SCF Consulting, LLC, Aplt. v. Barrack Rodos

[J-58-2017] [MO: Saylor, C.J.]
IN THE SUPREME COURT OF PENNSYLVANIA
EASTERN DISTRICT
SCF CONSULTING, LLC, : No. 7 EAP 2017
:
Appellant : Appeal from the Judgment of Superior
: Court entered on 7/8/2016 at No. 1413
: EDA 2015 affirming the Order entered
v. : on 4/24/2015 in the Court of Common
: Pleas, Philadelphia County, Civil
: Division at No. 01613 February Term,
BARRACK, RODOS & BACINE, : 2015.
:
Appellee : ARGUED: September 12, 2017
CONCURRING AND DISSENTING OPINION
JUSTICE BAER DECIDED: December 19, 2017
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.1 The Opinion Announcing the Judgment of the Court (“OAJC”) holds that
while the unethical nature of the fee agreement does not render the contract per se
unenforceable as a violation of public policy, the fee agreement may, nonetheless, be
unenforceable if the non-lawyer bears responsibility relative to the material ethical
violation. See OAJC at 6 (holding that “the contract cause of action is not per se barred
by the purported infraction on [the law firm’s] part,” but observing that “[t]he ultimate
1
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 4 n.2.
outcome of this case may turn on factual findings concerning [the non-lawyer’s]
culpability, or the degree thereof, relative to the alleged ethical violation”).
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.2 3
However, because a non-
lawyer is not bound by the Rules of Professional Conduct, the non-lawyer committed no
unethical or illegal act by entering into the agreement and, thus, can bear no measure of
responsibility relative to the law firm’s material violation of the rules governing the
profession. Accordingly, I would go farther than the OAJC and would hold that the fee-
sharing agreement at issue does not violate public policy. To ensure compliance with
the professional conduct rules prohibiting the type of fee-sharing agreement at issue, I
would refer the law firm or responsible attorney to the Disciplinary Board for prosecution
of purported ethical violations and imposition of disciplinary sanctions.
I reach this conclusion in consideration of well-settled law 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, 482 A.2d
215, 217 (Pa. 1984) (holding that an attorney’s misconduct in unethically designating
himself as a beneficiary in a will could not be used to alter substantive law by
invalidating the will); Commonwealth v. Chmiel, 738 A.2d 406, 415 (Pa. 1999) (holding
that the rules that govern the ethical obligations of the legal profession do not constitute
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.”
3
In so holding, the OAJC appears to have rejected, properly in my view, the Superior
Court’s decision in Wishnefsky v. Riley & Fanelli, P.C., 799 A.2d 827 (Pa. Super. 2002)
(holding that unethical fee sharing agreements between a lawyer and non-lawyer are
unenforceable as violative of public policy, irrespective of the non-lawyer’s knowledge or
ignorance of the unethical nature of the agreement).
[J-58-2017] [MO: Saylor, C.J.] - 2
substantive law); Donald J. Weiss & Assoc. v. Tulloch, 961 A.2d 862, 863 (Pa. Super.
2008) (holding that the Rules of Professional Conduct cannot be used as a substantive
basis to render illegal and unenforceable a mortgage that violates RPC 1.8’s prohibition
against conflicts of interest).
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 estopped
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, 435 F.3d 235, 242-43 (2d Cir. 2006) (holding that an attorney may
not use the ethical rules governing the practice of law to avoid his obligations under an
agreement to which he freely consented and reaped the benefits); Potter v. Pierce, 688
A.2d 894, 897 (Del. Supr. 1997) (holding that, as a matter of public policy, a lawyer may
not be rewarded for violating a rule of conduct by using it to avoid a contractual
obligation because, to hold otherwise, would encourage non-compliance with the rule
and would create incentives for malfeasance); see also Shimrak v. Garcia-Mendoza,
912 P.2d 822, 826 (Nev. 1996) (holding that it would be unfair to adopt a double
standard and allow attorneys to receive free services simply by claiming that the other
[J-58-2017] [MO: Saylor, C.J.] - 3
party to the contract was in pari delicto with them when the other party was a layperson
not bound by the professional conduct rules).
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 Superior 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.
[J-58-2017] [MO: Saylor, C.J.] - 4