In 1976 plaintiff, an attorney, became a shareholder in the defendant legal professional corporation. In February, 1979, the directors and shareholders of the corporation met and discussed a means to evaluate the stock of the corporation and, also, a buy-sell provision which would apply to the stock of a shareholder on termination of employment. In 1980, plaintiff terminated his employment. In 1981, he brought an action seeking an appraisal and an accounting for the stock he held in the corporation and also seeking declaratory relief.
The trial court found, and we are bound by thаt finding, that a buy-sell agreement existed between the shareholders of defendant. 1 The pertinent terms of that agreement, contained in the draft minutes of the February meeting, are:
“1. Valuation of Professional Corporation. For the purposes of valuing all of the outstanding stock of the professional corporation, it was decided that the following formula would be applied: gross receipts of professional income during the corporation’s prior fiscal year less nonlawyer-related expenses equals the total valuаtion of the corporation’s outstanding stock.
<<* * * * *
“5. Termination with No Noncompete. In the event * * * a shareholder voluntarily terminates his employment and does not enter into a binding noncompetition agreement with the corporation, said terminating shareholder shall be obligated tо sell * * * at a price per share using the [Valuation of Professional Corporation] formula; however, said price will bе reduced by a penalty provision of forty percent (40%). * * * Further, said installment payments on the buy-out of the terminating shareholder shall be offset by an amount equal to one-half (1/2) of the average annual gross billings billed to those clients taken by the terminating shаreholder from the corporation. * * * [T]he gross billings charged to the clients taken by the terminating shareholder during the twelve (12) month period preceding the date of severance will be used. After the expiration of the twelve (12) month period, the fees charged by the terminating shareholder to the client taken from the firm for said period will be added to the figure used at *703 the time of the severance and these two figures averaged to determine the amount of the offset of the purchase priсe. Any adjustment in the offset as a result of this redetermination shall be applied toward any balance due the terminating shareholder.”
The issue is whether the stock valuation provision is enforceable. The trial court found that it is. Plaintiff argues that the nonсompetition aspect of paragraph 5 renders the provision unenforceable. Defendant contends that the provision does not restrict competition, but rather merely implements an adjustment to the value of the stock in recоgnition of the fact that the value of the corporation would be reduced if a shareholder leaves and takes clients with him.
The difficulty with defendant’s position is that the provision goes beyond “anti-raid” protection. If a shareholder were to leave the corporation without a noncompetition agreement, irrespective of whether clients go with him, the vаlue of his shares would be reduced by 40 percent. The only way to avoid that penalty is for the withdrawing shareholder to enter intо a “binding noncompetition agreement with the corporation,” which would be in violation of the Rules of Professional Resрonsibility, DR 2-108(A):
“A lawyer shall not be a party to or participate in a partnership or employment agreement with anothеr lawyer that restricts the right of a lawyer to practice law after the termination of a relationship created by thе agreement, except as a condition to payment of retirement benefits.”
In
Gray v. Martin,
Defendant’s emphasis is misplaced. The disciplinary rulе is designed to “govern the relationships between attorneys for the protection of the public,”
Gray v. Martin, supra,
«* * * fits SqUarely within the prohibition contained in DR 2-108(A). It affects [plaintiffs] right to practice law * * * by requiring that if he does so he loses the benefits that would otherwise be his. This is certainly a restriction on his right to practice.”63 Or App at 181-82 .
The 40 percent penalty provision in paragraph 5 is unenforceable, because it is contrary to the public policy of making legal counsel available, insofar as possible, according to the wishes of a client. However, even though the penalty provision cannot be enforced, a professional corporation must have the right to adjust the value of its stoсk according to the effect created when a withdrawing shareholder takes clients from the firm. If the entire agreement is not contrary to public policy, although a severable provision is invalid, the remaining provisions of the contract maybе enforced.
W. J. SeufertLand Co. v. Greenfield,
Reversed and remanded fоr an appraisal and accounting not inconsistent with this opinion.
Notes
Although our review of plaintiffs claim for relief is
de novo,
our review of the affirmative defense that a contract existed between the parties is as in an action at law.
See McClory v. Gay,