## Facts

- Allied Resources, Inc. (Allied) hired Institutional Labor Advisors, LLC (ILA) to assist Allied with acquiring coal reserves and related transaction and compliance matters.
- David S. Smith, a principal of ILA, had previously acted as Allied’s lawyer in matters connected to the business relationship.
- At the outset, Allied and ILA reached an oral understanding that ILA would be paid only if the coal-reserve acquisition closed.
- After Allied successfully acquired the reserves, the parties executed a written Compensation Agreement.
- The Compensation Agreement required Allied to pay ILA cash equal to 5% of the value of defined “Distributions” connected to the coal-reserve transaction, using a contractual calculation method.
- The Compensation Agreement was negotiated for months, and Allied had independent counsel involved during negotiation and drafting.
- ILA later sued Allied for breach of contract, alleging Allied received Distributions covered by the agreement but failed to pay ILA the 5% amount due.
- Allied asserted that the Compensation Agreement was invalid and unenforceable, arguing (among other defenses) that the agreement was tainted by attorney-ethics violations governing lawyer-client business transactions and that ILA’s work amounted to the unauthorized practice of law.
- The parties filed competing motions for summary judgment, along with evidentiary motions directed at proposed testimony on contract meaning and damages.

## Issues

1. Whether the written Compensation Agreement was unenforceable as a matter of law based on alleged violations of Kentucky’s lawyer-ethics rules governing business transactions with a client (including requirements of disclosure, independent-counsel opportunity, written consent, and substantive fairness).
2. Whether the Compensation Agreement was unenforceable because ILA allegedly engaged in the unauthorized practice of law in connection with the coal-reserve transaction.
3. Whether summary judgment was appropriate on the breach claim and defenses, or whether factual disputes—such as the agreement’s fairness and the amount of covered Distributions—required trial.

## Decision

- The court rejected Allied’s position that the Compensation Agreement was automatically void or unenforceable simply because the relationship involved a lawyer and a client and Allied asserted ethics-rule violations.
- On the record presented, the court concluded that the presence of independent counsel and extensive negotiations supported enforcement rather than non-enforcement on a categorical ethics-based theory.
- The court also declined to invalidate the agreement on the ground that ILA’s services constituted the unauthorized practice of law, finding that this theory did not justify treating the contract as void on summary judgment.
- At the same time, the court found that genuine disputes of material fact remained on issues tied to enforcement and liability—particularly whether the transaction was substantively fair and reasonable to Allied and what amounts, if any, were owed under the Distribution-based formula—so the case could not be fully resolved by summary judgment.
- The court therefore granted and denied aspects of the parties’ dispositive requests in part, narrowing issues for trial while leaving key fact questions unresolved.

## Legal Principles

- Under Kentucky Rule of Professional Conduct 1.8(a), when a lawyer enters a business transaction with a client (or acquires a pecuniary interest adverse to a client), the terms must be fair and reasonable, fully disclosed in an understandable manner, the client must be advised in writing about seeking independent legal advice and given a reasonable opportunity to do so, and the client must give informed written consent.
- Alleged noncompliance with attorney ethics rules does not necessarily make a related contract void as a matter of law; the remedy of non-enforcement depends on the circumstances, including disclosures, client consent, and the transaction’s fairness.
- Independent counsel’s involvement and extended arm’s-length negotiations are significant facts when evaluating whether a lawyer-client business arrangement should be enforced.
- A contract is not void for “unauthorized practice” simply because a nonparty disputes the nature of consulting assistance; courts examine the actual services performed and whether they constitute legal representation reserved to licensed attorneys.
- Summary judgment is improper when material facts affecting enforceability, fairness, or damages are disputed; courts may still decide legal defenses that fail as a matter of law on the developed record.

## Conclusion

Institutional Labor Advisors, LLC v. Allied Resources, Inc. concerns a written, post-closing compensation agreement requiring Allied to pay ILA 5% of defined Distributions from a coal-reserve transaction. Allied argued the agreement could not be enforced due to alleged attorney-ethics violations and unauthorized-practice theories, but the court declined to treat the contract as void on those grounds at summary judgment. Because factual disputes remained—especially regarding the agreement’s fairness and the amounts owed under the Distribution formula—the court narrowed issues but left key questions for trial.


Institutional Labor Advisors, LLC v. Allied Resources, Inc., 2014 WL 4211196 (2014)