Title: Robert D. Borteck, Esq. v Riker, Danzig, Scherer, Hyland, & Perretti, LLP
Citation: N/A
Docket Number: a-31-03
State: new-jersey
Issuer: new-jersey Supreme Court
Date: April 5, 2004

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Robert Borteck is an attorney-at-law of New Jersey. From April 1989 to September 2000, he was a capital partner at Riker, Danzig, Scherer, Hyland &amp; Perretti, LLP (Riker). At the age of fifty-three, Borteck withdrew from Riker to join another law firm with offices in New Jersey. At the time of his departure, Borteck was subject to a partnership agreement with Riker that set forth a withdrawing or retiring partner s entitlement to certain monies as well as a notice provision governing the departure. Paragraph 17(A) of the agreement provides that a capital partner is entitled to a share of the firm s net worth and is to be paid the value of that share over the first twelve months following his or her withdrawal. There is no dispute that Riker properly paid Borteck the full share of the firm s net worth pursuant to this provision. Paragraph 17 (B) contains the eligibility criteria for retirement benefits. In pertinent part, it provides that retirement shall mean permanent retirement from the practice of law, whether or not due to disability, subject to certain qualifications: 1) that the capital partner is at least fifty-five years of age; 2) continuation with the firm in an of counsel status after retirement is not inconsistent with eligibility for retirement benefits; and 3) in recognizing the importance of public service, a partner is deemed to have retired from the practice of law even if he or she is appointed to the bench, enters government service, or assumes a position in academia. Entitlement to continuation of retirement benefits is conditioned on the former partner remaining in retirement status. Paragraph 17 (C) of the agreement concerns early retirement benefits and provides that capital partner that has been with the firm for a period of at least ten consecutive years, and who, throughout the subsequent five year early-retirement-benefit-payment period following retirement from the firm, and continuously remains in retirement status, shall receive early-retirement-benefit payments equal to a percentage of the partner s average annual earnings for the last five full calendar years immediately preceding retirement as a capital partner of the firm. This paragraph also contains a schedule for determining the applicable early retirement percentage, which ranges from zero to one-hundred-and-fifty percent, depending on the retiree s years as a partner with the firm or predecessor firms. Pursuant to that schedule, a withdrawing partner with Borteck s years of service would be entitled to seventy-five percent of his average annual earnings in the five years preceding retirement. Those payments would be paid in 96 equal semi-monthly installments, the first installment being due thirteen months after retirement from the firm. Pursuant to the above provisions, Borteck claims to be entitled to a total of $275,090 in addition to the amount already received as payment for his share of Riker s net worth. The agreement s other disputed provision is Paragraph 14, which provides that a partner is to give no less than three months written notice to the firm s management committee of his or her intention to withdraw or retire. Borteck withdrew with little or no formal notice to the firm and began soliciting many of his former clients. After Riker refused to pay the requested retirement benefits on the ground that Borteck had not retired as defined in the agreement, Borteck filed a complaint against Riker, claiming that Riker failed to pay him $275,090 allegedly due under Paragraph 17 (C) of the agreement. Riker answered, asserting certain counterclaims and damages that Borteck has denied and which are not the subject of this appeal. The trial court granted Borteck s motion for summary judgment, ordering specific performance on the early retirement provisions and awarding Borteck the amount requested. On appeal, the Appellate Division affirmed, concluding that if retirement benefits are not paid to Borteck in the amount asserted, then the firm s agreement would have anti-competition effects prohibited by Rule of Professional Conduct (RPC) 5.6. The Supreme Court granted certification. HELD: The Riker partnership agreement sufficiently operates as a retirement plan within the contemplation of RPC 5.6 and, as such, it does not offend the public policies underlying the rule. Therefore, the agreement s eligibility requirements, including the age threshold and conditions concerning the private practice of law, are enforceable against Borteck. 