Court Opinion

ID: 9707637
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:17:04.570804+00
Date Added: 2024-06-11T15:41:51.987057
License: Public Domain

STEIN, J.,
concurring in part and dissenting in part.
Reversing the Appellate Division, the Court remands this matter to permit the Law Division to award plaintiff one month’s legal fees because of the termination of his contract without adequate notice, although the Court acknowledges that the notice provision in the contract is invalid as contrary to public policy. I disagree. I would hold, as did the Appellate Division, that plaintiff is entitled to no damages because the unreasonableness of the notice provi*166sion renders the contract unenforceable as a matter of law. In that circumstance, allowing the plaintiff to recover compensation for his premature termination is an inappropriate reward to a lawyer who drafted a contract notice provision that unreasonably served to advance his own interests by imposing an unjustifiable restriction on his client’s right to terminate his services.
Of course, there may be exceptional circumstances in which an attorney’s retention is so valuable to the client and imposes such significant collateral burdens on the attorney that the parties reasonably could agree that the attorney would receive some compensation without providing services if the client terminated the relationship prematurely. This agreement, however, cannot be so characterized, and the trial court’s conclusion that the agreement was fair and reasonable is error as a matter of law.
I
The underlying facts simply are insufficient to justify the extraordinary notice of termination provision in the contract.
Cohen, whose New York law firm had represented the Radio-Electronics Officers Union (ROU) (Cohen being the lead partner on the account), decided in 1987 to relocate to Arizona. Cohen and the ROU president discussed the prospect of Cohen, rather than his law firm, serving as counsel to ROU after his relocation. Although the facts are contested, the discussions apparently took into account the union’s interest in an hourly rate below the $150 hourly rate paid to Cohen’s law firm and Cohen’s interest in advance notice of termination of his representation to permit Cohen to apply for a full-time position at Arizona Law School. According to Cohen, that Law School made hiring decisions in June of each year.
Cohen prepared the contract retaining him as ROU’s counsel, testifying at trial that he advised Thomas Harper, ROU’s president, to consult with independent counsel. Harper testified that Cohen presented him with the contract and demanded that he sign it, without mentioning the need to consult another lawyer.
*167The agreement provided for annual compensation of $100,000 for 1000 hours service payable in monthly installments of $8333.33, and compensation of $150 hourly for all services performed beyond 1000 hours in any year. The parties apparently understood that Cohen would receive $100,000 even if he provided less than 1000 hours of service. Thus, Cohen was paid $100,000 for 550 hours of services in 1988 (an effective hourly rate of about $200), and $100,000 for 1003 hours in 1989. In addition, ROU agreed to attempt to have Cohen designated as co-counsel for all “ROU related Plans and Trusts.” Cohen apparently was hired by some of the ROU Plans and Trusts, and was paid $107,000 in 1989 for that legal work, at the rate of $225 hourly.
The contract’s renewal clause provided that the contract automatically would renew 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 anniversary date of this agreement which notice shall, unless withdrawn, become effective on the next anniversary date.” Stated simply, ROU could discharge Cohen only by notice in the month of June, to take effect on the ensuing January 1st.
Other relevant provisions required Cohen to be available during ROU’s regular business horn’s for consultation by phone within twenty-four hours of a call from ROU to Cohen, and “emergency” calls required Cohen to be available within three hours. If Cohen were justifiably unavailable at any time, he was obligated to provide appropriate substitute coverage for ROU.
On December 28, 1989, ROU informed Cohen that his position as general counsel would terminate on January 1, 1990. After ROU refused Cohen’s demand for payment of $100,000 representing his anticipated fees for 1990, Cohen instituted this suit.
II
The fundamental principle that dictates the outcome of this appeal is that a client ordinarily possesses the right to discharge an attorney at any time with or without cause. See In re Estate of *168Poli, 134 N.J.Super. 222, 225-27, 338 A.2d 888 (Mercer County Ct.1975); Restatement of the Law Governing Lawyers § 44 cmt. b (Tentative Draft Nos. 5-6 1993); RPC 1.16 official ABA cmt. (“A client has a right to discharge a lawyer at any time, with or without cause----”); cf. RPC 1.16(a)(3) (“[A] lawyer ... shall withdraw from the representation if ... the lawyer is discharged.”). The client’s right to discharge its attorney is a basic tenet of the relationship between attorneys and clients, distinguishing that relationship from ordinary commercial contracts. In In re Estate of Poli, supra, the County Court quoted with approval the Supreme Court of California’s statement of the basic rule:
[A] client should have both the power and the right at any time to discharge his attorney with or without cause. Such a discharge does not constitute a breach of contract for the reason that it is a basic term of the contract, implied by law into it by reason of the special relationship between the contracting parties, that the client may terminate the contract at will. It would be anomalous and unjust to hold the client liable in damages for exercising that basic implied right.
