Lead Opinion
T1 The United States District Court for the Northern District of Oklahoma certified three questions of Oklahoma law to this
Court under the Revised Uniform Certification of Questions of Law Act, 20 0.$.2001 1601, et seq. As consolidated and reformulated,
"Whether, considering Oklahoma jurisprudence and the Rules of Professional Conduct, 5 0.8. Supp.2008, Ch. 1, App. 8-A, contracts between attorneys and clients containing liquidated damages provisions in fixed-fee, fixed-term agreements are enforceable under Oklahoma law?"
Here, the client is a large corporation sophisticated both in the commercial and the legal environment and was represented by its Vice President of Legal Affairs and General Counsel during contract negotiations. There are no allegations that the terms of the liquidated damages provisions are ambiguous. At a minimum, the firm altered its position to the extent that it equipped an office and provided legal counsel in an out-of-state location. Further, the Hquidated damages provisions
2 The answer to the first question necessitates that we address a second inquiry asking:
"Whether general contractual provisions regarding the viability of liquidated damages provisions are applicable to contracts between attorneys and clients containing such clauses?"
Our answer to the second consolidated and reformulated question is also "yes."
CERTIFIED FACTS
T8 L. Dru MceQueen, Stuart A. Rains, and W. Kyle Tresch (attorneys) were employed as in-house counsel for the defendant, CITGO Petroleum Corporation (CIT-GO/client), in Tulsa, Oklahoma. In April of 2004, CITGO announced it would be moving its headquarters to Houston, Texas. Rather than relocate, the attorneys formed the plaintiff law firm, McQueen, Rains & Tresch, LLP (firm). Following CITGO's move, the client and the firm executed a series of engagement agreements.
1 4 The original engagement agreement is a letter retainer entered on August 2, 2004. Two additional supplemental engagement agreements were entered in December of the same year. The supplemental engagement agreements pertain to environmental representation and litigation management services. On February 2, 2005, the parties amended the retainer agreements. These contracts are referred to as the amended engagement agreement and the amended supplemental engagement agreements. All the agreements were negotiated between the firm and CITGO's Vice-President of Legal Affairs and General Counsel.
15 The amended engagement agreement provides for the handling of certain legal matters on a fixed-fee basis during the four-year term of the engagement running from September 1, 2004 through August 31, 2008. During this period, the firm was to render services including: 1) counseling and contract review for over twenty of CITGO's client groups; 2) administration and payment of outside counsel fees for specified routine litigation; 3) management of employment litigation for Houston, Lemont, and CARCO excluding responsibility for payment of attorney fees for local counsel of such litigation; 4) maintenance of an office in CITGO's Houston headquarters with an attorney available during the work week; and 5) the provision of additional legal services for special projects or assignments outside the scope of the arrangement at agreed rates plus expenses.
I 6 Under the amended engagement agreement, CITGO obligated itself to pay the firm $7.5 million annually in monthly amounts of $625,000.00, to be billed by the firm on or before the first of each month. The parties agreed that the fixed fee was based on an evaluation of anticipated costs of current CITGO litigation expenses and anticipated new litigation arising during the ordinary course of business throughout the contractual period. In part, the determination of fixed fees was calculated taking into consideration representations of third-party law firms that they would assist the firm with the client's matters on a fixed-fee basis. Each quarter, the firm was to provide CITGO with a "raw" time report reflecting hours devoted to each operating group or client. If the actual litigation and related legal services differed sig
{7 The amended supplemental engagement agreements incorporated the terms and conditions of the amended engagement agreement and became effective on January 1, 2005 with expiration dates of December 31, 2008. CITGO agreed to pay annual amounts of $500,000 and $450,000 respectively, under the two supplemental agreements with the firm to bill the client on or before the first of each month for an amount representing 1/12th of the agreed annual total. Under these agreements, the firm was to provide legal counseling, advice and assistance to CITGO's employees, management, and outside counsel relating to routine environmental matters other than litigation and administratively contested proceedings. The firm also contracted to provide direct and indirect administrative and management services, general legal advice, and consultation in connection with all litigation matters in which the client was represented by outside counsel other than the firm.
