Howard v. Babcock: A Step in the Right Direction
LegalBrief Law Journal Issue 2, Article 2
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cite as: Kirsten Willard, Howard v.
Babcock: A Step in the Right Direction,
2 LegalBrief L.J. 2, par. # (1997)
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| Howard v. Babcock: A Step in the Right Direction | SIDENOTES LegalBrief Sidenote Citation (2nd ed. 2003) |
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By Kirsten Willard {1} Until recently, legal ethics prohibited attorneys from keeping the agreements that they signed.1 This seemingly contradictory statement refers to the unenforceability of restrictive covenants not to compete in attorney partnership agreements.2 Covenants not to compete may restrict or prohibit an attorney from practicing within a specified geographic region of the firm that the partner left for a specified period of time.3 Covenants not to compete may also restrict or prohibit a departing attorney from practicing a certain area of law.4 Traditionally, courts used a reasonableness test5 to determine whether a non-competition agreement violated public policy by restricting an attorney's practice.6 However, in the early 1960s, the American Bar Association (ABA) Committee on Professional Ethics adopted the position that non-competition agreements between attorneys constituted a per se violation of the profession's ethical standards.7 Courts adopted this per se ban on non-competitive agreements for the 30 years following the ABA Ethics Committee Decision.8 This per se ban allowed lawyers and law firms to enter non-competitive agreements that the courts refused to enforce. The case of Howard v. Babcock9 represents a clear break from the per se ban10 and reinstates the 'reasonableness' test11 in relation to non-competitive agreements between attorneys.
{2} This Comment examines the opinion in Howard v. Babcock12 as it relates to similar decisions in other professions.13 First, this Comment discusses the history of non-competition clauses in the legal profession.14 This history reveals an acceptance of attorney non-competition clauses by the courts, followed by a per se ban on attorney non-competition clauses imposed by professional guidelines.15 After reviewing the history of non-competition clauses,16 the Comment presents an analysis of the decision in Howard v. Babcock17 which allows non-competition clauses among attorneys.18 Also, this Comment discusses public policy arguments related to court decisions on the issue of non-competitive clauses among attorneys.19 This Comment concludes that Howard represents a return to sound principles of basic contract law20 which hold all similar professionals to a reasonableness standard21 regarding covenants not to compete. The decision of Howard22 which upholds reasonably restrictive covenants23 not to compete among attorneys should not be limited to California, but should extend to all jurisdictions through state court decisions.24
{3} In Howard, partners withdrawing from their law firm sought declaratory relief for accounting, damages, and a declaration of rights under the partnership agreement of the firm.25 The partners remaining in the firm counterclaimed for a breach of the partnership agreement by the withdrawing partners.26 The remaining partners relied on Articles V27 and X28 of the partnership agreement which defined a breach of the partnership agreement and provided a method to calculate damages in the event of a breach. Article X29 of the agreement restricted withdrawing partners from 'handling liability defense work,'30 and from practicing in the 'Los Angeles or Orange County Court System'31 in the event of departure from the firm prior to the age of sixty-five for a period of one year.32 Article V33 allowed a withdrawing partner to recover capital interest in the firm as well as the net profits the partner would have received during the first twelve months of withdrawal from the firm if the partner had remained for that time.34 In accord with the partnership agreement, the withdrawing partners could not collect any withdrawal benefits besides their capital investment in the firm.35
{4} Besides the partnership agreement itself, which states the clear intent of the parties to 'provide some type of coverage in the event that the lawyers split from the law firm,'36 the remaining partners relied the California Rules of Professional Conduct37 and the California Business and Professions Code.38 The California Rules of Professional Conduct prohibit parties from entering into an agreement that restricts the practice of law unless such agreement falls within one of three exceptions,39 including the exception of authorization by the California Business and Professions Code.40 The pertinent section of the California Business and Professions Code41 allows partners to agree to restrict the departing members of a firm in the area of practice upon partnership dissolution.42 Based on these arguments and on principles of contract law43, the Supreme Court of California held that non-competition clauses among attorneys are not per se void.44 Although the legal profession received this decision as controversial, the California decision represents nothing more than a return to sound principles of contract law recognized by other professions45 but evaded by the legal profession.46
