Trotter v. Nelson

Decision Date12 September 1997
Docket NumberNo. 57S05-9604-CV-288,57S05-9604-CV-288
Citation684 N.E.2d 1150
Parties13 IER Cases 491 Stephen D. TROTTER, Appellant (Defendant Below), v. Lesa NELSON, Appellee (Plaintiff Below).
CourtIndiana Supreme Court

Kurt Bentley Grimm, Grimm & Grimm, P.C., Auburn, for Appellant.

Max A. Myers, Fort Wayne, for Appellee.

Robert D. Brown, Spangler, Jennings & Dougherty, Merrillville, a Amicus Curiae.


SELBY, Justice.

This is an interlocutory appeal from the Noble Superior Court. The issue before this Court is whether the trial court erred in denying attorney Stephen Trotter's ("Trotter") motion for partial summary judgment regarding an alleged agreement with non-attorney Lesa Nelson ("Nelson") whereby Nelson claims she was to receive money for referring clients to Trotter. The Court of Appeals affirmed the trial court's decision, holding that the alleged agreement was not "unenforceable as a matter of law." Trotter v. Nelson, 657 N.E.2d 426 (Ind.Ct.App.1995). The question which we must answer is whether a referral fee agreement between an attorney and a non-attorney employee is against public policy and, therefore, unenforceable. 1 We earlier granted transfer and now hold that the alleged agreement is against public policy and is unenforceable.


This case concerns a disagreement concerning the amount that an employer owes to a former employee for her past services. Stephen Trotter is a licensed attorney who practices in Fort Wayne, Indiana. Lesa Nelson is a former employee of Trotter's. She worked for Trotter from July 1986 through the end of 1989. Although the record is unclear as to a specific job title or description, Nelson began her employment in what was essentially a clerical capacity and her duties and responsibilities enlarged over time. Nelson was not educated or trained as a lawyer and does not hold a license to practice law.

Nelson initiated this suit because she believed that Trotter had not fully compensated her for the work that she had done. One of her allegations is that she and Trotter had an agreement, beginning in early 1987, whereby she was to receive five percent of any fees which resulted from a personal injury or worker's compensation case that she had a role in referring to Trotter. There is no written recording between the parties as to the alleged agreement. 2

At trial, Trotter moved for partial summary judgment on the alleged agreement. Trotter argued that the alleged agreement did not exist, and, even if it did, it was against public policy and therefore unenforceable. The trial judge denied the motion. The court concluded that "material issues of fact exists concerning the parameters of the agreement or understanding between Plaintiff and the Defendant on the payment of periodic bonuses or referral fees."


We first note that the issue before us is the propriety of a denial of summary judgment. Our appellate standard of review for summary judgment rulings is well established. As a reviewing court, we are bound by the same standard as the trial court. Webb v. Jarvis, 575 N.E.2d 992, 994 (Ind.1991). The standard is that summary judgment is warranted only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Id.; Ind.Trial Rule 56(C). Just as the trial court, we may only consider those parts of the pleadings, depositions, answers to interrogatories, admissions, matters of judicial notice, and other matters which have been designated by the parties to the trial court for consideration. T.R. 56(C); Rosi v. Business Furniture Corp., 615 N.E.2d 431, 434 (Ind.1993). "Any doubt about the existence of a fact or the inference to be drawn from it is to be resolved in favor of the non-moving party." Webb, 575 N.E.2d at 995. For purposes of this appeal only, therefore, we must assume that the agreement alleged by Nelson did exist.

Trotter's argument at trial and on appeal is that, even assuming that the agreement existed, such an agreement would be contrary to public policy and thus unenforceable. Trotter notes, and we agree, that the alleged agreement as described by Nelson is a referral fee agreement. The alleged agreement would require Trotter to pay Nelson "five percent of the attorney's fees realized by [Trotter], on certain personal injury cases directed by or through [Nelson] to his office" if any of those cases resulted in attorney's fees for Trotter. (R. at 32.) This agreement, Trotter argues, violates Indiana Rules of Professional Conduct 7.3(f). Because the alleged agreement violates the Professional Conduct Rules, Trotter concludes, it violates the public policy of Indiana and is unenforceable, and, thus, the trial court erred in denying his motion.

Nelson, on the other hand, argues that the alleged agreement is not a referral fee agreement. Rather, she counters, the agreement is a profit sharing plan which is permitted by Conduct Rule 5.4(a)(3). Thus, she concludes, the agreement is not against public policy and it is enforceable, and the trial court was correct to deny the motion for summary judgment.

