Lead Opinion
OPINION ANNOUNCING THE JUDGMENT OF THE COURT
This appeal concerns the enforceability of an. asserted fee-splitting agreement between a law firm and a'lay entity.
Appellant SCF Consulting, LLC lodged a civil complaint against Appellee, the law-firm of Barrack, Rodos & Bacine, in the common pleas eourt. Appellánt averred that it had maintained a longstanding oral consulting agreement with the law firm, which the firm purportedly breached in 2014. According to Appellant, the arrangement, was for the solicitation of institutional investors to participate in- securities class actions, and remuneration was to be in the form of a two-and-one-half to five-percent share of the firm’s annual profits on matters “originated”, by Appellant’s principal or on which he provided substantial work. Complaint in SCF Consulting, LLC v. Barrack, Rodos & Bacine, No. 1613 Feb. Term 2016 (C.P. Phila.), at ¶ 10. Among the various counts of the complaint, Appellant advanced causes of action for breach of contract and unjust enrichment.
Appellee interposed preliminary objections denying the existence of a fee-sharing agreement and highlighting that any such arrangement would be in violation of Rule 6.4 of the Rules of Professional Conduct. See Pa.R.P.C. 6.4(a) (prescribing, subject to enumerated exceptions, that “[a] lawyer or law firm shall not share legal fees with a non-lawyer”). Referencing Wishnefsky v. Riley & Fanelli, P.C.,
In reply, Appellant claimed that the asserted consulting agreement qualified as an express exception to the anti-fee-splitting rule for an employee “compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.” Pa.R.P.C. 6.4(a)(3). Alternatively, Appellant posited that Ap-pellee’s attempt to invoke public policy as a shield was an “audacious defense” which, if credited, would perversely reward the law firm by allowing it to profit from its own unethical conduct. See Plaintiffs Memorandum of Law in Response and Opposition to Preliminary Objections in SCF Consulting, No. 1613 Feb. Term 2015, at 1, 16. In this regard, Appellant referenced Grigsby v. Major, 28 Phila. Rptr. .572, 576 (C.P. Phila. Oct. 4,1994) (refusing to invalidate a fee-sharing agreement between attorneys on the basis that it violated the Rules of Professional Conduct, where to do so would result in a windfall).
The county court agreed with Appellee’s position' concerning both the non-applicability of the exception to Rule 5.4(a)’s prohibition and the unénforceability of the alleged agreement. See SCF Consulting, No. 1613 Feb. Term 2015, slip op. at 2 (C.P. Phila. Apr. 24, 2015) (“A court cannot enforce an agreement by a law firm to share fees with a non-lawyer because it violates public policy as embodied in the ... Rules of Professional Conduct.” (citing Wishnefsky,
We allowed appeal to consider whether, or under what circumstances, the professional conduct rules may be invoked as a defense by a law firm breaching its own ethical obligations by entering into an impermissible fee-splitting arrangement.
Other jurisdictions are divided concerning the appropriate judicial response in this and similar scenarios involving contracts in violation of lawyers’ ethical responsibilities, and the parties’ arguments track the disparate positions. On the one hand, a majority of jurisdictions follow the approach of the Supreme Court of Illinois, cited in Wishnefsky, which generally refuses to enforce agreements that violate professional conduct rules. See O’Hara v. Ahlgren, Blumenfeld & Kempster,
The Pennsylvania Bar Association filed an amicus brief crystallizing the quandary in this area of the law, as follows:
The PBA notes that it is clearly this Court’s prerogative to declare, as have the courts in a majority of jurisdictions, that the paramount objective of protecting clients is a matter of public policy, and that this policy will be advanced by declaring all fee sharing agreements that are inconsistent with Rule 5.4 to be void as a matter of law....
On the other hand, the PBA recognizes that a lawyer should not be permitted to intentionally take advantage of an innocent nonlawyer, by entering into an agreement violating Rule 5.4, and then raising that violation as a defense to a claim for the agreed upon compensation .... It is unreasonable for our courts to be placed in a circumstance where they may be perceived as aiding in attorney misconduct.
Brief for Amicus Pa. Bar Ass’n at 13-14. As a middle ground, the PBA suggests that perhaps the Court might wish to consider implementing a per se rule that contracts in violation of Rule 5.4 are void as against public policy, but to also temper this approach by permitting quasi-contractual remedies, recovery under the theory of unjust enrichment, or a disgorgement practice implemented through the Disciplinary Board. See id. at 14-15.
In In re Estate of Pedrick,
The ultimate outcome of this case may turn on factual findings concerning Appellant’s culpability; or the degree thereof, relative to the alleged ethical violation. We would hold only that the contract cause of action is not per se barred by the purported infraction on Appelleels part and, accordingly, the county court’s bright-line approach to the unenforceability of the alleged consulting agreement should not be sustained.
The above expression represents the view of only two Justices. A majority of the Court, however, agrees jhat the present contract action should not have-been dismissed. See Concurring and Dissenting Opinion at 280 (Baer, J., joined by Todd, J.). Accordingly, the dismissal will be overturned, and the common pleas court will be in a position of making its own judgment as to the relevance of any wrongful conduct on Appellant’s part, without present guidance from this Court.
