Attorney-client contracts are unique because there are ethical considerations overlaying the contractual relationship between the parties. Attorneys cannot circumvent their ethical obligations by inserting language to the contrary in a contract with the client. The Texas Supreme Court has explicitly refused to allow attorneys to contract away their ethical obligations. See, Hoover Slovacek L.L.P. v. Walton 206 S.W.3d 557, 560 (Tex. 2006). “When interpreting and enforcing attorney-client fee agreements, it is ‘not enough to simply say that contract is a contract. There are ethical considerations overlaying the contractual relationship.'” Id. at 560.
Three common problem areas that I have observed in attorney-client contracts are: 1) termination provisions, 2) non-refundable retainer provisions, and 3) consent to settle provisions.
A lawyer cannot prevent the client from firing the lawyer, even if the lawyer includes language in the contract which restricts the client’s right to fire the lawyer. The client has the absolute right to discharge a lawyer “for any reason or no reason at all.” Hoover Slovacek L.L.P. v. Walton, 206 S.W.3d at 562. The inclusion of language in a contract which imposes an undue burden on the client’s ability to change counsel violates public policy and is unconscionable as a matter of law. Hoover Slovacek L.L.P. v. Walton, 206 S.W.3d at 563.
However, a lawyer can contractually provide for certain remedies allowed by law in the event the lawyer is discharged by the client. These remedies are clear when the attorney is discharged without good cause by the client. When the client discharges an attorney without cause before work has been completed, the attorney may recover on the contract for the amount of his compensation. Mandell & Wright v. Thomas, 441 S.W.2d 841, 847 (Tex. 1969). In the case of a contingency contract, the attorney is entitled to recover either the amount of his contingent fee or he may recover in quantum meruit. Mandell, 441 S.W.2d at 847; Hoover Slovacek L.L.P. v. Walton, 206 S.W.3d at 56. It is less clear what remedies are available to a lawyer discharged for cause. An attorney discharged for cause might be able to recover in quantum meruit for those services performed prior to the time of discharge. Rocha v. Ahmad, 676 S.W.2d 149, 156 (Tex. App. – San Antonio 1984, writ dism’d). On the other hand, there is authority holding that if an attorney materially breaches the contract of employment, he forfeits all right to compensation. Royden v. Ardoin, 331 S.W.2d 206, 209 (Tex. 1960).
In drafting such termination provisions, lawyers may not contract around those remedies allowed under Texas law. Hoover Slovacek L.L.P. v. Walton, 202 S.W.3d at 562. By way of example, a lawyer may not provide in a contingent fee contract that, in the event the attorney is discharged before the case is concluded, the client must immediately pay a fee equal to the present value of the attorney’s interest in the client’s claim. This is what happened in Hoover Slovacek L.L.P. v. Walton, and the Texas Supreme Court refused to enforce this provision because it violated public policy. The problems with the termination provision were threefold: “First, it made no distinction between discharges occurring with or without cause. Second, it assessed the attorney’s fee as a percentage of the present value of the client’s claim at the time of discharge, discarding the quantum meruit and contingent fee measurements. Finally, it required [the client] to pay [the attorney] the percentage fee immediately at the time of discharge.” Id. at 562. In other words, the provision made the fee payable immediately and without regard to how much the client actually recovered, or when it was recovered.
Lawyers can get themselves into a lot of trouble here, unless they appreciate the difference between a true retainer and a prepayment for services. “[A] true retainer ‘is not a payment for services. It is an advance fee to secure a lawyer’s services, and remunerate him for loss of the opportunity to accept other employment.'” Cluck v. Commission for Lawyer Discipline, 214 S.W.3d 736, 740 (Tex. App. – Austin, 2007, no pet.). A true retainer is earned when it is received, so it may be non-refundable. Id. at 740. On the other hand, a prepayment for services is not earned until the services have been performed and thus, it is refundable. Id. Courts will scrutinize the language of the contract carefully, considering such factors as whether the attorney’s fees will be billed against the advance payment. Id. If the advance payment is found to be a prepayment for services, and not a true retainer, an attorney cannot make the prepayment non-refundable merely by designating in the contract that it is a non-refundable retainer.
Consent to Settle Provisions
I’ve seen numerous contracts which purport to give the attorney authority to settle the case. This language, however, runs afoul of Rule 1.02, and the comments thereto. A provision which authorizes the attorney to settle the client’s case, without any further consultation with the client, violates Rule 1.02 and is unenforceable. Sanes v. Clark 25 S.W. 3d 800, 805 (Tex. App. Waco, 2000, pet. denied).
Clients should know that many lawyers include provisions in their contracts which are not enforceable. Generally speaking, any contractual provision contrary to the lawyer’s ethical duty to the client is unenforceable. If you need assistance in determining whether, a provision in your contract is enforceable, contact Jim Pennington (214) 741-3022.