Jacobson v. Sassower, 66 N.Y.2d 991 (1985)

An attorney has the burden of showing that a fee contract, especially one containing a non-refundable retainer clause, is fair, reasonable, and fully understood by the client; ambiguity in such agreements will be construed against the attorney.

Summary

Gerald Jacobson sued his former attorney, Gail Sassower, to recover a portion of a $2,500 retainer fee he’d paid her in a domestic relations matter. Sassower argued the retainer was non-refundable. The New York Court of Appeals held that because the retainer agreement was ambiguous regarding the non-refundable nature of the retainer, it was construed against the attorney who drafted it. The court emphasized that attorneys bear the burden of proving fee arrangements are fair and fully understood by the client, especially concerning non-refundable retainers. Sassower failed to demonstrate Jacobson understood the implications of the clause. Therefore, the lower court’s decision awarding Jacobson the unearned portion of the retainer was affirmed.

Facts

Jacobson hired Sassower for a domestic relations case and paid a $2,500 retainer based on a letter agreement drafted by Sassower. The agreement stated the fee was a “non-refundable retainer” to be credited against Sassower’s hourly charges. A dispute arose regarding who would represent Jacobson at a court hearing, leading to Jacobson discharging Sassower without cause. At the time of discharge, Sassower had worked a maximum of 10 hours.

Procedural History

Jacobson sued Sassower in Civil Court to recover the unearned portion of the retainer. The Civil Court found the agreement ambiguous, construed it against Sassower, and awarded Jacobson the unearned portion. The Appellate Term affirmed. The Appellate Division affirmed and granted leave to appeal to the Court of Appeals.

Issue(s)

Whether a “non-refundable retainer” agreement is enforceable when the agreement is ambiguous, and the attorney fails to demonstrate the client fully understood the terms and consequences of the agreement.

Holding

Yes, because the retainer agreement was ambiguous, it must be construed against the attorney who drafted it. The attorney has the burden of proving the client fully understood the agreement, and failed to do so here.

Court’s Reasoning

The Court of Appeals emphasized that a client can discharge an attorney at any time, with or without cause, and is entitled to be compensated in quantum meruit if discharged without cause, unless a contract states otherwise. Because the retainer clause was ambiguous, the Civil Court correctly construed it against Sassower. The court cited the rule that ambiguous contracts are construed against the drafter. More importantly, the court emphasized that fee arrangements between attorneys and clients are subject to special scrutiny. An attorney must show the fee contract is fair, reasonable, and fully understood by the client. Quoting Smitas v. Rickett, the court stated that even without fraud or undue influence, a fee agreement is invalid “if it appears that the attorney got the better of the bargain, unless [she] can show that the client was fully aware of the consequences and that there was no exploitation of the client’s confidence in the attorney”. The Court found the agreement was ambiguous because it did not clearly state the retainer was a minimum fee forfeited even if the relationship ended before 25 hours of service. Because Sassower didn’t explain the clause’s consequences and Jacobson credibly testified he didn’t understand it to be a minimum fee, the court affirmed the lower court’s judgment.