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SHUTTLEWORTH, RULOFF AND GIORDANO, P.C. v. R.J. NUTTER, II (59725)


SHUTTLEWORTH, RULOFF AND
GIORDANO, P.C.

v.

R.J. NUTTER, II


October 31, l997

Record No. 962538

SHUTTLEWORTH, RULOFF

AND GIORDANO, P.C.

v.

R.J. NUTTER, II

OPINION BY JUSTICE CYNTHIA D. KINSER

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH

Jane Marum Roush, Judge Designate

Present: Carrico, C.J., Compton, Lacy, Hassell, Keenan, and
Kinser, JJ., and Poff, Senior Justice


At issue before this Court is the enforceability of a
provision in an addendum to an employment contract entered into
between Shuttleworth, Ruloff and Giordano, P.C. (Shuttleworth), a
law firm, and R.J. Nutter, II (Nutter), who was both a
stockholder and an employee of Shuttleworth. Because we find that
the disputed addendum provision does not violate the Virginia
Code of Professional Responsibility, we will reverse and remand
for proceedings consistent with this opinion.

I.

On May 26, 1987, at the outset of his employment with
Shuttleworth, Nutter signed an "Employment Agreement."
Subsequently, on February 12, 1990, Shuttleworth and Nutter
entered into an "Addendum To Employment Agreement." At
that time, Shuttleworth was preparing to execute an eleven-year
lease for new office space. The Addendum’s stated purpose was to
address Nutter’s obligation pursuant to his personal guarantee of
the lease. The Addendum provided that, in exchange for Nutter’s
personal guarantee, Nutter would receive a portion of the cash
incentive being offered to Shuttleworth by the landlord of the
leased property. However, should Nutter leave his employment with
Shuttleworth during the first five years of the lease, Nutter
would have to refund a pro rata portion of his
share of the cash incentive.[1]

Nutter had an additional obligation under the Addendum. Upon
the voluntary or involuntary termination of his employment with
Shuttleworth, he would remain liable on a monthly basis for his
"proportionate share" of the lease payments.[2] The commitment to make lease
payments was a "continuing obligation," commencing on
the date of the lease and continuing through the end of the
eleven-year lease term.

However, the obligation to make lease payments after
termination of employment with Shuttleworth was not absolute.
Nutter would not have been required to make payments if his
termination was the result of death or disability, if he was
appointed to the judiciary, or if he was terminated involuntarily
by a non-unanimous vote of Shuttleworth’s board of directors.[3] Most important to our
determination here is the provision that the lease payments would
continue after the first five years of the lease "only in
the event that [Nutter] has entered into the active practice of
law."

In September 1995, more than five years after commencement of
the lease, Nutter terminated his employment with Shuttleworth.[4] Following Nutter’s termination,
Shuttleworth filed a petition for declaratory judgment in the
court below. In its petition, Shuttleworth requested the court to
declare that the Addendum’s lease payment provision requires
Nutter to make monthly payments. Shuttleworth also sought a
judgment for the sum of all lease amounts "accruing and
unpaid" by Nutter up until the time of final adjudication.

In response to Shuttleworth’s petition, Nutter filed a motion
for summary judgment pursuant to Rule 3:18. In his motion, Nutter
contended that the Addendum’s lease payment provision was void as
a matter of law because it violated the public policy stated in
Disciplinary Rule (DR) 2-106(A) of the Virginia Code of
Professional Responsibility.[5] Specifically, Nutter argued
that the provision was a financial disincentive to his continued
practice of law. Nutter further contended that the challenged
provision infringed on the public’s right to obtain counsel of
its choosing.

After considering briefs submitted by both parties as well as
hearing oral argument, the trial court granted Nutter’s motion
for summary judgment. In explaining its rationale, the trial
court stated:

I do think that the provision of the agreement that
says that partners who have withdrawn from the firm or
shareholders who have withdrawn from the firm, have to
pay their proportionate share of the lease obligation
after the fifth year, only if they’re engaged in the
active practice of law, does run afoul of Rule 2-106(A)
of the Virginia Code of Professional Responsibility and
is therefore unenforceable as contrary to the public
policy of Virginia.

 

Shuttleworth appeals.

II.

We have often stated that "`[t]he parties’ contract
becomes the law of the case unless it is repugnant to some rule
of law or public policy.’" Rash v. Hilb, Rogal &
Hamilton Co.
, 25l Va. 28l, 285, 467 S.E.2d 791, 794 (1996)
(quoting Winn v. Aleda Const. Co., 227 Va. 304, 307, 315
S.E.2d 193, 194 (1984)). If a contract violates public policy, it
is void and of no legal effect. Cohen v. Mayflower Corp.,
196 Va. 1153, 1160, 86 S.E.2d 860, 864 (1955); Wallihan v.
Hughes
, 196 Va. 117, 124, 82 S.E.2d 553, 558 (1954). However,
"the law looks with favor upon the making of contracts
between competent parties upon valid consideration and for lawful
purposes, and `courts are averse to holding contracts
unenforceable on the ground of public policy unless their
illegality is clear and certain.’" Jessee v. Smith,
222 Va. 15, 17-18, 278 S.E.2d 793, 795 (1981) (quoting Ryan v.
Griffin
, 199 Va. 891, 895, 103 S.E.2d 240, 244 (1958)).

