Source: http://law.justia.com/cases/california/supreme-court/4th/6/409.html
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Matched Legal Cases: ['§ 16600', '§ 188', '§ 1636', '§ 1637', '§ 1673', '§ 6076', '§ 73', '§ 2', '§ 1671', '§ 6077', '§ 95', '§ 6068', '§ 50', '§ 313', '§ 5', '§ 2', '§ 15018']

Howard v. Babcock (1993) :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
Justia › US Law › Case Law › California Case Law › Cal. 4th › Volume 6 › Howard v. Babcock (1993)
Howard v. Babcock (1993)
Morgan, Wenzel & McNicholas and Thomas H. Vickers for Defendants and Respondents. [6 Cal. 4th 412]
In January 1984, participating partners Loveder and Schaertel were elevated to general partners and Osborne and Cicotte were admitted as participating partners. Strickroth and Mori were admitted as participating partners [6 Cal. 4th 413] in 1985 and Barrett was admitted as a participating partner in 1986. The partnership agreement was not amended, nor did the new partners admitted after 1982 ever sign it.
Plaintiffs' first amended complaint was filed on June 24, 1987, and sought an accounting of the original Parker firm's assets and liabilities as of December 31, 1986, and of the profits attributable to each party, including those arising from the unfinished business of the firm after December 31, 1986. The second cause of action alleged a breach of fiduciary duty, in that defendants had refused to account to plaintiffs for profits and unfinished business of the firm, that they refused to release plaintiffs from certain lease guaranties, and that they refused to acknowledge the right of plaintiffs to dissolve the firm and be paid for their share of the accounts receivable, [6 Cal. 4th 414] unfinished business and goodwill of the firm. Plaintiffs also sought a declaration that the partnership agreement was not in effect in December 1986, and that even if it was in effect, article X of the agreement was unenforceable. Plaintiffs also sought a declaration of the rights and duties of the parties under the agreement, and their ownership interest in the accounts receivable, unfinished business and goodwill of the firm.
The trial court first decided that article X was valid and enforceable and was not against public policy, but that under Corporations Code section 15031, subdivision (7), dissolution of the partnership had occurred on January 1, 1984, when new partners were added without a new partnership agreement, a written amendment of the agreement, or the new partners' execution of the existing agreement. The court then took up the issue of what the terms of the partnership were at the time plaintiffs withdrew. After an evidentiary hearing, it determined that although the partnership was dissolved by operation of law in 1984, the partnership agreement remained [6 Cal. 4th 415] binding in all its terms. fn. 2 Under the agreement, all that the plaintiffs were entitled to was their share of the profits for 1986. They were not entitled to any payment for goodwill or any share of the profits after 1986.
The Court of Appeal held that one of the Rules of Professional Conduct of the State Bar, now numbered rule 1-500, fn. 3 bans agreements, such as the one contained in article X, restricting the right of a member of the state bar to practice law. It rejected the claim that Business and Professions Code section [6 Cal. 4th 416] 16602 invalidates rule 1-500, concluding that the section is inapplicable to lawyers.
[1] California has a settled policy in favor of open competition. (Bus. & Prof. Code, § 16600; Muggill v. Reuben H. Donnelly Corp. (1965) 62 Cal. 2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147, 18 A.L.R.3d 1241]; Bosley Medical Group v. Abramson (1984) 161 Cal. App. 3d 284, 288 [207 Cal. Rptr. 477].) Nonetheless, it has long been the law of this state that a partnership agreement may provide against competition by withdrawing partners in a limited geographical area. Thus Business and Professions Code section 16602, derived from Civil Code former section 1675, provides: "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 partnership, carries on a like business therein."
This statutory language has been relied on in enforcing covenants not to compete among partners practicing in the professions, including accountants (Swenson v. File (1970) 3 Cal. 3d 389 [90 Cal. Rptr. 580, 475 P.2d 852]) and physicians (Farthing v. San Mateo Clinic (1956) 143 Cal. App. 2d 385 [299 P.2d 977]; see also South Bay Radiology Medical Associates v. W.M. Asher, M.D., Inc. (1990) 220 Cal. App. 3d 1074 [269 Cal.Rptr. 15]). In fact, these agreements typically do not actually prohibit competition, but rather place a price on competition. Thus one court explained that a medical partnership cannot withhold the privilege of practicing medicine in the state, but a withdrawing partner "may contract that if he exercises that privilege he will compensate his former partners to some extent at least for the business which he expects to take from them." (Farthing v. San Mateo Clinic, supra, 143 Cal.App.2d at p. 394.)
