Franklin D. Azar v. Ngo: Colorado Upholds Predeparture Nonsolicitation Clause

Franklin D. Azar & Associates, P.C., a Colorado law firm, employed Ivy Ngo as an attorney who helped lead the firm’s class action department. When Ivy Ngo joined the firm, she signed two agreements governing her employment. One was an Employment Agreement. The other was a Confidentiality, Non-Disclosure, and Non-Solicitation Agreement. Together, these agreements included provisions addressing confidentiality, employee nonsolicitation, client nonsolicitation, and post-employment competition.

The agreements required Ivy Ngo to protect the firm’s confidential information and restricted her ability to solicit firm employees or clients. The Employment Agreement also contained a noncompete clause and required compliance with the confidentiality agreement.

After approximately two years with the firm, Ivy Ngo began planning to leave. As part of those plans, she prepared a presentation describing the class action department and sent the presentation to other law firms. The presentation was intended to persuade another firm to bring her and the department into a new Denver office.

Franklin D. Azar & Associates learned about Ivy Ngo’s efforts while she was still employed. The firm terminated her employment. Several months later, Ivy Ngo joined another law firm.

The Lawsuit and Counterclaims

Following Ivy Ngo’s departure, Franklin D. Azar & Associates filed suit in Colorado state court. The firm alleged that Ivy Ngo breached her contractual obligations and also asserted a claim for breach of fiduciary duty. The lawsuit alleged that Ivy Ngo attempted to recruit members of the class action department and disclosed confidential information in her communications with other law firms.

During the litigation, Franklin D. Azar & Associates also sent letters to several law firms believed to have received Ivy Ngo’s presentation. The letters stated that Ivy Ngo appeared to have disclosed confidential information belonging to the firm.

Ivy Ngo responded by filing counterclaims against Franklin D. Azar & Associates and Franklin D. Azar individually. Her counterclaims included a defamation claim based on the letters and other alleged statements. She also sought declaratory relief, asserting that certain provisions in the employment agreements violated Colorado Rule of Professional Conduct 5.6(a), which addresses agreements that restrict a lawyer’s right to practice after leaving a firm.

Pretrial Decisions

Before trial, Ivy Ngo moved for partial summary judgment. The trial court granted part of her request for declaratory relief. The court ruled that the client nonsolicitation provision violated Rule 5.6(a) and could not be enforced.

The trial court also limited the scope of the nondisclosure provision. The court concluded that the agreement did not cover Ivy Ngo’s mental impressions, professional judgment, strategies, or methods developed while practicing law.

The court dismissed the firm’s fiduciary duty claim based on the economic loss rule. The breach of contract claim remained pending for trial.

Franklin D. Azar & Associates sought summary judgment against Ivy Ngo on her defamation counterclaim. The court denied that request, determining that factual disputes remained.

Trial Proceedings

The breach of contract claim and Ivy Ngo’s defamation claim proceeded to a jury trial.

During trial, the court ruled that the letters sent by Franklin D. Azar & Associates to other law firms were protected by the litigation privilege. Because the letters were considered privileged communications connected to the lawsuit, they could not serve as the basis for defamation liability. The court modified the jury instructions to reflect that the letters themselves could not support Ivy Ngo’s defamation claim.

The court also denied Ivy Ngo’s motion for a directed verdict on the breach of contract claim. The court concluded that the employee nonsolicitation provision did not violate Rule 5.6(a).

The jury received a general verdict form addressing two questions. The first asked whether Ivy Ngo breached the Employment Agreement. The second asked whether she breached the Confidentiality Agreement. The verdict form also asked whether Franklin D. Azar & Associates suffered damages resulting from any breach.

The jury found that Ivy Ngo breached both agreements. The jury awarded Franklin D. Azar & Associates $4,000 in damages. The jury also rejected Ivy Ngo’s defamation claim.

Post-Trial Motions and Attorney Fee Award

After the verdict, Franklin D. Azar & Associates sought attorney fees and litigation costs under fee-shifting provisions contained in the employment agreements.

The firm requested more than $1.9 million in attorney fees and more than $138,000 in costs. Ivy Ngo opposed the request. She argued that the firm should not be considered the prevailing party because the damages award was small and that the requested fees were excessive.

The trial court ultimately awarded Franklin D. Azar & Associates $1,072,991 in attorney fees and $106,660.70 in costs.

Issues Raised on Appeal

Ivy Ngo appealed the judgment to the Colorado Court of Appeals. Her appeal challenged several aspects of the trial court’s rulings.

First, she argued that the employee nonsolicitation provision violated Colorado Rule of Professional Conduct 5.6(a) and therefore should not have been presented to the jury.

Second, she argued that the trial court should have instructed the jury on what she described as an employee preparation privilege, which she claimed would allow attorneys to prepare to leave a firm without breaching contractual obligations.

Third, she challenged the application of the litigation privilege to the letters sent by Franklin D. Azar & Associates and the resulting jury instructions on defamation.

Ivy Ngo also appealed the attorney fee and cost awards entered after trial.

Colorado Court of Appeals Analysis

The Colorado Court of Appeals examined whether Rule 5.6(a) prohibited enforcement of the employee nonsolicitation provision in the circumstances presented.

The appellate court focused on the evidence introduced at trial, which addressed Ivy Ngo’s efforts to recruit coworkers while she was still employed by Franklin D. Azar & Associates. The court analyzed whether Rule 5.6(a) barred agreements preventing a lawyer from soliciting coworkers before leaving a firm.

The court determined that Rule 5.6(a) did not prohibit an agreement restricting pre-departure recruitment of coworkers. The court explained that the rule addresses agreements that restrict a lawyer’s right to practice after the professional relationship ends. A restriction on recruiting coworkers while still employed did not function as a post-employment restriction on the practice of law.

The appellate court also noted that common law employment principles recognize a duty of loyalty that can limit efforts by employees to recruit coworkers before leaving a company. The court concluded that a contractual provision reflecting those principles did not violate the professional conduct rule.

The court also reviewed the trial court’s treatment of the defamation claim and the litigation privilege applied to the letters sent during the dispute.

The Court’s Decision

The Colorado Court of Appeals affirmed the trial court’s judgment. The court concluded that the employee nonsolicitation provision, as applied to pre-departure conduct, did not violate Rule 5.6(a). The court also upheld the rulings related to the defamation claim and the jury instructions.

The appellate court allowed the trial court’s verdict and the attorney fee award to stand.

Labor and Employment Legal Services

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