                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-19-1999

Raymark Ind Inc v Butera BeaUnited Statesng,
Cohen & Brennan, P.C.
Precedential or Non-Precedential:

Docket 97-2020




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Recommended Citation
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Filed October 18, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-2020

**LAUREEN RYAN, as Trustee of the
Bankruptcy Estate of
Raymark Industries, Inc.,
       Appellant

v.

BUTERA, BEAUSANG, COHEN & BRENNAN,
A PROFESSIONAL CORPORATION,
MICHAEL F. BEAUSANG, JR., ESQUIRE, INDIVIDUALLY

**Per Court Order dated 11/6/98

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 97-00034)
District Judge: Honorable John R. Padova

Submitted pursuant to Third Circuit Rule 34.1(b)
October 1, 1999

BEFORE: GREENBERG, NYGAARD and ALITO,
Circuit Judges

(Filed: October 18, 1999)
       James D. Coleman
       Raymond A. Quaglia
       Ballard, Spahr, Andrews & Ingersoll
       1735 Market Street
       51st Floor
       Philadelphia, PA 19103

       Attorneys for Appellant
       Raymark Industries, Inc.

       Alan A. Turner
       Turner & McDonald
       1725 Spruce Street
       Philadelphia, PA 19103

       Attorneys for Appellees

       Brian M. Cogan
       Stroock, Stroock & Lavan
       180 Maiden Lane
       New York, NY 10004

       Attorney for Appellant
       Laureen Ryan as Trustee of
       the Bankruptcy Estate of
       Raymark Industries, Inc.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. FACTUAL AND PROCEDURAL HISTORY

Raymark Industries, Inc. ("Raymark") on this appeal
seeks the reversal of an order of the district court denying
it the return of a $1 million fee designated a "non-
refundable retainer" it paid to its former counsel, Michael
Beausang ("Beausang"), of the Pennsylvania lawfirm of
Butera, Beausang, Cohen & Brennan ("Butera, Beausang").
While Laureen Ryan as trustee of Raymark's bankruptcy
estate has been substituted as appellant, as a matter of
convenience we continue to refer to Raymark as the
appellant. We set forth the unusual background of the case

                                  2
at some length. Beginning in the early 1970s, many
persons instituted asbestos personal injury actions against
Raymark which was a manufacturer of asbestos-containing
products. Apparently as a result of these claims and the
litigation, Raymark's financial position deteriorated leading
in 1989 to certain of its creditors filing an involuntary
bankruptcy proceeding against it. The filing of the
bankruptcy petition stayed the asbestos actions but the
stay was vacated on August 9, 1996, when the bankruptcy
court dismissed the bankruptcy proceedings.

Raymark anticipated that the vacation of the stay would
lead to a renewed high volume of asbestos litigation.1
Accordingly, Raymark organized a nationwide network of
attorneys to process the anticipated litigation. To secure
legal representation, Raymark offered the potential heads of
six trial teams a contract with a fixed-fee structure of
quarterly payments, a set fee for costs per day at trial, and
an initial, one-time, non-refundable payment of $1 million.2
Raymark used this arrangement to attract counsel with
"specific capability" as well as to overcome its history of
nonpayment of legal fees.
_________________________________________________________________

1. We indicated in Raytech Corp. v. White, 54 F.3d 187, 189 (3d Cir.
1995), that "[b]y June 26, 1988, Raymark had been named as a
defendant in more than 68,000 cases."

2. The disputed provision of September 4, 1996 Agreement provides as
follows:

       In consideration for the legal representation and services
hereunder,
       Raymark agrees to pay Counsel fees as follows:

        (a) Initial jurisdiction legal network organizatio nal fee and
        management fee of $1,000,000. This is a non-refundable retainer.

        (b) A fixed quarterly fee of $32,000 to organize   and maintain a
legal
        network to handle all administrative aspects of litigation filed
        against Raymark in the jurisdiction assigned herein.

       (c) A fixed quarterly fee of $280,000 for manage ment of the
litigation
       filed against Raymark in the jurisdiction assigned herein.

       (d) A fixed trial fee of $3,000 per day of trial not to exceed a
total of
       $15,000 per trial without prior approval of Raymark.