[134 N.J.Super. at 225-26, 338 A.2d 888 (quoting Fracasse v. Brent, 6 Cal.3d 784, 100 Cal.Rptr. 385, 389, 494 P.2d 9, 13 (1972)).]
The basic right of a client to discharge an attorney at any time and without cause has led to the so-called “modern rule” that limits the compensation of an attorney discharged from a contingent-fee contract to the reasonable value of services already performed, without any right to recover additional compensation based on the breach of contract. The New York Court of Appeals explained the rationale for the modern rule in Martin v. Camp, 219 N.Y. 170, 114 N.E. 46 (1916):
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 whibh *169the 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).]
A majority of courts throughout the country follow the modern rule, those courts invariably attributing their unwillingness to allow damages for the attorney’s premature discharge to the fundamental principle that a client ordinarily possesses the unconditional right to discharge an attorney, thereby precluding the discharge from constituting a breach of contract. See, e.g., Gaines, Gaines & Gaines, P.C. v. Hare, Wynn, Newell & Newton, 554 So.2d 445, 447-48 (Ala.Civ.App.1989); Fracasse v. Brent, supra, 100 Cal.Rptr. 385, 494 P.2d at 13; Olsen & Brown v. City of Englewood, 889 P.2d 673, 675-77 (Colo.1995); Cole v. Myers, 128 Conn. 223, 21 A.2d 396, 399-400 (1941); AFLAC, Inc. v. Williams, 264 Ga. 351, 444 S.E.2d 314, 316-17 (1994); Rosenberg v. Levin, 409 So.2d 1016, 1021 (Fla.1982); Anastos v. Chicago Regional Trucking Ass’n, 250 Ill.App.3d 300, 188 Ill.Dec. 479, 481, 618 N.E.2d 1049, 1051 (1993), appeal denied, 154 Ill.2d 557, 197 Ill.Dec. 483, 631 N.E.2d 705 (1994); LaRocco v. Bakwin, 108 Ill.App.3d 723, 64 Ill.Dec. 286, 290, 439 N.E.2d 537, 541 (1982); Simon v. Metoyer, 383 So.2d 1321, 1324 (La.Ct.App.), writ denied, 389 So.2d 1338 (La.1980); Smith v. Binder, 20 Mass.App.Ct. 21, 477 N.E.2d 606, 608 (1985); Martin v. Camp, supra, 114 N.E. at 48; Baker v. Zikas, 176 Neb. 290, 125 N.W.2d 715, 718 (1964); Adkin Plumbing & Heating Supply Co. v. Harwell, 135 N.H. 465, 606 A.2d 802, 804 (1992); Reid, Johnson, Downes, Andrachik & Webster v. Lansberry, 68 Ohio St.3d 570, 629 N.E.2d 431, 435-36 (1994); Heinzman v. Fine, Fine, Legum & Fine, 217 Va. 958, 234 S.E.2d 282, 286 (1977); Barr v. Day, 124 Wash.2d 318, 879 P.2d 912, 917 (1994); Committee On Legal Ethics of the W. Va. State Bar v. Cometti, 189 W.Va. 262, 430 S.E.2d 320 (1993). See Judy B. Sloan, Quantum Meruit: Residual Equity in Law, 42 DePaul L.Rev. 399, 439-46 (1992).
Ill
The Court concedes that the notice-of-termination clause in Cohen’s contract unreasonably limited ROU’s right to discharge *170him. “The provision excessively burdens the ROU’s right to hire and discharge Cohen.” Ante at 160, 679 A.2d at 1197. Nevertheless, the Court infers that the parties intended that Cohen would be paid reasonable compensation if he were prematurely discharged, and remands the matter to the Law Division to award Cohen one month’s compensation as “the cost of reasonable notice of termination of his representation.” Id. at 164-165, 679 A.2d at 1200.
In my view, the Court is too generous in its characterization of the unreasonable aspect of the termination notice, and confers an unwarranted benefit on Cohen by reforming the contract to substitute a reasonable notice provision for one that was extraordinarily unreasonable and unfair.