1. RPC 5.6 states that a lawyer shall not participate in offering or making a partnership or employment agreement that restricts the rights of a lawyer to practice after ending the lawyer/law firm relationship, except an agreement concerning retirement benefits. RPC 5.6 does not contain a definition of retirement. Despite that lack of specificity, the rule s plain language treats a retirement agreement as an exception to the prohibition against restricting an attorney s right to practice after that attorney terminates a relationship with his or her firm. The retirement exception acts as a safe harbor, permitting restrictions on the practice of law not otherwise tolerated under the rule. (pp. 7-9) 2. Although Jacob and Apfel are helpful in providing a conceptual framework, their facts so differ from those here that they do not control the Court s analysis. In Jacob, the Court did not confront retirement provisions like the one at issue, nor did it address the safe-harbor provision of RPC 5.6. Similarly, the retirement agreement in Apfel contained no minimum age requirement and defined retirement as occurring when the withdrawing partner ceased practicing only in three states in which the former firm had maintained offices. (pp. 8-13) 3. The court reaches its conclusion in part based on the uncontested certification of Riker s proffered actuarial expert and employee benefits consultant. That certification provides that Riker s agreement includes all the normal indicia of a legitimate retirement plan. The Court is further persuaded by the fact that Riker s agreement resembles in one or more respects agreements that have been upheld by courts in other jurisdictions with safe-harbor language similar to that found in RPC 5.6. Three criteria espoused by noted commentator, Robert Hillman, are useful for defining a retirement plan in this setting. The first and most important factor is the existence of minimum age and service requirements. The second is the existence of provisions dealing independently with withdrawal for purposes of retirement and withdrawal for other reasons. The final Hillman factor focuses on the time period over which the benefits are to be paid. In reviewing those factors, the Court concludes that Riker s agreement constitutes a retirement plan. (pp. 13- 20) 4. Riker s agreement facially is consistent with the safe-harbor provision of RPC 5.6. Absent greater specificity in the rule itself, it would be unfair to hold Riker to requirements or standards not found in the rule s current text. The Professional Responsibility Rules Committee (PRRC) is directed to review the safe-harbor language of RPC 5.6 to determine whether the rule should define retirement and, if so, to propose such a definition or related criteria. (pp. 20-21) 5. The agreement s notice-departure language did not operate as an encumbrance in this case nor did it prevent Borteck from receiving his full share of Riker s net worth. The notice question, therefore, is essentially moot. Nonetheless, the issue is worthy of review. Thus, the PRRC should also consider whether an expressed rule or more explicit guidance is needed concerning an agreement s notice-departure provisions. In the Court s view, such provisions are not unenforceable per se. (pp. 21-23) Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for resolution of Riker s counterclaims and any related issue not addressed in this opinion. The Court does not retain jurisdiction. CHIEF JUSTICE PORITZ and JUSTICES LONG, ZAZZALI, ALBIN and WALLACE join in JUSTICE VERNIERO S opinion. JUSTICE LaVECCHIA did not participate. SUPREME COURT OF NEW JERSEY A- 31 September Term 2003 Plaintiff-Respondent, v. RIKER, DANZIG, SCHERER, HYLAND &amp; PERRETTI LLP, Defendant-Appellant. Argued February 18, 2004 Decided April 5, 2004 On certification to the Superior Court, Appellate Division, whose opinion is reported at 362 N.J. Super 284 (2003) Glenn A. Clark argued the cause for appellant (Riker, Danzig, Scherer, Hyland &amp; Perretti, attorneys; Mr. Clark, Edward A. Zunz, Jr. and Eric K. Blumenfeld on the briefs). Robert Novack argued the cause for respondent (Edwards &amp; Angell attorneys; Mr. Novack and Mary L. Moore on the brief). JUSTICE VERNIERO delivered the opinion of the Court. We are called on to review the retirement provisions of a law firm s partnership agreement. The Appellate Division invalidated the provisions based on its view of Rule of Professional Conduct (RPC) 5.6 and existing case law. Given the rule s current language, we disagree and reverse. Further, we direct the Professional Responsibility Rules Committee to consider whether RPC 5.6 requires any revision to provide clearer guidance to the bar concerning the elements necessary to establish a bona fide retirement plan under the rule. (1) Except in the case of the situations identified in Paragraph 17(B)(3) below, or in the case of a Capital Partner who becomes disabled, the Capital Partner is at least fifty-five (55) years of age. (2) Continuation with the Firm in an Of Counsel capacity after retirement as a Capital Partner of the Firm shall not be deemed to be inconsistent with eligibility for retirement benefits hereunder. (3) It has been common for partners of the Firm to join the Firm after completion of a period of public service, to leave the Firm permanently or temporarily to pursue public service, or to devote substantial time to public service activities while remaining a partner with the Firm. The Firm recognizes