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Fee-splitting agreement unenforceable

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.

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Case Analysis

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.

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David Ziemer can be reached by email.

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