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Ethics: Paralegal Loses $900,000 Bonus Because of the Statute of Frauds

“The end result may not seem ‘fair’ to Sawyer. The Statute of Frauds, by its own terms, can be considered ‘harsh’ in that it will bar oral agreements between parties under certain conditions. This is simply the nature of the beast.”

—Ishmael, Trial Court Judge

Barbara Lucinda Sawyer worked as a paralegal for Melbourne Mills, Jr. an attorney at a law firm. Sawyer proposed that Mills and the law firm become engaged in class action lawsuits. Mills agreed to pay Sawyer an unspecified bonus when “the ship comes in.” After Sawyer’s assistance and persistence, the law firm became involved in class action litigation—primarily the Fen-Phen pharmaceutical liability class action litigation. After the law firm received millions of dollars in fees from the Fen-Phen class action lawsuits, Sawyer and her husband Steve met with Mills to discuss Sawyers’ bonus. Mills orally agreed to pay Sawyer $1,065,000 as a bonus to be paid in monthly installments over 107 months. Sawyer secretly tape recorded the conversation. Mills later refused to sign a written contract conveying the terms of the oral agreement.

After Mills had paid $165,000, he quit making further payments. Sawyer sued Mills to collect the remaining $900,000. Mills defended, arguing that the oral contract exceeded one year and was therefore unenforceable because it was not in writing, as required by the Statute of Frauds. The jury ruled in favor of Sawyer.

Mills made a motion to the trial court judge to refuse to enforce the oral contract against him. The trial court held that the Statute of Frauds required the bonus agreement between Sawyer and Mills to be in writing to be enforceable. Because the oral agreement exceeded one year, the court held that it did not meet the requirements of the Statute of Frauds and was therefore unenforceable.The trial court judge stated:

The Court is aware of the apparent harshness of this ruling. The trial jury found, and the Court heard Mills state on the tape recording, that he agreed to make monthly payments to Sawyer which would eventually total over One Million Dollars. Honoring that oral agreement would be the “moral” and “right” thing for Mills to do. However, this Court is obligated by Oath of Office and Kentucky law, to consider cases based on the facts presented and the applicable law. The end result may not seem “fair” to Sawyer. The Statute of Frauds, by its own terms, can be considered “harsh” in that it will bar oral agreements between parties under certain conditions. This is simply the nature of the beast.

The court of appeals of Kentucky affirmed the trial court’s decision. Sawyer v. Mills, Web 2007 Ky. App. Lexis 92 (Court of Appeals of Kentucky)

1. Should Mills do the “moral” thing and honor his oral agreement with Sawyer? How often do you think the application of the Statute of Frauds leads to an unfair result?