a professional obligation to serve the public and wishes to continue to encourage such participation by partners of the Firm. Therefore, a partner shall be deemed to have retired from the private practice of law notwithstanding that he or she leaves the Firm to accept an appointment to the bench, to assume an elected or appointed governmental position, to assume a position in academia, to become a public advocate, to become a public defender, to become a legal services attorney, or to engage in comparable public service work at a compensation level comparable to that normally associated with the foregoing enumerated activities. . . . . Any retired Capital Partner s entitlement to continuation of any retirement benefits provided for in this Agreement during his or her lifetime shall be conditioned at all times upon his or her continuously remaining in a retirement status, as defined in this Paragraph 17(B), throughout the entire applicable retirement benefit payment period, including continuous compliance with the foregoing criteria. In the event that such retirement status shall cease during his or her lifetime, then entitlement shall permanently terminate with respect to all unpaid retirement benefit payments. Paragraph 17(C) of the agreement concerns benefits for early retirement and provides, in relevant part: In addition to payment for Net Worth, as set forth in Paragraph 17(A) of this Agreement, a retiring Capital Partner who has been a partner of the Firm, or predecessor firms, for a period of at least ten (10) consecutive years, and who, throughout the subsequent five year Early Retirement Benefit Payment period following such Retirement from the Firm, continuously remains in retirement status hereunder, shall receive Early Retirement Benefit Payments equal to a percentage ( Applicable Early Retirement Percentage ) of such partner s average annual earnings from the Firm or predecessor firms for his or her last five full calendar years immediately preceding retirement as a Capital Partner of the Firm[.] The paragraph also sets forth a schedule for determining the Applicable Early Retirement Percentage, which ranges from zero to one-hundred-fifty percent, depending on the retiree s years as a partner with the firm or predecessor firms. Under that schedule, assuming all conditions are satisfied, a withdrawing partner with plaintiff s years of service would be entitled to seventy-five percent of his or her average annual earnings in the five calendar years preceding retirement. Such payments would be paid in 96 equal semi-monthly installments, the first installment being due thirteen months after retirement from the Firm. As the Appellate Division explained: Thus, payments under [defendant s] early retirement plan, as set out in Paragraph 17(C), commence in the month following completion of the one-year net worth payout made to withdrawing partners under Paragraph 17(A) and continue for four years thereafter. A withdrawing capital partner eligible under [defendant s] early retirement plan would therefore receive payments from [defendant] over a five-year period: one year of net worth payments, followed by four years of early retirement benefits. [Borteck v. Riker, Danzig, Scherer, Hyland &amp; Perretti, 362 N.J. Super. 284, 288 (2003).] Pursuant to the above provisions, plaintiff contends that he is entitled to a total of $275,090, in addition to the amount already received as payment of his share of defendant s net worth. The agreement s other disputed provision is Paragraph 14, which sets forth the procedures concerning a partner s withdrawal or retirement. It provides, in part: Should any partner desire to retire or withdraw from the Firm, he or she shall give not less than three months prior written notice of such intention to retire or withdraw to the other partners, provided, however, the Management Committee, in its judgment, may make the retirement or withdrawal effective at such earlier date as it may determine if circumstances so warrant. Plaintiff withdrew from defendant with little or no formal notice to the firm (plaintiff himself describes his withdrawal as a prompt departure ) and, according to the Appellate Division, began soliciting many of his former clients[.] Borteck, supra, 362 N.J. Super. at 290. After defendant refused to pay the requested retirement benefits on the ground that plaintiff had not retired as defined in the agreement, this litigation ensued. Specifically, plaintiff filed a complaint claiming defendant had failed to pay him the $275,090 allegedly due under the agreement s Paragraph 17(C). Defendant answered, asserting counterclaims and damages for, among other things, alleged breach of fiduciary duties to the firm, and for alleged tortious interference with prospective economic advantage. Plaintiff denies those allegations, which are not the subject of this appeal. Plaintiff moved for summary judgment. The trial court granted that motion, ordering specific performance of the early retirement provisions and awarding plaintiff his requested amount. It reserved for trial certain aspects of defendant s counterclaims. The court subsequently declared its summary judgment order to be a final judgment, permitting defendant to appeal to the Appellate Division as of right without leave of court. R. 4:42-2(1). In a reported opinion, the Appellate Division affirmed the trial court s disposition in favor of plaintiff. Borteck, supra, 362 N.J. Super. at 286. The panel concluded that, if the retirement benefits are not paid to plaintiff in the amount asserted, then the firm s agreement would have anti-competitive effects prohibited by RPC 5.6. Id. at 294. We granted defendant s petition for certification. 