Slocumb’s Complaint teaches some important business and marketing lessons, while raising interesting ethics and contract law questions. By way of background, the Complaint states that Slocumb placed ads for Wilson’s benefit for the period March 2011 through February 2012. Calls generated from the ads would go to Slocumb’s office which would gather basic information and forward the cases to Wilson for additional screening. During the term of the contract, Slocumb forwarded 300 prospective clients to Wilson.
In exchange for receiving these pre-screened referrals, Wilson agreed to pay a flat fee of $25,000 per month to purchase the ads and $3750 per month for production and licensing; a total of $28,750 per month or by my calculation, $345,000 for the duration of the contract ($28,750 * 12 months – note – I rounded up and just assumed the contract was for a year).
So how much does Wilson owe under the contract? That’s where things get weird. According to Paragraph 14 of the Complaint, “Wilson remitted five separate payments of $119,220″ which totals $596,000. So if Wilson’s obligation was $345,000 under the contract and he paid $596,000, it seems that Slocumb owes money to Wilson, not the other way around (unless the Complaint is somehow wrong?) But no, Slocumb is seeking $197,000 plus attorneys fees for unpaid amounts under the agreement. (Complaint Para. 15).
And it gets worse. In the next count, Slocumb alleges that Wilson was unjustly enriched by the referral of the 300 prospects. For this, Slocumb seeks $1 million.
On the contract questions, it doesn’t take a law degree to realize that there aren’t any damages when a defendant pays more money than owed under the agreement, as Wilson apparently has. But there’s a more subtle contract issue as well. Unjust enrichment, which Slocumb has also alleged (Complaint, Count II) is an alternative, not supplemental remedy to breach of contract. In a breach of contract cause of action, damages compensate the plaintiff for harm resulting from the breach and to “make him whole.” In Slocumb’s case, Wilson agreed to pay $28,750 for advertising and licensing fees for 12 months. Thus, Slocumb’s contractual damages are equal to the $345,000 total less what Wilson paid. Under the contract, Slocumb was entitled to $345,000 in payment; that’s all. If Wilson didn’t make the payments, he breached the contract plain and simple and whether Wilson was “unjustly enriched” is irrelevant. (In fact, you wouldn’t want to raise unjust enrichment in a straight-up contract case because it would open the door for a non-performer to claim that a breach is justified because the contract was a bad deal and unjustly enriched the other party). Here, there’s neither unjust enrichment nor contractual damages, though since Wilson paid $596,000, more than what was required under the contractual arrangement described in the Complaint.
Of course, if for some reason, Slocumb’s contract with Wilson was invalid or he didn’t have a contract at all or he seeks remedies outside the four corners of the contract, that’s where unjust enrichment kicks in. Unjust enrichment also takes place at the expense of the other party to the contract. In Slocumb’s case, the only way that Wilson could have been unjustly enriched to the tune of $1 million, is if Wilson were obligated to pay Slocumb referral fees i.e., a percentage of revenues from money collected in the matters forwarded to Wilson by Slocumb. In that situation, Wilson’s failure to pay for the ads would leave Slocumb out of pocket for the ad costs and any expected case commissions, while Wilson would unjustly keep all of the revenue, after having breached his duty to pay for the ads. However, if Wilson was only required to pay $345,000 under the contract and nothing more, then Slocumb had no legitimate expectation of receiving referral fees and cannot argue that Wilson was enriched at his expense.
The Complaint doesn’t say whether Wilson was obligated to share fees with Slocumb. I’m assuming that he was because there’s no other basis for a $1 million unjust enrichment claim (except poor lawyering and I suppose that’s a possibility too). And that brings us to the ethics question: can a lawyer take out ads “for the benefit of another” and seek a percentage of fees after referring the cases. The answer is jurisdiction-specific; DC like many other jurisdictions prohibits referral fees or fee splitting with lawyers outside one’s firm unless (From Rule 1.5 ), the division of the fee is proportionate to the work performed by each lawyer, the client consents and the overall fee is reasonable. Though I won’t speculate about Slocumb’s agreement with Wilson, hypothetically, can a court be asked to enforce an agreement that doesn’t conform to ethics requirements? I don’t think so.
Leaving aside the legality of Wilson’s contract with Slocumb, in my view, the arrangement doesn’t make sense from a business or marketing perspective. Wilson paid $595,000 for 300 prospective clients. That’s $2683 per lead which seems outrageously expensive. Moreover, Slocumb Law already has a DC-based office that handles malpractice matters. Does that mean that Slocumb was placing ads for competitor law firms? Or does that Slocumb doesn’t actually have lawyers who handle malpractice matters but instead affiliates with different firms that can provide these services? Before paying $345,000 or $595,000 to another attorney to place ads on your behalf, at a minimum, you should have a clear understanding about the kind of operation that attorney is running.