Salvator J. Grillo v. Global Patent Group LLC and Dennis Bennett , 471 S.W.3d 351 ( 2015 )

In the Missouri Court of Appeals
Eastern District
DIVISON FOUR
SALVATOR J. GRILLO, ) No. ED101655
)
Appellant, ) Appeal from the Circuit Court of
) St. Louis County
vs. )
)
GLOBAL PATENT GROUP LLC and )
DENNIS BENNETT, ) Honorable Richard C. Bresnahan
)
Respondents. ) Filed: June 30, 2015
Introduction
Plaintiffs Salvator Grillo and Global Pharma, L.L.C. (Pharma) (collectively, Plaintiffs)
appeal the Circuit Court of St. Louis County’s grant of summary judgment to defendants Dennis
Bennett and Global Patent Group, L.L.C. (Patent) (collectively, Defendants) on their claims of
breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary
duty, and action for an accounting. Plaintiffs contend that the trial court erred in granting
Defendants summary judgment because: (1) section 484.150 of the Missouri Revised Statutes
permits a nonlawyer to receive a share of law firm profits; and (2) equity requires Defendants to
pay Plaintiffs all promised compensation. We affirm.
Factual and Procedural Background
Mr. Grillo is a nonlawyer Missouri resident and the sole owner of Pharma. Mr. Bennett
is a lawyer licensed to practice law in Missouri and the sole owner of Patent, a law firm
organized in Missouri in 2007. Mr. Grillo worked for Patent as a business manager from 2007
until his termination in October 2009.
On May 3, 2012, Plaintiffs filed a petition against Defendants for breach of contract,
breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and action for an
accounting. In their petition, Plaintiffs alleged the following facts: From 2004 to 2007, Mr.
Grillo and Mr. Bennett were partners in a pharmaceutical patent business located in Washington,
D.C. In 2007, Mr. Grillo and Mr. Bennett dissolved the business “with the intent of reforming a
partnership.” Mr. Bennett insisted that Mr. Grillo “transfer the new partnership” to St. Louis.
“[R]elying on legal advice from his partner, [Mr. Bennett,]” Mr. Grillo incorporated Patent “on
behalf of the partnership” in Missouri in 2007.1 At that time, Mr. Bennett and Mr. Grillo “agreed
and intended to operate [Patent] in accordance with the previous terms of their [Washington,
D.C.] partnership.” Mr. Grillo and Mr. Bennett further agreed that Mr. Grillo would advance
start-up expenses and costs and Mr. Grillo and Mr. Bennett would share management
responsibilities and “profits and losses equally.” In 2007, Patent reimbursed Mr. Grillo for the
start-up costs and expenses, and from 2007 to 2009, Mr. Bennett and Mr. Grillo shared equally in
Patent’s profits. From October 2009 through 2010, Mr. Grillo received less than half of Patent’s
profits, and in 2011, Mr. Grillo stopped receiving any share of Patent’s profits. Mr. Grillo
alleged that he “has not been compensated for his 50% ownership interest in [Patent.]”
Based on the above factual allegations, Plaintiffs raised two claims against Defendants
and two claims against Mr. Bennett individually. In Plaintiffs’ Count I for breach of contract
against Defendants, they asserted that Mr. Grillo and Mr. Bennett “agreed and intended to share
1
Following oral argument, Plaintiffs filed a motion “pursuant to Local Rule 370 to supplement
and clarify the appellate record” with information regarding Mr. Bennett’s residence prior to the
formation of Patent. Because this matter does not “require discussion, development, or
clarification,” we deny the motion. Ct. of App. E.D. Rule 370(a).
2
[Patent’s] profits and losses equally” and Defendants breached the agreement by failing to pay
Mr. Grillo’s share of the profits. In Count II for breach of the covenant of good faith and fair
dealing against Mr. Bennett, Plaintiffs alleged that Mr. Bennett and Mr. Grillo had an attorney-
client relationship, Mr. Bennett “promised to act in good faith and fair dealing with [Mr.]
