APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE PATRICK E. MCGANN, JUDGE PRESIDING.
Rehearing Denied August 14, 1997. Released for Publication August 21, 1997.
The Honorable Justice Hoffman delivered the opinion of the court. Hourihane and South, JJ., concur.
The opinion of the court was delivered by: Hoffman
The Honorable Justice HOFFMAN delivered the opinion of the court:
The plaintiff, William M. Stevens, appeals from an order of summary judgment entered in favor of the defendant, Rooks Pitts and Poust (Rooks). A former partner at Rooks, Stevens alleges that certain termination provisions in the Rooks Partnership Agreement (Agreement) are in contravention to Rule 5.6 of the Illinois Code of Professional Conduct (Code) (134 Ill. 2d R. 5.6) and are, therefore, unenforceable. We reverse and remand.
Stevens became a general partner at Rooks on January 1, 1981, and continued in that capacity until he voluntarily withdrew from the firm on May 31, 1992. Stevens was a signatory to the Agreement which became effective January 1, 1984. Article Ninth of the Agreement contains the following pertinent language concerning departure compensation to withdrawing partners:
" *** In the event of the death of a General Partner, or the withdrawal of a General Partner by reason of (i) permanent disability, (ii) retirement, or (iii) voluntary or involuntary withdrawal of a General Partner pursuant to subparagraph (c) of ARTICLE FIRST hereof, the interest of the estate of any such deceased General Partner and the interest of any such withdrawing General Partner, (hereinafter in this Article called the "Ex-Partner") shall be limited as follows:
(b) The interest of the Ex-Partner in the tangible and intangible assets of the Partnership shall be limited to an amount equal to the net balance of the Ex-Partner's capital account, supplemental capital account, current account and any other account, on the dates of death or withdrawal, together with the Ex-Partner's share of collections, if any, received within three (3) years after death or withdrawal for work performed prior to January 1, 1984 in accordance with the income sharing percentages applicable to the year the work was performed ("Old Runoff"), plus the Ex-Partner's share of collections, if any, received within three (3) years after death or withdrawal for work performed after December 31, 1983 and before July 1, 1987 in accordance with the income sharing percentages in effect on June 30, 1987, ("New Runoff") and plus the Ex-Partner's income sharing percentage at the time of death or withdrawal of the partnership's receivables and unbilled time for work performed after June 30, 1987 which is collected within three (3) years after such death or withdrawal ("Inventory"), which shall be paid as set forth below, subject to the adjustments, offsets and holdbacks set forth below. ***
(iii) If the Ex-Partner has voluntarily or involuntarily withdrawn from the Partnership, the Ex-Partner shall be paid within a reasonable time after June 30 and December 31 in each year thereafter an amount equal to four-fifths (4/5th) of his share of the collections of Old Runoff, New Runoff, and Inventory. If the Ex-Partner is not directly or indirectly engaged in the practice of law, in competition to the legal practice of the Partnership existing immediately prior to his withdrawal either individually or in association with another law firm, in the Chicago metropolitan area including the City of Chicago and the seven (7) surrounding counties in Illinois and Indiana *** for a period of one (1) year subsequent to becoming an Ex-Partner, the Ex-Partner shall as soon as practicable thereafter receive an additional payment equal to one-fourth (1/4th) of the amount previously paid to the Ex-Partner hereunder and shall thereafter be paid all of his share of Old Runoff, New Runoff, and Inventory within a reasonable time after June 30 and December 31 of such year and each year thereafter. " (Emphasis added.)
After Stevens' withdrawal, Rooks paid him $242,561.60 which constituted 4/5ths of the compensation due to him under Article Ninth. Less than a year after he left Rooks, Stevens became associated with another Chicago law firm engaged in the general practice of law. Since Rooks deemed Stevens practice to be competitive, it refused to pay him the remaining 1/5th of his departure compensation. According to Stevens, Rooks subtracted $60,640.40 from his total compensation of $303,202.00 in order to comply with Article Ninth.
On August 6, 1993, Stevens filed a complaint seeking a declaratory judgment that Article Ninth was in violation of Rule 5.6 (count I) and, alternatively, purporting to state a claim for breach of contract (count II). Stevens subsequently filed a motion for declaratory relief, apparently also intended as a summary judgment motion, alleging that Rooks' application of Article Ninth, as a matter of law, restricted Stevens' clients' choice of legal counsel in violation of Rule 5.6. Rooks also filed a motion requesting declaratory relief and summary judgment which asserted that Article Ninth did not violate Rule 5.6. On February 17, 1994, the trial court conducted a hearing and found that Article Ninth constituted a financial disincentive but that a question of fact existed as to whether the 20% withheld from Stevens amounted to a restriction of his right to practice law. On August 18, 1995, Stevens filed a motion for reconsideration of this order. Rooks filed another motion for summary judgment.
On January 3, 1996, the trial court issued a memorandum opinion and order denying summary judgment to Stevens and granting summary judgment to Rooks. The court acknowledged that the majority of foreign cases analyzing financial disincentives in a law partnership or employment agreement hold that any agreement which causes a withdrawing attorney to forfeit revenues earned during active practice violates Rule 5.6, or its equivalent, since it restricts a lawyer's freedom of practice and unduly impairs a client's choice of attorney. However, the court distinguished these cases since they involved the "forfeiture of vested interests or earned revenues." The trial court found that the payment structure in the Agreement here did not include any forfeiture of funds "earned, due and owing." The court emphasized that the 80% collected by the withdrawing partner constituted gross sums from the "Old Runoff," "New Runoff," and "Inventory." In contrast, the remaining ...