Opinion
November 29, 1983
Appeal from the Civil Court of the City of New York, Small Claims Part, New York County, DAVID B. SAXE, J.
Doris L. Sassower, appellant pro se. Gerald Jacobson, respondent pro se.
Judgment entered March 24, 1982 is affirmed, with $25 costs.
The plaintiff, under a retainer agreement dated June 6, 1977, retained the defendant attorney, and her "associates", to represent him in proceedings arising out of his marital difficulties. The June 6, 1977 agreement was in the form of letter from the plaintiff to the defendant and was printed on the letterhead of a law firm with which defendant was then associated. Paragraph 1 of the retainer agreement provided that defendant's fee for representing the plaintiff was to be billed at $100 per hour, with the understanding that the ultimate fee might also reflect the complexity of the case, the result obtained and such other factors as may be relevant. Paragraph 2 of the retainer agreement provides: "I [referring to the plaintiff] hereby agree to a nonrefundable retainer of $2500 (which is not affected by any possible reconciliation between myself and my wife). Said retainer is to be credited against your [referring to the defendant] charges (receipt of $2,500 being hereby acknowledged)." On July 26, 1977 — as a result of both disagreement between the parties over the inability of defendant to personally make a court appearance on plaintiff's behalf and confusion generated by the severance of defendant's relationship with the law firm with which she had been associated — the plaintiff discharged the defendant. Plaintiff thereafter brought this action to recover $1,500, claiming that $1,500 of the $2,500 paid on account under the June 6, 1977 retainer agreement was unearned. The court below, crediting the defendant with a maximum of 10 hours work on plaintiff's case and accepting the $100 hourly rate fixed by the retainer agreement, concluded that $1,000 represented the fair and reasonable value of the legal services rendered to the plaintiff by the defendant. Defendant claimed that she should in any event be entitled to retain the entire $2,500 under the "nonrefundable" fee provision of the June 6, 1977 agreement. The court below rejected that argument holding that such nonrefundable retainer provisions violate public policy and are therefore unenforceable.
While the employment of an attorney by a client is largely governed by the contractual provisions of the retainer, elements of trust and confidence endemic in the attorney/client relationship add a dimension to the retainer beyond the terms of the retainer agreement. Thus it has consistently been held in this jurisdiction that irrespective of the express terms of employment, a client may at any time, for any reason, or without any reason, discharge his attorney ( Gair v Peck, 6 N.Y.2d 97; Martin v Camp, 219 N.Y. 170). A necessary corollary of the rule that a client has an unfettered right to discharge his attorney at any time and for any reason is that the client, upon discharging his attorney, cannot be held liable for damages for breach of contract ( Gair v Peck, supra; Martin v Camp, supra; Crowley v Wolf, 281 N.Y. 59). An attorney employed under a contract providing for a specific fee, who is discharged without cause, is relegated to recovery upon quantum meruit for services rendered prior to discharge ( Matter of Montgomery, 272 N.Y. 323; Pratt v Hurley, 2 A.D.2d 983; Martin v Camp, supra; Myers v Myers, 2 A.D.2d 835). Moreover, an attorney, as an officer of the court, is judged as such, and contractual rights will yield to the court's inherent and statutory power to regulate the practice of law, including the charging of fees for legal services ( Gair v Peck, supra; Matter of First Nat. Bank of East Islip v Brower, 42 N.Y.2d 471; Reisch Klar v Sadofsky, 78 A.D.2d 517).
The arguments made by defendant on appeal are similar to those made in the court below. She claims that the propriety of "nonrefundable" retainer agreements is demonstrated by their widespread use, especially among attorneys practicing matrimonial and criminal law. Defendant contends that since there is some authority for the proposition that legal fees, once paid to an attorney, may not be recovered by a client who has discharged the attorney without cause, at least where that was the implicit intent of the parties (citing Fellner v Zuckerberg, 202 Misc. 611; Riehl v Levy, 43 Misc. 59; Gross v Russo, 47 A.D.2d 655), it necessarily follows that where parties have, as here, expressly "agreed" to a "nonrefundable" retainer, that express agreement should be enforced. Defendant further argues that a "nonrefundable" retainer agreement provides an attorney with a permissible "minimum fee", consideration for which is the attorney's commitment to the client of availability. Indeed defendant suggests that the willingness to pay such a minimum fee makes it possible for a client to retain an attorney of particular renown and reputation.
