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By Samson Habte
April 13 — A law school graduate who never passed the bar exam can't enforce a fee-splitting agreement with a plaintiffs' lawyer who allegedly reneged on a promise to divide his share of multimillion-dollar attorneys' fee awards from successful class actions that the two men developed as a team, the West Virginia Supreme Court of Appeals held April 10.
The decision makes West Virginia the latest jurisdiction to endorse the proposition that fee-splitting agreements are void and unenforceable if they contravene state versions of Model Rule 5.4(a), which forbids lawyers from sharing legal fees with nonlawyers.
“While the question presents a matter of first impression for this Court, multiple courts have confronted this issue and determined, with little difficulty, that a fee-sharing agreement which violates the professional rules of conduct is unenforceable as contrary to public policy,” Justice Allen H. Loughry II wrote.
Describing those out-of-state authorities as “highly persuasive,” the court held that West Virginia Rule of Professional Conduct 5.4 “is an explicit judicial declaration of West Virginia public policy with the force and effect of law,” and that fee-sharing agreements that contravene the rule are thus “wholly unenforceable.”
The decision responds to a certified question from a federal district court presiding over a dispute between attorney Gary W. Rich and Joseph Simoni, a former sociology professor who obtained a J.D. but failed to pass the bar exam four times.
The parties met in 1999, when Rich learned of a case involving West Virginia University employees who said they were exposed to asbestos in campus buildings. A friend introduced Rich to Simoni, who claimed to be “the driving force” in organizing the WVU claimants.
“Through this collaboration, Mr. Rich and Dr. Simoni learned of other potential environmental and toxic tort mass cases, including two actions known as the Fairmont [and] Spelter litigation,” the court said.
Simoni said he played a key role in those two lawsuits by engaging the lead plaintiffs, investigating their claims and brokering partnerships with prominent out-of-state class action law firms that Rich associated because he lacked the resources and expertise to prosecute the cases.
Simoni said Rich initially promised him 50 percent—later reduced to 20 percent—of Rich's share of attorneys' fees from the class actions, which were resolved in 2007 and 2008 through judgments that carried fee awards of $3.56 million and $5.13 million. Rich subsequently said he could not divide fees with Simoni because doing so would be unethical, although he urged the court to consider whether Simoni could recover in quantum meruit.
According to the district court, Simoni threatened to sue and “Rich preemptively filed a complaint seeking a declaratory judgment (i) that Simoni is not entitled to compensation for his work on the Fairmont and Spelter Litigations, and (ii) that sharing legal fees with Simoni would violate Rule 5.4.”
The district court asked the state high court to weigh in on the public policy issue. After slightly modifying the question, the court held that Rule 5.4 “is an explicit judicial declaration of West Virginia public policy with the force and effect of law,” and that fee-sharing agreements that contravene the rule are thus “void as against public policy and wholly unenforceable.”
The court said its reformulation of the certified question was necessary because determinations as to whether rules constitute statements of public policy “need to be made on a rule by rule basis.”
In a concurring opinion, Justice Brent D. Benjamin said he would have issued an even narrower holding.
Benjamin said he agreed with the reformulation of the certified question and the finding that a “rule by rule” analysis is required to determine whether a rule constitutes a statement of public policy.
“I write separately, however, to express my belief that a Rule … should only be determined to be a source of judicially conceived public policy when the rule at issue serves the public interest, not just the interest of the profession,” Benjamin said.
In the majority opinion, Loughry repeatedly pointed to his concurring opinion in Gaddy Eng'g Co. v. Bowles Rice McDavid, 746 S.E.2d 568, 29 Law. Man. Prof. Conduct 398 (W. Va. 2013), in which the court declined an invitation to address whether ethically flawed fee-sharing agreements are enforceable.
Loughry said the Gaddy concurrence discussed “the panoply of reasons against this type of fee sharing.” Quoting Trotter v. Nelson, 684 N.E.2d 1150 (Ind. 1997), he said splitting fees with nonlawyers is disfavored because it “provides a potential disincentive to the attorney to devote their full time and energy to the client, as the attorney must share fees with another who has done little to earn it,” and because it “might interfere with the attorney's ‘professional independence of judgment.'”
“As explained in the Gaddy Engineering concurrence, ‘[t]he fact that one party may benefit from an illegal fee-sharing agreement does not tip the proverbial scales of justice in favor of enforcement,'” Loughry added, rejecting Simoni's argument that it would be inequitable to allow Rich to “evade personal and financial responsibility to a nonlawyer behind the shield of the West Virginia Rules of Professional Conduct.”
Although the ruling on the enforceability of the fee-sharing agreement favored Rich, the court closed by noting its “concerns that the attorneys in this case may have engaged in unethical conduct” with regard to their agreements.
Accordingly, the court said, “we are alerting the Office of Disciplinary Counsel regarding the need for further inquiry into these matters.”
Rich was represented by Richard W. Gallagher and E. Ryan Kennedy of Robinson & McElwee PLLC, Clarksburg, W. Va., and by Tillman J. Finley of Marino Finley Law PLLC, Washington, D.C. Simoni was represented by Jeffrey M. Wakefield and Caleb P. Knight of Flaherty Sensabaugh Bonasso PLLC, Charleston, W. Va.
Copyright 2015, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
The court chided defendant Joseph Simoni for what it described as an “improper attempt to engraft quantum meruit-based recovery into the certified question.” It said reformulation was improper because an argument for quantum meruit-based recovery was inconsistent with Simoni's counterclaims, which relied on the existence of a fee-splitting agreement.
Even if that barrier did not exist, it is unclear whether a nonlawyer in Simoni's position would be entitled to quantum meruit payment.
Some courts say quantum meruit compensation isn't available if the nonlawyer is asking to be paid for engaging in illegal activity, i.e., the unauthorized practice of law.
Compare Morrison v. West, 30 So. 3d 561 (Fla. Dist. Ct. App. 2010) (because non-Florida bar member is considered nonlawyer for purposes of ethics rules, provision of legal services by such person constitutes illegal activity, i.e., UPL, and “it violates public policy for a court to award a fee, even in quantum meruit, for the unlicensed practice of law”), with Hyon v. Selten, 60 Cal. Rptr. 3d 896 (Cal. Ct. App. 2007) (holding that although fee-sharing agreement with nonlawyer case manager was “illegal in part and that the illegal portions cannot be severed,” nonlawyer “should nonetheless be permitted to pursue his common count for the reasonable value of any lawful services rendered”).
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