178 N.J. 33 (2003). [ 324 N.J. Super. 133, 135-36 (App. Div.), certif. denied, 162 N.J. 485 (1999).] The agreement also provided that an attorney who does retire, and who has been a shareholder for at least ten years, receives substantial payments of so-called deferred income. Id. at 135. Accordingly, under a stated formula, the benefits awarded to the plaintiff attorney who withdrew but did not retire from the firm were significantly less than the benefits that would have been paid had he satisfied the retirement definition. Ibid. Relying in part on Jacob, the Apfel court invalidated the challenged provisions, stating that the benefits to be paid or withheld under this agreement do not turn on any bonafide retirement. The size of the benefits depend not on age or years of service (beyond a minimum of ten years with the firm) but rather turn on competition or non-competition with [the former firm]. Thus, a withdrawing attorney could move to any state other than New Jersey, New York or Pennsylvania, join or form a firm and make a good deal of money, and he or she would be entitled to the larger, non-competitive benefits payable under the Agreement. On the other hand, if that attorney decided to open a one-person law firm and practice in any one of the three proscribed states, he or she would only receive the smaller package of benefits. And the sole difference would be whether or not the person practiced in the same state as -- and thus was able to compete with - [the former law firm]. Under no realistic analysis could this Agreement be deemed one providing retirement benefits. It is clearly a restrictive covenant, with substantial financial disincentives, cloaked as a retirement agreement. [Id. at 142-43.] Although Jacob and Apfel are helpful in supplying a conceptual framework, because their facts differ from the facts in this case, those cases do not control the analysis. In Jacob, we neither confronted retirement provisions like the provisions now before us nor addressed the safe-harbor language of RPC 5.6. Thus, the Court s intolerance for the indirect restraints at issue in Jacob cannot easily be imported to the present dispute. Similarly, unlike the agreement here, the retirement agreement in Apfel contained no minimum age requirement and defined retirement as occurring when the withdrawing partner ceased practicing only in the three states in which the former firm had maintained its offices. Distinguishing the agreement in Apfel from defendant s agreement does not lead us automatically to conclude that defendant s agreement passes muster. We still must evaluate the agreement to determine whether it contains sufficient indicia of a bona fide retirement arrangement to fit reasonably within the rule s exception. In so doing, we hold that the agreement sufficiently operates as a retirement plan within the contemplation of RPC 5.6 and that as such, it does not offend the public policies underlying the rule. Hence, the agreement s eligibility requirements, including the age threshold and conditions concerning the private practice of law, are enforceable against plaintiff. In reaching that conclusion, we are persuaded in part by the uncontested certification submitted by Howard M. Phillips, defendant s proffered actuary and employee benefits consultant. A member of the American Academy of Actuaries and of similar professional associations, Phillips expresses the view that, although it might not technically qualify as a retirement plan under rules of the Internal Revenue Service, defendant s agreement includes all of the normal indicia one would expect to see in a legitimate retirement plan. He cites as examples the agreement s minimum age requirements, the fact that the agreement contains benefit calculation formulas and a defined term for benefit payouts, and the fact that benefits increase as years of service to the firm increase and are payable to a deceased retiree s estate. We also are persuaded by the fact that defendant s agreement resembles in one or more respects agreements that have been upheld by courts in other jurisdictions operating under rules containing safe-harbor language similar in wording to RPC 5.6. In Donnelly v. Brown, Winick, Graves, Gross, Baskerville, Schoenbaum &amp; Walker, the Supreme Court of Iowa upheld a law firm s retirement agreement that required for eligibility ten years of service and sixty years of age or twenty-five years of service[.] 