{5} Generally, the law disfavors restrictive employment contracts.47 However, if the restriction is '(1) necessary for the protection of a legitimate business interest of the employer, (2) limited in duration and geographic scope, (3) not unduly harsh or oppressive so as to prevent the employee from earning a livelihood, (4) supported by valid consideration, and (5) not against public policy,'48 it will generally withstand attack in court.49 The changing role of the legal profession demonstrates the need for law firms to implement restrictive covenants in their employment contracts.50 Today, for example, the increasing likelihood of attorney mobility between firms and into private practice warrants the use of restrictive covenants to preserve business.51 Yet the per se52 rule against the use of restrictive covenants inhibits a law firm's ability to legitimately protect their business.53 In contrast, other similarly situated professions54 need merely prove the reasonablness of the restriction under the circumstances of the case.55
{6} When parties sign an agreement not to compete both parties violate the Model Rules of Professional Conduct (MRPC) Rule 5.6.56 This rule of professional conduct prohibits the firm from requiring an attorney to sign such an agreement57 and it also prohibits an attorney from signing such an agreement.58 The courts' application of a per se ban on attorney non-competition clauses, under these circumstances, frustrates general notions of contract law.59 For example, the application of the per se rule allows the breaching party to benefit as a result of violating the agreement between the parties.60 This creates a windfall to the breaching party to the detriment of the law firm.61 The inequities are enhanced when courts allow the withdrawing attorney to retain departure benefits while striking the non-competition clause of the partnership agreement as invalid.62 Under principles of contract severability, a contract may only be severed when performance can be divided into parts of equal performance.63 When courts uphold a per se rule no equality of performance exits. Instead, a departing attorney reaps a windfall. The application of the per se rule permits a departing attorney to compete and also requires the law firm to pay compensation in contradiction to any agreement between the parties. Given these reasons, the contract fails to meet the requirements of severability and should remain intact.64
{7} The 'reasonableness' standard used in other professions to determine the validity of such clauses provides an equitable solution to the problems that arise in an attorney context.65 Currently, the American Bar Association (ABA) Ethics Committee decision that non-competition clauses violate ethical standards presents the primary barrier to using a reasonableness test to determine such issues in the legal profession.66 Following this decision by the Ethics Committee67, courts adopted the per se approach prohibiting non-competition clauses between attorneys by citing Model Rule of Professional Conduct (MRPC) 5.668 and MRPC Disciplinary Rule (DR) 2-108.69 Although neither of these rules of professional conduct constitute law, the courts use them to 'define public policy.'70 The courts' use of ABA standards to define public policy71 contradicts the lack of use of a similar rule adopted by the American Medical Association (AMA).72 The official opinion of the Judicial Counsel of the AMA states that:
{9} Unlike the ABA opinion on restrictive covenants, the AMA opinion merely serves an advisory function.74 Differential treatment between physicians and attorneys concerning the enforceability of contracts between the parties lacks legitimacy. Employing the same reasonableness standard used in other professions to the agreements at issue between attorneys provides a more sound approach.
{10} No significant difference exists between an attorney and other professions which apply the reasonableness standard to determine the validity of non-competition clauses.75 Other professions enforce reasonable non-competition clauses on members who leave a professional partnership.76 One argument made in opposition to restrictive covenants among attorneys relies on a person's right to choose an attorney.77 According to this logic, based on the highly personal nature of a relationship between an attorney and client, any restriction on the client's right to choose violates public policy.78 Yet the courts do not impose the same standard on a doctor-patient relationship.79 Similar to an attorney's relationship with a client, a physician also maintains a 'confidential and intimate'80 relationship with a patient. Seemingly, the confidentiality and trust of a physician and maintaining the ability to choose a doctor of choice stands more of a chance to disrupt public policy than restricting attorney choice. According to a recent New York Times article,81 persons put so much importance on selecting a physician that they will opt for medical insurance at a higher cost in order to preserve their right to choose a doctor.82 Given the special trust a patient gives a physician, the argument for allowing non-competitive agreements between physicians when they are banned per se among attorneys makes little sense.
