Fee-splitting
agreement unenforceable
By
David Ziemer
Wisconsin Law Journal
| What
the court held Case:
Abbott v. Marker, No. 2005AP2853 Issue:
Is a contract, providing that an attorney shall pay kickbacks to a non-lawyer
who refers clients, enforceable? Holding:
The contract is contrary to both statute and public policy, therefore, it is unenforceable. Counsel:
Goff, Steven B., River Falls; Tool, Tracy N., River Falls, for appellant;
Misfeldt, Thomas J., Eau Claire, for respondent. |
An
agreement by an attorney to share fees with a non-lawyer is unenforceable, the
Wisconsin Court of Appeals held on July 18.
Attorney
Howard Marker represented Dean Abbott in a medical malpractice claim, which settled
for $570,000.
According
to Abbott, he and Marker then entered into an arrangement where Abbott would refer
potential clients to Marker, in exchange for 25 percent of any attorney fees Marker
collected.
Abbott
claims to have referred two cases to Marker, for which Marker paid Abbott pursuant
to their agreement.
In
a third case, the plaintiff’s recovery was $4 million, resulting in $1.6
million in attorney fees. According to Abbott, Marker refused to pay Abbott any
percentage of this fee, informing Abbott, for the first time that it was unethical
for him to pay for a referral.
Abbott
filed suit against Marker, and Marker moved to dismiss the case. Eau Claire County
Circuit Court Judge William M. Gabler dismissed the suit.
Abbott
appealed, but the court of appeals affirmed in a decision by Judge Thomas Cane.
Section
757.295 makes it illegal for a party to solicit retainers or agreements from another
party for an attorney, while sec. 757.45 makes it illegal for an attorney to split
legal fees with non-attorneys.
Applying
these two statutes, the court held that the agreement between Marker and Abbott
was illegal.
Because
requiring Marker to pay Abbott would violate Wisconsin’s prohibition on court
enforcement of illegal contracts, the court held that Abbott could not recover.
Because
no Wisconsin cases address either statute, the court turned to an Indiana case
for support, Trotter v. Nelson, 684 N.E.2d 1150 (Ind.1997). In Trotter, a non-lawyer
sued an attorney, claiming that they had an agreement for her to receive a percentage
of attorney fees from cases that she referred to the attorney.
Because
Indiana’s rules of professional conduct prohibit fee-sharing, the court held
the agreement violated public policy (no Indiana statute prohibited the arrangement),
and was therefore unenforceable. The Wisconsin Court of Appeals agreed with this
reasoning.
The
court also refused to enforce the contract under quasi-contract principles.
Abbott
argued that the contract could be enforced, pursuant to Evans v. Cameron, 121
Wis.2d 421, 360 N.W.2d 25 (1985), because he was not in pari delicto (equally
at fault) with Marker.
In
Evans, the attorney advised his client to lie in a bankruptcy hearing, and the
client sued, alleging those lies caused her various damages. The Wisconsin Supreme
Court upheld dismissal of the suit, noting, “The wrongfulness of lying while
under oath is apparent.”
The
court of appeals acknowledged that, unlike lying under oath, in certain circumstances,
advice given by an attorney might be so complex that a client cannot be expected
to be aware of the potential impact.
Nevertheless,
the court held that Abbott’s argument was misplaced, for two reasons.
First,
Marker was not acting as Abbott’s attorney in the fee-sharing relationship.
Second, the court found that the situation is not so complex that the statutes
should be ignored.
The
court wrote, “Every person in Wisconsin is presumed to know the law, and
ignorance of it does not excuse unlawful behavior. Despite Abbott’s arguments
to the contrary, compliance with the clearly written provisions of Wis. Stat.
secs. 757.295 and 757.45 is not something we can only expect of lawyers.”
The
court concluded, “Although Marker disputes having made this referral arrangement
with Abbott, if true, Marker has taken an unfair advantage of Abbott and violated
his obligations under the statutes and professional ethics. However, to enforce
the illegal agreement, we would in effect be nullifying Wisconsin’s public
policy and statutes prohibiting the sharing of attorney fees with non-attorneys
in referral practices.”
Finally,
the court declined to enforce the contract on unjust enrichment grounds, finding
that Marker has not received a benefit from Abbott which requires him to make
restitution. Because it is illegal for an attorney to receive a referral through
paying a third party, the court found that Marker did not receive a benefit with
“marketable value.”
Accordingly,
the court affirmed.
Click
here for Case Analysis.
David
Ziemer can be reached by email.
