Case Name: ERNEST ALLEN COHEN, PLAINTIFF-RESPONDENT/CROSS-APPELLANT, v. RADIO-ELECTRONICS OFFICERS UNION, DISTRICT 3, NMEBA, AFL-CIO, DEFENDANT-APPELLANT/CROSS-RESPONDENT
Court: New Jersey Superior Court, Appellate Division
Jurisdiction: New Jersey
Decision Date: 1994-07-28
Citations: 275 N.J. Super. 241
Docket Number: 
Parties: ERNEST ALLEN COHEN, PLAINTIFF-RESPONDENT/CROSS-APPELLANT, v. RADIO-ELECTRONICS OFFICERS UNION, DISTRICT 3, NMEBA, AFL-CIO, DEFENDANT-APPELLANT/CROSS-RESPONDENT.
Judges: 
Reporter: New Jersey Superior Court Reports
Volume: 275
Pages: 241–280

Head Matter:
645 A.2d 1248
ERNEST ALLEN COHEN, PLAINTIFF-RESPONDENT/CROSS-APPELLANT, v. RADIO-ELECTRONICS OFFICERS UNION, DISTRICT 3, NMEBA, AFL-CIO, DEFENDANT-APPELLANT/CROSS-RESPONDENT.
Superior Court of New Jersey Appellate Division
Argued May 31, 1994 —
Decided July 28, 1994.
Before Judges PETRELLA, BAIME and VILLANUEVA.
Ira R. Mitzner of the Washington, D.C. Bar, admitted pro hac vice, argued the cause for appellant (Zazzali, Zazzali, Fagella & Nowak, attorneys; Mr. Mitzner and Kenneth I. Nowak, on the brief).
Samuel N. Reiken argued the cause for respondent (Lillick & Charles, attorneys; Mr. Reiken and Linda P. Torres, on the brief).

Opinion:
The opinion of the court was delivered by
PETRELLA, P.J.A.D.
The significant issue on this appeal is whether a renewable one-year agreement for legal services between an attorney and his client is governed by general contract principles or those principles as modified by ethical considerations and standards applicable to the practice of law as a profession. The subject agreement between the parties has elements of a non-refundable retainer agreement as it can only be canceled by notice within a restrictive thirty-day period, ie., not less than six nor more than seven months before the start of the next one-year period.
Defendant Radio-Electronics Officers Union, District 3, NME-BA, AFL-CIO (ROU) appeals from a monetary judgment enforcing a notice provision of a one-year renewable contract for legal services in favor of plaintiff Ernest Allen Cohen. Cohen, an attorney admitted to practice law in New York, New Jersey, and Arizona, cross-appeals contending that the judge inappropriately applied the doctrine of mitigation of damages and miscalculated certain set-off amounts.
We conclude that the subject contract for legal services, which only permitted "proper" termination of counsel within a limited one-month period and is essentially an agreement for a nonrefundable retainer fee, violates public policy and our Rules of Professional Conduct (RPC) as it infringed upon the client's inherent right to discharge his attorney at will, foisted an unwanted attorney upon a client who lost faith and confidence in his services, and provided for the payment of a contract fee regardless of whether the attorney actually performed any professional legal services.
I.
ROU, a labor organization, represents radio officers who are responsible for the communications and electronics aboard oceangoing vessels. Together with employer contributions, it funds various affiliated plans and trusts, which are considered separate entities, to provide medical, vacation, and other benefits to its members.
In December 1985, Thomas C. Harper, then secretary-treasurer of ROU, sought legal services from Cohen, who at that time was a partner in the New York firm of Marchi, Jaffe, Cohen, Crystal, Rosner & Katz (Marchi firm). On January 4, 1986, the Marchi firm and ROU (then based in Jersey City, New Jersey) entered into a contract wherein the parties agreed upon $150 per hour as the highest hourly rate for legal services. In 1986 and 1987, the Marchi firm provided ROU about 1,300 or 1,400 hours in legal services.
In March 1987, Cohen decided to relocate to Arizona and leave the Marchi firm for personal reasons. Shortly thereafter he told Harper, then president of ROU, of his plans. According to Harper, Cohen stated that he wanted to take a few clients with him, including ROU, and practically begged him to be general counsel instead of the Marchi firm.
Cohen on the other hand stated that he told Harper of an offer that he had to teach as an adjunct associate professor at the University of Arizona School of Law. Although Cohen foresaw the possibility of teaching on a full-time basis in the future, he did not apply for this position in 1988, nor was he certain about his future plans. Cohen, however, apparently told Harper that he would have to notify the law school in June of any year in which he wanted the University to consider him for a full-time position. Cohen further claims that Harper initiated the offer to keep him as general counsel and, although he had reservations, he believed it could work given his intention to retain of-counsel status at the Marchi firm.