The order of the Superior Court is reversed, and the matter is remanded, through the intermediate court, to the common pleas court for further proceedings.
Justice Dougherty joins the opinion and files a concurring opinion.
Justice Baer files a concurring and dissenting opinion in which Justice Todd joins.
Notes
. The Superior Court plainly erred in this regard, since the common pleas court had dismissed the complaint by crediting Appel-lee's position that public policy served to invalidate the alleged consulting agreement. That this sort of arrangement would violate the law firm's ethical obligations could not serve to defeat Appellant’s complaint, absent the contested linkage between such violation and the agreement's enforceability as a matter of substantive law. Nevertheless, the intermediate court premised the rejection of an alternative argument that "assum[ed] arguen-do that the [alleged consulting agreement] was in violation of R.P.C. 5,4,” on the bare conclusion that the agreement violated Rule 5.4. SCF Consulting, No. 14Í3 EDA 2015, slip op. at 6.
. Again, Appellee denies having been a party to any such agreement. At the preliminary objections stage, however, the allegations of the complaint are taken as true. See, e.g., Bilt-Rite Contractors, Inc. v. The Architectural Studio,
. Certainly, reasonable minds can, and do, differ concerning the appropriate policy stance, and we are respectful of the courts that believe that the greatest good may be ’achieved through a per se approach, on the theory that this most effectively protects clients at large by discouraging improper agreements.
. As to the alternative remedies discussed by the PBA, we deem it advisable to permit one of the main equitable considerations (relative to a non-lawyer’s culpability) to be assessed in connection with the threshold determination of whether a contract in violation of professional conduct rules should be declared by the judiciary to be unenforceable as against ■public policy.
Concurrence Opinion
CONCURRING OPINION
I join the Opinion Announcing the Judgment of the Court (“OAJC”) in full, and agree that fee-splitting agreements between attorneys and non-attorneys should not be held to be automatically unenforceable. See OAJC, op. at 277. I write separately to articulate an additional danger of a bright-line per se rule. As noted by Justice Wecht in his dissenting opinion, holding" fee-splitting agreements between attorneys and non-attorneys are always unenforceable may not discourage attorneys from entering into such unenforceable agreements. Dissenting Opinion at 281. In fact, it is - my view that a per se rule might have the effect of emboldening unscrupulous attorneys — who are often in a superior negotiating posture as compared with their non-attorney contracting counterparts — to enter into illusory fee-splitting agreements with full knowledge the agreement may never be enforced. See, e.g,, Geisinger Clinic v. Di Cuccio,
In my view, allowing a case-by-case determination of .the validity of a given fee-splitting agreement via a breach of contract action will not undermine or conflict with any additional potential consequences an attorney may face in disciplinary proceedings for running afoul of the Rules of Professional Conduct.
Concurrence Opinion
CONCURRING AND DISSENTING OPINION
This appeal presents the issue of whether a law firm that enters into an -unethical fee-sharing agreement with a non-lawyer consulting firm may invoke the law firm’s own ethical malfeasance as a defense in a subsequent contract action to enforce the agreement.
I agree with the OAJC insofar as it holds that a fee-sharing agreement between a lawyer and a non-lawyer in violation of Rule of Professional Conduct (“RPC”) 5.4(a) is not per se unenforceable as a violation of public policy.
I reach this conclusion in consideration of well-settled'' lad?' establishing that the Rules of Professional Conduct cannot serve as the basis to alter substantive law by invalidating an otherwise enforceable agreement. See In re Estate of Pedrick,
The Rules • of Professional Conduct themselves suggest their inability to modify .substantive law. The preamble to the rules provides that rule violations “should not give rise to a- cause of action against a lawyer” and “are not designed to be a basis for civil, liability.” Pa.R.P.C., Preamble, at ¶ 19. Germane to the instant case, the preamble further states that “the purpose of the Rules can be subverted when they are invoked by opposing parties as procedural weapons.” Id. A similar subversion of the professional conduct rules arises herein when the law firm invokes its unethical conduct as a shield to immunize itself from a contractual duty.
To avoid such distortion of the professional conduct rules, I would hold that the public policy of this Commonwealth requires that lawyers and law firms be es-topped from invoking their own ethical violations as a defense to payment under fee-sharing contracts entered into in violation of RPC 5.4. See, e.g., Ballow, Brasted, O’Brien & Rusin P.C. v. Logan,
In my view, this Court can both avoid the perils arising from unethical fee-sharing contracts and preserve contractual agreements so as to ensure that the parties obtain the fair and reasonable compensation to which they are entitled by enforcing such fee-sharing contracts, but sanctioning, swiftly and harshly, attorneys who violate the disciplinary rules in this regard.
Accordingly, I would reverse the Superi- or Court’s judgment, which affirmed the trial court’s order sustaining the law firm’s preliminary objections, and remand the case to the trial court for further proceedings.
Justice Todd joins this concurring and dissenting opinion.
