AFLAC, Inc. v. Williams

Brief Fact Summary.

A corporation and a private attorney entered into a contract for the private attorney to provide the company's officers legal advice on an "as needed" basis.  The validity of a provision in the contract requiring the corporation to pay damages if they terminated contract even for "good cause" was at issue.

Synopsis of Rule of Law.

A provision in an agreement between an attorney and a client cannot contain a provision for the client to pay damages if the client breaks the contract.

Facts.

The Chairman and Chief Executive Officer ("CEO") of AFLAC, Incorporated ("AFLAC") John Amos, ("Mr. Amos") executed a seven year contract in 1987 with a private attorney, Peter Williams ("Mr. Williams").  The contract provided that Mr. Williams would provide legal advice to AFLAC's company officers on an "as needed" basis.  As compensation, Mr. Williams was to be paid a monthly retainer and was able to obtain additional compensation if a project required an "extraordinary" amount of time.  The contract was to be automatically renewed in 1995 for another five years unless the agreement was terminated.  The contract also included a provision entitling Mr. Williams to damages in "an amount equal to 50 percent of the sums due under the remaining terms, plus renewal of this agreement" if the company ended the contract even for "good cause".  Mr. Williams died and AFLAC's new CEO terminated the contract in 1991.  AFLAC filed a declaratory judgment action to determine the validity of the contract, and Mr. Williams filed a counterclaim asking for more than $1million dollars in damages for breach of the contract.  The trial court granted AFLAC summary judgment, and held that the 1987 agreement was unenforceable.  The Court of Appeals disagreed in part, and held that the 1987 contract was enforceable, but that the renewal provision was unenforceable.

Issue.

Must an attorney's client pay legal fees to an attorney after terminating a long time retainer contract?

Held.

No.  An attorney is not eligible to collect damages under a penalty clause in a retainer contract when the client "exercises the legal right to terminate the attorney's retainer contract."  The Supreme Court of Georgia observed "[t]o force all attorney-client agreements into the conventional status of commercial contracts ignores the special fiduciary relationship created when an attorney represents a client."  As such, "a client has the absolute right to discharge the attorney and terminate the relation at any time, even without cause" and "[a] client's discharge of his attorney is not a breach of the contract of employment but the exercise of his right."  For reasons of public policy, the Supreme Court of Georgia favored "AFLAC's freedom in ending the attorney-client relationship without financial penalty over Williams' right to enforce the damages provision in his retainer contract.  Requiring a client to pay damages for terminating its attorney's employment contract eviscerates the client's absolute right to terminate."  The court took this provision to its logical extreme and observed "[t]he effect of this provision would be to require a client to pay an attorney terminated for embezzling client funds."

Discussion.

This case illustrates an interesting distinction in how courts construe normal commercial contracts and contracts between attorneys and their clients.