Although both sides presented conflicting testimony with regard to the actual drafting and signing of the April 28,1987 agreement, we need not recount those differences. Suffice it to say, ROU and Cohen entered into a one-year agreement, effective January 1, 1988, whereby Cohen would act as general counsel for ROU after he relocated to Arizona. The parties "negotiated and executed [the agreement] in New Jersey with reference to New Jersey law" and, on this appeal, neither party contests the application of New Jersey law.
According to its terms, the agreement automatically renewed itself each year unless either party provided "written notice of termination on a date in any year not less than six (6) months nor more than seven (7) months after the commencement month----" Put simply, the termination notice had to be given during June of the year preceding the termination date.
The parties agreed that the annual compensation shall be $100,000 for 1,000 hours of service. ROU also agreed that it would seek to have Cohen designated co-counsel for all applicable ROU trusts and plans and, further, any compensation received by Cohen from those plans or trusts would entitle ROU to additional hours of service at the rate of one hour per $100 of compensation. The agreement also permitted Cohen to charge $150 per hour for any time in excess of 1,000 hours, excluding the additional time for the plans.
Cohen in addition had to be "available during ROU's regular business hours for consultation by phone within 24 hours of any call from ROU to Cohen." If ROU identified the call as "on an emergency basis," Cohen had to "be available [by phone] during regular business hours within 3 hours." Alternatively, if Cohen was "unavailable due to illness, vacation or other legitimate cause," he had to provide "appropriate substitute coverage for ROU" at his own cost.
In January 1988, Cohen started to submit invoices with regard to his dual representation of the plans and ROU, including "the amount of time [he] spent on matters of interest to the ROU." According to David Tipton, an ROU auditor, Cohen completed 550 hours of service in 1988 and 1,003 hours in 1989 for ROU. Tipton also determined that Cohen should have reimbursed ROU for $8,079 it had already paid the Marehi firm for legal services.
On December 10,1989, Harper advised Cohen that the trustees for the plans had decided to replace him as co-counsel and, on December 28, Harper notified Cohen of his termination, effective January 1, 1990, as general counsel for ROU. At that point, Cohen had been fully paid (except for three hours) for legal services rendered through December 31, 1989, but ROU refused to pay him an additional $100,000 for 1990.
Cohen thereafter filed a complaint seeking damages for termination of the legal services agreement without proper notice. More specifically, he sought $100,000 for 1990 based on the failure to comply with the notice provision contained in the agreement and $75,000 for reasonably anticipated fees from ROU related trusts and plans.
In its answer, ROU contended that the contract was not enforceable because (1) Cohen did not advise Harper and ROU to seek independent counsel prior to signing the agreement; (2) certain provisions of the agreement violated the law and were unreasonably advantageous to Cohen; (3) the Rules of Professional Conduct barred a suit arising out of an attorney discharge; and (4) even if the Rules of Professional Conduct did not apply, ROU terminated their agreement with Cohen for cause. ROU in addition counterclaimed, asserting breach of contract, misrepresentation with regard to billings, and malpractice.
After an eight-day trial, the trial judge rendered his oral decision on May 4, 1993, which he later supplemented with a May 12 letter. In his decision, the judge essentially construed the agreement under general contract principles and concluded that ROU had to provide appropriate advance notice to terminate its agreement with Cohen. The judge did not find the six-month advance notice provision unreasonable or unfair because the University of Arizona made faculty hiring decisions in June each year and ROU had Cohen at its "beck and call" to travel all over the country, sometimes on short notice. Nor did the judge interpret RPC 1.16 (terminating representation) as precluding Cohen from maintaining a breach of contract action and, further, stated that there were "no New Jersey appellate decisions which render all actions by attorneys for wrongful termination unenforceable."
Although the trial judge determined that the parties properly entered into a fair and reasonable agreement, he found illegal the clause providing ROU a one hour credit for each $100 received by Cohen from the trusts or plans. The judge stated that Cohen and Harper both "breached their respective duties as co-counsel and trustee to the plans . in including that provision in their retainer agreement." Notwithstanding the illegality of this provision, the judge determined that the other compensation provisions contained within the agreement were severable and enforceable.