Not every agreement between partners in restraint of competition is permitted. We have held that the common law "rule of reason" should apply to evaluate the noncompetition agreement under Business and Professions Code section 16602. (Swenson v. File, supra, 3 Cal.3d at p. 396; see also Rest.2d Contracts, § 188, pp. 45-47; 14 Williston on Contracts (3d ed. 1972) § 1636, p. 88 et seq. & § 1637, p. 103 et seq.) We explained that "[a]t common law, a restraint against competition was valid to the extent reasonably necessary for the protection of the covenantee." (Swenson v. File, supra, 3 Cal.3d at p. 396.) An earlier decision of an appellate court explained that [6 Cal. 4th 417] "[t]he amount fixed as liquidated damages [for competition] must represent a reasonable endeavor to estimate a fair compensation for the loss that may be sustained, and must bear some reasonable relation to such loss." (Farthing v. San Mateo Clinic, supra, 143 Cal.App.2d at p. 392.)
Until recent years, no court has considered the applicability of Business and Professions Code section 16602 to the legal profession. Now, however, a conflict has developed in the Courts of Appeal over the issue. The Court of Appeal in the case under our review held that section 16602 is not applicable to lawyers, and interpreted the Rules of Professional Conduct as prohibiting noncompetition agreements among partners in a law firm. Another court has held, to the contrary, that section 16602 applies to permit such agreements among partners in law firms. (Haight, Brown & Bonesteel v. Superior Court (1991) 234 Cal. App. 3d 963, 969 [285 Cal. Rptr. 845] [hereafter Haight].)
[2] Our first duty in interpreting a statute is to be guided by the words that appear on the face of the enactment. (Nickelsberg v. Workers' Comp. Appeals Bd. (1991) 54 Cal. 3d 288, 294 [285 Cal. Rptr. 86, 814 P.2d 1328]; Morse v. Municipal Court (1974) 13 Cal. 3d 149, 156 [118 Cal. Rptr. 14, 529 P.2d 46]; Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal. 3d 222, 230 [110 Cal. Rptr. 144, 514 P.2d 1224].) Business and Professions Code section 16602 speaks in general terms, providing that "any partner" may agree not to compete with members of the partnership upon dissolution. Nothing in its language conveys an exception to its terms for lawyers, nor have the parties or amicus curiae directed us to any legislative history indicating that the statute was intended to apply to all partners except those who happened to be lawyers.
The original Civil Code sections regulating agreements in restraint of trade disclose no intent to except lawyers from their scope. When enacted in 1872, former section 1673 of the Civil Code provided: "Every contract by which any one is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided by the next two sections, is to that extent void." As for partners, former section 1675 of the Civil Code provided in 1872: "Partners may, upon or in anticipation of a dissolution of the partnership, agree that none of them will carry on a similar business within the same city or town where the partnership business has been transacted, or within a specified part thereof." While it may be true that in 1872, when these statutes were enacted, and in 1941, when section 16602 of the Business and Professions Code was enacted, it was not customary for lawyers to enter into noncompetition agreements, we do not view this historical circumstance as creating for all time an unspoken exception to the statute. In fact, the 1872 Code Commissioner's comment to the original Civil [6 Cal. 4th 418] Code sections refers to an English case enforcing a contract not to practice law at all as an example of the " 'dangerous extent' " to which contracts in restraint of trade or profession had been allowed in other jurisdictions. (Deering's Ann. Civ. Code, § 1673 (1886 ed.) p. 310.) It thus can be inferred that the practice of law was intended to be one of the professions regulated by these statutes.
[3] This conclusion does not end our inquiry, however. This court has the authority to prescribe rules of professional conduct for attorneys as part of its inherent power to regulate the practice of law. (Hustedt v. Workers' Comp. Appeals Bd. (1981) 30 Cal. 3d 329, 336-339 [178 Cal. Rptr. 801, 636 P.2d 1139]; see also Bus. & Prof. Code, § 6076.) It is in our power to impose a higher standard of conduct on lawyers than that applicable to other professionals. (In re Lavine (1935) 2 Cal. 2d 324, 328 [41 P.2d 161]; accord, Emslie v. State Bar (1974) 11 Cal. 3d 210, 225 [113 Cal. Rptr. 175, 520 P.2d 991]; see also Friday v. State Bar (1943) 23 Cal. 2d 501, 506-507 [144 P.2d 564].)