18 The amended engagement agreement and the amended supplemental engagement agreements form the basis of the firm's federal suit against CITGO, filed on June 1, 2007, alleging that the client breached the three fixed-fee, fixed-term retainer agreements. These agreements contain virtually identical liquidated damages clauses providing:
CITGO acknowledges that in reliance on this [Agreement], the Firm [MRT] has undertaken and continues to undertake costs and expenses to provide optimal legal representation to CITGO and acknowledges that a premature termination of this [Agreement] would result in losses and damages to the firm that may be impossible to quantify. Consequently, in the event CITGO terminates this [Agreement] prior to the end of the initial term, CITGO will pay the Firm, as liquidated damages, the lesser of all monthly installments for the Initial Term remaining under the contract or 12 months of installments, in lieu of other direct, indirect or consequential damages. Such liquidated damages will be due and payable within 80 days after termination of this [Agreement].
1 9 With approximately twenty-one months left in the contractual period or roughly halfway through the term of the contracts, on April 5, 2007, CITGO informed the firm that it was terminating the relationship created by the letter agreements. It is agreed that CITGO prematurely terminated the amended engagement agreement and the supplemental engagement agreements. Nevertheless, the parties dispute whether the termination was excusable. Although CITGO contends that the attorneys were discharged based on their inferior performance, the firm argues that the contracts were breached without cause. In filing the federal lawsuit, the firm did not seek recovery for services performed prior to its discharge. Rather, it claims that CITGO owes it termination payments required by the liquidated damages clauses contained in the various agreements.
« 10 Under the liquidated damages clauses, CITGO's premature termination of its attorney-client relationship with the firm requires it to pay up to twelve monthly installments of each fixed fee in lieu of other direct, indirect, or consequential damages. The liquidated damages sought exceed $4.6 million.
1 11 The parties stipulated that the issues turn on Oklahoma law. In response to various motions from both parties seeking judgment on their behalf, the district court filed an opinion and order on January 22, 2008. The district court concluded that there was no clear answer as to whether liquidated damages clauses similar to those at issue were enforceable under Oklahoma law. It ordered the parties to confer and agree on language to be included in the proposed certified question by January 28, 2008. On February 14, 2008, the federal court certified questions to this Court pursuant to the Revised Uniform Certification of Questions of Law Act, 20 0.98.2001 §§ 1601, et seq. We set a briefing cycle which was concluded with the simultaneous filing of the parties' answer briefs on April 30, 2008.
18 The firm argues that we should refuse to answer the issue of whether the liquidated damages provision is enforceable asserting that the cause is governed by Roxana Petroleum Co. of Oklahoma v. Rice,
should govern the cause presented. CITGO insists that Roxana, which preceded our adoption of the Oklahoma Rules of Professional Conduct,
14 Arguments presented by CITGO and noted by the federal court in its opinion and order
1) Oklahoma's historical perspective on fee contracts between attorneys and clients.
115 In Mellon v. Fulton,
116 Two cases which are particularly informative were decided by this Court in 1924. In White v. American Law Book Co.,
{17 In reaching its conclusion, the White Court disregarded a quantum meru-it
"... Where one employs an attorney and makes an express valid contract for his services, such contract is, generally speaking, conclusive as to the amount of such compensation. If the attorney fully performs his agreement until discharged without cause, the measure of his damages should be the compensation named in the contract. The client, in such case, breaks his contract and at least makes it difficult, and in some cases practically impossible, for an attorney to show the amount of his injury under the rule of quantum meruit If the client prevents the performance which entitled the attorney to specific recompense, it would seem, that such amount and interest from the time it became due may be recovered in an action which sets forth such state of facts. ..." [Emphasis provided.]
18 The second and more instructive case is Roxana Petroleum Co. of Oklahoma v. Rice,
19 Similar to CITGO here, the oil company in Rozana asserted that there could be no recovery for breach of contract based on the premise that a client may discharge an attorney at any time, with or without cause, incurring liability only for services up to the date of discharge. The Roxana Court found the argument unpersuasive. It determined that the premise would not apply to a case where an attorney, in entering into the contract, changed positions or incurred expenses or in a situation where an attorney was employed under a general retainer for a fixed period to perform legal services arising during the time frame.
120 Although not necessarily denominated as "liquidated damages provisions," contractual provisions between parties containing provisions for pre-set attorney fees have traditionally been upheld in Oklahoma.
1121 Rule 1.16(2)(8), 5 0.8. Supp.2008, Ch. 1, App. 3-A
22 In Wheeler v. Scott,
123 Two other comments made on attorney fees contracts should also be considered, one persuasive in nature "
124 An advisory opinion issued by the Oklahoma Bar Association Legal Ethics Committee (Ethics Committee) addresses the issue of whether a non-refundable fee agreement is per se a violation of the Oklahoma Rules of Professional Conduct. In ethics opinion No. 317, the Ethics Committee determined that in light of Wright, it was of the opinion that non-refundable retainer provisions in an hourly-fee agreement for services performed in the future "might" be unen-foreeable and "might" contravene Rule 1.16(d), Rules of Professional Conduct, 5 0.8. Supp.2008, Ch. 1, App. 3-A.