The contract’s notice provision permitted ROU to terminate Cohen only in the month of June in each year, failing which the contract would automatically renew. Even if ROU had provided Cohen with a termination notice in June of 1989, the earliest effective date of Cohen’s termination would have been January 1, 1990, requiring ROU to pay Cohen $50,000 for no legal services if they intended to replace him immediately. If, however, ROU decided to discharge Cohen at any time after June of 1989, his contract entitled him to be fully compensated until January 1, 1991, potentially entitling Cohen to as much as eighteen-months compensation even though his client wished to discharge him immediately.
On its face, the termination clause is outrageously unfair, all the more so because Cohen prepared it and his client was unrepresented. Cohen argues that it was justifiable because the University of Arizona Law School, where he was interested in teaching as an alternative to representing ROU, made its hiring decisions in June. However, he offered no proof that after termination by ROU he applied for a position to teach at the Law School. Other than foregoing the opportunity to apply to teach at the Law School, Cohen offered no other substantial justification for the extraordinary notiee-of-termination requirement. Cohen notes his obli*171gation to be available to ROU at all times, but offered no proof that that obligation caused him to lose existing clients or prevented him from developing new clients. Cohen also relies on his reduced hourly rate of $100 per hour to justify the termination provision. However, in 1988 Cohen was paid $100,000 for approximately 500 hours of legal services, a rate of about $200 per hour. In addition, in 1989 Cohen was paid $107,000 by the “ROU related Plans and Trusts,” at the rate of $225 per hour. All told, Cohen received over $300,000 from ROU and the Plans and Trusts for services rendered in 1988 and 1989, and presumably rendered services for and received compensation from other clients during that period. In that context, the notice-of-termination clause that Cohen drafted cannot conceivably be regarded as anything other than an attempt by Cohen to favor unduly his own interest at the expense of his client, by unreasonably restricting ROU’s fundamental right to discharge him at any time.
The Court agrees that the notice-of-termination clause is contrary to public policy. Ante at 159, 679 A.2d at 1197. Moreover, the Court agrees with the Appellate Division that Cohen should be permitted to recover in quantum meruit only for the reasonable value of the services he provided. Ante at 164, 679 A.2d at 1200. Inexplicably, the Court then rewrites the contract by defining the reasonable value of Cohen’s services to include the cost of reasonable notice of termination, which the Court arbitrarily establishes to be $8,333.33, constituting one month’s compensation under Cohen’s terminated contract.
In effect, the Court has transformed an utterly unreasonable notice-of-termination clause violative of public policy into a reasonable one-month termination clause, adopting without acknowledgement the technique used for enforcing restrictive covenants in employment contracts only to the extent that they are reasonable under the circumstances. See Karlin v. Weinberg, 77 N.J. 408, 418-20, 390 A.2d 1161 (1978). That analogy, however, is inappropriate as a basis for modifying the terms of a contract for legal services that violates public policy. In Jacob v. Norris, McLaugh*172lin & Marcus, 128 N.J. 10, 607 A.2d 142 (1992), this Court pointedly rejected such an approach. “The more lenient test used to determine the enforceability of a restrictive covenant in a commercial setting, see Solari Indus. v. Malady, 55 N.J. 571, 576, 264 A.2d 53 (1970), is not appropriate in the legal context.” Id. at 27, 607 A.2d 142. Accordingly, we held in Jacob that the provisions of a law firm’s “Service Termination Agreement” that withheld termination compensation only from those firm members who within one year of termination represented clients of the firm or solicited employees of the firm to engage in law practice violated RPC 5.6 and were therefore unenforceable as contrary to public policy. See id. at 22-32, 607 A.2d 142.
The Court should adhere to the wisdom of its approach in Jacob. A lawyer that takes unfair advantage of a client by drafting a retainer agreement with terms so unreasonable as to violate public policy disserves the profession. This Court’s non-delegable responsibility over the practice of law dictates our obligation to deny enforcement of such agreements, signaling our strong disapproval of any attempt by a lawyer to disadvantage a client unfairly. The Court’s unprecedented reformation of this agreement rewards a lawyer who selfishly put his own interest before his obligation to his client.
I imply no disapproval of agreements that reasonably take into account the unfair consequences of a client’s premature discharge of a lawyer. In many circumstances, provision for a non-refundable retainer or for compensation to cover expenses or losses necessarily incurred because of a lawyer-client relationship may be fair and reasonable. I conclude only that the notice of termination provision at issue here cannot be so characterized.
I would affirm the judgment of the Appellate Division.
Justice COLEMAN joins in this opinion.
For modification, affirmance and remandment — Justices HANDLER, POLLOCK, O’HERN and GARIBALDI — 4.
For affirmance — Justices STEIN and COLEMAN — 2.