        All fees paid shall be non-refundable.
3
Raymark developed an Agreement reflecting its proposed
arrangement for retaining counsel which, according to its
president, James Cobb, it offered to Beausang and other
counsel on a "take it or leave it" basis.3 The Agreement did
not address the withdrawal of counsel,4 but included a
provision that "Raymark may terminate this Agreement at
will and without cause upon ninety (90) days' written notice
to Counsel. All fees paid as of the termination date shall be
non-refundable." Raymark and Beausang individually
entered into the Agreement on September 4, 1996, but
there is no doubt that other attorneys from Butera,
Beausang, as well as Beausang personally, were to perform
the services under the Agreement. Thus, as a practical
matter there is no material distinction on this appeal
between Beausang and Butera, Beausang.

On September 11, 1996, Beausang sent a letter ("Letter
Agreement") to Raymark acknowledging receipt of the $1
million and stating that "[g]iven the significant impact on
my practice, I would not have accepted this engagement
had this fee not been fully earned and non-refundable."
Cobb signed and returned that letter as "acknowledged and
agreed." Thus, the contract documents between Raymark
and Beausang consisted of the Agreement and Letter
Agreement, each of which both parties signed, and each of
which referred to the $1 million payment. See Landreth v.
First Nat'l Bank, 31 A.2d 161, 163 (Pa. 1943) (all writings
forming part of same transaction are interpreted together).5

The Raymark-Beausang arrangement had a short
operative life as on November 13, 1996, Raymark
_________________________________________________________________

3. Raymark continued to employ five firms under the Agreement after
terminating Beausang.

4. Under   Pennsylvania law, which the parties agree is applicable, an
attorney   "may withdraw from representation only for reasonable cause
and upon   reasonable notice." Novinger v. E.I. DuPont de Nemours & Co.,
809 F.2d   212, 218 (3d Cir. 1987).

5. We reject Raymark's argument that Beausang's"self-serving" Letter
Agreement should not be regarded as part of the contract because
Beausang wrote it after receiving the payment. While Raymark is no
doubt correct that the Letter Agreement was self-serving, the fact is that
Cobb signed it.

                                 4
terminated Beausang without notice effective immediately.
Raymark based the termination at least in part on
Beausang's seeking up to a month's time to review the facts
behind a complaint drafted by another attorney that
Raymark requested Beausang to file immediately. Raymark
hired alternate counsel the same day.6 During the
approximately ten-week duration of the Agreement, Butera,
Beausang recorded 335.5 hours of work for Raymark and
incurred out-of-pocket expenses of approximately $37,000.
On January 3, 1997, Raymark filed a complaint for
recovery of the $1 million in the district court, predicating
its claim on theories of rescission and breach offiduciary
duty. Beausang thereafter filed a counterclaim seeking
additional fees that he claimed were due under the
Agreement.

The parties subsequently filed cross-motions for
summary judgment. The district court decided the case in
a comprehensive opinion dated December 1, 1997, and on
December 2, 1997, entered summary judgment for
Beausang on the complaint thus rejecting Raymark's
claims. See Raymark Indus., Inc. v. Butera, Beausang,
Cohen & Brennan, No. Civ. A. 97-0034, 1997 WL 746125
(E.D. Pa. Dec. 1, 1997). But the court entered judgment for
Raymark on the counterclaim, thus leaving the parties
where it found them.

The court concluded that the Agreement was "clear and
unambiguous," id. at *8, and was agreed upon fairly by
sophisticated parties, id. at *10-11. The court said that its
clear meaning was that the $1 million fee was non-
refundable, id. at *8, and that the parties by the Agreement
intended to secure Beausang's commitment and availability
to represent Raymark. Id. at *13. Accordingly, the court
_________________________________________________________________

6. We note that Beausang surely was correct when he insisted upon
having an opportunity to investigate the complaint. See Garr v. U.S.
Healthcare, Inc., 22 F.3d 1274 (3d Cir. 1994). Indeed, Raymark does not
contend that it is entitled to a return of the retainer on the theory that
Beausang violated his obligations under the Agreement. The substituted
attorney filed the complaint on the day that Raymark terminated
Beausang but the court subsequently dismissed the complaint. See
Raymark Indus., Inc. v. Butera, Beausang, Cohen & Brennan, No. Civ. A.
97-0034, 1997 WL 746125, at *5 n.13 (E.D. Pa. Dec. 1, 1997).