After determining the enforceability of the agreement, the judge rejected ROU's claim that it had discharged Cohen for cause as pretextual and exaggerated. We find no reason to detail the respective claims of either side here or disturb the trial judge's findings regarding them. Although there is a sufficient basis in the record to support his findings, Rova Farms Resort, Inc. v. Investors Ins. Co. of America, 65 N.J. 474, 484, 323 A.2d 495 (1974), they are irrelevant to our decision.
The trial judge then awarded Cohen damages in the amount of $50,000 for the period between January and June 1990 based on his determination that Cohen had a duty to mitigate damages. As Cohen knew of his termination in December 1989, the trial judge reasoned that he had time to secure alternative employment and, indeed, did procure other clients. The judge also denied Cohen damages for monies he could have earned as co-counsel to the trusts and plans because he did not attribute the trustees' termination of Cohen to ROU. And, finally, the judge stated that ROU was entitled to a set-off in every other respect. He initially calculated a set-off of $19,579, yielding an award to Cohen of $30,871, but later issued a supplemental letter opinion on May 12, 1993 (as a result of additional correspondence from the parties) correcting the set-off amount to $45,565. The judge therefore entered a judgment in favor of Cohen and against ROU for $4,885.
On appeal, ROU essentially asserts that (1) the trial judge erred in enforcing the subject agreement because Cohen did not provide any legal services in 1990 nor did he detrimentally rely upon it; (2) the trial judge wrongfully enforced an agreement containing an illegal provision; (3) even assuming ROU could only terminate Cohen for good cause, it properly did so based upon Cohen's improper legal advice and billing practices; and (4) the trial judge should not have relied upon certain evidence in characterizing ROU's arguments for good cause as pretextual. On his cross-appeal, Cohen basically complains that the trial judge improperly imposed the doctrine of mitigation of damages and miscalculated the set-off amounts.
II.
The precise issue for us to decide is whether a one-year legal services agreement, which is automatically renewable each year, absent six months' notice, and contains a fixed yearly sum irre speetive of whether the attorney performs legal services, is controlled by general contract principles or is it a special agreement subject to appropriate ethical and disciplinary rules imposed by our Supreme Court.
We start with the well settled principle that transactions between an attorney and a client are subject to close scrutiny by the court and "the burden of establishing fairness and equity of the transaction rests upon the attorney." Matter of Gallop, 85 N.J. 317, 322, 426 A.2d 509 (1981); Matter of Humen, 123 N.J. 289, 300, 586 A.2d 237 (1991); Matter of Harris, 115 N.J. 181, 187, 557 A.2d 657 (1989); Matter of Nichols, 95 N.J. 126, 131, 469 A.2d 494 (1984). It is also well established that an attorney "is required to maintain the highest professional and ethical standards in his dealings with clients!,]" Humen, supra, 123 N.J. at 299-300, 586 A.2d 237 (citing In re Gavel, 22 N.J. 248, 262, 125 A.2d 696 (1956)), and "should refrain from engaging in a business transaction with a client who has not obtained independent legal advice on the matter." Humen, supra, 123 N.J. at 301, 586 A.2d 237 (citing In re Barrett, 88 N.J. 450, 453, 443 A.2d 678 (1982)). See Matter of Smyzer, 108 N.J. 47, 55, 527 A.2d 857 (1987). Hence, "a passing suggestion that the client consult a second attorney" will not even "discharge the lawyer's duty when he and his client have differing interests." Smyzer, supra, 108 N.J. at 55, 527 A.2d 857.
ROU relies on RPC 1.5(a) for the proposition that a lawyer may only charge reasonable fees. It claims that the judgment in favor of Cohen basically grants him an unreasonable fee because he failed to perform any services whatsoever for 1990. RPC 1.5(a) indeed states that "[a] lawyer's fee shall be reasonable." The factors to consider in determining whether a fee is reasonable include: the time and skill required; the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; the time limitations imposed by the client or circumstances; the nature and length of the professional relationship with the client; and the experience, reputation, and ability of the lawyer or lawyers performing the services. RPC 1.5(a)(1) — (8).
We are also aware of Opinion 644 of the Advisory Committee on Professional Ethics (reported at 126 N.J.L.J. 966, October 11, 1990), which discussed non-refundable retainers and concluded that they are "not unethical per se but are subject always to the overriding precept that any fee arrangement must be reasonable and fair to the client." Although the Advisory Committee did not adopt the Ad Hoc Committee's recommendation to condition the deposit of a non-refundable retainer upon compliance by the attorney with a specific set of requirements, it stated:
[W]e concur fully with the Committee's view that an initially reasonable nonrefundable retainer arrangement may become unreasonable because of subsequent unforeseen circumstances, such as the sudden death of a client resulting in an abatement of the action. Clearly the unused portion of even a nonrefündable retainer should be returned if contravening events should render it unconscionable for the attorney to keep it.
