A Discussion of Kane v. Option Care Enterprises
A “deal is a deal,” right? Well, not always. If you enter into a contract that calls on one or both of the parties to run afoul of the law, a court will not come to your rescue when the other party doesn’t pay.
In this article, we will discuss the recently decided case of Kane v. Option Care Enterprises. The key in the Kane case is that the parties’ contract was a “contingent fee arrangement with a lobbyist” – something that is illegal under Illinois law and almost every other state’s law.
If after reading this article you have questions about what constitutes lobbying and the parameters of the laws surrounding lobbying government officials, then we welcome you to contact us.
Factual Background: A Deal for Government Incentives
In June 2015, Attorney James Kane, doing business as Kane & Co., met with representatives of Option Care Enterprises because Option Care was looking to save money with any available tax credits or other government incentives that might be available to it. Kane, presenting himself as someone who specializes in assisting clients with “securing lucrative government incentives,” eventually entered into a contract with Option Care.
The contract called on Kane to identify possible incentive opportunities, quantify the expected benefits to Option Care, and “negotiate and perfect the state incentives.” Importantly, the contract specifically called for Kane to “negotiate incentive packages with government officials,” and “secure incentive proposals from state officials.”
The parties agreed in the written contract that Option Care would pay Kane a fee of 15 percent of the benefits reasonably anticipated to be achieved at the time of any incentive award.
Kane then worked for the next six months on Option Care’s behalf, meeting with various government officials. Ultimately, Kane secured an “EDGE” tax credit for Option Care, which resulted in the company receiving a $5.1 million incentive award from the State of Illinois. Per the terms of the contract, Kane billed Option Care in the amount of approximately $750,000.
Option Care, however, refused to pay. Kane was forced to sue them in Illinois state court.
Legal Standards: Illegal to Lobby on Contingency
Option Care’s refusal to pay was based on their assessment that its contract with Kane had violated the law and, therefore, Option Care was under no obligation to perform its end of the bargain. Indeed, Illinois has a specific law prohibiting the kind of agreement that Kane made with Option Care – the contingent fee arrangement with lobbyists.
In that regard, the Illinois law states:
§ 8. Contingent fees prohibited.
No person shall retain or employ another to lobby with respect to any legislative, executive, or administrative action for compensation contingent in whole or in part upon the outcome of the action and no person shall accept any such employment or render any such service for compensation contingent upon the outcome of the legislative, executive, or administrative action.” 25 ILCS 170/8
In short, the statute provides that a person cannot “lobby” for a government benefit (i.e., communicate with a government official with the purpose of influencing government action), and then charge a fee for that activity that is contingent on the outcome of the government action.
Option Care argued that its contract with Kane called on Kane to do precisely what the statute above prohibits – that Kane should meet with, or “lobby,” government officials with the goal of influencing their actions, and then charge Option Care a fee contingent on the expected results of the government action. Option Care noted that because the contract called for Kane to do something illegal, the whole contract was illegal and Option Care did not have to hold up its end of the bargain.
Kane, in response, argued that he was not a “lobbyist” for Option Care. Rather, Kane asserted that he was a type of “tax consultant,” whereby he was only acting as an advisor while Option Care sought tax credits from the government. The Illinois courts were not convinced.
The Court’s Decision: A Void Contract Based on Illegality Cannot be Enforced
The trial court and the appeals court that reviewed the decision both agreed that Option Care must win the case. The appeals court found that Kane’s attempt to fashion himself as a “consultant” or “advisor” was a disingenuous way to downplay the type of services he provided. The facts were clear that Kane actually (i) met with government officials on Option Care’s behalf, (ii) negotiated certain incentives, and then (iii) billed Option Care for a percentage of the incentive funds that Option Care was to receive.
Both the trial and appeals courts were unmoved that the parties freely entered into a contract for Kane’s services. The courts agreed that a contract calling on someone to do something illegal – such as have a contingent fee arrangement with a lobbyist – renders the contract null and void, and therefore unenforceable.
The Takeaway from the Kane Case
What is most compelling about the Kane case is the apparent unfairness of the outcome. Kane and Option Care entered into an agreement. Kane performed under the agreement and obtained a $5.1 million payment for Option Care. Yet, the courts allowed Option Care to simply turn around and refuse to pay. Seem unfair, right?
Well, there is more to the case than meets the eye. The real takeaway from this story is that Kane should not have entered into the agreement in the first place. Kane, an attorney, should have been aware of the statute banning contingent fee arrangements with lobbyists. Yet Kane entered into the agreement anyway. Thus, like the notion of “buyer beware,” Kane should have been prepared for the possibility that he would not get the benefit of his bargain because of how strict Illinois law is related to lobbyists and contingency fees.
And sometimes court decisions are meant to send a message to the public. While it may seem unfair that Kane will not receive any payment for his six months of lobbying work on behalf of Option Care, the decision will influence parties like Kane and Option Care in the future. Now that Kane has been decided, any person who wishes to lobby for another individual or company, expecting to receive a fee that is contingent on the outcome, will think twice before entering into such an agreement knowing that the other party may benefit from his or her services and then decline to pay.
Takeaway
The Kane case should serve as notice to anyone – attorney or otherwise – seeking to point clients towards government incentives. If your actions might be construed as “lobbying,” which is a term broadly defined under Illinois law, then you should never accept a fee that is contingent on an outcome. Lobbyists must instead only charge fixed, flat fees.
Similarly, if you are a business looking to take advantage of government incentives tax or otherwise you should not employ someone to lobby under a contingency agreement. Rather, the business should be sure to keep any contingency element out of any such arrangement.
There are additional nuances and parameters within lobbying laws that are important for both lobbyists and businesses to understand. If you are considering a lobbying arrangement, you would be wise to consult an experienced attorney familiar with lobbying requirements in Illinois. We invite you to call 1818 Legal to help you with your efforts. We are experienced attorneys who are ready to help you protect the value of your business. Call us today at (312) 584-5444 or fill out our online contact form. Remember, 1818 knows government.