Rule 1-500 provides: "(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 [6 Cal. 4th 419] member to practice law, except that this rule shall not prohibit such an agreement which: [¶] (1) Is a part of an employment, shareholders', or partnership agreement among members provided the restrictive agreement does not survive the termination of the employment, shareholder, or partnership relationship; or [¶] (2) Requires payments to a member upon the member's retirement from the practice of law; or [¶] (3) Is authorized by Business and Professions Code sections 6092.5, subdivision (i) or 6093 [providing for authority of State Bar Court to impose conditions of probation on disciplined attorneys]. [¶] (B) 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." fn. 6
We agree with the Court of Appeal in Haight, supra, 234 Cal. App. 3d 963, declaring an agreement between law partners that a reasonable cost will be assessed for competition is consistent with rule 1-500. Rejecting an interpretation of rule 1-500 like that proffered by plaintiffs here, the court stated: "We do not construe rule 1-500 in such a narrow fashion.... The rule does not ... prohibit a withdrawing partner from agreeing to compensate his former partners in the event he chooses to represent clients previously represented by the firm from which he has withdrawn. Such a construction represents a balance between competing interests. On the one hand, it enables a departing attorney to withdraw from a partnership and continue to practice law anywhere within the state, and to be able to accept employment should he choose to do so from any client who desires to retain him. On the other hand, the remaining partners remain able to preserve the stability of the law firm by making available the withdrawing partner's share of capital and accounts receivable to replace the loss of the stream of income from the [6 Cal. 4th 420] clients taken by the withdrawing partner to support the partnership's debts." (Haight, supra, at pp. 969-970.) Concluding that the agreement was not invalid on its face, the court held that the validity of the agreement depended on whether it "amounts to an agreement for liquidated damages or an agreement resulting in a forfeiture." (Id. at p. 972.)
The firm has a financial interest in the continued patronage of its clientele. (See Kalish, Covenants Not to Compete and the Legal Profession (1985) 29 St. Louis U. L.J. 423, 438.) The firm's capital finances the development of a clientele and the support services and training necessary to satisfactorily represent the clientele. (Ibid.) In earlier times, this investment was fairly secure, because the continued loyalty of partners and associates to the firm was assumed. (Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics at p. 889; Ethical Pitfalls, supra, 61 Temple L.Rev. at p. 1059.) But more [6 Cal. 4th 421] recently, lateral hiring of associates and partners, and the secession of partners from their firms has undermined this assumption. (Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics at p. 890.) Withdrawing partners are able to announce their departure to clients of the firm, and many clients defect along with the attorneys with whom they have developed good working relationships. The practical fact is that when partners with a lucrative practice leave a law firm along with their clients, their departure from and competition with the firm can place a tremendous financial strain on the firm. (See Kalish, Covenants Not to Compete, supra, 29 St. Louis U. L.J. at p. 438.)
We are aware that many courts have interpreted the rules of professional conduct of their states, often stated in identical or very similar terms with the language of our rule 1-500, as prohibiting all agreements restricting competition among lawyers, including those that merely assess a cost for competition. (Anderson v. Aspelmeier, Fisch, Power, Warner & Engberg (Iowa 1990) 461 N.W.2d 598 [forfeiture of partnership interest for causing "detriment" to firm by withdrawing and competing held void]; Meehan v. Shaughnessy (1989) 404 Mass. 419 [535 N.E.2d 1255] [interpreting agreement as permitting representation of firm's clients by departing partners in order to avoid violating rule against anticompetitive agreements]; Jacob v. Norris, McLaughlin & Marcus (1992) 128 N.J. 10 [607 A.2d 142] [agreement barring compensation, including percentage of annual draw, to withdrawing partners who represent clients of firm within a year of departure held void; but permissible to diminish payment for goodwill if departure hurts goodwill [6 Cal. 4th 422] value of firm]; Dwyer v. Jung (1975) 133 N.J.Super. 