Mcqueen, Rains & Tresch, Llp v. Citgo Pet.

• Decision Date: 01 July 2008
• Docket Number: No. 105,553.,105,553.
• Citation: 195 P.3d 35,2008 OK 66
• Parties: McQUEEN, RAINS & TRESCH, LLP, Plaintiff, v. CITGO PETROLEUM CORPORATION, Defendant.
• Court: Oklahoma Supreme Court

195 P.3d 35

2008 OK 66

McQUEEN, RAINS & TRESCH, LLP, Plaintiff, v. CITGO PETROLEUM CORPORATION, Defendant.

No. 105,553.

Supreme Court of Oklahoma.

July 1, 2008.

¶ 0 The United States District Court for the Northern District of Oklahoma certified three questions under the Revised Uniform Certification of Questions of Law Act, 20 O.S.2001 §§ 1601, et seq. Two consolidated and reformulated first impression questions are addressed. The first question asks:

"Whether, considering Oklahoma jurisprudence and the Rules of Professional Conduct, 5 O.S. Supp.2008, Ch. 1, App. 3-A, contracts between attorneys and clients containing liquidated damages provisions in fixed-fee, fixed-term agreements are enforceable under Oklahoma law?"

The second inquiry is:

"Whether, if the facts warrant the enforcement of a liquidated damages provision between attorneys and clients, the general contractual provisions regarding the viability of liquidated damages provisions are applicable to contracts between attorneys and clients containing such clauses?"

Under the unique facts presented, we answer both questions "yes".

CERTIFIED QUESTIONS ANSWERED.

Oliver S. Howard, John Henry Rule, Mason Guy Patterson, Gable & Gotwals, Tulsa, Oklahoma, for the Plaintiff.

R. Brent Blackstock, James R. Lieber, Susan Hilary Stava, Hartman & Blackstock, Tulsa, Oklahoma, for the Defendant.

WATT, J.

¶ 1 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 O.S.2001 1601, et seq. As consolidated and reformulated,¹ two questions are presented.² The first is:

"Whether, considering Oklahoma jurisprudence and the Rules of Professional Conduct, 5 O.S. Supp.2008, Ch. 1, App. 3-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 liquidated damages provisions³ contain CITGO's express acknowledgment that the firm further changed its position by undertaking certain costs and expenses to meet the demands of the contractual relationship. Under these unique facts, we answer the first reformulated and consolidated certified question "yes."

¶ 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 FACTS⁴ AND PROCEDURAL BACKGROUND

¶ 3 L. Dru McQueen, Stuart A. Rains, and W. Kyle Tresch (attorneys) were employed as in-house counsel for the defendant, CITGO Petroleum Corporation (CITGO/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.

¶ 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.

¶ 5 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.

¶ 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 significantly from anticipated costs, the parties agreed to adjust the fixed fee or handle the matters outside the agreement.

¶ 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.

¶ 8 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 30 days after termination of this [Agreement].

¶ 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.

¶ 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 O.S.2001 §§ 1601, et seq. We set a briefing cycle which was concluded with the simultaneous filing of the parties'...