I. Public Policy

Indiana courts have long recognized and respected the freedom to contract. We recognize a "very strong presumption of enforceability of contracts that represent the freely bargained agreement of the parties." Continental Basketball Association, Inc. v. Ellenstein Enterprises, Inc., 669 N.E.2d 134, 139 (Ind.1996). However, in certain circumstances a court may declare an otherwise valid contract unenforceable if it contravenes the public policy of Indiana. Id.; Straub v. B.M.T. by Todd, 645 N.E.2d 597, 598 (Ind.1994).

Public policy is a term not easily defined. In the past, Indiana courts have noted that we first look to the Constitution the legislature, and the judiciary for explicit declarations of public policy. See Straub, 645 N.E.2d at 599; Franklin Fire Insurance Co. v. Noll, 115 Ind.App. 289, 58 N.E.2d 947, 950 (1945). In the absence of such a declaration, we would next look to whether it can be clearly shown that the agreement "has a tendency to injure the public, or is against the public good, or is inconsistent with sound policy and good morals as to the consideration or as to the thing to be done or not to be done." Id.; Straub, 645 N.E.2d at 599. Whether a contract is against public policy in this situation would be a question of law dependant on the circumstances of the particular case. Id.

Recently, this Court re-emphasized this analysis. See Continental B-Ball, 669 N.E.2d at 139; Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1130 (Ind.1995). We categorized three situations where courts have refused to enforce private agreements on public policy grounds: "(i) agreements that contravene statute; (ii) agreements that clearly tend to injure the public in some way; and (iii) agreements that are otherwise contrary to the declared public policy of Indiana." Continental B-Ball, 669 N.E.2d at 139. We further noted that, depending on the category, we must approach the analysis in different manners. If an agreement is in direct contravention of a statute, "then the court's responsibility is to declare the contract void." Id. at 140; see also Straub, 645 N.E.2d at 599; Franklin Fire Ins. Co., 58 N.E.2d at 950. If, however, the agreement falls into the more amorphous category of "otherwise contrary to the declared public policy of Indiana," then the court must balance five relevant factors: (i) the nature of the subject matter of the contract; (ii) the strength of the public policy underlying the statute 3; (iii) the likelihood that refusal to enforce the bargain or term will further that policy; (iv) how serious or deserved would be the forfeiture suffered by the party attempting to enforce the bargain; and (v) the parties' relative bargaining power and freedom to contract. Continental B-Ball, 669 N.E.2d at 140; Fresh Cut, Inc., 650 N.E.2d at 1130.

The Rules of Professional Conduct, as enacted by this Court, contain both implicit and explicit declarations of public policy. 4 The Indiana Rules of Professional Conduct exist, to a large extent, as a means of protecting the interests of the public as potential clients. See Picadilly, Inc. v. Raikos, 582 N.E.2d 338, 342-344 (Ind.1991). "These Rules and this Court's willingness to enforce them help ensure that the public is well served by the bar. Forces that undermine the standards on which the Rules of Professional Conduct are founded disserve the public by weakening the client-lawyer relationship." Picadilly, 582 N.E.2d at 342. Certain of the Rules are explicit declarations of what an attorney can or cannot do. They are "cast in the terms 'shall' or 'shall not.' " Prof.Cond.R.Preamble, Scope. Some of these imperatives concern agreements that an attorney can or cannot enter into. The Rules at issue in this case (Rules 5.4(a) and 7.3(f)) are such imperatives. Rules 5.4(a) and 7.3(f) are explicit judicial declarations of Indiana public policy and, akin to contravening a statute, agreements in violation of these rules are unenforceable. See Straub 645 N.E.2d at 599; see also Franklin Fire Ins. Co., 58 N.E.2d at 950.

II. Indiana Rules of Professional Conduct 7.3(f)

As noted above, Trotter argues that the alleged agreement is a referral fee agreement, that it is in violation of Conduct Rule 7.3(f), and that it is unenforceable. We agree. Conduct Rule 7.3(f) states in pertinent part that "A lawyer shall not compensate or give anything of value to a person or organization to recommend or secure his employment by a client, or as a reward for having made a recommendation resulting in his employment by a client ..." Ind.Professional Conduct Rule 7.3(f) (emphasis added). This Rule states the public policy against paying fees in return for referring clients. Referral fees are disfavored because of their potential effect on the client. See Model Code of Professional Responsibility EC 2-8 (1986); O'Hara v. Ahlgren, Blumenfeld...

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