The Pennsylvania Supreme Court has agreed to evaluate whether an alleged fee-splitting arrangement between a law firm and a non-lawyer was proper, and whether the arrangement violated state law and public policy.
In SCF Consulting, LLC v. Barrack, Rodos & Bacine, No. 1413 EDA 2015, 2016 WL 4962900 (Pa. Super. Ct. July 8, 2-16), Plaintiff, SCF Consulting, LLC (SCF), alleged it was entitled to a promised share of profits for cases SCF had worked on as part of an oral consulting contract with Defendant, Barrack, Rodos and Bacine (“Barrack”). The contract regarded representation of various institutional investors who sought to bring class actions alleging securities violations. Pursuant to this contract, SCF claims it was paid a yearly consulting fee, plus “a five percent (5%) share of the firm’s annual profits attributable to the cases originated and worked on by Barrack, and a 2.5% of cases originated by other members of the firm.” Based on this compensation package, SCF assisted Barrack in becoming legal counsel for the class representatives in virtually all of its cases. SCF admitted that Barrack paid them their fixed annual consulting fee for each of the years worked, but alleges that Barrack failed to pay the share of profits due at the end of 2014.
SCF filed this suit claiming that Barrack breached the parties’ agreements by refusing to make the promised profit share payments for cases that were originated, worked on and resolved by SCF.
The trial court sustained Barrack’s demurrer to all counts of SFC’s complaint on the basis that the compensation plan they entered into was against public policy due to violation of Pennsylvania Rule of Professional Conduct, 5.4. The rule prohibits a lawyer or law firm from sharing legal fees with a nonlawyer exclusive of various exceptions. While SFC claimed the plan was an express exception to the rule [under section (a)(3)], both the Trial Court and Superior Court disagreed.
On February 1st, 2017, SCF appealed to the Supreme Court of Pennsylvania to determine “whether the trial court and superior court erred in sustaining Barrack’s demurrer to all counts of SFC’s complaint, even assuming that the compensation plan was in violation of 5.4., Pennsylvania law, public policy and the interests of justice require such an agreement to be enforced because an attorney must not be shielded from liability, nor financially rewarded for violating the Rules of Professional Conduct.”