. The law firm herein denies having entered into a fee-sharing agreement with the non-lawyer. However, the complaint against the law firm alleges that such an agreement exists, and because this case is at the preliminary objections stage, the allegations in the complaint are taken as true. See OAJC at 276 n.2.
. Pa.R.P.C. 5.4 (a) provides that, subject to enumerated exceptions, "[a] lawyer or law firm shall not share legal fees with a non-lawyer.”
. In so holding, the OAJC appears to have rejected, properly in my view, the Superior Court’s decision in Wishnefsky v. Riley & Fa-nelli, P.C.,
Dissenting Opinion
DISSENTING OPINION
Our Rules of Professional Conduct aim to protect the clients that lawyers represent. Relevant to this case, this policy is vindicated by Rule 5.4, which generally invalidates fee-splitting between lawyers and non-lawyers. The difficulty presented is that lawyers might invoke or deploy this rule as a shield or escape hatch so as to take advantage of non-lawyers who have helped generate fees but who are unfamiliar with the Rule barring lawyers from sharing those fees. This case provides our Court the burden and the opportunity to confront and, perhaps, ameliorate this dilemma.
In a thoughtful effort at resolution, the Opinion Announcing the Judgment of the Court (“OAJC”) states that the contract action may proceed provided that the court first explores the parties’ relative culpabilities with regard to any ethical violation. I would eschew such a discretionary approach, which seems likely to promote or at least allow idiosyncratic, inconsistent, and unduly subjective outcomes. Instead, I would adopt a bright-line rule barring such fee-splitting agreements as unenforceable at law, but allowing non-lawyers to seek judicial relief in equity.
The law of contracts long has recognized that an agreement which contradicts public policy is unenforceable. Because our Constitution vests in this Court the authority and responsibility to supervise the practice of law in this Commonwealth, Pa. Const. art. 5, § 10, it falls to us to develop and implement policy regarding lawyers’ ethical obligations. By reference to our Rules of Professional Conduct, I would feel bound to apply this Court’s expression of policy and would deem the contract at issue unenforceable under the age-old rubric.
As Rule 5.4 clearly states, fee-splitting between a lawyer and non-lawyer is impermissible. This rule protects clients, placing their interests at the forefront. As well, the rule prevents a lawyer from being influenced by a non-lawyer who has a financial interest in the outcome of a case. See ODC v. Jackson,
This approach may leave a blameless non-lawyer unable to recover at law notwithstanding that the non-lawyer has performed pursuant to an agreement. This is particularly troublesome in view of the potential for scenarios in which lawyers with superior bargaining power could engage in sharp practice to whipsaw non-lawyers unaware of Rule 5.4 or its consequences. Equity affords an avenue for redress. In such situations, I discern no impediment to an injured non-lawyer pursuing equitable relief. On appropriate occasions, Pennsylvania courts have recognized that relief in equity may be available even when relief under a contract is unavailable or when a contract is against public policy, particularly when the parties bear unequal blame for entry into the void contract. See generally Shafer Elec. & Const. v. Mantia,
To prevail in equity (as distinct from a claim at law in tort or contract), the non-lawyer would have to demonstrate all of the predicates of an equity claim, such as unjust enrichment, unclean hands, or other elements, and would have to show that he or she entered into the agreement with clean hands. See In re Estate of Pedrick,
Even so, it might fairly be argued that this approach still does too little to discourage attorneys from entering into fee-splitting contracts with non-lawyers. Our trial courts have an important role to play here. Courts that encounter such fee-splitting agreements, whether in enforcement ■ pleadings or equity actions, should report the attorneys involved to the Office of Disciplinary Counsel for investigation. Further, in principle, I see no impediment that would bar the Disciplinary Board itself from requiring disgorgement of fees when appropriate. See Pa.R,D.E. 204(b) (providing that conditions may be attached to certain types of discipline).
In this case, the Superior Court stated rather opaquely that SCP “does not raise any issue regarding [its] unjust enrichment claim....” SCF Consulting, LLC v. Barrack, Rodos & Bocine, 1413 EDA 2015, slip op. at 7 n.4 (Pa. Super. July 8, 2016). This'statement appeared in a footnote inserted after the Superior Court’s list of SCF’s issues on appeal, a listing that includes challenges to the trial court’s dismissal of all counts of SCF’s complaint. In its brief to the Superior Court, SCF did address (if briefly) remedies in equity. See Superior Court Brief for SCF at 27, 29-30. The Superior Court’s footnoted comment might suggest that that court believed that SCF had waived any challenge (“any issue”) to the dismissal of its unjust enrichment count. I find the Superior Court’s language unclear, or at least insufficiently clear. I would remand to the Superior Court for a specific determination as to whether SCF has preserved its entitlement to seek equitable belief, a species of relief I would allow in these contexts as a general matter.
Justice Donohue joins this dissenting' opinion.
. In substance, I understand this to be the approach endorsed by amicus curiae the Pennsylvania Bar Association. Brief of Pennsylvania Bar Association at 14-15. I would endorse it as well.