Aflac, Inc. v. Williams
264 Ga. 351, 94 Fulton County D. Rep. 2207, 444 S.E.2d 314 (1994)
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Rule of Law:
A provision in an attorney-client retainer agreement that requires the client to pay a penalty for exercising their absolute right to terminate the attorney is unenforceable as a violation of public policy.
Facts:
- In 1987, Peter Williams, an attorney, and AFLAC, Incorporated, entered into a seven-year retainer agreement for Williams to provide legal advice on an 'as needed' basis.
- The contract stipulated that Williams would receive a monthly retainer and additional compensation for extraordinary work.
- A key provision stated that if AFLAC terminated the agreement, even for cause, it must pay Williams 'as damages an amount equal to 50 percent of the sums due under the remaining terms, plus renewal.'
- The contract included an automatic five-year renewal provision set to take effect in 1995.
- In 1990, AFLAC's CEO John Amos, who had signed the agreement, died.
- In 1991, AFLAC's new CEO terminated Williams' monthly retainer.
Procedural Posture:
- AFLAC filed a declaratory judgment action in a trial court to determine the contract's validity.
- Williams filed a counterclaim against AFLAC, seeking over $1 million in damages for breach of contract.
- The trial court granted summary judgment in favor of AFLAC, declaring the contract unenforceable.
- Williams, as appellant, appealed to the Georgia Court of Appeals.
- The Court of Appeals, an intermediate appellate court, reversed in part, holding the retainer agreement and the damages provision valid for the original term but not for the renewal period.
- The Supreme Court of Georgia granted certiorari to review the decision of the Court of Appeals.
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Issue:
Is a contract provision that requires a client to pay a financial penalty for terminating a long-term attorney retainer agreement enforceable?
Opinions:
Majority - Fletcher, Justice.
No. A contract provision that imposes a financial penalty on a client for terminating an attorney is unenforceable. The attorney-client relationship is a special fiduciary relationship built on trust, which grants the client an absolute, public-policy-implied right to discharge their attorney at any time, even without cause. Enforcing a penalty clause for exercising this right would constitute economic coercion and eviscerate the client's freedom to terminate the relationship when confidence is lost. The court's duty to regulate the legal profession in the public interest requires prioritizing the client's freedom to terminate over the attorney's contractual rights. Furthermore, even under general contract principles, the provision is an unenforceable penalty, not a valid liquidated damages clause. It is not a reasonable estimate of probable loss, fails to consider the attorney's duty to mitigate, and punishes the client for exercising a legal right, demonstrating an intent to penalize rather than to compensate.
Analysis:
This decision reinforces the unique, fiduciary nature of the attorney-client relationship, elevating it above standard commercial contract principles. It establishes a strong precedent that protects a client's absolute right to terminate legal representation without facing financial punishment, thereby preventing attorneys from using penalty clauses to 'lock in' clients. The ruling ensures that a client's trust and confidence, rather than economic coercion, remain the foundation of the relationship, impacting how retainer agreements, particularly long-term ones, must be structured to be enforceable.