343 [336 A.2d 498] [covenant not to do business with firm's clients void]; Cohen v. Lord, Day, & Lord (1989) 75 N.Y.2d 95 [551 N.Y.S.2d 157, 550 N.E.2d 410] [agreement conditioning payment of withdrawing partner's share of net profits, including unpaid fees and work in progress, on noncompetition void]; Hagen v. O'Connell, Goyak & Ball (1984) 68 Ore.App. 700 [683 P.2d 563] [noncompetition agreement void, but might be permissible to reduce value of stock to reflect firm's loss of value when partner withdraws and competes]; Gray v. Martin (1983) 63 Ore.App. 173 [663 P.2d 1285] [voids agreement that withdrawal payments are forfeited if withdrawing partner practices law in certain geographical area]; Spiegel v. Thomas, Mann & Smith, P.C. (Tenn. 1991) 811 S.W.2d 528 [voids agreement providing for forfeiture of equity and deferred compensation for withdrawing partner who continues to practice law]; Cohen v. Graham (1986) 44 Wn. App. 712 [722 P.2d 1388] [agreement not to represent former firm's clients unenforceable].) fn. 7
Upon reflection, we have determined that these courts' steadfast concern to assure the theoretical freedom of each lawyer to choose whom to represent and what kind of work to undertake, and the theoretical freedom of any client to select his or her attorney of choice is inconsistent with the reality that both freedoms are actually circumscribed. Putting aside lofty assertions [6 Cal. 4th 423] about the uniqueness of the legal profession, the reality is that the attorney, like any other professional, has no right to enter into employment or partnership in any particular firm, and sometimes may be discharged or forced out by his or her partners even if the client wishes otherwise. Nor does the attorney have the duty to take any client who proffers employment, and there are many grounds justifying an attorney's decision to terminate the attorney-client relationship over the client's objection. (See Rules Prof. Conduct, rule 3-700; 1 Witkin Cal. Procedure, supra, Attorneys, §§ 73-80, pp. 94-100.) Further, an attorney may be required to decline a potential client's offer of employment despite the client's desire to employ the attorney. For example, the attorney may have a technical conflict of interest because another attorney in the firm previously represented an adverse party. (Rules Prof. Conduct, rules 3-300, 3-310.) Finally, the client in the civil context, of course, ordinarily has no "right" to any attorney's services, and only receives those services he or she can afford.
Moreover, the contemporary changes in the legal profession to which we have already alluded make the assertion that the practice of law is not comparable to a business unpersuasive and unreflective of reality. Commercial concerns are now openly recognized as important in the practice of law. Indeed, we question whether any but the wealthy could enter the profession if it were to be practiced without attention to commercial success. In any event, no longer can it be said that law is a profession apart, untouched by the marketplace. Not only has law firm culture changed but, as in other businesses, lawyers now may advertise their services and may even communicate by letter with persons unknown to them, suggesting the possibility of employment. (Shapero v. Kentucky Bar Assn. (1988) 486 U.S. 466 [100 L. Ed. 2d 475, 108 S. Ct. 1916]; Bates v. State Bar of Arizona (1977) 433 U.S. 350 [53 L. Ed. 2d 810, 97 S. Ct. 2691].) Thus the general rules and habits of commerce have permeated the legal profession.
The same relaxation of the traditional rule against treating a law practice as comparable to a business can be seen in the development of the rules regarding sale of goodwill in a law firm. Although in 1988 the court in Fraser v. Bogucki (1988) 203 Cal. App. 3d 604 [250 Cal. Rptr. 41] rejected the concept of sale of goodwill in a law practice because it would treat clients as a commodity, the rules of professional conduct have since been amended expressly to permit the sale of goodwill in certain circumstances. (See Rules Prof. Conduct, rule 2-300.) Of course the rule requires notification to clients that the practice has been sold and that they have the right to hire new counsel, but the change does undercut the pristine view that clients are not deemed to be assets with a financial value. [6 Cal. 4th 424]
It seems to us unreasonable to distinguish lawyers from other professionals such as doctors or accountants, who also owe a high degree of skill and loyalty to their patients and clients. The interest of a patient in a doctor of his or her choice is obviously as significant as the interest of a litigant in a lawyer of his or her choosing. Yet for doctors, reasonable noncompetition agreements binding upon withdrawing partners are permitted. ( South Bay [6 Cal. 4th 425] Radiology Medical Associates v. W.M. Asher, M.D., Inc., supra, 220 Cal. App. 3d 1074 [physicians]; Farthing v. San Mateo Clinic, supra, 143 Cal. App. 2d 385 [same]; see also Swenson v. File, supra, 3 Cal. 3d 389 [accountants]; Hillman, Law Firm Breakups, supra, § 2.3.2, p. 29; Barefoot Shoemakers, supra, 19 Ariz.St.L.J. at p. 533.)