                               5
determined that the disputed fee was a "general retainer."
See Id. at *13. The court also held that Beausang earned
the fee because Raymark benefitted from paying the fee by
attracting counsel for an unspecified amount and duration
of work despite Raymark's history of nonpayment of legal
fees. Furthermore, taking note of the obvious fact that
Raymark did not "hesitate at all in terminating" Beausang,
the court held that Raymark's right to end its relationship
with Beausang had not been "chilled." See id. at *15.
Therefore, the court concluded that the contract was
equitable under McKenzie Construction, Inc. v. Maynard,
758 F.2d 97, 101-02 (3d Cir. 1985). While as we have
indicated, the court also rejected Beausang's counterclaim,
inasmuch as Beausang does not cross-appeal, we need not
explain why it did so.

Raymark appealed but thereafter, on March 18, 1998,
filed a Chapter 11 petition. See In re Raytech Corp., 222
B.R. 19, 23 (Bankr. D. Conn. 1998). Subsequently, a
bankruptcy court appointed Laureen Ryan as trustee for
Raymark but as we have indicated we continue to refer to
Raymark as the appellant. The district court exercised
diversity of citizenship jurisdiction under 28 U.S.C. S 1332,
and we exercise jurisdiction under 28 U.S.C. S 1291.

II. DISCUSSION

We first must determine whether the Agreement was
enforceable, and, if so, whether or not its enforcement is
unreasonable. In so doing, we exercise our supervisory
power over attorney-client fee arrangements, see Dunn v.
H.K. Porter Co., 602 F.2d 1105, 1108-09 (3d Cir. 1979), a
duty also imposed by Pennsylvania law which the district
court applied and which the parties agree is applicable. In
this regard, we point out that under Pennsylvania law, "[a]
duly admitted attorney is an officer of the court and
answerable to it for dereliction of duty." Childs v. Smeltzer,
171 A. 883, 886 (Pa. 1934); see also In re Mitchell, 901 F.2d
1179, 1183 (3d Cir. 1990). Accordingly, we assess the
reasonableness of attorney-client fees "[e]ven with respect
to market determined fees." See Coup v. Heckler, 834 F.2d
313, 324 (3d Cir. 1987).

                               6
Insofar as we are aware, the Pennsylvania appellate
courts have not determined the circumstances, if any, in
which attorneys may use contracts providing for non-
refundable retainers.7 Thus, the district court had little
guidance when it made its prediction on how the
Pennsylvania Supreme Court would assess the
enforceability and reasonableness of a contractual provision
for a non-refundable retainer. See Raymark, 1997 WL
746125, at *7, *9. Lacking such guidance, the district court
predicted that Pennsylvania would adopt our decision in
McKenzie, 758 F.2d 97, to evaluate the reasonableness of a
non-refundable retainer. The district court then concluded
that such retainers, though subject to review for
reasonableness, would be permissible under Pennsylvania
law. See Raymark, 1997 WL 746125, at *10-14. The parties
do not question the court's decision to base its analysis
upon McKenzie, though they disagree about how to apply
the holding in that case here.8
_________________________________________________________________

7. Raymark argues that the "current trend" among other jurisdictions is
toward limiting the use of non-refundable retainers by attorneys. Brief at
11. This trend, however, may be in cases involving"special retainers"
rather than "general retainers," a distinction we discuss below. See,
e.g.,
Kelly v. MD Buyline, Inc., 2 F. Supp.2d 420, 425-27, 444-52 (S.D.N.Y.
1998). But see Provanzano v. National Auto Credit, Inc., 10 F. Supp.2d
44, 51 n.13 (D. Mass. 1998) (observing that "general retainers have
largely disappeared from the modern practice of law").

The Pennsylvania Bar Association Legal Ethics and Professional
Responsibility Committee, in a Formal Opinion, accurately stated that
Pennsylvania law does not bar the use of general retainers. App. at 346-
47; Pa. Bar Ass'n, Formal Op. 100 (1995) (non-refundable retainers
permissible if reasonable and not "clearly excessive").