In ruling on Nutter’s motion for summary judgment, the circuit
court found that the contested provision of the Addendum is
contrary to public policy because it violates DR 2-106(A).
Accordingly, the court declared the provision unenforceable. In
effect, the court used the disciplinary rule to measure whether
the contested provision violates public policy, thereby elevating
DR 2-106(A) to the status of decisional or statutory law. We
question the propriety of equating the force of a disciplinary
rule with that of decisional or statutory law in light of our
decisions in Carter v. Williams, 246 Va. 53, 60, 431
S.E.2d 297, 30l (1993), and Ayyildiz v. Kidd, 220 Va.
1080, 1085, 266 S.E.2d 108, 112 (1980). In those cases, we held
that the Code of Professional Responsibility does not provide the
basis for a private cause of action. However, for the purpose of
this decision, we assume, without deciding, that a disciplinary
rule may properly be considered in determining the public policy
of this Commonwealth and conclude that the contested provision of
the Addendum does not violate DR 2-106(A).

An examination of the purpose behind DR 2-106(A), as well as
other jurisdictions’ application of similar provisions, supports
our conclusion that the Addendum’s lease payment provision does
not violate DR 2-106(A). The objective of DR 2-106(A) is to make
attorneys fully available to the public. In Jacob v. Norris,
McLaughlin & Marcus
, 607 A.2d 142 (N.J. 1992), the court
explained the purpose of a disciplinary rule similar to DR
2-106(A):

The history behind the [rule] and its precursors
reveals that the [rule's] underlying purpose is to ensure
the freedom of clients to select counsel of their choice,
despite its wording in terms of the lawyer’s right to
practice. The [rule] is thus designed to serve the public
interest in maximum access to lawyers and to preclude
commercial arrangements that interfere with that goal.

 

Id. at 146.

 

Given this purpose, courts in other jurisdictions have applied
rules of professional conduct, similar if not identical to DR
2-106(A), to prohibit agreements that impose financial
disincentives, as opposed to explicit restrictions, on a
withdrawing partner’s competition with the former firm. See
Stevens v. Rooks Pitts & Poust, 682 N.E.2d 1125, 1132
(Ill. 1997) (holding that provision requiring departing lawyer to
forego compensation if he competed with firm in certain
geographic area was unenforceable and in contravention of public
policy underlying disciplinary rule); accord Pierce v.
Hand, Arendall, Bedsole, Greaves & Johnston
, 678 So. 2d
765, 769 (Ala. 1996); Jacob v. Norris, McLaughlin & Marcus,
607 A.2d at 148-49; Denburg v. Parker Chapin Flattau &
Klimpl
, 624 N.E.2d 995, 999 (N.Y. 1993); Gray v. Martin,
663 P.2d 1285, 1290-91 (Or. Ct. App. 1983); Spiegel v. Thomas,
Mann & Smith, P.C.
, 811 S.W.2d 528, 531 (Tenn. 1991); Whiteside
v. Griffis & Griffis
, 902 S.W.2d 739, 743-44 (Tex. App.
1995). But see Howard v. Babcock, 863 P.2d 150, 160
(Cal. 1993). Unlike the Addendum’s lease payment provision, the
purpose of the agreements in these cases was to restrict
competition. In order to accomplish that purpose, they imposed
monetary penalties if the withdrawing attorney practiced law
within a particular geographic area, practiced a particular kind
of law, or represented former clients of the firm.

In contrast, the intent of the Addendum’s contested provision
was not to restrict Nutter’s competition with Shuttleworth if he
left the firm and continued to practice law; rather, it was to
insure that Shuttleworth had the financial means with which to
make the lease payments. The terms of the lease payment provision
evidence such an intent. First, the provision does not contain
any restrictions common to noncompetition agreements. Nutter’s
obligation to pay his proportionate share of the monthly lease
payments was not triggered by his practice of law as to
geographic area, subject matter, or clientele. Second, during the
first five years of the lease, Nutter was obligated to pay his
share if he left Shuttleworth for any reason, except death,
disability, acceptance of a judicial position, or termination by
a non-unanimous vote. Thus, Nutter’s obligation during the first
five years of the lease was not contingent on his continued
practice of law if he left Shuttleworth. Accordingly, we find
that the Addendum’s lease payment provision does not contravene
the purpose behind DR 2-106(A).

We, therefore, conclude that the Addendum’s lease payment
provision does not violate the literal terms of DR 2-106(A) or
its underlying purpose. Accordingly, we will reverse the judgment
of the circuit court and remand this case for a trial on the
merits consistent with this opinion.

Reversed and remanded.

 

 

FOOTNOTES:

[1] Nutter’s share was
approximately $21,000. Since Nutter left Shuttleworth more than
five years after the commencement of the lease, Nutter did not
have to return any of the cash incentive. The validity of that
particular provision in the Addendum is not at issue in this
case.

[2] An employee’s
"proportionate share" was to be expressed in the form
of a fraction. The numerator was to be the average of the
employee’s two years’ gross receipts for the two fiscal years of
Shuttleworth next preceding the date of termination. The
denominator was to be Shuttleworth’s average gross receipts for
the two fiscal years of Shuttleworth next preceding the date of
termination. This fraction was to then be multiplied by
Shuttleworth’s monthly lease payment. The evidence did not show
the precise dollar amount of Nutter’s "proportionate
share" of the lease payments.

[3] Nutter’s obligation under the
Addendum’s lease payment provision also ceased if Shuttleworth’s
landlord declared the office lease in default and called upon the
personal guaranties.

[4] Currently, Nutter is engaged in
the private practice of law in the Tidewater area.

[5] DR 2-106 (A) provides as
follows:

 

A lawyer shall not be a party to a partnership
or employment agreement that restricts the right
of a lawyer to practice law after the termination
of a relationship created by the agreement,
except as a condition to payment of retirement
benefits.

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