{11} Upholding a client's freedom to choose an attorney based on ethical reasons provides insufficient justification for the per se ban on restrictive covenants among attorneys.83 A client's choice of an attorney obviously plays an important role in whether a client trusts an attorney enough to enable the attorney to provide effective service.84 However, a client does not have an absolute right to choose an attorney.85 Many circumstances exist that limit a client's choice.86 An attorney holds no obligation to accept every client.87 Ethical codes provide guidelines that permit an attorney to withdraw from a case for 'non-payment of fees or when the representation creates an unreasonable financial burden, even if the withdrawal material adversely affects the client.'88 Also, ethical codes require attorneys to turn away clients when a conflict of interest exists.89 The Model Rules themselves provide perhaps the most damage to the argument that restrictive covenants among attorneys violates public policy. The MRPC prohibits the seller of a law firm from competing with the buyer of the firm.90 If public policy allows the prohibition of a client from retaining the services of their former attorney in the event of a sale of a law firm, then no reasonable justification on public policy grounds exists for failure to maintain the same standard when an attorney leaves a firm.91
{12} Given the similarities of the legal profession in relation to other professions that utilize the reasonableness standard92 to determine the validity of restrictive covenants not to compete, courts should abandon the per se approach in favor of the reasonableness standard as applied to non-competition agreements between attorneys. The advantage of using a reasonableness test is that it allows the interests of all parties involved to be weighed and considered in the ultimate decision.93 The reasonableness test also allows courts to conduct fact specific inspections of the individual case.94 The competing interests of the law firm,95 the withdrawing attorney,96 and the clients,97 or the public will vary from case to case and will most likely affect the determination of reasonableness.98 The flexibility of the reasonableness standard allows for a maximization of equity between the parties in relation to the contract signed by the parties.99 The reasonableness standard allows for consideration of potential public policy constraints that may arise in each given case.100
{13} The California courts recognized the advantages of employing a reasonableness standard in the context of non-competition agreements between attorneys in Howard.101 There the court properly disregarded the ethical guidelines and the opinions of the ABA as anything more than advisory.102 Instead of relying on the per se rule,103 the court examined the underlying contractual obligations104 and the reasonableness105 of the non-competition agreement in light of the contract. In doing so the court found that:
{15} identifying the contract as a legitimate agreement between two capable parties,107 the court went on to examine the reasonableness of the restrictive covenant in light of the surrounding circumstances of the case. Upon the decision of the Supreme Court of California that the clause was an enforceable provision,108 the trial court determined 'Article X of the agreement to be reasonable because it placed only time, place and activity retrictions on the departing partners.'109 Because all of the parties to the agreement possessed knowledge of the penalty for leaving the firm and subsequently competing with the firm in violation of the agreement, the court held that 'having been told what the penalty would be if they left to compete, [the withdrawing partners] could not later complain.'110 On remand, the trial court maintained that 'the issue is the reasonableness of the clause, the intent of the parties.'111 Consistent with the trial court's finding that the 'plain words' of Article X were agreed to 'freely and voluntarily' by the parties involved,112 application of basic rules of contract law solve the issue of intent.113 These principles state that when two parties attach the same meaning to an agreement, then that meaning prevails.114 On the issue of intent, the trial court concluded that, 'there is no reasonable interpretation other than the fact that both parties wanted to provide some type of coverage in the event that the lawyers split from the law firm. And the intent of the parties...is manifestly clear.'115 Therefore, only the issue of reasonableness remains.
