Case Name: Ponce v. Nemazie

Case No.: 19CV349471

Defendant Maryam Nemazie, individually and dba Nemazie Law Office (“Defendant”), demurs to the complaint (“Complaint”) filed by plaintiff Vilma Ponce, individually and dba Ponce Immigration Center (“Plaintiff”).

I. Background
II.

A. Factual
B.

This is an action to for breach of contract and to dissolve a partnership, among other things. According to the allegations of the Complaint, Plaintiff, an immigration consultant, sought to form her own consultancy business. (Complaint, ¶ 10.) In late 2016 and early 2017, Plaintiff began searching for an attorney who could provide the legal services component of her business. (Id., ¶ 11.) Plaintiff eventually met Defendant and the parties entered into an agreement (the “Agreement”) pursuant to which they agreed to share income and expenses equally and to essentially act as partners. (Id., Exhibit A.) Plaintiff was to provide office space, support services, Spanish translation and other benefits to Defendant, who would provide legal services. (Id.) The parties agreed to the Agreement via email and acted in accordance with it even though it was not manually signed. (Id.)

In October 2018, Plaintiff sent a pre-litigation demand letter to Defendant following her separation from the partnership the previous month; the letter did not result in resolution of the parties’ dispute. (Complaint, ¶ 12.) When Defendant departed the partnership, she took all of the account receivables and instructed all clients to pay her instead of the partnership, in violation of the Agreement. (Id., ¶ 16.) Additionally, Defendant failed to pay for certain things she was obligated to under the terms of the Agreement. (Id.) Defendant’s conduct was wrongful and done in a manner to maximize injury to Plaintiff.

C. Procedural
D.

Based on foregoing, Plaintiff filed the Complaint on June 4, 2019, asserting the following causes of action: (1) partnership dissolution; (2) declaratory relief; (3) breach of contract; (4) fraud; (5) conversion; (6) breach of fiduciary duty; (7) tortious interference; and (8) unfair competition. On September 5, 2019, Nemazie filed the instant demurrer to each of the foregoing claims on the ground of failure to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) Plaintiff opposes the motion.

III. Defendant’s Demurrer
IV.

Defendant’s demurrer is based entirely on her contention that the Agreement is illegal and unenforceable and therefore no claim based on it can be stated. Defendant maintains that the Agreement is illegal because it provides that Plaintiff and Defendant would share fees generated by their business and under the California Rules of Professional Conduct, an attorney cannot share legal fees directly or indirectly with a nonlawyer or form a partnership or other organization with a nonlawyer.

As a general matter, a contract that conflicts with an express provision of the law (or public policy) is illegal and the rights thereto cannot be judicially enforced. (See Civ. Code, § 1550; Finnegan v. Schrader (2001) 91 Cal.App.4th 572, 583.) As relevant here, under California Rules of Professional Conduct, rule 5.4 (“Rule 5.4”) (barring the exceptions specified therein), a lawyer or law firm “shall not share legal fees directly or indirectly with a nonlawyer or with an organization that is not authorized to practice law…” and “shall not form a partnership or other organization with a nonlawyer if any of the activities of the partnership or other organization consist of the practice of law. (Cal. Rules of Prof. Cond., Rule 5.4(a) and (b).) This rule, which has been in existence in some form for over 70 years, was borne out a variety of concerns, including interference with an attorney’s professional judgment, the creation of conflicts of interest, and the “unwholesome spectre of attorneys soliciting professional liaisons with laypersons.” (McIntosh v. Mills (2004) 121 Cal.App.4th 333, 345 [internal citations omitted].)

The Agreement attached to the Complaint, which states that Defendant will provide “immigration and criminal law consultation and/or legal services as requested by [Plaintiff]” and Plaintiff will provide Defendant “shared office space, paralegal support, advertising and marketing support and Spanish translation services,” contains a provision under which compensation was to be provided to Defendant as follows:

[A] base of $1,300 per week to be paid at the 15th of the month and at the end of the month; The two parties will share the net income 50/50 monthly. At the ends of the Month [Defendant] and [Plainitff] will meet to review net operating profits, here and now referred to as “combined profit.” The combined profits will be split 50/50. When 50 percent of combined profits is greater than $5,200, each party will receive $5200 [sic] plus the difference to equal 50 percent of the combine profits.

