Danzig v. Danzig
904 P.2d 312 (1995)
Rule of Law:
An illegal contract may be enforced where the parties are not in pari delicto (equally at fault), particularly when the illegality arises from a statute or professional rule that is designed to protect one party from the other.
Facts:
- Jeffrey Danzig, a licensed attorney, proposed a business agreement to Steven Danzig, a non-lawyer, in January 1992.
- Under the agreement, Steven would refer clients to Jeffrey's law practice in exchange for one-third of any legal fee Jeffrey received from that client.
- Steven accepted the offer and began referring clients.
- For each successful referral, Jeffrey instructed Steven to submit a billing statement that falsely appeared to be for hourly work, but the total amount was always approximately one-third of the total fee.
- Steven referred a specific client to Jeffrey in March 1993.
- After receiving the fee from this client, Jeffrey breached the agreement and refused to pay Steven his one-third share, which amounted to approximately $89,000.
Procedural Posture:
- Steven Danzig filed a breach of contract lawsuit against Jeffrey Danzig, his wife, and his law firm in a Washington state trial court (Superior Court).
- The defendants filed a motion to dismiss under CR 12(b)(6), arguing that the complaint failed to state a claim upon which relief could be granted because the underlying contract was illegal.
- The trial court granted the motion and dismissed Steven's claim with prejudice.
- Despite dismissing the case, the trial court ordered Jeffrey to pay $89,000 into the court's registry pending an investigation into the propriety of the legal fee.
- Steven Danzig (appellant) appealed the dismissal of his contract claim to the Court of Appeals of Washington.
- Jeffrey Danzig (cross-appellant) cross-appealed the trial court's order requiring him to deposit the funds with the court.
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Issue:
Is a fee-splitting agreement between a lawyer and a non-lawyer, which is illegal under attorney ethics rules and a state barratry statute, enforceable by the non-lawyer against the lawyer?
Opinions:
Majority - Munson, J.
Yes, a fee-splitting agreement that is illegal for the lawyer to make may be enforceable by the non-lawyer. While contracts that are illegal or against public policy are generally unenforceable, an exception exists when the parties are not in pari delicto (equally at fault). Here, the relevant statute (RCW 9.12.010) and the Rules of Professional Conduct (RPC 7.2(c)) prohibit the conduct of the attorney, Jeffrey, not the non-attorney, Steven. As an attorney, Jeffrey is presumed to have knowledge of these specialized rules, while Steven's ignorance of them may be excusable. Refusing to enforce the contract would not protect the public, as the illegal referral has already occurred, and would result in the unjust enrichment of Jeffrey, the more culpable party. Therefore, Steven has stated a claim upon which relief could be granted, and the case should not have been dismissed.
Dissenting - Thompson, C.J.
No, the agreement is an illegal contract contrary to public policy and should not be enforced. The court's primary role is to protect the public by refusing to enforce contracts that are illegal or promote the unethical brokering of legal services. The doctrine of in pari delicto is misplaced here; Steven was not an innocent party, as he knowingly submitted fraudulent billing statements to facilitate the illegal scheme. Allowing a lawyer to use his own violation as a defense is troubling, but it is a lesser evil than having the courts actively enforce and thereby approve of illegal contracts for brokering legal services.
Analysis:
This decision carves out a significant exception to the general rule that illegal contracts are void, particularly in the context of professional ethics. By applying the 'in pari delicto' doctrine, the court shifts the risk of non-enforcement onto the party with the greater knowledge and culpability—the lawyer. This ruling serves as a disincentive for attorneys to enter into prohibited fee-splitting arrangements, as they cannot use the illegality of their own conduct as a shield to escape their contractual obligations and become unjustly enriched. The case establishes that the relative fault of the parties is a critical factor in determining the enforceability of a contract that violates public policy.
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