Grillo,” and Mr. Bennett “breached the covenant of good faith and fair dealing” by renouncing
the parties’ agreement. In Count III for breach of fiduciary duty against Mr. Bennett, Plaintiffs
claimed that Mr. Bennett breached his fiduciary duties to Mr. Grillo as a principal member of
Patent and a licensed attorney because he did not intend to comply with the terms of the parties’
agreement. In Count IV against Defendants for action in accounting, Plaintiffs alleged that Mr.
Grillo was entitled to an accounting “because he is [Mr. Bennett’s] partner” and Mr. Bennett
purposefully and fraudulently misallocated Patent’s expenses and profits and refused to pay Mr.
Grillo his portion of Patent’s profits.
Defendants filed their answer denying the petition’s allegations and, subsequently, filed a
motion for summary judgment on all counts. In their motion, Defendants asserted twenty-nine
uncontroverted material facts, including the following: Mr. Bennett is a Missouri-licensed
attorney, Mr. Grillo is not a lawyer, and Patent is a law firm in Missouri. Mr. Grillo worked for
Patent as an administrative manager, and Patent paid him a salary as an independent contractor.
Mr. Grillo understood that he could not be a partner in a Missouri law firm. In October 2009,
Mr. Bennett terminated Mr. Grillo’s employment with Patent. Mr. Grillo never retained Mr.
Bennett as his lawyer, and Mr. Bennett provided no legal advice relating to Patent. In support of
their statements of uncontroverted material facts, Defendants attached and cited to Mr. Grillo’s
and Mr. Bennett’s depositions.
3
Based on their alleged uncontroverted facts, Defendants contended that they were entitled
to summary judgment because the alleged verbal partnership and fee-splitting agreement
between Mr. Grillo and Mr. Bennett violated Missouri law and rules of professional conduct and
was therefore “illegal, invalid, and unenforceable.” Defendants further argued that Counts II, III,
and IV failed because “each claim has, at its core, a foundation premised upon the enforceability
of a ‘partnership agreement’ between [Mr.] Grillo and [Mr.] Bennett in the ownership,
management, and operation of [Mr.] Bennett’s law firm.”
In response, Plaintiffs filed a memorandum in opposition to Defendants’ motion for
summary judgment. In their memorandum, Plaintiffs reasserted that Mr. Grillo is “entitled to a
share of the profits of the partnership [Patent]” because Defendants breached their partnership
agreement with him. More specifically, Plaintiffs alleged that Mr. Grillo “acted as an equal
Partner in [Patent]” and “fulfilled partnership qualities,” including “control of business
decisions”; “Bennett advised Grillo that he could remain a silent partner in Missouri”; and “the
financial relationship between Grillo and [Patent] was consistent with partnership and entirely
inconsistent and beyond the scope of an employee or independent contractor relationship.”
Plaintiffs further argued that they were entitled under principles of equity to a “quantum meruit
share” of Patent’s profits because Mr. Bennett’s legal advice “misled” Mr. Grillo into “agreeing
to be [a] silent partner” in Patent. Plaintiffs neither denied Defendants’ statement of
uncontroverted facts nor filed a statement of additional uncontroverted facts.
The trial court held a hearing on Defendants’ motion for summary judgment. At the
hearing, Plaintiffs moved for leave to amend their petition to add a count of quantum meruit,
which Defendants opposed.
4
After hearing arguments, the trial court issued an order and judgment denying Plaintiffs’
motion for leave to amend and granting Defendants’ motion for summary judgment. In its
judgment, the trial court found that there were no genuine issues of material fact and Defendants
were entitled to judgment as a matter of law. The trial court explained that Plaintiffs’ claims
arose from an “alleged illegal verbal agreement of partnership.” According to the trial court, if
such an agreement existed, it would violate Rule 4-5.4 of the Missouri Rules of Professional
Conduct and section 484.150, “which both prohibit a licensed attorney or law firm in the State of
Missouri from dividing any fees or compensation received from them from the practice of law or
in doing law business [with non-lawyers].” The court further stated that it could not consider
Plaintiffs’ claim “that it would be unjust for the Defendants not to honor the alleged agreement.”