{16} To determine reasonableness, the trial court considered time, place, and activity restrictions.116 Under the circumstances of the case, the court found that,
{18} The provisions at issue only restricted the practice of law for the departing attorneys without prohibiting their practice and were therefore found reasonable.118
{19} One unique feature of the California legal system that promulgated the result reached in Howard, rests in the form of the code of ethics for the state. Every state except for California adopted ethical rules based on the MRPC.119 Instead of the MRPC, California attorneys are regulated by the California Rules of Professional Ethics.120 As noted earlier, the California Rules allow an exception to the per se rule against restrictive covenants between attorneys.121 If the California Business & Professions Code authorizes the agreement, then the restrictive covenant remains enforceable.122 The California Business & Professions Code authorizes reasonably restrictive covenants.123 Accordingly, the Howard court followed the statutory provisions and applied the reasonableness test.124 However, because the ABA code of ethics remains in force only as an advisory statement and does not apply with the true force of law125 states need not necessarily rely on a statute such as California's Business & Professions Code before they implement the reasonableness test.
{20} In conclusion, the statutory provision in place in California led the court to uphold the validity of the non-competition clause at issue in Howard v. Babcock.126 Once the court determined that the clause was valid, it next considered the enforcability of the clause based on a reasonableness standard.127 However, even in the absence of a statutory structure similar to California's which allows reasonable non-competition agreements, other jurisdictions can still follow California's lead and apply the reasonableness test. Under basic principles of contract law, the doctrine of in pari dilecto128 requires the severability of an illegally formed contract to avoid the unjust enrichment of one party who stands to benefit from its own wrongful actions to the detriment of another party equally in the wrong.129 Also, the application of non-competition agreements in physician, accountant, and dental professions makes the exception for the field of law less compelling.130 To alleviate the inequities that result in the application of the per se rule to non-competition agreements between attorneys, other states should follow California's lead by adopting the reasonableness approach to determine the enforcability of non-competition agreements between attorneys. |
1. Gail D. Cox, Defect at Your Own Risk, Nat'l L.J., Oct. 14, 1991, at 13 (paraphrasing Don Howarth, attorney for Haight, Brown & Bonsteel in Haight, Brown & Bonsteel v. Superior Court, 285 Cal. Rptr. 845 (Ct. App. 1991)). 2. See Cohen v. Lord, Day & Lord, 550 N.E.2d 410,415 (N.Y. 1989) (allowing a withdrawing attorney who drafted and signed the partnership agreement at issue to violate the agreement due to a per se ban on non-competition agreements between attorneys); See also Anderson v. Aspelmeier, et al., 461 N.W.2d 598, 603 (Iowa 1990) (relying on ethical rules to per se invalidate non-competition agreements). 3. See Barry R. Furrow, et al., Health Law 519-20 (1991) (defining restrictive covenants not to compete). 4. Id. 5. See Heinz v. Roberts, 110 N.W. 1034, 1038 (Iowa 1907) (applying a reasonableness test to covenants between attorneys); See also Smalley v. Greene, 3 N.W. 78, 82 (Iowa 1879) (same). 6. Id. 7. See ABA Comm. on Prof. Ethics, Formal Op. 300 (1961) (striking the validity of non-competition agreements among attorneys as violative of the profession's ethical standards). The ABA Committee on Professional Ethics stated that: [A] general covenant restricting an employed lawyer, after leaving the employment, from practicing in the community for a stated period, appears to the Committee to be an unwarranted restriction on the right of a lawyer to choose where he will practice and inconsistent with our professional status. Accordingly, the Committee is of the opinion it would be improper for the employing lawyer to require the covenant and likewise for the employed lawyer to agree to it. Id. 8. See Christopher D. Goble, Comment, You Can't Take it With You: Enforcing Non-Competition Agreements Between Law Firms and Withdrawing Attorneys, 30 Land & Water L. Rev. 179, 183 (1995) (discussing the decision of the ABA Ethics Committee). 9. Howard v. Babcock, 46 Cal. Rptr. 2d 907, 909 (Cal. App. 4th (1995)). 10. See Goble, supra note 8 at 179 (discussing the development of the per se rule). 11. See id. (discussing the application and meaning of the reasonableness test). A restrictive covenant acts as a reasonable restraint when it (a) is necessary to protect the promisee [law firm] (b) is not unduly harsh to the promisor [departing attorney]; and (c) is not injurious to the public. Id. at 179. 