Dwyer v. Jung
336 A.2d 498, 133 N.J.Super. 343 (1975)
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Rule of Law:
A restrictive covenant in a law partnership agreement that divides clients among partners upon dissolution and prohibits partners from servicing clients designated to another partner is void as against public policy.
Facts:
- Edmond Dwyer, Albert Lisbona, and Fred Jung, Jr. entered into a partnership agreement for the practice of law.
- The agreement contained a covenant stating that upon termination, clients would be designated to individual partners as listed in an exhibit.
- The covenant restricted any partner from 'doing business with a client designated as that of another partner for a period of 5 (five) years.'
- An exhibit attached to the agreement designated 154 insurance carriers to Jung, 5 to Dwyer, and none to Lisbona.
- On June 7, 1974, Jung notified Dwyer and Lisbona that the partnership was dissolved.
- By September 1, 1974, the former partners had separated and established their own practices.
Procedural Posture:
- Plaintiffs Edmond J. Dwyer and Albert C. Lisbona filed a lawsuit against defendant Fred W. Jung, Jr. in the Superior Court of New Jersey, Chancery Division, for an accounting following the dissolution of their law partnership.
- Defendant Jung filed a counterclaim, alleging that plaintiffs violated the restrictive covenant in the partnership agreement by attempting to do business with clients designated to him.
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Issue:
Is a restrictive covenant in a law partnership agreement, which designates specific clients to each partner upon dissolution and prohibits partners from doing business with another's designated clients for five years, enforceable?
Opinions:
Majority - Kimmelman, J.S.C.
No. A restrictive covenant in a law firm partnership agreement that divides the client market is unenforceable because it is void as against public policy. The court reasoned that commercial standards for non-compete agreements do not apply to lawyers because of strong public policy considerations. The core of this policy is that a client is always entitled to be represented by counsel of their own choosing. The attorney-client relationship is highly fiduciary and consensual, and nothing should restrict a client's right to repose confidence in any counsel of their choice. Citing Disciplinary Rule 2-108(A) of the Code of Professional Responsibility, the court found that such covenants are an improper attempt to control the 'client market' by means other than individual performance and reputation, and are an unwarranted restriction on both the lawyer's right to practice and the client's right to choose.
Analysis:
This decision solidifies the principle that the legal profession is distinct from commercial enterprises, and its agreements are subject to higher public policy scrutiny. It establishes a strong precedent in New Jersey that covenants restricting a lawyer's right to practice or a client's right to choose counsel are per se injurious to the public interest and therefore void. The ruling significantly limits the ability of law firms to use restrictive covenants to prevent departing attorneys from competing, thereby prioritizing client autonomy over the firm's business interests. Future cases involving similar restrictions will almost certainly be found unenforceable based on this public policy foundation.