Plaintiffs filed a motion for reconsideration, and the trial court denied the motion.
Plaintiffs appeal.
Standard of Review
We review a grant of a summary judgment de novo, and view the record in the light most
favorable to the party against whom judgment was entered. ITT Commercial Finance Corp. v.
Mid–America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). We assume as true
every fact set forth by affidavit or otherwise in support of the moving party's summary judgment
motion unless the non-movant has denied it in its response. Id. The non-moving party's
response must demonstrate the existence of some genuine dispute relating to a material fact
necessary to the plaintiff’s right to recover. Id. at 381. This court will uphold summary
judgment only if it finds that there is no genuine dispute of material fact and the movant is
entitled to judgment as a matter of law. Id. at 376; Rule 74.04(c).
5
Discussion
In their first point on appeal, Plaintiffs claim that the trial court erred in granting
summary judgment to Defendants because section 484.150 “prohibits a lawyer only from
dividing fees – not sharing profits – with a nonlawyer.” To support their position, Plaintiffs
contend that: (1) reading section 484.150 to invalidate profit-sharing agreements would
improperly render the later-adopted Rule 4-5.4(a)(4) a nullity; (2) permitting profit-sharing
arrangements does not provide nonlawyers control over the delivery of legal services; (3) reading
section 484.150 to invalidate profit-sharing agreements would create an ambiguity that did not
exist when the statute was enacted; and (4) long-standing authority allows profit sharing by
nonlawyer employees. In response, Defendants assert that section 484.150 applied to the
agreement between Mr. Grillo and Mr. Bennett and rendered that agreement unenforceable under
Missouri law.
Missouri has long held that public policy prohibits agreements between lawyers and
nonlawyers to divide fees or compensation received in the practice of law or doing law business.
See Carey v. Gossom, 204 Mo.App. 695, 917 (Mo.Ct.App. 1920). Section 484.150, which
prohibits fee-splitting between lawyers and nonlawyers, provides in pertinent part that:
[i]t shall be unlawful for any licensed attorney in the state of Missouri to divide
any fees or compensation received by him in the practice of law or in doing law
business with any person not a licensed attorney or any firm not wholly composed
of licensed attorneys, or any association or corporation, and any person, firm,
association or corporation violating this section shall be deemed guilty of a
misdemeanor[.]
Mo. Rev. Stat. § 484.150.1. Additionally, Rule 4-5.4(a) of the Missouri Rules of Professional
Conduct prohibits a lawyer or law firm from sharing legal fees with a nonlawyer except in four
limited circumstances. Of relevance here, subsection (4) provides that “a lawyer or law firm
may include nonlawyer employees in a compensation or retirement plan, even though the plan is
6
based in whole or in part on a profit-sharing arrangement[.]” Rule 4-5.4(a)(4). The rules of
professional conduct have the force and effect of law in Missouri. Law Office of Gary Green,
P.C. v. Morrissey, 210 S.W.3d 421, 425 (Mo.App.S.D. 2006).
Plaintiffs assert that Rule 4-5.4(a)(4) “plainly allows law firm profit-sharing between
lawyers and nonlawyers.” Plaintiffs contend that reading section 484.150(1) to prohibit profit-
sharing agreements would contradict “the clear permission for profit-sharing in Rule 4-
5.4(a)(4).”