599 N.W.2d 677, 682 (1999). The court so acted notwithstanding that the agreement conditioned the receipt of benefits on the attorney s remaining out of the private practice of law in Iowa. Ibid. The court stated: [T]here is no doubt that the Rule is designed to permit attorneys to have retirement plans that have noncompetition conditions there is simply no other explanation for the exception to the Rule. Id. at 681 (internal quotation marks and citation omitted) (alteration in original). In a separate opinion, a concurring justice discussed three criteria espoused by a noted commentator, Robert W. Hillman, that are useful for defining a retirement plan in this setting. Id. at 683-84 (Ternus, J., concurring) (citing Robert W. Hillman, Hillman on Lawyer Mobility 2.3.5 at 2:90-91 (2d ed. Supp. 1999)). According to Hillman, the first and most important factor is the existence of minimum age and service requirements. Id. at 683 (Ternus, J., concurring) (internal quotation marks and citation omitted). As already indicated, defendant s plan satisfies the age criterion, requiring retiring partners to be at least age fifty-five (except when entering public service, as more fully addressed below). As for the service requirement, the agreement provides early retirement benefits when a retiring Capital Partner [] has been a partner of the Firm, or predecessor firms, for a period of at least ten (10) consecutive years[.] Also as indicated below, in respect of supplemental benefits, the agreement requires a retiree to be between sixty to sixty-five years of age and to have been with the firm or a predecessor firm for at least twenty years. Those provisions distinguish this case from Apfel and help us to conclude that defendant s plan is legitimate for purposes of the rule. A second factor to consider is the existence of provisions dealing independently with withdrawal for purposes of retirement and withdrawal for other reasons. Donnelly, supra, 599 N.W.2d at 683-84 (Ternus, J., concurring) (internal quotation marks and citation omitted). Although defendant s agreement addresses retirement and non-retirement withdrawals under the umbrella heading of Paragraph 17, the paragraph contains detailed subsections that separately govern the two forms of departure. For instance, subsection (A) makes clear that a non-retiring partner is entitled to his or her share of net worth to be payable within one year of withdrawal. In contrast, subsections (C) and (D) set forth a multi-year schedule for payments of early or supplemental retirement benefits. Those distinctions, among others, appear consistent with the separate and distinct treatment envisioned by the second Hillman factor. Hillman s third factor focuses on the time period over which the benefits are to be paid, the implication being that the payment of benefits over an extended period supports the conclusion that the payments are in fact for the purpose of funding a retirement. Id. at 684 (Ternus, J., concurring) (internal quotation marks and citation omitted). That factor, of course, turns on our sense of what is an extended period. Under defendant s early retirement provision, the payout period extends five years from the date of departure (during which there is one year of net-worth payments and four years of retirement benefits). Under a separate provision, partners who are between sixty and sixty-five years of age, and who satisfy a twenty-year service condition, can qualify for Supplementary Retirement Benefits. According to Paragraph 17(D), those benefits are paid over a period of ten years immediately following retirement[.] In short, given that RPC 5.6 is silent on any of the foregoing factors, we are persuaded that a five- or ten-year payout, depending on whether the partner has qualified for early or supplemental benefits, constitutes a sufficiently extended period in satisfaction of the third criterion relevant to our analysis. Additionally, defendant contends, and plaintiff does not dispute, that by dovetailing the agreement with other retirement plans established under Internal Revenue Service rules, a qualifying partner can receive payments over periods longer than five or ten years. Defendant explains in its brief that it designed the various benefits to support the retiree as he ages. For example, if a partner decided that he wanted to retire early at age 55, he could do so (provided that he met the length-of-service requirement). His Early Retirement Benefit payments would start at age 56, following return of his capital, and end at age 60. By age 60, the retired partner could withdraw the principal and/or income of his 401 plans without penalty. At age 65, he would be eligible for social security. Each of these instruments support[s] the retiree like the rungs of a ladder. [Defendant s] plan thereby provides an extended disbursement period, certainly more than 10 years, even for a partner who retires at age 55. ROBERT D. BORTECK, ESQ., Plaintiff-Respondent, v. RIKER, DANZIG, SCHERER, HYLAND &amp; PERRETTI LLP, Defendant-Appellant. DECIDED April 5, 2004 Chief Justice Poritz PRESIDING OPINION BY Justice Verniero CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY