Present: Carrico, C.J., Compton, Lacy, Hassell, Keenan, and
Kinser, JJ., and Poff, Senior Justice
SHUTTLEWORTH, RULOFF
AND GIORDANO, P.C.
v. Record No. 962538 OPINION BY JUSTICE CYNTHIA D. KINSER
October 31, l997
R.J. NUTTER, II
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
Jane Marum Roush, Judge Designate
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
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.
2
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
5
Virginia Code of Professional Responsibility. Specifically,
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
3
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.
lawyer to practice law after the termination of a
relationship created by the agreement, except as a
condition to payment of retirement benefits.
4
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
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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.
6
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
7
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.
8