A non-refundable retainer agreement obviously affects the willingness and ability of a client to discharge his attorney at any time. Although there is a dearth of New Jersey case law addressing the enforceability of non-refundable retainer agreements and, for that matter, the precise issue involved here, In re Estate of Poli, 134 N.J.Super. 222, 338 A.2d 888 (Cty.Ct.1975), offers some guidance. There, the court concluded that an attorney, who does not complete his services, does not have a vested right in the contractual relationship with a client arising out of a contingent fee arrangement because the client may discharge him at any time without cause. Id. at 226, 338 A.2d 888. If discharged, the attorney should refund the client any advanced payment of fees that he has yet to earn. Id. at 225-226, 338 A.2d 888. See RPC 1.16(d) (upon termination, an attorney shall take steps to the extent reasonably practicable to refund any advance payment of a Tee that has not been earned). The Poli court, however, also reasoned that a client cannot deprive a lawyer of his right to compensation for services already rendered. Id. at 226-227, 338 A.2d 888 (citations omitted).
We agree with the Poli court that an attorney is not a businessman " 'entitled to charge what the traffic will bear[,]' " but rather is entitled to quantum meruit, ie., " 'as much as he reasonably deserved to have for his labor.'" Poli, supra, 134 N.J.Super. at 225, 338 A.2d 888 (quoting American Trial Lawyers Ass'n v. New Jersey Supreme Court, 126 N.J.Super. 577, 591, 316 A.2d 19 (App.Div.), aff'd, 66 N.J. 258, 330 A.2d 350 (1974), and Black's Law Dictionary (4th ed. 1951)). And, further, "[a]ttorneys must never lose sight of the fact that 'the profession is a branch of the administration of justice and not a mere money-getting trade.' " Kriegsman v. Kriegsman, 150 N.J.Super. 474, 480, 375 A.2d 1253 (App.Div.1977) (quoting Canons of Professional Ethics, No. 12).
Other jurisdictions have applied similar reasoning with regard to non-refundable retainer agreements. Most recently, in In the Matter of Cooperman, 83 N.Y.2d 465, 473-474, 611 N.Y.S.2d 465, 468-469, 633 N.E.2d 1069, 1070 (1994), the New York Court of Appeals stated:
LW]e hold that the use of a special nonrefimdable retainer fee agreement clashes with public policy because it inappropriately compromises the right to sever the fiduciary services relationship with the lawyer. Special nonrefundable retainer fee agreements diminish the core of the fiduciary relationship by substantially altering and economically chilling the client's unbridled prerogative to walk away from the lawyer. To answer that the client can technically still terminate misses the reality of the economic coercion that pervades such matters. If special nonrefundable retainers are allowed to flourish, clients would be relegated to hostage status in an unwanted fiduciary relationship — an utter anomaly. Such circumstance would impose a penalty on a client for daring to invoke a hollow right to discharge.
Without question the relationship between lawyer and client is both extremely delicate and personal. "There are few of the business relations of life involving a higher trust and confidence than that of attorney and client . [and] few more anxiously guarded by the law, or governed by sterner principles of morality and justice____" Matter of Education Law Center, Inc., 86 N.J. 124, 133, 429 A.2d 1051 (1981) (quoting In re Loring, 73 N.J. 282, 290, 374 A.2d 466 (1977)). See Karlin v. Weinberg, 77 N.J. 408, 418-419, 390 A.2d 1161 (1978) (in light of the unique relationship between attorney and client, ordinary commercial standards are inapplicable in determining the enforceability of lawyer restrictive covenants); Dwyer v. Jung, 133 N.J.Super. 343, 347, 336 A.2d 498 (Ch.Div.) (attorney-client relationship is consensual, highly fiduciary on the part of . counsel, and he may not do anything that restricts the right of the client to repose confidence in any counsel of his choice), aff'd o.b., 137 N.J.Super. 135, 348 A.2d 208 (App.Div. 1975).
The Cooperman Court also recognized the special nature of the attorney-client employment situation, when it stated:
This unique fiduciary reliance, stemming from people hiring attorneys to exercise professional judgment on a client's behalf — "giving counsel" — is imbued with ultimate trust and confidence. The attorney's obligations, therefore, transcend those prevailing in the commercial market place. The duty to deal fairly, honestly and with undivided loyalty superimposes onto the attorney-client relationship a set of special and unique duties, including maintaining confidentiality, avoiding conflicts of interest, operating competently, safeguarding client property and honoring the clients' interest over the lawyer's. [Cooperman, supra (83 N.Y.2d at 472, 611 N.Y.S.2d at 467, 633 N.E.2d at 1070) (citations omitted).]
