SCF Consulting, LLC v. Barrack Rodos
1413 EDA 2015
| Pa. Super. Ct. | Jul 8, 2016Background
- SCF Consulting (non-lawyer entity run by Scott Freda) alleges an oral consulting agreement with law firm Barrack, Rodos & Bacine: annual consulting retainer plus profit-share (5% for cases Freda originated/worked on; 2.5% for others).
- SCF alleges it performed services and was paid the retainer but not the promised profit-share for 2014; it sued for breach of contract, unjust enrichment, and breach of fiduciary duty (WPCL count withdrawn by stipulation).
- Appellee filed preliminary objections in the nature of a demurrer arguing the compensation arrangement violated Pa. Rule of Professional Conduct 5.4 (prohibiting fee-splitting with nonlawyers) and thus is unenforceable as against public policy.
- The trial court sustained the preliminary objections and dismissed the complaint; SCF appealed without filing a Pa.R.A.P. 1925(b) statement.
- The Superior Court affirmed, holding the alleged profit-sharing was not covered by the Rule 5.4(a)(3) employee-profit-sharing exception because SCF was not a firm employee and the arrangement created a direct link between specific fees and payments to a nonlawyer.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaint should survive demurrer despite Rule 5.4 concerns | SCF: complaint pleads an express exception to RPC 5.4 (profit-sharing) and must be accepted as true at demurrer stage | Firm: arrangement violates RPC 5.4 and is unenforceable; demurrer proper | Court: demurrer properly sustained; alleged facts show profit-share falls outside Rule 5.4(a)(3) exception |
| Whether dismissal was premature without full discovery (Wishnefsky issue) | SCF: Wishnefsky requires full development of record before dismissal; demurrer was premature | Firm: arrangement facially violative, demurrer appropriate | Court: no remand — facts alleged show direct fee link and non-employee status; discovery unnecessary to resolve legal bar |
| Whether public policy or in pari delicto arguments should allow enforcement | SCF: public policy and precedent (argued Grigsby) could allow enforcement despite RPC violation | Firm: public policy disfavors enforcing fee-splitting agreements with nonlawyers | Court: public policy bars enforcement here; plaintiff cannot recover on an impermissible fee-splitting agreement |
Key Cases Cited
- Office of Disciplinary Counsel v. Jackson, 637 A.2d 615 (Pa. 1994) (explains Rule 5.4 ban on fee-sharing and rationale for employee profit-sharing exception to avoid direct link between specific fees and payments to nonlawyers)
- Wishnefsky v. Riley & Fanelli, 799 A.2d 827 (Pa. Super. 2002) (rejected oral forwarding-fee claim where arrangement showed direct link; discussed procedural posture requiring developed record in that case)
- Epstein v. Saul Ewing, LLP, 7 A.3d 303 (Pa. Super. 2010) (applied Rule 5.4 principles to reject non-employee fee-splitting claims)
- Bargo v. Kuhns, 98 A.3d 686 (Pa. Super. 2014) (recites standard of review for demurrers/preliminary objections)
- Hoffman v. Misericordia Hosp. of Phila., 267 A.2d 867 (Pa. 1970) (demurrer does not admit legal conclusions)