Think back to your “Professional Responsibility” class in law school. What questions did you hear over and over?

One was almost certainly—”Does a lawyer's violation of the Rules of Professional Conduct create a cause of action against the attorney?”

Here's another one—”Are agreements that violate the Rules of Professional Conduct enforceable?”

Of course, the answer depends upon how the state where you practice interprets the rules. It seems that every state Supreme Court that has addressed the issue answers the question somewhat differently. When trying to answer those questions, Pennsylvania lawyers know that the Preamble to the Pennsylvania Rules of Professional Conduct says that “Violation of a Rule should not itself give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached.” The preamble also says that the rules “are not designed to be a basis for civil liability.” But that doesn't necessarily mean that such agreements are unenforceable.

Importantly, the preamble does not address what remedies are available to nonattorneys who are victimized by lawyers who violate the rules. As a result, Pennsylvania attorneys and their clients have not received clear guidance from the ultimate arbiter on the issue, the Pennsylvania Supreme Court. Until recently. Well, sort of.

So, do we now have clear guidance from a unified court? Or, do the justices have differing views that will raise more questions? The answer is the latter according to the Pennsylvania Supreme Court's Dec. 19 opinions in SCF Consulting v. Barrack, Rodos & Bacine, in which the plaintiff alleged that it was entitled to a portion of the fees received by the defendant law firm based upon an agreement to be paid 2.5 to 5 percent of the firm's annual profits on matters “originated” by the plaintiff.

The trial court granted preliminary objections and dismissed the complaint, concluding that the alleged agreement (defendants deny any liability and deny that their conduct was unethical) violated Pennsylvania Rule of Professional Conduct 5.4, which bars lawyers from sharing fees with nonlawyers. On appeal, a three-judge panel of the Superior Court affirmed, with then Superior Court Judge Sallie Mundy dissenting. A highly divided Supreme Court granted allocatur and reversed, sending the case back to the trial court. A majority of the Supreme Court concluded that a fee-splitting agreement between a lawyer and a nonlawyer in violation of R.P.C. 5.4 is not per se unenforceable as a violation of public policy.

The dissent argued, however, that such fee-splitting agreements are unenforceable at law, but that nonlawyers should be permitted to seek judicial relief in equity. The dissent also agreed with the Pennsylvania Bar Association's argument “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,” because allowing that result creates a perception that courts are aiding attorney misconduct by refusing to enforce such agreements.

Rather, PBA had suggested that a nonlawyer should be entitled to equitable relief against the lawyer, including claims for quasi contract, unjust enrichment or conversion. PBA also argued that, “in circumstances where an attorney or firm intentionally violates Rule 5.4, [the Supreme Court should] remind trial courts of their authority to report counsel to the Disciplinary Board, and instruct the Disciplinary Board that it may impose an appropriate remedy, such as disgorgement of fees in appropriate cases where the circumstances appear to be particularly egregious and where it would be unconscionable to do otherwise.”

Thus, every Justice agreed that a nonlawyer victimized by unethical conduct should not be left without any recourse. How they arrived at their conclusions was where they differed.

How divided was the Supreme Court? In some ways, the views expressed in the court's four opinions were quite disparate; but despite the disagreements, there are some threads of relative agreement that provide some guidance for Pennsylvania attorneys.

Let's begin by looking at how the court was split. Chief Justice Thomas Saylor authored the “Opinion Announcing the Judgment of the Court” because there was no majority. Justice Kevin Dougherty joined in the opinion, but also authored a concurring opinion. Justice Max Baer filed a concurring and dissenting opinion in which Justice Debra Todd joined. Justice David Wecht filed a dissenting opinion in which Justice Christine Donohue joined. Finally, because she was on the Superior Court panel that had previously decided the case, Justice Mundy did not participate in the Supreme Court's decision.

This division means that none of the opinions is a majority opinion. Thus, while the court ruled that the fee-splitting provision in question may be enforceable, or that at a minimum the nonlawyer should not be left without any legal remedy, the court did not provide unified guidance.

“The Opinion Announcing the Judgment of the Court” explains that a majority of states refuse to enforce agreements that violate the Rules of Professional Conduct, whereas a minority do not give the rules substantive effect, particularly if doing so would allow the offending lawyers to reap a windfall. The justices then cite their 1984 decision in In re Estate of Pedrick, holding that the rules do not have the force of substantive law, and adding that that they agree with the broader policy judgment “that the conduct rules should not be interposed into substantive law when nonregulated parties bear no (or substantially lesser) responsibility relative to the material ethical violation.” They then conclude “only that the contract cause of action is not per se barred by the purported infraction on [the law firm's] part,” and leave it to the trial court to make “its own judgment as to the relevance of any wrongful conduction on [the law firm's] part, without present guidance from” the Supreme Court.

In his concurring opinion, Justice Dougherty agreed that fee-splitting agreements between attorneys and nonattorneys should not be automatically unenforceable because “a per se rule might have the effect of emboldening unscrupulous attorney—who are often in a superior negotiating posture as compared with their nonattorney contracting counterparts—to enter into illusory fee-splitting agreements with full knowledge the agreement may never be enforced.” Thus, the justice suggests that there should be a “case-by-case determination of the validity of a given fee-splitting agreement via a breach of contract action.”

Justice Baer, in his concurring and dissenting opinion, agrees that fee-sharing agreements between a lawyer and a nonlawyer are not per se unenforceable, but believes that such agreements do not violate public policy. He would also refer offending attorneys to the Disciplinary Board for prosecution. Finally, to prevent lawyers from attempting to benefit from the Rules of Professional Conduct's prohibition against such agreements, he would hold that lawyers and law firms are “estopped from invoking their own ethical violations as a defense to payment under fee-sharing contracts entered into in violation of RPC 5.2”

Finally, in his dissenting opinion, Justice Wecht notes that the Rules of Professional Conduct should protect the clients whom lawyers represent. The justice would “adopt a bright-line rule barring such fee-splitting agreements as unenforceable at law, but [would allow] non-lawyers to seek judicial relief in equity.” Because the Rules are intended to protect clients from unethical conduct by their counsel that unanimity of thought among the Justices may be the most important aspect of the varying approaches by the court.

While SCF Consulting still leaves lawyers and victimized clients without clear guidance, what is clear is that a lawyer who violates the rules will not escape civil liability by asserting the unethical conduct is a bar to any claims. And certainly, the court makes clear that it wants the Disciplinary Board to aggressively prosecute attorneys whose conduct fits this mold.

Daniel J. Siegel, principal of the Law Offices of Daniel J. Siegel, provides ethical guidance and Disciplinary Board representation for attorneys and law firms; he is the editor of “Fee Agreements in Pennsylvania” (6^th Edition), and author of “Leaving a Law Practice: Practical and Ethical Issues for Lawyers and Law Firms” (Second Edition), published by the Pennsylvania Bar Institute. He can be reached at [email protected].