Cain v. Burns, 16248

• Decision Date: 14 March 1955
• Docket Number: No. 16248,16248
• Citation: 131 Cal.App.2d 439,280 P.2d 888
• Court: California Court of Appeals Court of Appeals
• Parties: John Coford CAIN, Plaintiff-Respondent, v. Emmett R. BURNS, Defendant-Appellant.

Page 888

280 P.2d 888

131 Cal.App.2d 439

John Coford CAIN, Plaintiff-Respondent, v. Emmett R. BURNS, Defendant-Appellant.

No. 16248.

District Court of Appeal, First District, Division 1, California.

March 14, 1955.

Hearing Denied May 11, 1955.

Byron Snow, Robert E. Hayes, Santa Clara, for appellant.

Jarvis, Miller & Decker, Martin L. Jarvis, San Francisco, for respondent.

BRAY, Justice.

Defendant appeals from a judgment against him in the sum of $11,029.13 and interest, on a contract for services as an investigator.

Questions Presented.

1. Was the contract one for splitting attorney's fees? 2. Must the defense of illegality be pleaded? 3. Are the parties in pari delicto?

Facts.

Defendant filed a general denial to plaintiff's complaint, but offered no evidence as to the facts here related. Defendant is an attorney at law. Plaintiff had experience as an insurance adjuster. The parties entered into an oral agreement under which plaintiff was to render service to defendant as a private investigator. Plaintiff's compensation was to be of two types: in certain cases defendant was to be paid mileage and an hourly rate; in other cases defendant was to receive an amount 'measured by and equal to one-third (1/3) of the net' attorney's fees received by defendant in such cases. Defendant was to designate the cases as to which each type of compensation would apply. In the latter type cases, plaintiff's compensation was contingent upon defendant's success in the particular case and his receiving a fee therefrom. However, plaintiff's compensation was to come out of defendant's 'general fund, without regard to the particular money paid in those designated cases.' Plaintiff rendered services for approximately one and a half years, during which time six of the cases investigated by him were designated by defendant as being of the contingency fee type. Plaintiff received payment in full for five of these and for all cases to which the hourly rate applied. In the sixth case defendant received a fee of $36,609.40. For his work in that case defendant paid plaintiff only $1,174. On the one-third basis he was entitled to $12,203.13, leaving a balance due him of $11,029.13, the amount for which he sued and the amount the trial court awarded him.

1. Fee Splitting.

Rule 3 of the State Bar Rules of Professional Conduct approved by the Supreme Court, 26 Cal.2d 34, provides: 'A member of the State Bar shall not * * * nor, except with a person licensed to practice law, shall he directly or indirectly share compensation arising out of or incidental to professional employment * * *.' (Emphasis added.) While plaintiff testified that his contingent fees were not 'tied into the recovery,' that the amount defendant received as attorney's fees in the particular case was only 'a scale' to determine the amount plaintiff was to receive, and that plaintiff's money was not to come out of the fees themselves but out of defendant's 'general fund,' it is obvious that the arrangement actually was one by which the attorney was in fact splitting his fees. Plaintiff was working on a percentage basis without regard to the work done, the time consumed or the difficulties encountered. ¹ The evidence shows that plaintiff worked solely for defendant and at least on one occasion suggested that the injury person employ defendant and subtly 'led' such person to him. It is clear that the devices of having plaintiff's fee paid out of defendant's 'general fund' instead of directly from the attorney's fees upon which it was based, and of using the latter fees as a 'scale' were merely subterfuges to attempt to get away from the inhibition in Rule 3. See Hildebrand v. State Bar, 36 Cal.2d 504, 225 P.2d 508, for discussion of fee-splitting.

2. Defense of Illegality.

Plaintiff contends that as defendant merely filed a general denial of the allegations of the complaint and did not plead such defense he is barred from raising it. As stated in 2 Witkin's California Procedure, 1531, the problem of pleading illegality is confused by contradictory expressions in the opinions. So far as applicable to the circumstances of this case, the authorities seem clear that although generally illegality of a contract is a defense which must be pleaded, that rule is qualified as follows: (1) where the illegality appears on the face of the contract, or (2) where the evidence which proves the contract discloses the contract's illegality. See Gelb v. Benjamin, 78 Cal.App.2d 881, 178 P.2d 476, and cases cited in Witkin, supra, 1532-1533. The facts bring our case within both of the qualifications of the rule above-mentioned. Therefore, the failure to plead illegality would not prevent the defense from being considered.

3. Pari Delicto.

However, a different rule bars the defense from being available to defendant. This rule is stated in 12 Cal.Jur.2d 302-3, 304: 'Where parties to an illegal contract are in pari delicto, neither may recover from the other property or money transferred in the course of the illegal transaction. But a member of a class for whose protection a statute was enacted is ordinarily not considered in pari delicto with those who violate the statute. The statute being for his benefit and he not being in pari delicto, he is entitled to relief and may resort to the courts to recover * * *. The rule, therefore, is that if refusal to enforce or rescind an illegal bargain would produce a harmful effect on parties for whose protection the law making the bargain illegal exists, enforcement or rescission, whichever is appropriate, is allowed.'

The object of the contract here--investigation--is legal and proper. It is only the fee-splitting that is against public policy. Nevertheless the contract may be enforced if the parties are not in pari delicto. As said in Re Estate of Cohen, 66 Cal.App.2d 450, 458, 152 P.2d 485, the common law doctrines of champerty and maintenance were never adopted in this state. Here the statute prohibiting fee-splitting prohibits only the attorney, not the layman. The punishment for doing so is directed at attorneys only. See Rules of Procedure of the State Bar, Rules 8-42, 26 Cal.2d 38-54.

As said in Irwin v. Curie, 171 N.Y. 409, 64 N.E. 161, 58 L.R.A. 830, where the court permitted recovery by a customs broker who had placed claims of a third party in the hands of the attorney under an agreement that the attorney would divide with him half of the amount of recover (New York has a statute similar to California's Rule 3), '* * * we note that the penalty inflicted is upon the attorney and counselor...