12. See generally Howard v. Babcock, 46 Cal. Rptr. 2d 907, (Cal. App. 4th (1995)). 13. See Goble, supra note 8 at 179 (listing other professions). Traditionally, "courts apply the reasonableness test to the restrictive covenants of accountants, doctors, veterinarians, and other professionals." Id. 14. See id. (stating that since the late 19th and early 20th centuries, "courts enforced reasonable covenants that restricted attorneys' right to practice ancillary to the sale of a law practice"). 15. See id. (noting that the per se ban on restrictive covenants between attorneys has only been applied in the last 30 years following the ABA Ethics Committee Opinion adopting a per se approach). 16. Id. 17. Howard, 46 Cal. Rptr. 2d 907. 18. See generally Howard, 46 Cal. Rptr. 2d 907. 19. See Glenn S. Draper, Comment, Enforcing Lawyers' Covenants Not to Compete, 69 Wash. L. Rev. 161, 171 (1994) (examining ethical arguments at issue concerning restrictive covenants between attorneys). 20. See Burnham v. Guardian Life Insurance Co. of America, 873 F.2d 486, 489 (1st Cir. 1989) (stating that contract principles include giving effect to the intent of the parties as identified by the plain, ordinary, and usual meaning of the language in the contract). 21. See Fuller v. Brough, 411 P.2d 18, 22 (Colo. 1966) (upholding a reasonable restrictive covenant against a withdrawing accountant); See also Gelder Medical Group v. Webber, 363 N.E. 2d 573, 577 (N.Y. 1977) (upholding a reasonable restrictive covenant against a physician); Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 535 (Wyo. 1993) (upholding a reasonable restrictive covenant against a veterinarian). 22. 46 Cal. Rptr. 2d 907. 23. See Howard, 46 Cal. Rptr. 2d at 912 (discussing the reasonable standard). [T]he court concluded an agreement may only assess 'a reasonable cost against a partner who chooses to compete with his or her former partners....' The penalty is reasonable when it 'operate[s] in the nature of a tax on taking the former firm's clients [in consideration of] the financial burden the partners' competitive departure may impose on the former firm....' '[T]o the extent the agreements merely assesses a toll on competition within a specific geographical area, comparable to a liquidated damage clause, it may be reasonable.' Id. 24. See infra notes 95, 96, and accompanying text (discussing the practicality of adopting a position similar to the Howard opinion in other states that do not have provisions similar to the California Business and Ethics Code). 25. 46 Cal. Rptr. 2d 907. 26. Id. 27. See Julie A. Harris, Note, Agreements: An Argument For Rejecting California's Approach in Howard v. Babcock, 8 Geo. J. Legal Ethics 669, 673 (discussing the agreement at issue in Howard). Article V outlines the forfeiture procedures of the agreement. Id. 28. Id. at 673. Article X of the agreement provides: Should more than one partner, associate or individual withdraw from the firm prior to age sixty-five and thereafter within a period of one year practice law...together or in combination with others, including former partners or associates of this firm, in a practice engaged in the handling of liability insurance defense work as aforesaid within the Los Angeles or Orange County Court system, said partner or partners shall be subject, at the sole discretion of the remaining non-withdrawing partners to forfeiture of all their rights to withdrawal benefits other than capital as provided for in Article V herein. Id.
29. Id.
30. See Harris, supra note 27 at 673 (discussing the restriction on the area of practice within the Howard agreement).
31. Id.
32. Id.
33. See Howard, 46 Cal. Rptr. 2d at 911 (referring to Article V as the forfeiture provision of the agreement at issue). 34. See Harris, supra note 27 at 673 (discussing the provisions of Article X as it relates to Article V for purposes of withdrawal benefits). 35. Id.
36. Howard, 46 Cal. Rptr. 2d at 911, fn 1.
37. See California Rules of Professional Conduct Rule 1-500 (1992). The rule states: (A) A member shall not be a party to or participate in offering or making an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right of a member to practice law, except that this rule shall not prohibit such an agreement which: (1) is part of an employment shareholder's, or partnership agreement among members provided the restrictive agreement does not survive the termination of the employment, shareholder, or partnership relationship; (2) requires payments to a member upon the member's retirement from the practice of law; or (3) is authorized by Business & Professions Code Sections 6092.5, subdivision (1) or 6093. (C) A member shall not be a party to or participate in offering or making an agreement which precludes the reporting of a violation of these rules.