125 It is worthy to note that neither Wright nor the Ethics Committee advisory opinion addresses directly the situation presented here. Both Wright and the ethics opinion involve non-refundable retainers associated with hourly-rate contracts. In contrast, the contract here is a fixed-fee, fixed-term contract.
126 Undoubtedly, if we were to consider the holdings of Melion, White, and Roxana in a vacuum, the result would be a determination in favor of the firm. However, promulgation of the Rules of Professional Conduct along with the comments thereto and the noted persuasive and advisory authority and jurisprudence from the majority of extant jurisdictions make it clear that, in most cases, the right of a client to discharge an attorney should take precedence over the attorney's ability to collect a contractually
2) The unique facts presented warrant enforcement of the contact between the firm and CITGO.
127 Courts considering contractual relationships between attorneys and clients similar to the one presented here disagree as to whether the contracts should be enforced. In a majority of jurisdictions, the contracts have been determined to be unenforceable,
1[ 28 A significant number of courts uphold contracts containing either non-refundable fee or liquidated damages provisions executed between clients and their attorneys.
29 The unique facts presented place the contracts at issue here squarely within the ambit of jurisprudence from other states in which such non-refundable fee agreements have been found enforceable. Here, the client is a large corporation sophisticated both in the commercial and the legal environment and was represented by its Vice President of Legal Affairs and General Counsel in contract negotiations. There are no allegations that the terms of the liquidated damages provisions are ambiguous. At a minimum, the firm altered its position to the extent that it equipped an office and provided legal counsel in an out-of-state location. Further, the liquidated damages provisions contain CIT-GO's express acknowledgment that the firm further changed its position by undertaking costs and expenses to meet the demands of the contractual relationship. Therefore, under the unique facts presented, we determine that the contract at issue is not per se unenforceable under either our jurisprudence or the Rules of Professional Conduct.
181 Our holding that the liquidated damages clauses are not per se unenforceable under the unique facts presented necessitates that we answer a second question: whether the same provisions should be measured by the principles announced in Sun Ridge Investors, Ltd. v. Parker,
1 32 We are not convinced that the opinion released by order of the Court of Civil Appeals in Lasalle Bank Nat'l Ass'n v. Shepherd Mall Partners, LLC.,
188 An attorney, like any other individual, may contract with a client regarding compensation.
T34 Contractual terms imposing a penalty for the nonperformance thereof are void generally.
135 CITGO asserts that Sun Ridge was expanded by the Court of Civil Appeals in Losalle by adding the requirement that the amount denominated as liquidated damages must be related to the damages actually suffered at the time of the breach. The
In reviewing the case at bar, we find that the $5.00 per day "additional rent" sought to be imposed for late-payment or nonpayment of rent is a penalty, in the absence of any evidence to the contrary showing actual costs incurred by the Landlord.
The Court found that the provision in Sun Ridge for "additional rent" of $5.00 per day combined with a $20.00 late fee constituted an unenforceable penalty provision where no evidence existed to rebut the finding by showing the actual costs incurred as a result of the breach. Plainly, the requirement that damages must be reasonable is encompassed within the requirement enumerated in Swn Ridge that the pre-breach estimate bear some relationship to the estimate of probable loss.
{36 We are not asked to determine whether the liquidated damages clauses should be denominated as penalty provisions under the criteria announced in Sun Ridge.
CONCLUSION
137 Courts should be reluctant to disturb fee arrangements freely entered into by knowledgeable and competent parties.
138 Here, there is no question that CIT-GO has an understanding of the commercial business world and is a highly sophisticated consumer of legal services. It is admitted that the client's Vice President of Legal Services and General Counsel negotiated the letter agreements. There are no allegations that the terms of the liquidated damages provisions
139 We resolve this cause by applying established contract principals, while at the same time showing appropriate deference to the fiduciary nature of the attorney-client relationship and the supervisory role of the courts over members of the bar. Within this legal framework, the unique facts of this case compel the conclusion that the liquidated damages clauses are not prohibited by our
CERTIFIED QUESTIONS ANSWERED.
WINCHESTER, C.J., EDMONDSON, V.C.J., HARGRAVE, WATT, TAYLOR, COLBERT, JJ., concur in the answer to the second question.
OPALA, KAUGER, JJ., concur in result in the answer to the second question.