We seek to achieve a balance between the interest of clients in having the attorney of choice, and the interest of law firms in a stable business environment. We have recognized that restraint of competition among partners is permissible only to the extent it protects the reasonable interests of the business seeking the restraint. (See Swenson v. File, supra, 3 Cal.3d at p. 396.) We consider it obvious that an absolute ban on competition with the partnership would be per se unreasonable, and inconsistent with the legitimate concerns of assuring client choice of counsel and assuring attorneys of the right to practice their profession. We agree with the court in Haight, supra, 234 Cal. App. 3d 963, however, that to the extent the agreement merely assesses a toll on competition within a specified geographical area, comparable to a liquidated damage clause, it may be reasonable. (Id. at pp. 970-971; see also Farthing v. San Mateo Clinic, supra, 143 Cal.App.2d at pp. 392-393.)
[5] As we have said with respect to liquidated damage clauses, "a contractual provision specifying damages for breach [of contract] is valid only if it 'represent[s] the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained.' [Citations.] An amount disproportionate to the anticipated damages is termed a 'penalty.' A contractual provision imposing a 'penalty' is ineffective, and the wronged party can collect only the actual damages sustained." (Perdue v. Crocker National Bank (1985) 38 Cal. 3d 913, 930-931 [216 Cal. Rptr. 345, 702 P.2d 503]; see Civ. Code, § 1671.) Under this standard, a partner's agreement to pay former partners, or to forego benefits otherwise due under the contract, in an amount that at the time of the agreement is reasonably calculated to compensate the firm for losses that may be caused by the withdrawing partner's competition with the firm, would be permitted.
We have reviewed the arguments of the dissenting opinion with appropriate concern. It is not our intent to relegate clients to the position of [6 Cal. 4th 426] commodities, nor to elevate commercial concerns over the lawyer's bedrock duty of loyal and vigorous advocacy on behalf of the client. Rather, we have exercised our duty to regulate the practice of law with a care to understanding the world as it is, uninfluenced by rhetoric that appears to obscure, rather than clarify, the problem. We are confident that our opinion will leave the lawyer's professional duties to his or her clients undisturbed, and that clients will enjoy the same degree of choice in retaining attorneys as they have always possessed.
In the majority's view, whether a noncompetition agreement is "reasonable" depends not upon its effect on the rights of clients, but upon whether it serves to protect and preserve the financial stability of existing law firms. (Maj. opn., ante, at pp. 419, 423.) The majority insists that "a revolution in the practice of law has occurred requiring economic interests of the law firm to be protected as they are in other business enterprises." (Id. at p. 420.) The majority says that changes in the economics of law practice "make the assertion that the practice of law is not comparable to a business unpersuasive and unreflective of reality." (Id. at p. 423.) I do not accept the majority's [6 Cal. 4th 427] conclusion that "a new reality in the practice of law" (id. at p. 420.) justifies its erosion of legal ethical standards.
In January 1987, plaintiffs began handling liability insurance defense matters for clients in the new law firm of Howard, Moss, Loveder & Strickroth (the Howard firm). Clients in approximately 200 cases chose to be represented by the Howard firm instead of the Parker firm. [6 Cal. 4th 428]
Rule 1-500 of the Rules of Professional Conduct of the State Bar of California (hereafter rule 1-500) prohibits agreements that restrict an attorney's right to practice law following the termination of a professional relationship among attorneys. "The Rules of Professional Conduct are intended not only to establish ethical standards for members of the bar [citation], but are also designed to protect the public." (Ames v. State Bar (1973) 8 Cal. 3d 910, 917 [106 Cal. Rptr. 489, 506 P.2d 625].) The prohibition against restrictive covenants contained in rule 1-500 has been part of our Rules of Professional Conduct since 1975, and was most recently approved by this court (Bus. & Prof. Code, § 6077) on August 13, 1992.
Rule 1-500 unambiguously 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 a part of an employment, shareholders', or [6 Cal. 4th 429] partnership agreement among members provided the restrictive agreement does not survive the termination of the employment, shareholder, or partnership relationship ...." (Italics added.)