38. See California Business & Professions Code § 16602 (governing contracts and restraints of trade). The section provides that: "Any partner may, upon or in anticipation of a dissolution of the partnership, agree that he will not carry on a similar business within a specified county or counties, city or cities, or a part thereof, where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partership, carries on a like business therein." Id.
39. See California Rules of Professional Conduct Rule 1-500 (1992) (listing three exceptions when restrictive covenants are valid which include: 1) a partnership agreement that does not survive the termination of the partnership; 2) payment to a retired member of the partnership; or 3) when authorized by the California Business & Professions Code.) 40. See California Business & Professions Code § 16602 (authorizing agreements not to compete).
41. Id.
42. Id.
43. See Robert S. Summers & Robert A. Hillman, Contract and Related Obligations 515-19 (1992) (discussing basic principles of contract law). 44. See Howard, 46 Cal. Rptr. 2d at 912 (holding that restrictive covenants are not per se invalid, but rather, subject to a reasonableness test). 45. See infra notes 49, 65 and accompanying text (discussing the reasonableness test applied to restrictive covenants in other professions). 46. See Anderson, 461 N.W.2d at 603 (striking a partnership agreement that included a restrictive covenant among attorneys). See also Cohen, 550 N.E.2d at 415 (striking a partnership agreement that included a restrictive covenant among attorneys); Gray v. Martin, 663 P.2d 1285, 1293 (Or. Ct. App. 1983) (same). 47. See Michael R. Sullivan, Note, Covenants Not to Compete and Liquidated Damages Clauses: Diagnosis and Treatment for Physicians, 46 S.C. L. Rev. 505, 506-510 (Spring 1995) (stating that restrictive covenants in employment contracts are strongly disfavored at law). 48. Id.
49. See Fuller, 411 P.2d at 20 (upholding a reasonable restrictive covenant against a withdrawing accountant); See also Gelder Medical Group 363 N.E. 2d at 577 (upholding a reasonable restrictive covenant against a physician); Hopper 861 P.2d at 535 (upholding a reasonable restrictive covenant against a veterinarian). 50. See Goble, supra note 8, at 179 (discussing the changing nature and decreasing stability of law firms). 51. Id.
52. See ABA Formal Op. 300, supra note 7 (stating the genesis of the per se rule against restrictive covenants among attorneys). 53. See Goble, supra note 8 at 179 (discussing the non-competitive agreement as a valuable instrument to the law firms that use them). 54. See Fuller 411 P.2d 18 at 20 (upholding a reasonable restrictive covenant against a withdrawing accountant); See also Gelder Medical Group 363 N.E.2d at 577 (upholding a reasonable restrictive covenant against a physician); Hopper 861 P.2d at 535, (upholding a reasonable restrictive covenant against a veterinarian). 55. See Goble, supra note 8 at 179 (stating that the reasonableness test is a fact specific test). 56. See generally Model Rules of Professional Conduct (MRPC) Rule 5.6 (1995 ed.) The rule states that: A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a controversy between private parties. Comment [1] An agreement restricting the right of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm. [2] Paragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of the client. [3] This Rule does not apply to prohibit restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17. Id.
57. See id. at comment [1] (stating that paragraph (a) of MRPC 5.6 prohibits non-competition agreements as an employment contract between attorneys). 58. See id. at comment [2] (stating that paragraph (b) of MRPC 5.6 prohibits a lawyer from agreeing not to represent a client as a condition of settling a claim between private parties). 59. See Draper, supra note 19 at 175 (stating that the per se rule contravenes the principle of in pari delicto). 60. See Cohen, 550 N.E.2d at 419 (Hancock, J., dissenting) (stating that the per se ban on restrictive covenants penalizes the law firm while the reaching attorney who also violates the rules of conduct gains a substantial reward). 61. See Draper, supra note 19 at 175-78 (describing the windfall to departing attorneys who breach a covenant not to compete at the expense of the law firm). 62. Id.