Notes
. Questions of law may be reformulated pursuant to 20 0.$.2001 § 1602.1. Tyler v. Shelter Mutual Ins. Co.,
"A. In light of the apparent unceriainty cast upon earlier Oklahoma Supreme Court precedent (White v. American Law Book Co., 106 Okla.166, 233 P.426 (Okla.1924), Roxana Petroleum Co. of Oklahoma v. Rice,109 Okla. 161 ,235 P. 502 (Okla.1924), and Okmulgee Building & Loan Ass'n v. Cutler,174 Okla. 614 ,51 P.2d 709 (Okla.1935))[sic]l by the more recent policy found in the Oklahoma Rules of Professional Conduct (in particular Rule 1.16(d) and comment), an Oklahoma Bar Association opinion (Topic: Non-refundable Retainer Agreements, OK Adv. Op. 317 (Dec. 13, 2002), available at2002 WL 31990267 ), and Wright v. Arnold, 877 Pl.2d]P.2d] 616 (Okla.Civ.App.1994)),. [sic] are liquidated damages provisions in fixed fee, fixed term agreements between attorney and client enforceable under Oklahoma law?
B. If the answer to Question A is yes, does the enforceability of such provisions depend on the sophistication of the client and attorney reliance?
C. If the answer to Question A is yes, do the factors enunciated by the Oklahoma Supreme Court in Sun Ridge Investors, LTD[Ltd.] v. Parker,956 P.2d 876 (Okla. 1998), relating to contracts in general, guide a reviewing court's assessment of whether the amount stipulated in a retainer agreement between an attorney and client is valid or void as a penalty?"
. The certified questions ask that we determine, as a matter of law, whether a liquidated damages clause in a contract between an attorney and a client is enforceable under the facts presented; and, if so, whether general principles regarding the enforcement of such clauses apply in the context of the attorney client relationship. At the outset, it is important to acknowledge what we are not asked to determine in resolving answers to the questions presented. We need not resolve the issue of whether other factors relating to the contract might make it unenforceable, fe. whether the firm's dismissal was excusable; whether the compensation provided is so excessive as to evidence a purpose on the part of the attorney to obtain an improper or undue advantage over the client; whether the parties negotiating the contract had authority to do so; whether the liquidated damages provisions serve as a penalty, etc.
. The three agreements at issue contain virtually identical liquidated damages clauses providing:
CITGO acknowledges that in reliance on this [Agreement], the Firm [MRT] has undertaken and continues to undertake costs and expenses to provide optimal legal representation to CITGO and acknowledges that a prematuretermination of this [Agreement] would result in losses and damages to the firm that may be impossible to quantify. Consequently, in the event CITGO terminates this [Agreement] prior to the end of the initial term, CITGO will pay the Firm, as liquidated damages, the lesser of all monthly installments for the Initial Term remaining under the contract or 12 months of installments, in lieu of other direct, indirect or consequential damages. Such liquidated damages will be due and payable within 30 days after termination of this [Agreement]. [Emphasis provided.]
. In answering a certified question, the Court does not presume facts outside those offered by the certification order. In re Harris,
. See, ¶ 20 and accompanying footnotes, infra.
. McQueen, Rains & Tresch, LLP v. CITGO Petroleum Corp.,
. Title 20 0.$.2001 § 1602 providing in pertinent part:
"Power to Answer: The Supreme Court ... may answer a question of law certified to it ... if the answer may be determinative of an issue in pending litigation ..."
Ball v. Wilshire Ins. Co.,
. A general retainer agreement is a contract pursuant to which the client agrees to pay the attorney a fixed sum in exchange for an agreed price to cover all legal services arising during a specified period. Gala Enterprises, Inc. v. Hewlett Packard Co.,
. See also, State ex rel. Howard v. Oklahoma Corp. Comm'n,
. In 1935, in the case of Okmulgee Bldg. & Loan Ass'n v. Cutler,
. In the realm of attorney fee contracts, the term quantum meruit refers to awarding an attorney the value of services performed. Musser v. Musser,
. See, Tipton v. Standard Installment Finance Co.,
. Oklahoma's Code of Professional Responsibility was superceded in 1988, when the Oklahoma Rules of Professional Conduct were first adopted. Arkansas Valley State Bank v. Phillips,
. Rule 1.16, Rules of Professional Conduct, 5 O.S. Supp.2008, Ch. 1, App 3-A providing in pertinent part:
"(a) Except as stated in paragraph (c), a lawyer shall not represent a client or, where representation has commenced, shall withdraw from the representation of a client if:
(3) the lawyer is discharged....