Contrary to Plaintiffs’ assertion, there is no inherent conflict between section
484.150(1)’s general prohibition on profit-sharing between lawyers and nonlawyers and Rule 4-
5.4(a)(4)’s limited exception allowing lawyers to include nonlawyers in compensation and
retirement plans. The Missouri Supreme Court qualified the exception to the general rule
prohibiting lawyers from dividing fees or compensation with nonlawyers by stating “even though
the plan is based in whole or in part on a profit-sharing arrangement.” By including this
qualifying language, the Court intended profit-sharing arrangements between lawyers and
nonlawyers to be otherwise prohibited. “When a statute specifically provides for exceptions,
items not excluded are covered by the statute.” Knight v. Johnson, 741 S.W.2d 842, 845-846
(Mo.App.E.D. 1987). Accordingly, prohibiting profit-sharing agreements under the
circumstances here does not render Rule 4-5.4(a)(4) a nullity.2
2
Plaintiffs argue that the purpose of Rule 4-5.4 is to protect a lawyer’s professional
independence of judgment and “profit-sharing plans do not unduly undermine the professional
independence of the lawyer delivering legal services.” To support their contention, Plaintiffs cite
Restatement (Third) of the Law Governing Lawyers § 10 cmt b. Comment b provides that Rule
4-5.4 should not be construed as “making sure that nonlawyers do not profit indirectly from legal
services in circumstances and under arrangements presenting no significant risk of harm to
clients or third persons.” Plaintiffs fail to explain how an agreement to “share profits and losses
equally” presents no risk of harm to clients or third persons or how Patent’s profits are indirectly
7
Additionally, Plaintiffs argue that reading section 484.150 to invalidate profit-sharing
agreements would create an ambiguity that did not exist when the statute was enacted.
Specifically, Plaintiffs contend that when section 484.150 was enacted, “the term ‘compensation’
was used synonymously with ‘fees’ and referred to what a lawyer was paid on a particular case.”
Plaintiffs conclusorily assert that “‘fees or compensation’ refer only [to] fee-division and not
profit sharing.” Plaintiffs cite no authority for this distinction. Nor do they demonstrate that
Patent’s profits differ from the fees and compensation received for its legal services.
Plaintiffs also assert that long-standing authority allows profit sharing by nonlawyer
employees. In support of their position, Plaintiffs cite cases from other jurisdictions that involve
compensation agreements that are factually distinguishable the agreement Plaintiffs allege here.
Moreover, “[o]ut-of-state appellate decisions do not constitute controlling precedent in Missouri
courts.” Craft v. Philip Morris Companies, Inc., 190 S.W.3d 368, 380 (Mo.App.E.D. 2005).
The record reveals that Mr. Grillo was a nonlawyer, Mr. Bennett was a lawyer licensed to
practice in Missouri, and Patent was a law firm. The alleged agreement between Mr. Grillo and
Mr. Bennett provided that Mr. Grillo and Mr. Bennett “share [Patent’s] profits and losses
equally.” Thus, the alleged contract between Mr. Grillo and Mr. Bennett violated section
484.150.
“When the subject or purpose of a contract concerns the doing of an illegal act or is
against the public policy of the state, the contract will not be enforced by the courts.” Interstate
Agri Servs., Inc. v. Bank Midwest, N.A., 982 S.W.2d 796, 800 (Mo.App.W.D. 1998). Because
the alleged profit-sharing agreement violated section 484.150, the trial court properly entered
related to legal services rendered by Patent. Nor do Plaintiffs cite any legal authority holding that
sharing profits does not undermine a lawyer’s professional independence.
8
summary judgment on Plaintiffs’ claim for breach of contract.3 See Am. Civil Liberties
Union/E. Missouri Fund v. Miller, 803 S.W.2d 592 (Mo. banc 1991) (holding a contractual
obligation for lawyer to deliver attorney’s fees to the ACLU was unenforceable because it
violated section 484.150).
Plaintiffs’ claims for breach of the covenant of good faith and fair dealing, breach of
fiduciary duty, and action for an accounting were based on the unenforceable partnership
agreement between Mr. Grillo and Mr. Bennett. Accordingly, the trial court properly granted
Defendants summary judgment on those claims. Point denied.