63. See E. Allen Farnsworth, Contracts § 5.8 (2d ed. 1990) (describing the doctrine of contract divisibility); see also Restatement (Second) of Contracts § 183 (1981) (providing a manner to avoid the unfairness of that may result form total refusal to enforce an illegal contract, is by use of the doctrine of divisibility). 64. See id. at 383 (stating that three requirements must be met to apply the doctrine of contract severability to an illegal contract situation). The three requirements that must be present before applying the doctrine of contract divisibility include: (1) divisibility, the contract must be divisible into "agreed equivalents" of performance; id. (2) the illegality must not affect the entire agreement; id. and (3) the party seeking performance "must not have engaged in serious misconduct. Restat. 2d of Contracts § 183, Comment b. 65. See Fuller 411 P.2d at 20 (upholding an agreement not to compete between accountants as reasonable); see also Peat, Marwick, Mitchell & Co. v. Sharp, 585 S.W. 2d 905, 907 (Tex. 1979) (striking an agreement between accountants for failure to specify a reasonable geographic area); Gelder 363 N.E. 2d at 577 (upholding an agreement between physicians as reasonable); Odess v. Taylor, 211 So. 2d 805, 808 (Ala. 1968) (striking an agreement between physicians as unreasonable); Dental East, P.C. v. Westercamp, 423 N.W.2d 553, 556 (Iowa 1988) (upholding a restrictive covenant and liquidated damages clause as reasonable in an agreement between dentists). 66. See ABA Formal Op. 300, supra note 7 (stating the ABA opinion holding that restrictive covenants between attorneys violates ethical standards of the profession). 67. Id.
68. MRPC Rule 5.6, supra note 62.
69. See MRPC Disciplinary Rule (DR) 2-108 (1969) (relating to MRPC Rule 5.6 as the disciplinary component to the Rule). 70. See Goble, supra note 8 at 179 (describing the courts' use of the MRPC and MRPC DR rules as law). 71. Id.
72. See Sullivan, supra note 47 (reproducing the AMA Judicial Counsel Opinion on the use of restrictive employment or partnership agreements among physicians). 73. AMA Judicial Council, Op. 9.06 (1982).
74. Id.
75. See Serena L. Kafker, Golden Handcuffs: Enforceability of Non-competition Clauses in professional partnership Agreements of Accountants, Physicians, and Attorneys, 31 Am. Bus. L. J. 31, 56-7 (May 1993) (describing the similarities in reasons for applying the reasonableness standard to attorneys as it is applied to other professions). 76. Id.
77. Id.
78. Id.
79. See Kafker, supra note 75 at 57 (describing the inconsistency of applying a reasonableness standard to physician and accountant agreements not to compete but not the same agreements between attorneys). 80. See Draper, supra note 19 at 172 (describing the doctor-patient relationship). 81. See generally, Rob A. Seitz, The Political Tea Leaves Point to Medical Networks, N.Y. Times, Dec. 20, 1992, Sec. 3. 82. Id.
83. See Draper, supra note 19 at 174 (referring to the superficial notion of true client choice). 84. Id.
85. Id. 86. Id. 87. See Draper, supra note 19 at 174 (noting situations that allow an attorney to refuse a client, or to discontinue services). 88. Id. 89. Id. 90. See MRPC Rule 1.17 (1995) (outlining the rules associated with the sale of a law practice). The rule states: A lawyer or a law firm may sell or purchase a law practice including food will, if the following conditions are satisfied: (a) The seller ceases to engage in the private practice of law [in the geographic area] [in the jurisdiction] (a jurisdiction may elect either version) in which the practice has been conducted; (b) The practice is sold as an entirety to another lawyer or law firm; (c) Actual written notice is give to each of the seller's clients regarding: (1) the proposed sale; (2) the terms of any proposed change in the fee arrangement authorized by paragraph (d) (3) the client's right to retain other counsel or to take possession of the file; and (4) the fact that the client's consent to the sale will be presumed if the client does not take any action or does not otherwise object within ninety (90) days of receipt of the notice. If the client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court hearing jurisdiction. The seller may disclose to the court in camera information relation to the representation only to the extent necessary to obtain an order authorizing the transfer of a file. (d) The fees charged clients shall not be increased by reason of the sale. The purchaser may, however, refuse to under take the representation unless the client consents to pay the purchaser fees at a rate not exceeding the fees charged by the purchaser for rendering substantially similar services prior to the initiation of the purchase negotiations. Comment [1] The practice of law is a profession, not merely a business. Clients are not commodities that can be purchased an sold at will. Pursuant to this Rule, when a lawyer or an entire firm ceases to practice and another lawyer or firm takes over the representation, the selling lawyer or firm may obtain compensation for the reasonable value of the practice as may withdrawing partners of law firms. See Rules 5.4 and 5.6. Id.
