LEGAL ETHICS OPINION #1711    PARTNERSHIP AGREEMENT; CAPITAL
                              ACCOUNTS AND RETIREMENT BENEFITS;
                              RESTRICTIONS ON PARTNERS
                              WITHDRAWING FROM PARTNERSHIP

You have presented a hypothetical situation in which a firm
practices law as a limited liability partnership.  New partners
are not required to buy into the partnership, but capital
accounts are established for each new partner at zero balance
with a share of the partnership's capital assets credited to each
account as the partner's seniority grows.  With the approval of
the firm's Management Committee, partners are permitted to draw
down portions of their capital accounts for the purpose of
furnishing their offices.   Senior partners' accounts frequently
are in the $65,000 - $75,000 range.  Until 1996, the partnership
provided that:

     In the event of the voluntary withdrawal or retirement
     of any other partner, he or she shall only be entitled
     to the amount shown on the partnership books as the
     capital account of said partner at the close of the
     preceding calendar year, which amount shall be payable,
     at the option of the partnership, over a period of one
     hundred twenty (120) months.

In 1997 the preceding provision of the partnership agreement was
amended to add:

     In the event the partner voluntarily withdraws from the
     firm and retires from the practice of law, his or her
     capital account shall be paid over a period of sixty
     (60) months.

You are concerned that additional language permits the firm to
penalize a withdrawing or retiring partner who chooses to
continue practicing law following his or her departure from the
firm.  If he or she gives up the practice of law, the capital
account must be paid out over a period of five years.  If he or
she chooses to continue to practice law, the partnership has the
option of paying out the capital account over a period of up to
ten years.

Under the facts you have presented, you have asked the committee
to opine as to whether the additional provision to the
partnership agreement creates an impermissible restraint on the
withdrawing attorney's right to practice law after the
termination of the partnership relationship.  You also ask
whether a withdrawing partner's entitlement to his or her capital
account upon withdrawal or retirement constitutes a retirement
benefit within the exception to DR 2-106(A).The appropriate and
controlling disciplinary rule relative to your inquiry is DR 2-
106(A) which states:

     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.

The committee has previously opined that it is not permissible
for a firm to restrict departing attorneys:  from practicing
within a "reasonable radius" of the firm in order to obtain
benefits under an unqualified deferred compensation plan (LEO
880); to wait to contact their clients regarding their
termination until the firm first receives a response to its
letter to the client seeking an election of an attorney to
proceed on their cases (LEO 1403); from practicing within the
same geographic area as the firm for a specified period after
termination of employment (LEO 246); and from receiving
termination compensation if a covenant not to compete with the
firm is violated (LEO 428).

The committee has also held that only (emphasis added) those
agreements which restrict the lawyer's right to practice after
the termination of their relationship are prohibited; there is no
prohibition on agreements that affect the termination of the
relationship itself (LEO 985).

In the facts you present, the committee believes that the
different time periods in the firm's  pay-out of the departing
attorney's capital account is an agreement affecting only the
termination of the relationship itself,  not a restriction on the
attorney's right to continue to practice law after the
termination of the relationship.  Therefore, in the committee's
opinion, the additional provision in the partnership agreement is
not a violation of DR 2-106(A).

Since the committee finds no violation of the Code of
Professional Responsibility here, your second question regarding
whether this capital account constitutes a retirement benefit is
rendered moot.
 
[DR 2-106(A); LEOs 246, 428, 880, 985, 1403]

Committee Opinion
November 21, 1997