Our current Rules of Professional Conduct, see RPC 1.5 (fees) and RPC 1.16 (terminating representation), are indeed similar to New York's disciplinary rules, which state that an attorney "shall not enter into an agreement for, charge or collect an illegal or excessive fee" (DR 2-106[A]) and, upon withdrawal from employment, "shall refund promptly any part of a fee paid in advance that has not been earned." (DR 2-110[A][3] ).
There can be little doubt that "[o]ur Supreme Court has the exclusive constitutional responsibility as to admission to the bar, the practice of law, the conduct of attorneys and the attorney-client relationship." Taylor v. Hoboken Bd. of Educ., 187 N.J.Super. 546, 553, 455 A.2d 552 (App.Div.) (citing N.J. Const, art. VI, § II, 113 (1947)), certif. denied, 95 N.J. 228, 470 A.2d 441 (1983). This is particularly so with concern to the amount of fees an attorney could charge a client and terms by which a client may engage a lawyer to render professional legal services. Thus, whether or not a client employs a lawyer for a particular period of time, it has long been established that this very same client could terminate the relationship at any time with or without cause. RPC 1.16(a)(3). See DeBolt v. Parker, 234 N.J.Super. 471, 485, 560 A.2d 1323 (Law Div.1988) (RPC 1.16(a) requires lawyer to withdraw when discharged); Buckelew v. Grossbard, 189 N.J.Super. 584, 587, 461 A.2d 590 (Law Div.) (an attorney may be discharged at any time by his client), aff'd o.b., 192 N.J.Super. 188, 469 A.2d 518 (App.Div.1983); Poli, supra, 134 N.J.Super. at 226-227, 338 A.2d 888 (client has absolute right to discharge his attorney and can terminate the relationship with or without cause at any time); 10 Samuel Williston, A Treatise on the Law of Contracts, § 1285A at 919 (3d ed. 1961) (most courts hold that client has absolute right to discharge attorney at any time with or without cause). But compare Pillsbury v. Board of Chosen Freeholders of Monmouth County, 140 N.J.Super. 410, 412-413, 356 A.2d 424 (App.Div.1976) (statutory provision providing term of service prohibits board of chosen freeholders from discharging county counsel without cause) with Taylor, supra, 187 N.J.Super. at 559, 455 A.2d 552 (disciplinary rule to withdraw when discharged took precedent over legislative grant of tenure) and Parker v. M & T Chemicals, Inc., 236 N.J.Super. 451, 460, 566 A.2d 215 (App.Div.1989) (discharged in-house attorney had a cause of action seeking money damages for wrongful discharge under Whistle Blower's Act). See also Battaglia v. Union County Welfare Bd., 88 N.J. 48, 67, 438 A.2d 530 (1981) (party affiliation was an appropriate requirement for the effective performance of legal assistant to county welfare board and, as such, could be considered in non-renewal of employment contract), cert. denied, 456 U.S. 965, 102 S.Ct. 2045, 72 L.Ed.2d 490 (1982). Of course, it need hardly be said that an attorney is entitled to reasonable compensation for the work and effort he expended on the client's behalf up to the point of discharge, particularly where no cause exists for the termination.
III.
In addition to the rationale employed in Cooperman, supra, we view cases from other jurisdictions involving the so-called "modern rule" with regard to contingent employment contracts as supporting the proposition that Cohen is only entitled to recover quantum meruit, i.e., the reasonable value of his services. We base this conclusion upon the distinct and special nature of the attorney-client relationship and overriding need to allow clients the freedom to substitute counsel without fear of economic penalty as a means of achieving the broad objective of fostering public confidence in the legal profession.