In their second point on appeal, Plaintiffs assert that the trial court erred in granting
summary judgment to Defendants because Plaintiffs were entitled to equitable relief in that Mr.
Bennett “stands to reap unjust enrichment if he can successfully argue section 484.150 renders
the promised profit sharing unlawful.” Defendants counter that: (1) Plaintiffs failed to preserve
the issue for appeal; and (2) Mr. Grillo was in pari delicto with Mr. Bennett and therefore not
entitled to equitable relief.
3
Additionally, the alleged agreement between Mr. Grillo and Mr. Bennett violated Rule 4-5.4(b)
of the Missouri Rules of Professional Conduct, which prohibits a lawyer from forming a
partnership with a nonlawyer if any of the activities of the partnership consist of the practice of
law. The rules of professional conduct have the force and effect of law in Missouri, and a court
will not enforce an agreement that violates those rules. See, e.g., Law Office of Gary Green,
P.C. v. Morrissey, 210 S.W.3d 421, 425 (Mo.App.S.D. 2006) and Neilson v. McCloskey, 186
S.W.3d 285, 287 (Mo.App.E.D. 2005). In their petition, Plaintiffs alleged that Mr. Grillo and
Mr. Bennett had been partners in a business in Washington, D.C. and dissolved the business
“with the intent of reforming a partnership[,]” namely, Patent. Plaintiffs alleged that Mr. Bennett
and Mr. Grillo “agreed and intended to operate [Patent] in accordance with the previous terms of
their partnership” and intended to “share profits and losses equally.” In their memorandum in
opposition to Defendants’ motion for summary judgment, Plaintiffs asserted that “the financial
relationship between Grillo and [Patent] was consistent with partnership and entirely inconsistent
and beyond the scope of an employee or independent contractor relationship.” Rule 4-5.4(b)
prohibited Mr. Bennett and Mr. Grillo from being partners in a law firm. Thus, the alleged
partnership agreement was also unenforceable as a matter of law because the agreement violated
Rule 4-5.4(b).
9
As an initial matter, we address Defendants’ assertion that Plaintiffs failed to preserve
their claim for equitable relief. “This court's review of the grant of summary judgment is limited
to those issues raised in the trial court, and this court will not review or convict a trial court of
error on an issue that was not put before the trial court to decide.” United Mo. Bank, N.A. v.
City of Grandview, 105 S.W.3d 890, 895 (Mo.App.W.D.2003) (internal quotation omitted).
Further, “[t]he powers of a court of equity to adjudicate are broad but are limited to the claim for
relief and issues made by the pleadings.” City of Greenwood v. Martin Marietta Materials, Inc.,
311 S.W.3d 258, 264 (Mo.App.W.D. 2010).
The record reveals that Plaintiffs did not raise an equitable claim in their petition.
Plaintiffs alleged claims for breach of contract, breach of the covenant of good faith and fair
dealing, breach of fiduciary duty, and action in accounting. After Defendants moved for
summary judgment, Plaintiffs orally moved for leave to file an amended petition adding a count
of quantum meruit, which the trial court denied.
“Mentioning an alternate theory for relief in a later motion does not invest the trial court
with authority to address claims not presented in a pleading.” Swift v. Fed. Home Loan
Mortgage Corp., 417 S.W.3d 342, 348 (Mo.App.S.D. 2013). Because Plaintiffs did not seek
equitable relief in their petition, we will not address Plaintiffs’ claim that the trial court erred in
failing to grant them such relief. See Swift v. Federal Home Loan Mort. Corp., 417 S.W.3d 342,
347 (Mo.App.S.D. 2013). Point denied.
Conclusion
We affirm the judgment of the trial court.
10
Patricia L. Cohen, Presiding Judge
Roy L. Richter, J., and
Robert M. Clayton III, J., concur.
11