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March 16, 2001

Cappiello, Hofman & Katz, P.C. v. Boyle (2001) 01 C.D.O.S. 2171

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The First District decided that an unregistered Legal Professional Corporation has no right to recover for either interference with contract or interference with prospective economic advantage when another attorney successfully solicits the firm’s clients.  The failure to register constitutes the practice of law without a license rendering the firm’s attorney-client fee contracts illegal.

After Thomas Boyle solicited twelve clients from Cappiello, Hofmann & Katz, P.C., the firm sued for both interference with contract and interference with prospective economic advantage.  As an unregistered professional corporation, the firm was not entitled to recover for interference with contract since the attorney-client fee contracts were unenforceable.  However, the trial court found that the firm could recover for interference with prospective economic advantage. PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579.

The Court of Appeal agreed that a party may recover for interference with prospective economic advantage even if the underlying contract is unenforceable.  However, the court articulated a caveat to that rule: if the underlying contract is illegal, there can be no recovery under any theory.  Since the firm failed to properly register with the State Bar, it was engaging in the unauthorized practice of law, a misdemeanor.

The court rejected the firm’s arguments that the State Bar licensure of their attorneys rendered the contracts legal.  The clients had contracted with the firm, not the individual attorneys, and the suit was brought in the name of the firm, not the individual attorneys.

Comment: The proper registration of Professional Corporations should not be considered a mere technicality.  Based on the logic of this case, clients may be successful in barring recovery when an unregistered Professional Corporation tries to enforce its fee agreement.

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