By Ed Wesoloski
The Daily Record Newswire
DETROIT — A contract between a lawsuit consultant and a 1980s rock group that set the consultant’s fee as a percentage of the suit’s proceeds and a share of the band’s future royalties is not against public policy, the Michigan Court of Appeals has decided. The trial court erred by refusing to enforce the agreement after finding it was similar to the situation in which an expert earns a contingency fee for testifying in a medical malpractice case, which is forbidden by statute.
The unpublished case is Bacow a/k/a Martin v. Master Beat, Inc., et al. Court of Appeals Judges Amy Ronayne Krause and Cynthia Diane Stephens were on the panel. Judge Elizabeth L. Gleicher filed a concurring opinion.
A Detroit-based rock band, The Romantics, whose hits include “What I Like About You,” and “Talking in Your Sleep,” formed Master Beat, Inc. to handle their financial affairs. In 1989, the group sued former managers for mishandling the band’s business arrangements.
In 1994, Master Beat and two members of the band, Walter Palamarchuk and Michael Skill, hired Joel Martin, a producer and manager in the music industry, as a consultant to advise them in the “[c]ivil lawsuit against Arnold Tencer, Joel Zuckerman, Peter Shukat, Forever Endeavor Inc., Spider Management Inc., and Spider Records Inc., et al, Oakland County Circuit Court case number 89-865792 CK[.]”
Martin’s duties were to “advise and counsel The Group [The Romantics] and/or Master Beat, Inc. with the selection of attorneys, accountants, experts and other persons with respect to the lawsuit[.]”
His compensation was set at 20 percent of the suit’s gross proceeds and 20 percent of the band’s future publishing and songwriting royalties.
In 2013, Martin sued Master Beat, Palamarchuk and Skill, alleging that he was not receiving the royalties he was due.
Master Beat and the other defendants moved for summary disposition, arguing that the consulting agreement was unenforceable because it violated public policy.
Relying on Dupree v. Malpractice Research, Inc., 179 Mich. App. 254 (1989), Oakland Circuit Judge Michael D. Warren Jr. agreed, granted the motion and dismissed the case.
The Court of Appeals reversed.
“‘[T]he bedrock principle of American contract law [is] that parties are free to contract as they see fit, and the courts are to enforce the agreement as written absent some highly unusual circumstance, such as a contract in violation of law or public policy,’ the Backow panel noted, quoting Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41 (2003).
Public policy is more that “the mere opinions of judges and justices” — it is “objectively ascertainable from the law itself,” such as constitutions, statutes or the common law.
Public policy violations are found only under narrow circumstances, “it is not enough to find that disregarding a contract would serve a social good,” the panel explained.
The Backow panel said the contract in this case was not akin to the issue in Dupree.
“Dupree involved a contingency fee for expert testimony in a medical malpractice and personal injury context,” the panel said, and that case’s outcome was driven by “specific laws against contingency fees for expert witnesses.”
Another factor in Dupree was that tying experts’ compensation to the results produced could encourage them “to take licenses with the truth in their testimonies[.]”
The panel said the defendants provided no legal authority that prevents consultants from receiving a share of “whatever benefit they accrue to their clients.”
“Dupree should be limited to its facts,” the panel concluded.
In her concurring opinion, Gleicher stressed that the case was an action for breach of contract and that none of the contract’s parties were attorneys.
“Outside the realm of personal injury litigation, contracting parties (even attorneys) may elect to structure a contract’s consideration as they see fit.”
Contingency fees are common in the debt collection business “where no regulations cap the allowable percentage fee,” she said.
The consulting contract saved Master Beat, Palamarchuk and Skill from doing the necessary legwork to take legal action and gave Martin an incentive to determine who was “illegally profiting from defendants’ songs and to arrange for their civil prosecution.”
How he was paid for that was the parties’ business, “not that of the courts,” she concluded.
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