The New York Court of Appeals first enunciated the modern rule in Martin v. Camp, 219 N.Y. 170, 114 N.E. 46 (1916), wherein it stated:
That the client may at any time for any reason or without any reason discharge his attorney is a firmly established rule which springs from the personal and confidential nature of the relation which such a contract of employment calls into existence. If the client has the right to terminate the relationship of attorney and client at any time without cause, it follows as a corollary that the client cannot be compelled to pay damages for exercising a right which is an implied condition of the contract. If in such a case the client can be compelled to pay damages to his attorney for the breach of the contract, the contract under which a client employs an attorney would not differ from the ordinary contract of employment. In such a case the attorney may recover the reasonable value of the services which he has rendered, but he cannot recover for damages for the breach of contract. The discharge of the attorney by his client does not constitute a breach of the contract, because it is a term of such contract, implied from the peculiar relationship which the contract calls into existence, that the client may terminate the contract at any time with or without cause. [Id. 114 N.E. at 48 (citation omitted) ]
See also Plaza Shoe Store, Inc. v. Hermel, Inc., 636 S.W.2d 53, 58 (Mo.1982) (modern rule strikes a better balance between the client's power to discharge his attorney without undue restrictions and attorney's right to fair compensation for services rendered); Rosenberg v. Levin, 409 So.2d 1016, 1021 (Fla.1982) (an attorney discharged without cause under either a fixed or contingent fee contract of employment is entitled to the reasonable value of his services on the basis of quantum meruit, but recovery is limited to the maximum fee set in the contract); Covington v. Rhodes, 38 N.C.App. 61, 247 S.E.2d 305, 308 (1978) (modern trend only allows an attorney discharged with or without cause to recover reasonable value of his services as of that date), rev. denied, 296 N.C. 410, 251 S.E.2d 468 (1979); Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 389, 494 P.2d 9, 13 (1972) (right of client to discharge an attorney at any time with or without cause does not constitute a breach of contract because such a right is implied by law into the agreement by reason of the special relationship between the contracting parties); Cole v. Myers, 128 Conn. 223, 21 A.2d 396, 399 (1941) (a lawyer is only entitled to reasonable compensation for the work done up to the point of discharge, even if terminated without just cause, because of the highly confidential relationship between an attorney and a client).
Other jurisdictions follow the traditional view, which permits an attorney discharged without cause to recover damages for breach of contract under traditional contract principles. See, e.g., Tonn v. Reuter, 6 Wis.2d 498, 95 N.W.2d 261, 265 (1959) (proper measure of damages for an attorney discharged without cause is the contingent fee based upon the amount of judgment ultimately realized by the client); Bockman v. Rorex, 212 Ark. 948, 208 S.W.2d 991, 994-995 (1948) (attorney dismissed without cause had right to recover fixed fee). Support for the traditional view is based upon: (1) the full contract price arguably offers the most logical measure of damages as it reflects the value that the contracting parties placed on the services; (2) charging the full fee prohibits a client from profiting from his own breach of contract; and (3) ameliorating the difficult task of valuing a lawyer's partially completed work. Rosenberg, supra, 409 So.2d at 1019-1020.
IV.
Although we recognize that an attorney could maintain a viable suit against an employer concerning damages for wrongful discharge in particular situations, see, e.g., Parker, supra, 236 N.J.Super. 451, 566 A.2d 215 (involving in-house attorney and employer-employee relationship), we are convinced that the agreement entered into here prohibiting termination absent notice within a restrictive thirty-day period is most analogous to a nonrefundable retainer agreement and infringes upon a client's well established right to discharge his attorney at any time with or without cause; thus, it is unreasonable and unenforceable as against public policy.
In fact, we consider the contract in dispute quite similar to the non-refundable retainer agreement rejected by the New York Court of Appeals in Cooperman. Notwithstanding that Cooper-man arose in the context of disciplinary proceedings instituted against an attorney by former clients, we find the reasoning employed there persuasive and in accord with what we perceive to be the spirit and intent of the Rules of Professional Conduct as adopted by our Supreme Court.
We do not distinguish Cooperman because it was decided under that state's disciplinary rules, nor do we discuss whether the action of Cohen in this case violates our Rules of Professional Conduct. We have been told that disciplinary proceedings have been instituted with regard to some aspects of this matter, partic ularly concerning whether Cohen should have escrowed ROU funds rather than commingling them in his account, but have been held in abeyance pending the conclusion of this appeal. Hence, further pronouncements in this area may be anticipated.
Nor do we discern any sound basis to distinguish the public policy factors and ethical underpinnings that support the modern view regarding contingent employment contracts, but rather we find them equally persuasive when applied to the subject agreement. To put the point somewhat differently, we see no reason why these same policy factors and ethical considerations should not apply here to invalidate the one-year renewable agreement between ROU and Cohen for 1990, especially where he received notice of termination prior to the start of 1990.
