Franklin D. Azar & Associates P.C. v. Ngo.
2024 COA 99 & 100. Nos. 23CA0191 & 23CA0659. Attorneys and Clients—Colorado Rule of Professional Conduct 5.6(a)—Employment Agreements—Restrictions on Right to Practice—Restriction on Right to Practice After Termination.
September 5, 2024
Ngo worked for Franklin D. Azar & Associates P.C. (the Azar firm) as the head of the class action department. Ngo signed a confidentiality agreement when she was hired that restricted her from (1) disclosing or using proprietary information (nondisclosure provision), (2) soliciting or inducing the firm’s employees to leave the firm (employee nonsolicitation provision), and (3) soliciting the Azar firm’s clients (client nonsolicitation provision). Ngo also signed an employment agreement that had a noncompete covenant and provided that she would abide by the confidentiality agreement. After Ngo had worked at the Azar firm for about two years, she made plans to leave and tried to bring the rest of the class action department with her. Ngo emailed a slide deck presentation to other law firms, attempting to convince them to take her department on as a Denver office. The Azar firm fired her after learning of her plans. Four months later, Ngo began working at a new law firm.
The Azar firm sued Ngo for breach of contract and breach of fiduciary duty. During discovery, the Azar firm identified law firms to which it believed Ngo had sent her slide deck proposal, and it sent letters to those firms informing them of the lawsuit and that Ngo appeared to have disclosed confidential information to them. Ngo counterclaimed against the Azar firm and Azar individually for, as relevant here, (1) defamation, based on the letters the Azar firm sent to the firms; and (2) declaratory judgment, seeking a declaration that the nondisclosure and client nonsolicitation provisions were unenforceable because they violated Colorado Rule of Professional Conduct 5.6(a). Ngo moved for partial summary judgment on the Azar firm’s breach of contract and breach of fiduciary duty claims and on her declaratory judgment counterclaim. The court denied summary judgment on the breach of contract claim and dismissed the breach of fiduciary duty claim as barred by the economic loss rule. The court partially granted the motion on the declaratory judgment counterclaim, concluding that the client nonsolicitation provision violated Rule 5.6(a) and was thus unenforceable.
Azar and the Azar firm moved for summary judgment, seeking, as relevant here, judgment against Ngo on her defamation counterclaim. The trial court denied the motion, concluding that disputed factual issues precluded summary judgment on whether the litigation privilege or substantial truth defenses applied. A jury later found that Ngo had breached the employment agreement and the confidentiality agreement, and it awarded Azar $4,000 in damages. The jury also returned a verdict in favor of Azar and the Azar firm on the defamation counterclaim. Pursuant to the agreements’ fee-shifting provisions, the Azar firm requested $1,907,546.50 in attorney fees and $138,380.33 in costs. The trial court awarded the Azar firm $1,072,991.00 in attorney fees and $106,660.70 in costs.
On appeal, Ngo contended that the trial court erred by allowing the part of the breach of contract claim premised on her solicitation of employees to go to the jury because, as a matter of law, the employee nonsolicitation provision in the confidentiality agreement violated Rule 5.6(a) and was thus unenforceable. The court of appeals determined that an employment agreement that prohibits a law firm attorney from soliciting fellow employees to leave that firm is not an agreement that restricts the lawyer’s right to practice after the employment relationship is terminated. Accordingly, such an agreement does not violate Rule 5.6(a). Therefore, the Azar firm was not prohibited from offering, nor was Ngo prohibited from accepting, a contractual provision requiring Ngo to refrain from soliciting her fellow employees while she was still an Azar law firm employee.
Ngo also argued that the trial court erred by not instructing the jury on the employee preparation privilege. However, no Colorado authority applies the employee preparation privilege to a breach of a contractual employee nonsolicitation provision. Therefore, the trial court did not err by declining to give Ngo’s tendered employee preparation instruction on the breach of contract claim to the jury.
Ngo further asserted that the trial court erred by applying the litigation privilege to the letters the Azar firm sent to the law firms and by instructing the jury that these letters did not constitute defamatory statements. For the litigation privilege to apply, a statement must (1) be related to the subject matter of the litigation and (2) be made in furtherance of the litigation’s objective. Those conditions were satisfied here, so the trial court did not err by concluding that the litigation privilege applied and by modifying the jury instruction accordingly.
The judgment and orders were affirmed and the case was remanded for further proceedings to establish the Azar firm’s and Azar’s reasonable costs and attorney fees on appeal.