8. The parties dispute our standard of review. Raymark understandably
argues that inasmuch as this appeal is from an order for summary
judgment our review is plenary. On the other hand, Beausang contends
that we should use an abuse of discretion standard. See McKenzie
Constr., Inc. v. Maynard, 823 F.2d 43, 44 (3d Cir. 1987) (opinion
following remand); McKenzie, 758 F.2d at 102. We need not determine
which standard applies as we would reach the result we do exercising
plenary review.

                               7
1. McKenzie Standard

In McKenzie, which arose in a fee dispute rather than a
disciplinary context, we rejected the use of a "clearly
excessive" standard as to whether or not attorneys' fees are
reasonable, and instead adopted an "equity and fairness
standard." 758 F.2d at 100-02 (rejecting standard of A.B.A.
Model Code of Professional Responsibility Disciplinary Rule
2-106 (A) especially where potential unreasonableness
arises from circumstances after fee arrangement is made).
We asked (1) whether the attorney's conduct, as against the
client's conduct, had resulted in a fee that enriched the
attorney at the client's expense, and (2) whether that
enrichment violated the court's "sense of fundamental
fairness and equity." Id. at 101 ("[W]hen the matter is the
enforcement of a fee contract in an adversary proceeding
between an attorney and his former client, . . . the court is
not deciding whether a lawyer's conduct is unethical but
whether, as against the client, it has resulted in such an
enrichment at the expense of the client that it offends a
court's sense of fundamental fairness and equity.").

In making this evaluation, we stated that attorney-client
fee agreements were not to be enforced as "ordinary
commercial contracts." Id. Rather, a court must evaluate
the contract as to its reasonableness both as of the time
the parties entered into it and in light of subsequent
circumstances concerning performance and enforcement,
which may make a contract "unfair in its enforcement." Id.
We went on to state "that courts should be reluctant to
disturb contingent fee arrangements freely entered into by
knowledgeable and competent parties." Id.

Applying the McKenzie standard, the district court
reviewed Raymark's contract both at the time the parties
entered into it and in light of Beausang's termination and
the amount of work he performed. It concluded that the
contract was "fair to both parties when made."9 In so doing,
_________________________________________________________________

9. Raymark appears to agree that the contract is on its face enforceable,
arguing only that the early termination makes enforcement
impermissible. "Raymark does not dispute that defendants' receipt of a
$1 million non-refundable retainer was reasonable in the context of a
30-month engagement during which defendants were expected to be
engaged in substantial litigation . . . . Nonetheless, this $1 million fee
became manifestly unreasonable at the time of defendants' termination
. . ." given the limited amount of time and work devoted. Brief at 22.

                                8
the court considered basic principles of contract law
because while special scrutiny is given to attorney-client
arrangements, the relationship between attorney and client
under Pennsylvania law nevertheless is contractual. See
Novinger v. E.I. DuPont de Nemours & Co., 809 F.2d 212,
218 (3d Cir. 1987).

The court determined first that the contract was
unambiguous, a conclusion with which we are in accord.
Thus, this is a case in which we are concerned with
construction rather than interpretation of a contract. See
Dardovitch v. Haltzman, ___ F.3d ___, 1999 WL 689955, at
*8 (3d Cir. Sept. 7, 1999). Raymark nevertheless argues
that we should consider the intent of the parties in entering
into the contract as expressed in a deposition of its
consultant, Craig Smith. Brief at 4-5. The district court,
however, correctly stated that unless the writing is
ambiguous, the parties' mutual intent must be determined
from the language of the writing itself. See Duquesne Light
Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 613 (3d Cir.
1995) (applying Pennsylvania law). The court stressed that
Raymark had set the Agreement's terms, the parties were
sophisticated, and Beausang had borne the risk that, given
the set-fee structure, his costs could exceed the payments
received. The heart of the court's analysis of the
enforceability of the contract, however, derives from its
discussion of the nature of the retainer provision itself.

2. General Retainer

Beausang argues that the $1 million fee was non-
refundable not only under basic contract principles but
because it was a general retainer so that its non-
refundability would be recognized in Pennsylvania as well
as other jurisdictions. See, e.g., Kelly v. MD Buyline, Inc., 2
F. Supp.2d 420, 425-27, 444-52 (S.D.N.Y. 1998) (non-
refundable general retainers permissible though New York
law bars non-refundable special retainers). Raymark
counters that the retainer was a specific or special retainer,
which by an extension of principles of professional ethics
must be refundable. Brief at 24-25.