In light of the unique and special relationship between an attorney and a client, ordinary contract principles governing agreements between parties must give way to the higher ethical and professional standards enunciated by our Supreme Court. A contract for legal services is not like other contracts. To allow Cohen entitlement to $100,000 for 1990 (the amount sought without regard to set-offs, mitigation, or the plans) after ROU terminated him prior to his rendering of any legal services whatsoever, and knowing he would not be called on by ROU for any such services, is unconscionable and contravenes the essence of our Rules of Professional Conduct. It indeed cannot fairly be said that this amount is reasonable, whether or not he assertedly was to make himself available, see RPC 1.5(a), particularly when viewed in the context that the legal profession is not a mere money-getting trade, but a learned profession engaged in the administration of justice. So too, payment to Cohen would run afoul of his obligation to refund promptly any part of a fee paid in advance that he had not earned. RPC 1.16(d).
More importantly, the restrictive termination clause here would have in effect caused ROU to continue to retain an attorney it no longer wanted and created an impermissible chilling effect upon its inherent right to discharge Cohen at will. Some might argue that although a client has an absolute right to discharge an attorney without cause at any time, the client should still pay the contract price. We reject this notion.
In a variety of contexts, New Jersey has very carefully preserved the right of a client to discharge an unwanted attorney with or without cause. The client's right to terminate at will is not a breach of contract but a contract term implied by law based upon the special relationship of trust and confidence between attorney and client. The right to discharge without cause is of little value if the client must pay the entire contract price for services not rendered. The client in fact might have to continue "employment" of an attorney in whom he has lost faith and, in addition, pay for the services of yet another attorney. Thus, for instance, if ROU provided notice in July 1989 to terminate its agreement as of January 1, 1990, Cohen could conceivably claim fees for an additional six months in 1989 and twelve months in 1990, regardless of whether he performed any legal services and despite ROU's right to terminate him at any time with or without cause.
In sum, an attorney, who in essence entered into a nonrefundable retainer agreement, may recover only the reasonable value of his services for the period in dispute as of the date of discharge. Our Rules of Professional Conduct and public policy disfavor allowing Cohen to recover the full fee for 1990 without providing any legal services as this would render ROU's inherent right to discharge him at will meaningless and foist an unwanted attorney upon ROU. In so holding, we balance the right of the attorney to recover for services he provided with the policy of instilling public confidence in the members of an honorable profession whose relationship to clients is personal and confidential.
V.
In view of our determination that the subject agreement is unenforceable, we need not consider further the arguments raised concerning the trial judge's application of mitigation principles or whether the record supports his findings. Suffice it to say that mitigation is always an element in a contract suit for damages, see Sandler v. Lawn-A-Mat Chemical & Equipment Corp., 141 N.J.Super. 437, 455, 358 A.2d 805 (App.Div.), certif. denied, 71 N.J. 503, 366 A.2d 658 (1976), with the burden of proving facts in mitigation of damages resting upon the party breaching the contract. Roselle v. La Fera Contracting Co., 18 N.J.Super. 19, 28, 86 A.2d 449 (Ch.Div.1952).
Finally, we disagree with the total set-off amount calculated by the trial judge. Although ROU never paid Cohen anything above the basic $100,000 retainer fee for 1988 and 1989, the trial judge allowed ROU a set-off of monies paid to Cohen for services rendered to its affiliated trusts and plans. ROU had agreed to pay Cohen $100,000 regardless of the hours actually worked, unless they exceeded 1,000 hours. Hence, any fees paid by the plans, which are separate and distinct entities, are irrelevant with regard to the amount ROU had to remunerate Cohen for 1988 and 1989. In essence, the trial judge endeavored to allow ROU to recover $100 for every hour billed by Cohen to the plans, even though the plans are separate entities and Cohen distinctly differentiated between his time spent on the plans as opposed to time for ROU.
Cohen, however, did concede at trial and before us that he owed ROU a $8,079 set-off amount for funds it had previously paid to the Marchi firm. In addition, it is undisputed that Cohen was unpaid for three hours of legal service in 1989. Accordingly, we set aside the judgment in his favor and remand with direction to enter a judgment in favor of ROU against Cohen for $8,079, less compensation for the three hours.
We reverse and remand to the Law Division for entry of a judgment in accordance with this opinion.
Although the agreement ostensibly permits a claim for fees absent proper notice of cancellation and irrespective of whether the attorney provided services, we need not address the conscionability or lack thereof of this rather restrictive cancellation provision under general contract principles for reasons we will discuss hereinafter.
In 1987 ROU moved its offices to Panama City Beach, Florida.
ROU and employers of ROU members contributed monies to four ERISA plans and one non-ERISA plan. Each plan had two attorneys, one designated by ROU and the other selected by the employers of ROU members.
The agreement does not contain a provision regarding termination for cause. Both parties, however, seem to concede that this is a basis for termination.
The judge also concluded that had the New Jersey Court Rules applied Cohen would have been in violation of those rules because he commingled certain ROU monies received from the plans with his funds. The judge properly stated that Cohen should have held those monies in escrow or returned them to ROU.