(d) Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect a client's interests, such as ... refunding any advance payment of fee or expenses that has not been earned or incurred. ..."
Comment [4] to Rule 1.16 providing in pertinent part:
"A client has a right to discharge a lawyer at any time, with or without cause, subject to liability for payment for the lawyer's services...."
The version of the rules quotes was adopted by the Court on April 17, 2007, In re Application of Oklahoma Bar Ass'n to Amend Oklahoma Rules of Professional Conduct,
. Comments to the rules do not add obligations to the Professional Responsibility Rules but merely provide the lawyer with guidance, explaining and illustrating the meaning of a particular rule. Violation of a rule does not give rise to a cause of action nor create the presumption of a legal duty nor should such violation serve as the basis for civil liability. Preamble: A Lawyer's Responsibilities, Scope, 5 O.S. Supp.2008, Ch. 1, App. 3-A
. Rule 1.5(a), Rules of Professional Conduct, 5 O.S. Supp.2008, Ch. 1, App 3-A providing:
"A lawyer shall not make an agreement for, charge or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and theskill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and whether the fee is fixed or contingent."
. Comment [4] to Rule 1.5, Rules of Professional Conduct, 5 0.8. Supp.2008, Ch. 1, App. 3-A, id., providing in pertinent part:
"A lawyer may require advance payment of a fee, but is obliged to return any unearned portion...."
. Opinions released for publication by order of the Court of Civil Appeals are persuasive only and lack precedential effect. Rule 1.200, Supreme Court Rules, 12 0.$.2001, Ch. 15, App. 1; 20 0.$.2001 §§ 30.5 and 30.14.
. Wright v. Arnold,
"We do not address the issue of the enforceability of a non-refundable retainer fee in a contingency-fee contract or in a fixed-rate contract...."
. Rule 1.16(d), Rules of Professional Conduct, 5 O.S. Supp.2008, Ch. 1, App. 3-A, see note 14, supra
. Levison, Lerner, Berger & Langsam v. Medical Taping Systems, Inc., see note 23, infra [A contract providing for monthly fees both for availability and for services rendered struck, attorney allowed to recover in quantum meruit.]; Wong v. Michael Kennedy, P.C., see note 8, supra. [Special retainer agreement providing for a non-refundable retainer of $250,000.00 to be considered as earned and non-refundable struck as per se violative of public policy and unenforceable.]; In re Production Assoc., Ltd.,
. In re Cooperman,
. Levisohn, Lerner, Berger & Langsam v. Medical Taping Systems, Inc.,
. Diaz v. Paul J. Kennedy Law Firm,
. National Credit Union Admin. Bd. v. Johnson,
. Cohen v. Radio-Electronics Officers Union, Dist. 3, NMEBA,
. See, In re Disciplinary Action Against Geiger,
. Atkins & O'Brien LLP. v. ISS Intern. Service System, Inc.,
. Bunker v. Meshbesher,
. In re Disciplinary Proceeding Against Kagele,
. Rule 1.200, Supreme Court Rules, see note 18, supra; 20 0.S. 20-021 §§ 30.5 and 30.14, see note 18, supra.
. Mellon v. Fulton,
. Robert L. Wheeler, Inc. v. Scott, 1991 OK. 95, ¶ 13,
. McGuire, Cornwell & Blakey v. Grider,
. Title 15 0.$.2001 § 213 providing in pertinent part:
"Except as expressly provided in Section 215 of this title, penalties imposed by contract for any nonperformance thereof, are void. ..."
Sun Ridge Investors, Ltd. v. Parker,
. Title 15 0.$.2001 § 215(A) providing in pertinent part:
"A stipulation or condition in a contract ... providing for the payment of an amount which shall be presumed to be the amount of damages sustained by a breach of such contract, shall be held valid, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damages."
. See note 2, supra.
. Tillman v. Gazaway, see note 33, supra.
. Waggoner v. Johnston,
. Dunn v. H.K. Porter Co., Inc.,
. State ex rel. Oklahoma Bar Ass'n v. Stutsman,
. McKenzie Const., Inc. v. Maynard,
. See note 2, supra.
Concurrence Opinion
with whom KAUGER, J., joins, concurring in the court's answer to the first question and concurring in result in the court's answer to the second question.
T1 As affected as today's answer to the second question must be by several unknown fact-dependent considerations, it is incapable of a concrete and precise formulation without making unacceptable assumptions. The text of the court's answer to the second question should hence be accepted with that understanding.