That so-called "nonrefundable" retainer agreements are widely used by certain segments of the Bar is hardly dispositive of the issue now before this court. Defendant has cited no case in which the enforceability of a "nonrefundable" retainer provision was at issue, and we find none. We do not believe that Gross v Russo ( supra), Fellner v Zuckerberg ( supra) and Riehl v Levy ( supra) are dispositive of the issue of whether a "nonrefundable" retainer provision is enforceable. In Gross v Russo ( supra), the Appellate Division, Second Department, noted that the conscionability of a fee paid to an attorney for services rendered prior to discharge depends on: "a full exploration of all the facts and circumstances, including the intent of the parties and whether the fee demanded is out of proportion to the value of the attorney's services". Fellner v Zuckerberg ( supra) expresses very much the same thought in a very short opinion. Riehl v Levy ( supra) is a tenuous precedent since it predated the landmark case of Martin v Camp ( 219 N.Y. 170, supra), which first firmly established in this jurisdiction that a client's "right" to discharge his attorney at any time without cause is an inherent element in an attorney's contract of employment, implied from the attorney/client relationship, and that consequently a discharged attorney can recover only on a quantum meruit basis (see, also, Demov, Morris, Levin Shein v Glantz, 53 N.Y.2d 553; Jackson v Baltimore, 202 Misc. 209).
We view unenforceable any contractual provision which constrains a client from exercising his right to freely discharge his attorney. A retainer provision which requires a client to pay for legal services in advance, and which permits the attorney to retain the advance payment irrespective of whether the services contemplated are rendered, necessarily has a chilling effect upon a client's right to freely discharge his attorney. Indeed the larger the amount of the so-called "nonrefundable" retainer, the more securely is the client held hostage to that payment.
Moreover, a "nonrefundable" retainer may be viewed as a mechanism for liquidating damages for discharging an attorney at the amount by which the payment made on account exceeds the actual value of legal services rendered. Since, as noted above, a client will not be cast in damages for discharging his attorney, imposition of damages in the form of a forfeited payment on account is unacceptable.
The court below in concluding that the reasonable value of the legal services rendered by the defendant was only $1,000, necessarily determined that the balance of the plaintiff's $2,500 payment to the defendant, i.e., $1,500, was unearned by the defendant. DR 2-110 (B) of the American Bar Association Model Code of Professional Responsibility, which has been adopted by the New York State Bar Association, provides that a lawyer "shall withdraw from employment * * * if * * * (4) * * * [he] is discharged by his client." DR 2-110 (A) provides that "(3) A lawyer who withdraws from employment shall refund promptly any part of a fee paid in advance that has not been earned." Since the defendant only "earned" $1,000 of the $2,500 fee prepaid by the plaintiff, the plaintiff is entitled to return of $1,500.
Accordingly, the judgment appealed from should be affirmed.
I do not agree that, absent patent unconscionability, a nonrefundable retainer agreement freely arrived at between an attorney and client is violative of public policy or the Code of Professional Responsibility.
The few cases in this department with any relevancy to this issue hold otherwise ( Fellner v Zuckerberg, 202 Misc. 611; Riehl v Levy, 43 Misc. 59; Gross v Russo, 47 A.D.2d 655).
The other cases cited by the majority are clearly inapplicable as they deal with the accident case contingent fee retainer and not with cases wherein a client has paid a retainer.
Even Martin v Camp ( 219 N.Y. 170, 176), characterized by the majority as "landmark", recognized the distinction between actions by discharged attorneys to recover on contingent fee retainers and actions concerning retaining agreements — particularly where the attorney entering into such a contract has changed his position or incurred expense.
The court in Greenberg v Remick Co. ( 230 N.Y. 70, 72) further qualified its holding in Martin ( supra) stating:
"[i]t was not therein decided that a contract cannot be made between an attorney and client that is enforcible against the client.