(Complaint, Exhibit A [emphasis added].)

Without considering anything other than the face of the Agreement, the doctrine of illegality would appear to apply to it because per its terms, the parties, a lawyer and a nonlawyer, expressly agreed to share fees generated by each other’s services. Despite this, Plaintiff nevertheless insists that the agreement is enforceable because the circumstances at bar fit within a recognized exception to the rule of the unenforceability of illegal contracts: the in pari delicto exception. “At it most fundamental level, the exception allows an illegal contract to be enforced so long as the party seeking its enforcement is less morally blameworthy than the party against whom the contract is being asserted, and there is no overriding public interest to be served by voiding the agreement.” (McIntosh, 121 Cal.App.4th at 347, internal citations and quotations omitted.) Plaintiff maintains that Defendant is completely blameworthy for the circumstances of this case and argues that this action mirrors that in Cain v. Burns (1955) 131 Cal.App.2d 439, in which an attorney was not permitted to hide behind his own misconduct by arguing that a contract between himself and a nonattorney was unenforceable due to illegality.

Cain specifically involved a lawsuit by the plaintiff, a private investigator, who had performed services for the defendant attorney in return for which the attorney agreed to pay the plaintiff one-third of the net attorney’s fees recovered. (131 Cal.App.2d at 347.) The attorney sought to avoid his contractual obligation to pay, claiming that the “fee-splitting” agreement violated the rule that was a predecessor to Rule 5.4. (Id.) The court observed that while the agreement was against public policy, it would be enforceable if the parties were not in pari delicto. (Id. at 348.) It continued that:

[T]he courts should not be so enamored with the Latin phrase ‘in pari delicto’ that they blindly extend the rule to every case where illegality appears somewhere in the transaction. The fundamental purpose of the rule must always be kept in mind, and the realities of the situation must be considered. Where, by applying the rule, the public cannot be protected because the transaction has been completed, where no serious moral turpitude is involved, where the defendant is the one guilty of the greatest moral fault, and where to apply the rule will permit the defendant to be unjustly enriched at the expense of the plaintiff, the rule should not be applied.

(Cain, 131 Cal.App.2d at 444.)

In considering the relative culpability of the plaintiff and defendant, the court noted that the rule at issue was directed only at members of the state bar and explained that to allow the attorney to assert his own failure to comply with professional rules as a sword to deny otherwise lawful payment to a nonattorney who had indisputably performed under contract “would put a premium on the attorney’s disregard of the rules made of his guidance and conduct.” (Id.) Thus, Cain can be read to require a court to analyze the relative culpability of the parties involved to determine whether they were in pari delicto. (Id. at 443.)

Plaintiff’s assertion that the circumstances of this case in many ways mirror those in Cain is well taken. In both situations, the agreements alleged to be illegal and therefore unenforceable were entered into between a lawyer and a nonlawyer, and the objects of said agreements (investigation and immigrations services, respectively) were both legal and proper. It was only the fee-splitting components of those agreements that were against public policy. The Cain court refused to permit the attorney to benefit from the illegal fee arrangement and accept the “fruits of his unlawful conduct” while simultaneously avoiding paying for them because, as stated above, to do so would “put a premium on the attorney’s disregard of the rules made for his guidance and conduct.” (Cain, 131 Cal.App.2d at 444.) Here, Plaintiff alleges that it was Defendant, who as a member of the State Bar is charged with knowledge of and compliance with the California Rules of Professional Conduct, who drafted the Agreement. Thus, this was a circumstance in which the drafting party was aware (presumably) of the illegal nature of the parties’ agreement while the other party was not. Under these facts, the parties cannot be said to be in pari delicto, with Defendant more morally blameworthy than Plaintiff. Consequently, the Court finds that although the illegality of the Agreement appears on its face, Defendant cannot successfully raise it as a defense. To hold otherwise would permit Defendant to be unjustly enriched at Plaintiff’s expense.

As the purportedly illegality of the Agreement is the only argument made by Defendant in support of her demurrer, Defendant’s demurrer to the Complaint and each of the claims asserted therein on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

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