Wednesday, July 2, 2008

Fee Contract Provisions Enforceable Against Sophisticated Client

A contract between lawyer and client that contains a liquidated damages provision in a fixed-fee, fixed term agreement is enforceable under the jurisprudence and ethics rules of Oklahoma, according to a decision issued yesterday by the Oklahoma Supreme Court. The decision resolved a question had been certified by the United States District Court for the Northern District of Oklahoma. The court noted some "unique facts" that influenced its decision: the client is a "large corporation sophisticated both in  the commercial and legal environment and was represented by its Vice President of Legal Affairs and General Counsel in contract negotiations." The terms were unambiguous and "contains [the client's] express acknowledgment that the firm changed its position by undertaking costs and expenses to meet the demands of the contractual relationship."

The court concludes:

Courts should be reluctant to disturb fee arrangements freely entered into by knowledgeable and competent parties. However, a contract between a lawyer and a client is not an ordinary contract because of the existence of a fiduciary relationship. Nevertheless, we recognize that fixed-fee structures may often be beneficial to large corporations. They may allow the corporation to quantify and control its litigation expenses on an ongoing basis. Clients who regularly retain lawyers bargain for innovative fee arrangements that limit the right of discharge in exchange for lower fees. It would be counterproductive, in an era of increasing concerns over the cost of legal services, to preclude a client from bargaining for a reduction in fees in exchange for a reasonable limitation on the right of discharge.

(Mike Frisch)

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