The trial judge also included the three additional hours worked by Cohen in 1989 at the rate of $150 per hour.
As far as we can determine, our Supreme Court has never addressed this committee's opinion.
Similar Disciplinary Rules had been in effect in this state until superseded by the Rules of Professional Conduct, effective September 10, 1984.
Contrary to the views expressed by the dissent, we do not hold that all annual retainer agreements are unenforceable per se. See dissent op. at 267, 645 A.2d at 1262. Nor do we conclude that these types of agreements are void ab initio or valid upon execution but unenforceable if a client does not later request services. See dissent op. at 276, 645 A.2d at 1267. Rather, we premise our holding on ethical and professional principles and limit it to invalidating this particular agreement because the six-month notice provision impermissibly infringed upon the client's inherent right to discharge his attorney at will, burdened the client with an unwanted attorney, and provided for the payment of fees even though the attorney failed to render any legal services whatsoever.
As noted by the dissent, see dissent op. at 272-273, 645 A.2d at 1265-1267, Cooperman explicitly reaffirmed the validity of general retainer agreements. In doing so, however, it also excluded those agreements, as involved here, "laden with the nonrefundabiliiy impediment irrespective of any services." Cooperman, supra, 83 N.Y.2d at 476, 611 N.Y.S.2d at 470, 633 N.E.2d at 1074.
Although quoting language by Cohen's hired expert characterizing Cohen as "a highly specialized lawyer with a great deal of experience," see dissent op. at 275, 645 A.2d at 1266, the dissent then suggests that ROU had taken advantage of Cohen during 1988 and 1989 and deprived him of fees concerning those years at a higher hourly rate if the agreement is unenforceable. Neither party, however, disputes the amounts paid or owed in those years nor raised any issues regarding the same on this appeal. Hence, we consider them waived, see Matter of Bloomingdale Convalescent Center, 233 N.J.Super. 46, 48 n. 1, 558 A.2d 19 (App.Div.1989); State v. Reyes, 237 N.J.Super. 250, 263, 567 A.2d 287 (App.Div. 1989); Pressler, Current N.J. Court Rules, comment on R. 2:6-2 (1994), and address the contract only as it applies to 1990. We note, however, that in 1988 Cohen provided only 550 hours of legal services to ROU, but was paid the entire contract amount.
Despite stating that this agreement is subject to appropriate ethical and professional standards, see dissent op. at 265, 645 A.2d at 1261, our dissenting colleague then abandons and retreats from this position by placing Cohen on equal footing with ROU and essentially applying general contract principles to enforce the agreement.
Of course, even if we put aside the public policy and ethical considerations involved and decided that ROU had in fact breached its agreement with Cohen in 1990, we would still reduce this $100,000 figure and limit Cohen's recovery as the aim of awarding damages for breach of contract is to put the injured party in as good a position as he would have been in had performance been rendered as promised. Thus, in determining the propriety of damages, the trial court would not have been able to accept blindly the entire contract fee, but would have been obligated to consider the costs associated with Cohen's rendering of legal services to ROU for 1990 and reduce the $100,000 fee accordingly. Failure to do so would have placed Cohen in a far better position than he would have been in had ROU kept its promise and, as Judge Baime states in his concurrence, given him a one year paid vacation.
Notwithstanding the dissent's statement that Cohen had to "remain constantly available whenever and wherever needed in the United States and furnish services on short notice," see dissent op. at 266, 645 A.2d at 1262, we find that the availability requirements imposed upon Cohen were hardly onerous, but basically required him to be available by telephone, as quoted in our factual recitation. Instead, they exemplify the rather typical constraints imposed upon any attorney engaged in the practice of law.
Despite recognizing that an attorney has a duty to withdraw when discharged, see dissent op. at 268, 645 A.2d at 1263, our dissenting colleague ignores and fails to adopt the necessary corollary prohibiting a suit for damages upon the exercise of this implied condition. In so doing, the dissent diminishes the special attorney-client relationship by "substantially altering" and "economically chilling" the client's unbridled right to discharge his attorney at will, adopts a hollow right to terminate, misses the economic realities pervading the exercise of this right, and ignores the weighty authority in support of this proposition. See Cooperman, supra, 83 N.Y.2d at 473, 611 N.Y.S.2d at 468, 633 N.Y.S.2d at 1070.
Theoretically, under Cohen's argument, ROU never provided appropriate or effective termination for any year under the rather peculiar and unduly restrictive termination clause in the agreement between the parties.