agreements implementing this policy were signed for the Firm by each Respondent. FF 60, 73, 81, 88; see FF 101; DCX 45 at 1. When it excluded the departing lawyer from any role in formulating or sending a communication to the clients about their right to choose who would represent them going forward, the latter aspect of this practice arguably violated Rules 1.4 and 5.6(a) because it removed the departing lawyer from the notification process. D.C. Bar Ethics Op. 221 (Oct. 1991). Because the exclusion of departing lawyers was episodic and the Firm’s SOPs contemplated the sending of a joint letter (Tr. 148-49 (discussing RX 21)), however, we do not find a violation of Rule 5.1(a) or Rule 5.3(a).

Similarly, although the Firm’s SOPs did not expressly direct that clients be told where their departing lawyers were going, Mr. Rinckey testified credibly that the Firm’s staff members were instructed to provide that information. FF 112. There was testimony about failures to advise clients of Mr. Watkins and Ms. D’Agostino where their lawyers had gone, FF 21, 112, as well as Ms. Gregerson’s testimony that someone who was not identified told her not to disclose such information even if asked by a client, FF 65, but not clear and convincing evidence that these were systemic. Accordingly, we do not find a violation of Rule 5.1(a) or 5.3(a) in these three failures to advise clients where their lawyers were bound.

A rare "failure to report" violation

Rule 8.3 does not require the reporting of every violation of the Rules. D.C. Rule 8.3 cmt. [3]. Instead, it “limits the reporting obligation to those offenses that aself-regulating profession must vigorously endeavor to prevent. A measure of judgment is, therefore, required in complying with the provisions of [the] rule.” Id. As then-Bar Counsel Leonard Becker put it, Rule 8.3(a) “ultimately accords a wide degree of judgment to a reporting lawyer. Except in truly egregious cases, Bar Counsel would be hard-pressed to second-guess . . . judgments [not to report] or to seek discipline by asserting the requisite ‘clear and convincing’ evidence of misconduct in failing to report.” Leonard Becker, “Early Experience Under the ‘Snitch’ Rule,” Wash. Lawyer, Nov.-Dec. 1992, at 8 (emphasis added). Thus, there are violations of the Rules of Professional Conduct whose reporting is not mandatory. The non-cooperation provisions of the various agreements under consideration here prohibited lawyers in the Firm from reporting such violations and this charge accordingly is sustained.

Sanction

The record in this matter reflects dozens of violations—by each of the Respondents and, at their direction, by lawyer and non-lawyer subordinates whom they closely supervised. That their actions were violations of the D.C. Rules of Professional Conduct was—or should have been—apparent well before the issuance of LEO 368. Moreover, some violations occurred even after the issuance of that opinion.

We have carefully considered the Respondents’ Rule violations in light of the sanction factors enumerated above. As the Court recently reiterated, the appropriate sanction must aim “not only to maintain the integrity of the profession and to protect the public and the courts, but also to deter other attorneys from engaging in similar misconduct.” In re Blackwell, 299 A.3d 561, 572 (D.C. 2023) (quoting Martin, 67 A.3d at 1053). On the facts of this case, we cannot conclude that a Board reprimand is a sanction sufficient to meet that standard. On the other hand, we are not persuaded that the Respondents’ misconduct merits a six-month suspension, particularly in light of the factors in mitigation.

For the foregoing reasons, the Committee finds that each Respondent violated the Rules specified in the Appendix and recommends that each should receive the sanction of a ninety-day suspension.  We further recommend that the Respondents’ attention be directed to the requirements of D.C. Bar R. XI, § 14, and their effect on eligibility for reinstatement. See D.C. Bar R. XI, § 16(c).

Channeling Captain Queeg

The Respondents had established video surveillance whereby they could observe the public areas of the D.C. Office from Albany. Tr. 459. In one instance Mr. Tully, who was not physically in the D.C. Office, phoned a lawyer in the D.C. Office to complain that the lawyer’s shirt was not tucked in. Tr. 414-15

( Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2024/04/non-compete-provisions-as-ethics-violations.html

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Comments

actually-no violations of 8.3 itself are charged-they are saying that by prospectively attempting by contract to prevent lawyers from complying with 8.3 in a future situation....that they violated a different rule.

Posted by: George Weiss | Apr 18, 2024 3:24:19 PM

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