91. See Draper, supra note 19 at 174 (stating the insufficient public policy argument behind the per se ban on non-competition agreements between attorneys). 92. See Goble, supra note 8 at 7 (discussing the benefits of applying a reasonableness test as fulfilling the interests of expectations of the parties involved as well as the ethical rules of the legal profession which purport to protect client choice while promoting the integrity of attorney relationships). 93. Id.
94. Id.
95. See id. (identifying the interest of the law firm that uses non-competition clauses in its employ of attorneys as a method of maintaining stability in the firm). 96. See id. (identifying the interest of an attorney as minimizing the restrictions on future practice upon leaving the law firm that requires the signing of non-competition clauses for the employment of attorneys). 97. See Goble, supra note 19 at 7 (defining the interest of clients and the general public as freedom to retain the counsel of their choice). 98. Id.
99. Id.
100. Id.
101. See generally Howard, 46 Cal. Rptr. 2d 907.
102. See Goble supra note 8 at 3 (stating that ABA opinions do not carry the authority of the law and are merely advisory).
103. See Kafker, supra note 75 at 52 (discussing the per se rule).
104. See Howard 46 Cal. Rptr. 2d at 911, fn 1 (discussing the validity of Article X under basic notions of contract law).
105. Id.
106. Id.
107. Id.
108. See Howard v. Babcock, 863 P.2d 150, 153 (Cal. 1993) (holding that a restrictive covenant between attorneys is not per se invalid). 109. Howard, 46 Cal. Rptr. 2d at 911.
110. Id.
111. Id.
112. Id. at fn 1.
113. See Restatement (Second) of Contracts § 201 (1993) (determining whose meaning prevails in the interpretation of a contract). The restatement reads: (1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party, or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in the Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.
114. Id.
115. Howard, 46 Cal. Rptr. 2d at 911, fn 1.
116. Id.
117. Id.
118. See Kafker, supra note 75 at 58-60 (stating that a restriction is reasonable whereas an absolute prohibition is not).
119. See Charles W. Wolfram, Modern Legal Ethics 56, 62 (1986) (stating that California is governed by its own rules of ethics). 120. Id.
121. See California Rules of Professional Conduct Rule 1-500, supra note 39 (allowing an exception to a prohibition of restrictive covenants that fall under the California Business & Professions Code). 122. See California Business and Professions Code § 16602, supra note 38 (authorizing restrictive covenants in employment situations). 123. Id.
124. See Howard, 46 Cal. Rptr. 2d at 912, fn 2 (citing statutory authority for holding the restrictive covenant valid). 125. See Draper, supra note 19 at 164 (stating that the ABA code of ethics provide advisory authority and not the authority of law). 126. See Howard, 863 P.2d 150, 153 (holding the non-competition agreement valid). 127. See Howard, 46 Cal. Rptr. 2d at 911 (stating that the real issue of the case is the reasonableness of the non-competition clause). 128. See Draper, supra note 19 at 177 (stating that the principle of in pari delicto favors the law firms when both the law firm and the attorney are equally wrong for signing an illegal non-competition contract). 129. See Farnsworth, supra note 63 at §5.8 (listing the requirements necessary in a contract before severability may take place). 130. See supra notes 67-71 and text (discussing the similarities between professions that apply the non-competition agreements and the legal profession). |