"The compensation of an attorney or counselor for his services is governed by agreement express or implied which is not restrained by law. (Judiciary Law [Cons. Laws, ch. 30], § 474.) The rules of the old common law and of the civil law relating to the employment of an attorney at law and as to his compensation were never adopted in this state. ( Adams v. Stevens Cagger, 26 Wend. 451.)"
The court further held ( 230 N.Y., at p 75) that a contract's enforceability will depend on whether the particular contract permits discharge without liability.
The facts herein concern a signed retainer agreement which expressly stated, and which the client admittedly read and was aware at the time, that the $2,500 retainer paid was nonrefundable and, as set forth therein, clearly constituted the minimum fee required to be paid in order to obtain defendant as his lawyer. Such retaining fee contracts are not novel but have been and are recognized as legal and enforceable. (7A CJS, Attorney Client, § 282, p 522.) In sum, the plaintiff was free to accept or decline this proposed fee arrangement. He chose to accept it.
It is not the function of the court to oversee every fee agreement freely arrived at between the parties before the lawyer-client relationship is established. "Unless unreasonable upon its face, the contract, however, like any other contract is presumed to be fair until the contrary appears" ( Rodkinson v Haecker, 248 N.Y. 480, 489). Thus, the court's only concern where fees have been agreed to is whether there was overreaching or the agreement was unconscionable. ( Gross v Russo, 47 A.D.2d 655, supra.) The minimum retaining fee herein of $2,500 to retain a qualified specialist attorney does not in these inflationary times appear excessive or unconscionable as to warrant judicial intervention.
A better perspective on this entire issue is presented in Jacobs v Holston ( 70 Ohio App.2d 55), a decision of the Ohio Court of Appeals, which specifically concerned a nonrefundable retainer.
In considering the validity of such agreements, that court stated ( supra, p 58): "We consider first the retaining fee for $2,500. The word 'retainer' may contain different connotations depending on the agreement, see 1 Speiser, Attorney's Fees, 7, Section 1:4; American Jurisprudence 2d 168, Attorneys at Law, Section 208; 7A Corpus Juris Secundum, 521, Attorney and Client, Section 282. A retainer may be given to bind the attorney from representing another, to prevent him from taking a fee from the adverse party or for accepting the case".
In the case before us, the retainer fee was paid for accepting the case. On this aspect, the Ohio court further observed ( 70 Ohio App. 2d, at p 59):
"Although doubtful or ambiguous agreements providing for a retainer are construed in favor of the client, see 1 Speiser, supra, at page 16, Section 1:11, we find that the retainer in this case was a nonrefundable retaining fee for accepting the case.
"The next issue is the fairness of the contract. While cases directly on point do not abound, it is the general rule, referred to in many text authorities, that, prior to employment and the formation of the fiduciary relationship, compensation for services may be fixed by contract; and, in the absence of fraud or overreaching, the contract will be enforced without the attorney showing it is fair and reasonable. See 1 Speiser, supra, at page 26, Section 1:22; 7 American Jurisprudence 2d 169, Attorneys at Law, Section 210; 6 Ohio Jurisprudence 3d 694, Attorneys at Law, Section 156."
The court also considered the impact thereon of the Code of Professional Responsibility. Significantly, it did not conclude such agreements to be per se void. Rather, it permitted court intervention only if the client could prove the unreasonableness or unfairness of a particular agreement specifically stating ( supra, p 60): "We hold that a contract made before employment places the burden on the client to establish the defense of the unreasonableness or unfairness. See Speiser, supra, at page 474, Section 18:12; 7A Corpus Juris Secundum 681, Attorney and Client, Section 346. This defense, while available to the defendants, also places upon them the burden of assertion and persuasion concerning the alleged 'unreasonableness' of the retaining fee."
The plaintiff in the instant case upon the record presented has failed to sustain such burden as to the agreement he executed. While the court below touched on other issues in the case, its determination was primarily grounded upon the holding, as does also the majority opinion, that nonrefundable agreements are per se violative of public policy. For the reasons stated, I find such conclusion unwarranted under existing law, and I would reverse.
DUDLEY, P.J., and HUGHES, J., concur; PARNESS, J., dissents in a separate memorandum.