Cortney, an aspiring young attorney in the Tri-Cities, found herself confronting some difficulties. Originally from the West Coast, Cortney took advantage of an academic scholarship to go to law school in Boston. Despite the scholarship, she emerged from 3 years of law school nearly $100,000 in debt.
Because of her academic success, Cortney was offered a coveted federal clerkship, not in Buffalo or in Akron, but in the Commonwealth of the Northern Mariana Islands. A badly-timed typhoon had other ideas: after the typhoon ripped off the roof of the federal courthouse, Cortney’s prestigious job went up, not in smoke, but in “thunder, lightning and in rain.” She was stranded with massive debts, no job, no electricity, and no cash.
Desperate to find a job, Cortney took the first one offered. Kennewick-based firm, Clearwater Law Group (the “Law Firm”) offered her a modified “eat what you kill” position, but no moving allowance. From Cortney’s point of view, the Law Firm promised a great deal but did not deliver. The Law Firm of course has its own perspective, but there was a more serious catch.
In part to stymie, what it perceived to be a revolving door of attorneys coming to and leaving the firm, Clearwater instituted the policy of adding a liquidated damages provision to many of its attorney contracts. Although the contracts otherwise purported to be “at will,” if an attorney left the firm early, typically, before the end of three (3) years, the Law Firm charged the attorney a fee or “damages” – often calculated as the lesser of either $15,000 or $2,500 per month for each month remaining on the agreed duration of the contract regardless of the departing attorney’s experience or book of business. The Law Firm also often kept a departing attorney’s final paycheck, which it applied towards the liquidated damages allegedly owed.
Finding better working conditions and opportunities elsewhere, Cortney left Clearwater early and was soon faced with a lawsuit. The Law Firm kept a portion of Cortney’s final paycheck and sent her a demand for the remaining balance of the $15,000 of the liquidated damages amount. When she declined to pay it, the Law Firm sued her.
Still at an early stage in her legal career, and still loaded down with law school debt, Cortney found herself in a position where she could not afford the $15,000 in liquidated damages for which Clearwater sued her. Neither could she afford an attorney to defend her. Since Cortney had ended up at Gravis Law, PLLC, Gravis CEO, Brett Spooner, offered to have senior trial attorney Paul H. Beattie defend Cortney. In the case of Clearwater Law Group, PC. v. Cortney Corbet, Case No. 19-2-02877-03 (Benton Cty. 2019), Gravis Law filed an Answer to Clearwater’s Complaint. In that Answer, Cortney raised several defenses and counterclaims, including the defense that Clearwater had not crafted a proper liquidated damages clause under Washington law and a counterclaim that Clearwater had wrongfully misappropriated Cortney’s earned wages. But perhaps the most interesting argument, from a legal point of view, was Gravis’ argument that the Clearwater liquidated damages provision in its attorney contracts was void and unenforceable because it violated the public policy reflected in RPC 5.6: namely, that law firms should not impose contract provisions that economically restrict their attorneys’ freedom to switch jobs and to serve the clients of their choice.
The Washington State version of RPC 5.6 states as follows:
A lawyer shall not participate in offering or making:
(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the rights of a lawyer or an LLLT to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or
(b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.
RPC 5.6. Gravis argued that a plain reading of RPC 5.6 bars a law firm from imposing an employment contract that economically restricts the ability of a departing lawyer to “practice after termination of the relationship.” Gravis insisted that a $15,000 penalty was a significant amount of money for a young, indebted attorney, such as Cortney, and that it amounted to a significant deterrent or restriction on such an attorney’s freedom to leave the firm. Clearwater, in turn, argued that restrictions on attorney departures should only be legally-suspect if they involve more absolute prohibitions, such as non-compete agreements.
The arbitrator disagreed with Clearwater’s narrow reading of RPC 5.6. In a detailed decision, the arbitrator reasoned as follows:
“The exceptions to RPC 5.6 are not applicable in this case. From my reading of the cases submitted by both parties, it is clear the purpose of this [rule] is to prohibit employment agreements that unduly restrict the ability of the attorney after termination of the agreement to practice law, primarily for the protection of that attorney’s and/or the firm’s clients. I believe the parties are unified that protection of clients (and the client’s right to choose their attorney) is one of the primary purposes of the rule.”
Arb. Decision at P. 2. The arbitrator further concluded that the Clearwater liquidated damages clause did “impair or limit”, a lawyer’s ability to leave the Clearwater firm in direct contravention of RPC 5.6. (id at P. 3). Based on well-established case law, the arbitrator then concluded that the Clearwater liquidated damages provision was unenforceable and void in light of the public policy reflected in RPC 5.6, namely to avoid undue restrictions on the movement of attorneys. (id. at P. 3) (Citing Chism v. Tri-State Construction, 193 Wn. App. 818 (2016); LK Operating LLC v. Collection Group LLC, 181 Wn.2d 48 (2014). Having concluded that the Clearwater liquidated damages clause was illegal, the arbitrator necessarily found that Clearwater’s conversion of Ms. Corbet’s final paycheck was also illegal and ordered Clearwater to pay that money.
Although the Clearwater case is a small one, that appears likely to end with the MAR Arbitration Award, Gravis believes the Clearwater case may be the first case in Washington to invalidate a liquidated damages clause in an attorney contract based on RPC 5.6.