Consequences of Violations

Consequences of Violations

A lawyer who shares legal fees with a nonlawyer violates Rule 5.4(a), and the violation has consequences on two fronts.¹ The civil consequence falls on the bargain itself: the fee-sharing agreement may be treated as an illegal contract, which bears on whether the layperson can get a court to enforce it. The professional consequence falls on the lawyer, who can be disciplined for entering the arrangement.

McIntosh v. Mills supplies the civil analysis. The California court explained that the agreement there, a lawyer's promise to share fees with a layperson, was illegal because a statute made it so, and not because it offended common morality.² That explanation rests on a familiar sorting of illegal contracts. Contracts that are malum in se are illegal because they offend base morals, while contracts that are malum prohibitum are illegal only because a statute forbids them. The court had no doubt that the fee-sharing agreement belonged in the second group, since its illegality derived from violation of statute and was not grounded in common standards of morality.³

The classification matters because of what survives of the old distinction. The court identified the principal remaining difference: a malum prohibitum contract may be enforceable despite its illegality if the parties were not in pari delicto, meaning not equally at fault.⁴ An illegal fee-sharing agreement is therefore not automatically unenforceable in every dispute, and a court asked to enforce it between lawyer and layperson may weigh which side bears more of the blame. The court framed that question without resolving it. A careful answer should say that the agreement may be treated as an illegal contract and that the outcome can turn on the parties' relative fault.

When a nonlawyer sues a lawyer for money, the first question is what the money was promised for.

Both plaintiffs look to the firm's fee revenue for their money, so the source of the funds cannot separate them. What separates them is what the payment was. The marketer's return was a slice of the lawyer's fees. The paralegal's return was ordinary pay, which this chapter has already placed outside the meaning of sharing. The illegality that the first scene turns on never arises in the second.

Voiding the agreement does not produce a tidy result, and the court said so. It acknowledged that voiding a fee-sharing agreement may leave the lawyer with more of the fee than the agreement gave, but it observed that this point ignores two countervailing factors.⁵ The first is whether the layperson may still assert equitable claims, including quantum meruit, a claim for the reasonable value of work performed when no enforceable contract exists. The second is the deterrent effect on lawyers of the almost certain prosecution by the State Bar. The court left the first factor open, so a layperson's possible recovery in equity is a separate question from enforcing the illegal bargain. The second factor shows that a windfall is not the whole story, because a lawyer who keeps the money still answers to the profession.

Discipline is the second consequence, and the Maryland decision involving Mr. Chapman shows it at work. The court found by clear and convincing evidence that a consulting agreement, as Mr. Chapman implemented it, violated Rule 5.3. It then held that, however the arrangement was characterized, it was really a fee-sharing arrangement for work contracted through a law firm, and so it violated Rule 5.4.⁶ The label the parties chose did not matter. What mattered was whether part of the money flowing through the law firm went to a nonlawyer. Rule 5.4(a) by its terms addresses "a lawyer or law firm," so the exposure to discipline is the lawyer's.⁷