ARGUED: September 12, 2017
from the Judgment of the Superior Court entered on 7/8/16 at
No. 1413 EDA 2015 affirming the order entered on 4/24/15 in
the Court of Common Pleas, Philadelphia County, Civil
Division at No. 01613 February Term 2015
Justice Saylor delivers an opinion announcing the judgment of
the Court, joined by Justice Dougherty. The result of
reversal of the Superior Court's order is also supported
by Justices Baer and Todd.
OPINION ANNOUNCING THE JUDGMENT OF THE COURT
appeal concerns the enforceability of an asserted
fee-splitting agreement between a law firm and a lay entity.
SCF Consulting, LLC lodged a civil complaint against
Appellee, the law firm of Barrack, Rodos & Bacine, in the
common pleas court. Appellant 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 2015 (C.P. Phila.), at
¶10. Among the various counts of the complaint,
Appellant advanced causes of action for breach of contract
and unjust enrichment.
interposed preliminary objections denying the existence of a
fee-sharing agreement and highlighting that any such
arrangement would be in violation of Rule 5.4 of the Rules of
Professional Conduct. See Pa.R.P.C. 5.4(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., 799 A.2d 827 (Pa. Super. 2002),
among other cases, Appellee took the position that the court
should refuse, on public policy grounds, to permit a cause of
action to proceed based on an alleged, impermissible
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.
5.4(a)(3). Alternatively, Appellant posited that
Appellee'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 Plaintiff's
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
county court agreed with Appellee's position concerning
both the non-applicability of the exception to Rule
5.4(a)'s prohibition and the unenforceability 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, 799 A.2d at
830)). On appeal, the Superior Court affirmed but limited its
treatment to the determination that the Rule 5.4(a)
prohibition against fee-splitting applied on its terms and
there was no applicable exception. See SCF Consulting,
LLC v. Barrack, Rodos & Bacine, No. 1413 EDA 2015,
slip op. at 10-11 (Pa. Super. Jul. 8, 2016). Given
this resolution, it was the court's position that there
was no need to address the broader public policy arguments.
See id. at 6 n.3. In a footnote, however, the
intermediate court observed that an argument similar to
Appellant's had been rejected in Wishnefsky.
See id. The court also declined to address the
potential for recovery under a theory of unjust enrichment,
since Appellant did not pursue that theory in its appellate
brief. See id. at 7 n.4.
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
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, 537 N.E.2d 730, 737-38 (Ill.
1989) ("By refusing in every case to assist the lay
party, courts may deter laypersons as well as attorneys from
attempting such agreements. We believe that, in this way, the
public will be protected more effectively from the potential
harms posed by fee-sharing arrangements."). On the other
hand, a minority of courts decline to accord substantive
effect to such rules, at least where to do so would result in
a windfall to offending attorneys. See, e.g.,
Marin v. Constitution Realty, LLC, 71 N.E.3d 530,
533 (N.Y. 2017) ("[I]t ill becomes defendants, who are
also bound by the Code of Professional Responsibility, to
seek to avoid on 'ethical' grounds the obligations of
an agreement to which they freely assented and from which
they reaped the benefits." (quoting Benjamin v.
Koeppel, 650 N.E.2d 829, 832-33 (N.Y. 1995)). See
generally Chunlin Leonhard, Illegal Agreements and
the Lesser Evil Principle, 64 Cath. U.L. Rev. 833, 866
(2015) (advocating that courts should recognize the mixed
policy implications of applying a per se rule of
invalidity for contracts that violate public policy).
Pennsylvania Bar Association filed an amicus brief
crystallizing the quandary in this area of the law, as
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 re Estate of Pedrick, 505 Pa. 530, 482 A.2d 215
(1984), this Court explained that the standards of
professional conduct for lawyers do not have the force of
substantive law and pronounced that it was not inclined to
"allow our trial courts themselves to use the Canons to
alter substantive law[.]" Id. at 535, 543, 482
A.2d at 217, 221; accord Pa.R.P.C., Preamble and
Scope ¶19 ("[N]othing in the Rules should be deemed
to augment any substantive legal duty of lawyers or the extra
disciplinary consequences of violating such a duty.").
We recognize that the circumstances before the Court in
Pedrick were materially distinguishable from those
presented in this appeal. We are aligned, nonetheless, with
the broader policy judgment made by our predecessors, at
least to the degree that the conduct rules should not be
interposed into substantive law when non-regulated parties
bear no (or substantially lesser) responsibility relative to
the material ethical violations. Accord Peyton v.
Margiotti, 398 Pa. 86, 92, 156 A.2d 865, 868 (1959)
("When the parties to a contract against public policy
or otherwise illegal are not in pari delicto, or equally
guilty, and when public policy is considered as advanced by
allowing either, or at least the more excusable of the two,
to sue, relief may be granted." (quoting 8 P.L.E.
§109)). As ...