Here, the judgment of the trial court, which upheld the restrictive covenant, directed plaintiffs, the former partners, to pay the law firm 82.5 percent of the profits derived from work plaintiffs performed after the termination of the partnership. To order an attorney to surrender 82.5 percent of the income obtained from representing clients is to restrict the attorney's practice of law in any meaningful sense of the word. The economic disincentives flowing from such an order may encourage the lawyer to give up the clients, "thereby interfering with the lawyer-client relationship and, more importantly, with [6 Cal. 4th 430] clients' free choice of counsel." (Jacob v. Norris, McLaughlin & Marcus, supra, 128 N.J. at p. 22 [607 A.2d at p. 148].)
As I pointed out earlier, the majority's conclusion is at odds with the great weight of authority. Also, in determining reasonableness based on the relationship between or among attorneys, the majority gives little regard to the relationship between the attorney and the client. Moreover, the majority fails to recognize that restrictive covenants are intended to and do restrict the practice of law. Rule 1-500 proscribes agreements that "restrict" the practice of law, not just those that prohibit "altogether" the practice of law. (Contra, Haight, Brown & Bonesteel v. Superior Court (1991) 234 Cal. App. 3d 963, 969 [285 Cal. Rptr. 845] [rule 1-500 "simply provides that an attorney may not enter into an agreement to refrain altogether from the practice of law"].) To "restrict" means to restrain, to confine within bounds. (Webster's New Collegiate Dict. (9th ed. 1988) p. 1006.) To "prohibit" means to prevent, to forbid. (Id. at p. 940.) The terms are not synonymous.
One of the objectives beyond economic success that defines the law as a profession is the recognition that the attorney-client relationship requires the [6 Cal. 4th 431] acceptance, within the bounds of ethical propriety, of the principle that the client's fundamental rights are superior to the interests of the attorney.
The attorney-client relationship involves more than monetary considerations. An attorney is a fiduciary of the "very highest character." (1 Witkin, Cal. Procedure (3d ed. 1985), Attorneys, § 95, p. 113, quoting Cox v. Delmas (1893) 99 Cal. 104, 123 [33 P. 836].) By the very nature of the relationship, an attorney owes the client a duty to act with the highest good faith. (Rader v. Thrasher (1962) 57 Cal. 2d 244, 250 [18 Cal. Rptr. 736, 368 P.2d 360].) Consistent with the fiduciary nature of the relationship, the duty of the attorney includes placing the interest of the client above his or her own interest. Attorneys must, for example, "maintain inviolate the confidence, and at every peril to himself or herself preserve the secrets, of his or her client." (Bus. & Prof. Code, § 6068, subd. (e).) And, consistent with the unique relationship between attorney and client, the client's right to retain counsel of his or her choice is superior to the interest of the attorney. (Fracasse v. Brent (1972) 6 Cal. 3d 784, 790 [100 Cal. Rptr. 385, 494 P.2d 9]; Estate of Cazaurang (1934) 1 Cal. 2d 712, 714 [36 P.2d 1069].)
The majority lists a number of factors that it believes demonstrate that the rights of clients are "theoretical" and that concern with their protection is out [6 Cal. 4th 432] of touch with "reality." The majority views clients' rights as theoretical, not real, because an attorney (1) does not have a right to be a partner in a law firm, (2) may be forced out of a law firm by the remaining partners, (3) does not have to accept representation of any client, (4) may in some circumstances withdraw from the attorney-client relationship, and (5) may be required to decline representation because of a conflict of interest. (Maj. opn., ante, at pp. 422, 423.) In addition, the majority states that a client has no right to an attorney unless the client can afford the attorney's services. (Id. at p. 424.)
I have no quarrel with the majority's assertions that former partners sometimes "take" clients from law firms, that law firms have a financial [6 Cal. 4th 433] interest in their clientele, or that law firms may be economically injured by the loss of clients.
Although other businesses and professions permit noncompetition agreements, the rules applicable to other professions do not necessarily provide guidance for the legal profession. The nature, ideals, and practices of the various professions are different. Moreover, ethics is not a subject in which the objective is to achieve consensus at the level of the lowest common denominator. In my view, attorneys should strive to, and should be required to, meet the highest ethical standards. [6 Cal. 4th 434]
FN 1. Article X also provided that if only one partner withdraws, he or she is subject to forfeiture of 75 percent of withdrawal benefits for competition in Orange County or Los Angeles County, and 25 percent of withdrawal benefits if he or she competes in specified other counties.
