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Keywords

attorneymotionsummary judgment

contractlawyercorporation

Related Cases

Institutional Labor Advisors, LLC v. Allied Resources, Inc., Not Reported in F.Supp.3d, 2014 WL 4211196

Facts

ILA, a consulting firm, entered into an oral fee agreement with Chester Thomas, owner of Allied, contingent on the successful closing of a transaction involving coal reserves. After extensive negotiations, a written Compensation Agreement was executed, which stipulated that ILA would receive 5% of any distributions from Allied. ILA later alleged that Allied failed to make the agreed payments despite certain distributions being made.

During the same period, Allied was a corporation that was owned by Chester Thomas ('Thomas'). Thomas wanted to acquire certain coal reserves located in western Kentucky, owned by the Pittsburg & Midway Coal Mining Co. ('P & M') and its parent company, Chevron Corp. ('Chevron').

Issue

The main legal issue is whether the Compensation Agreement is enforceable, particularly in light of allegations that it violated the Rules of Professional Conduct governing attorney-client relationships.

The parties' dispute regarding the Compensation Agreement's validity and enforceability concerns whether or not 'ILA's claim is barred because the Letter Agreement was entered into in violation of the Rules of Professional Conduct in effect in the time …, and the public policy of the Commonwealth of Kentucky, thus rendering the Letter Agreement void and unenforceable.'

Rule

The court applied Rule 1.8(a) of the Kentucky Rules of Professional Conduct, which prohibits attorneys from entering into business transactions with clients unless certain conditions are met, including full disclosure and the client's informed consent.

Rule 1.8(a) states that a lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless: (1) The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client; (2) The client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (3) The client consents in writing thereto.

Analysis

The court analyzed whether ILA complied with the disclosure requirements of Rule 1.8(a). It found that the terms of the Compensation Agreement were extensively negotiated and documented, and that Thomas, as the client, was represented by independent counsel during the negotiations. The court concluded that ILA's disclosures were sufficient and that the agreement was fair and reasonable.

The Court finds that under the facts of this case, ILA and Smith's disclosures were sufficient.

Conclusion

The court ruled that the Compensation Agreement was enforceable and that ILA was entitled to compensation as stipulated in the agreement. The motions for summary judgment were considered in light of the findings regarding the agreement's validity.

The Court finds that contracts that violate the Rules of Professional Conduct are unenforceable.

Who won?

Institutional Labor Advisors, LLC prevailed in the case as the court found the Compensation Agreement enforceable and ruled in favor of ILA's claims for compensation.

ILA argues that Kentucky law is unclear as to 'whether the Rules of Professional Conduct governing lawyers provide a basis to discern 'public policy' for [the] purposes of determining the enforceability of contracts.'

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