Opinion ID: 1936419
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Heading: Recovery of Monies Paid Under Illegal Contract.

Text: In arguing that Mlynarik is not entitled to recover the fees paid to Bergantzel, Bergantzel relies on a long-standing rule against enforcement of an illegal contract. See Rogers v. Webb, 558 N.W.2d 155, 156 (Iowa 1997); Des Moines City Ry. v. Amalgamated Ass'n of Street & Elec. Ry. Employees, 204 Iowa 1195, 1207, 213 N.W. 264, 269 (1927); Allison v. Hess, 28 Iowa 388, 390 (1870). In Allison, this court held that where a contract is illegal,... the law will not afford affirmative relief to either, but will leave the parties as it found them. 28 Iowa at 390. This rule has its basis in the in pari delicto doctrine: [W]here parties to an illegal contract are in pari delicto, a court will ordinarily leave them where it finds them, whether the contract is executory or executed, refusing relief to both. Thus, where money has been paid on an illegal agreement, it is a general rule that if the agreement is executed and the parties are in pari delicto, neither of them can recover from the other the money so paid. 17A Am.Jur.2d Contracts § 322, at 324-25 (1991). We have noted the purpose of this doctrine is to deter future misconduct by denying relief to one whose losses were substantially caused by his own fraud or illegal conduct. Gen. Car & Truck Leasing Sys., Inc. v. Lane & Waterman, 557 N.W.2d 274, 279 (Iowa 1996). The rule against providing judicial relief to parties in pari delicto with respect to an illegal contract is not, however, without exception. See In re Sylvester's Estate, 195 Iowa 1329, 192 N.W. 442 (1923) (recognizing two exceptions to rule). In Sylvester, the decedent had engaged a law firm to assist her in obtaining a divorce. Id. at 1330-31, 192 N.W. at 442. The firm was paid a percentage of the money and property received by the decedent in the divorce settlement, pursuant to the parties' written fee agreement. Id. at 1331-32, 192 N.W. at 442-43. After the client died, her estate sought to recover this fee. Id. at 1332, 192 N.W. at 443. The trial court denied the requested relief. In considering the case on appeal, our court held that the contract, which provided for a contingent fee in a divorce action, was against public policy[,] illegal and void. Id. at 1333, 192 N.W. at 443. In arguing that it should not be required to refund its fee, the law firm relied on the doctrine of in pari delicto. Id. at 1334, 192 N.W. at 444. It claimed that the parties were equally at fault and therefore the court should leave the parties where it found them. Id. We noted there were exceptions to this general rule: Even where the contracting parties are in pari delicto, the courts may interfere from motives of public policy. Whenever public policy is considered as advanced by allowing either party to sue for relief against the transaction, then relief is given to him. In pursuance of this principle, and in compliance with the demands of high public policy, equity may aid a party equally guilty with his opponent not only by canceling and ordering the surrender of an executory agreement, but even by setting aside an executed contract ... and decreeing the recovery back of money paid ... in performance of the agreement. The cases in which this limitation may apply and the affirmative relief may thus be granted include the class of contracts which are intrinsically contrary to public policy,contracts in which the illegality itself consists in their opposition to public policy, and any other species of illegal contracts in which, from their particular circumstances, incidental and collateral motives of public policy require relief. Id. at 1334-35, 192 N.W. at 444 (citation omitted). We held this exception applied to the contingent fee contract at issue in Sylvester. Id. at 1336, 192 N.W. at 445. We noted the contract was illegal because public policy demands that such a contract shall not be made. Id. Because the contract was intrinsically against public policy and [was] illegal for this reason alone, we held the in pari delicto doctrine did not prevent the court from awarding the plaintiff affirmative relief. Id. We think the same reasoning applies here. The contingent fee agreement between Mlynarik and Bergantzel is unenforceable solely because it is against public policy. Bergantzel, 619 N.W.2d at 318. [P]ublic policy demands that such a contract shall not be made. Sylvester, 195 Iowa at 1336, 192 N.W. at 445. Thus, like the agreement at issue in Sylvester, the contract here is intrinsically contrary to public policy. In addition, the public policy against the unauthorized practice of law is advanced by allowing the client to recover fees paid pursuant to the illegal contract. See generally Gen. Car & Truck Leasing Sys., Inc., 557 N.W.2d at 279 n. 2 (noting court need not apply in pari delicto doctrine if the court believes the public interest is best served by awarding relief to the wrongdoer). Therefore, we think this agreement falls within that class of contracts where affirmative relief may be granted in order to advance public policy notwithstanding that the parties are in pari delicto. [1]