Fee Splitting Case Analysis

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Although the court is correct that no Wisconsin cases interpret secs. 757.295 or 757.45, there is one Wisconsin case that interprets an earlier barratry statute — Chicago, M., St. P. & P. Ry. Co. v. Wolf, 199 Wis. 278, 226 N.W. 297 (1929).

And for anyone who enjoys legal opinions for entertainment, it is a must read. The attorney’s actions prompted the court to write, “One reads [the attorney’s] testimony in vain for any indication of what he would consider unethical conduct.” Id., at 299.

Wolf involved a Minnesota law firm that expended more than $100,000 (in 1926 dollars) paying a corps of men to solicit clients.

The railroad, a frequent target of the firm’s litigation, brought suit in Wisconsin court to enjoin two Wisconsin plaintiffs who had been solicited illegally from bringing suit. The Supreme Court held that the injunction should not issue, because the solicited parties had no knowledge of the unlawful contract. Id., 226 N.W. at 301.

However, the opinion contains much discussion of barratry that may still be relevant today.

Consistent with the decision in the case at bar, the court wrote, “the facts … constitute unprofessional conduct and are grounds for disbarment, and the contracts entered into are absolutely void.” Id., at 299.

The court also stated that a court could decline to hear a case if the attorney-client relationship was the product of barratry. The court wrote, “Courts in such cases do not refuse to entertain jurisdiction because of any lack of power, but because they will not thereby make themselves a party to that extent to any scheme of oppression, fraud, or violation of law or of public policy.” Id., at 300.

Pursuant to this reasoning, it is arguable that a verdict or settlement, already reached, could be vacated, because of the unlawful agreement. However, it is questionable whether a defendant would have standing to complain, unless it could show prejudice from the unlawful arrangement — a high burden.

Another interesting question is what remedies OLR, the Supreme Court, or a trial court, could impose on an attorney found to have agreed to share compensation with a non-lawyer. According to the State Bar’s web site, the attorney involved in this case has resigned, so we are unlikely to find out in this case.

Public policy would not preclude ordering the attorney to disgorge the amount of the kickback to the unwitting client.

In Wolf, the court wrote, “The power of courts to maintain the integrity of the law and keep the channels of justice open and pure is very great. For that purpose they have broad inherent powers not dependent upon acts of the legislature and a responsibility to society which is as great as their powers.”

Since a retainer agreement, that is the fruit of an illegal contract, is also tainted, this language arguably empowers a court to order an attorney to disgorge fees back to the client, even in the absence of any showing of prejudice to the client.

In this case, the plaintiff in the underlying tort suit received a recovery of $4 million. For purposes of argument, we can assume that the plaintiff was very satisfied with the recovery, and suffered no actual damages as a result of any illegal agreement between Abbott and the attorney.

Nevertheless, Wisconsin case law supports an order of restitution to the client, even in the absence of prejudice.

The most analogous case is In re Disciplinary Proceedings against Hausmann, 2005 WI 131, 285 Wis.2d 608, 699 N.W.2d 923.

That case represented the flip-side to the case at bar — the attorney received kickbacks from a chiropractor in exchange for referring clients, rather than paying kickbacks in exchange for soliciting clients.

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The attorney was ordered to pay the entire amount of the kickbacks to the affected clients in a federal criminal case arising from the conduct. Both the Seventh Circuit in the criminal case, and the Wisconsin Supreme Court in the disciplinary action, rejected Hausmann’s argument that the clients were not harmed.

The Supreme Court wrote, “[Hausmann’s argument] ignores the reality that Hausmann deprived his clients of their right to know the truth about his compensation: In addition to one third of any settlement proceeds he negotiated on their behalf, every dollar of Rise’s [the chiropractor’s] effective twenty percent fee discount went to Hausmann’s benefit. Insofar as Hausmann misrepresented this compensation, that discount should have inured to the benefit of his clients. It is of no consequence, despite Appellants’ arguments to the contrary, that Rise’s fees (absent his discount) were competitive, or that clients received the same net benefit as they would have absent the kickback scheme. The scheme itself converted Hausmann’s representations to his clients into misrepresentations, and Hausmann illegally profited at the expense of his clients, who were entitled to his honest services as well as their contractually bargained-for portion of Rise’s discount. Hausmann, 285 Wis.2d at 616-617, citing United States v. Hausmann, 345 F.3d 952, 957 (7th Cir.2003).

This same reasoning would justify the Supreme Court ordering that the attorney pay his clients whatever amount of kickbacks he paid, or had agreed to pay but didn’t, even in the absence of any showing of actual harm to the clients.

– David Ziemer

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David Ziemer can be reached by email.