FN 2. The court found that plaintiff Strickroth was not bound by the agreement, and did not benefit by it.
FN 3. Rule 1-500 was formerly numbered rule 2-109.
FN 4. We are not called upon to discuss noncompetition agreements affecting employees, as opposed to partners.
FN 5. Rule 1-500 is based on American Bar Association (ABA), Model Code of Professional Responsibility, former Disciplinary Rule 2-108 (1 Witkin, Cal. Procedure (3d ed. 1985) Attorneys, § 50, p. 70), now numbered rule 5.6 of the ABA Model Rules of Professional Conduct. Rule 5.6 provides: "A lawyer shall not participate in offering or making: [¶] (a) a partnership or employment agreement that restricts the rights 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." The ABA rules may be helpful in interpreting the California rules. (1 Witkin, Cal. Procedure, supra, Attorneys, § 313, pp. 348-349.)
FN 6. Rule 1-500, formerly rule 2-109, was enacted in 1989 and was recently amended, effective September 14, 1992. The only substantive change in 1992 was the addition of subdivision (A)(3), which is not relevant to our discussion in this case. Former rule 2-109 provided: "(A) A member of the State Bar shall not be a party to or participate in an agreement, whether in connection with the settlement of a lawsuit or otherwise, if the agreement restricts the right of a member of the State Bar to practice law. [¶] (B) Nothing in subdivision (A) of this rule shall be construed as prohibiting such a restrictive agreement which: [¶] (1) is a part of an employment or partnership agreement between members of the State Bar provided said restrictive agreement does not survive the term of said partnership or employment; or [¶] requires payments to a member of the State Bar upon his permanent retirement from the practice of law."
FN 7. Many commentators, too, interpret the language of the standard disciplinary rules as prohibiting noncompetition agreements, including the kind of financial disincentive to competition that is at issue here, though some argue against the rule as a matter of policy. (2 Hazard & Hodes (1992 Supp.) The Law of Lawyering: A Handbook on the Model Rules of Professional Conduct, § 5.6:101, p. 822; Hillman, supra, Law Firm Breakups, §§ 2.3.2-2.3.3, pp. 26-31; Comment, Barefoot Shoemakers, an Uncompromising Approach to Policing the Morals of the Marketplace When Law Firms Split Up (1987) 19 Ariz.St.L.J. 509, 534 [hereafter Barefoot Shoemakers]; Terry, Ethical Pitfalls, supra, 61 Temple L.Rev. at pp. 1071-1078; see also Kalish, Covenants Not to Compete and the Legal Profession, supra, 29 St. Louis U. L.J. at pp. 425-426, 456 [acknowledging rule but arguing for change]; Penasack, Abandoning the Per Se Rule, supra, 5 Geo. J. Legal Ethics at p. 892 [same].)
FN 8. We note too that in some respects, the "no-compensation rule" of partnership law, whereby departing partners are compensated for winding up the unfinished business of the partnership according to their partnership interest, may be just as much a disincentive on the withdrawing partner to continue to represent clients of the firm as an anticompetitive penalty, and yet this is not considered to be a violation of rule 1-500. (Jewel v. Boxer (1984) 156 Cal. App. 3d 171 [203 Cal. Rptr. 13]; Corp. Code, § 15018, subd. (f); see also Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal. App. 3d 200, 219 [194 Cal. Rptr. 180]; Note, Winding Up Dissolved Law Partnerships: The No-Compensation Rule and Client Choice (1985) 73 Cal.L.Rev. 1597, 1598-1599.)
FN 9. Our grant of review was limited to the question whether article X of the partnership agreement is void, and our reversal only affects the judgment of the Court of Appeal to the extent that court's orders were based on the conclusion that article X of the partnership agreement is void.
FN 1. The majority goes to great lengths to interpret and comment on Business and Professions Code section 16602, which allows general business partners to agree, "upon or in anticipation of a dissolution of the partnership," that they will not compete in specified counties or cities. (Maj. opn., ante, at pp. 416-418.) The majority then recognizes, however, that this statute does not control this case because it is the responsibility of this court to prescribe the rules of ethics for the practice of law. (Id. at p. 418.)
FN 2. The majority has made no effort to show that because of the economic "revolution" in the practice of law it asserts has taken place, law firms in jurisdictions that do not allow restrictive covenants have suffered greatly. I am doubtful such evidence exists.