The district court found as a matter of law that the
Agreement more resembled a general retainer than a

                                9
special retainer and we agree with that conclusion.10
However, as Raymark points out, that finding is not
dispositive, because Pennsylvania law does not establish
definitively that non-refundable general retainers are
lawful. Nevertheless, the district court's ruling in that
regard does bolster its conclusion that the contract was
enforceable under the McKenzie standard.

The distinction between general and specific retainers is
well established. A retainer is general "where the services
being purchased are the attorney's `availability' to render a
service if and as needed in a specific time frame" and thus
is "earned when paid." On the other hand, a retainer is
special or specific "where the funds paid are for a specific
service." In that circumstance, the retainer remains the
client's property if the contemplated services are not
provided. See In re Gray's Run Tech., Inc., 217 B.R. 48, 52-
53 (Bankr. M.D. Pa. 1997); see also Kelly, 2 F. Supp.2d at
425-27.11

In Gray's Run, the bankruptcy court held that an
attorney's claim to retain a non-refundable retainer,
described in the contract as "an advance fee retainer" and
_________________________________________________________________

10. Raymark argues that the distinction is immaterial under
Pennsylvania law, and that determining whether this is a general or
special retainer is in any case a fact-intensive issue that is
inappropriate
for summary judgment. Reply Brief at 3-4. Yet the distinction is at least
useful towards analyzing the propriety of the contract, even if it is not
dispositive. Federal bankruptcy courts confronted with similar issues
arising in Pennsylvania have discussed the distinction. See, e.g., In re
Gray's Run Tech., Inc., 217 B.R. 48, 52-53 (Bankr. M.D. Pa. 1997).

11. Special or specific retainers have been sub-divided into security
retainers and advance fee retainers. An attorney holds a security retainer
to "secure payment of fees for future services." A security retainer is to
be applied "to charges for services actually rendered, normally after the
submission and approval of an application for compensation." The
second kind of special retainer is the advance fee retainer arrangement,
in which "the attorney receives payment in advance for contemplated
legal services and depletes the prepaid fund as services are rendered.
Advance fee retainers differ from security retainers in that ownership of
the funds is intended to pass to the attorney at the time of the payment."
In re The Renfrew Ctr. of Fla., Inc., 195 B.R. 335, 338-39 (Bankr. E.D.
Pa. 1996).

                                10
as "our payment in advance for contemplated legal
services," could not be upheld because it was a special
retainer. In that case, the agreement for the attorney's
services described the retainer as an "advance" payment for
a specific service rather than as a payment for the
purchase of the attorney's availability. See Gray's Run, 217
B.R. at 51-52. In reaching its conclusion, the court
considered the following facts (but did not hold them out as
a test or inclusive list): that no reference was made in the
contract to securing "availability," that no amount was "set
apart . . . that could be interpreted as consideration
separate from counsel's hourly rate," and that the contract
"specifically articulate[d] that the retainer [was] of an
advance fee nature and in payment of contemplated
services." Id. at 55. In the circumstances, the court
concluded that the fee, though intended to be non-
refundable, was a special retainer that the attorney was
obligated to return.

We agree with the district court in this case that the
language of the Agreement indicates that the parties
intended the $1 million to be a non-refundable, general
retainer and that the provision for non-refundability is valid
under Pennsylvania law.12 First, while the contract does not
use the term "available," on its face it requires Beausang to
be available to handle an indeterminate amount of litigation
for an unspecified amount of time. In fact, Raymark
expected the work to last "at least 30 months," and
Beausang clearly anticipated long-term work. Raymark's
Brief at 6; Beausang's Brief at 15. Second, the contract
specifically outlines in a separate clause from the one
providing for the $1 million retainer how Raymark will pay
Beausang for legal services rendered. Third, the Agreement
describes the $1 million as a "non-refundable retainer,"
before setting forth in other clauses the terms for payment
_________________________________________________________________

12. While the district court unquestionably described the agreement as
having the characteristics of a "general retainer" it made limited use of
that term. See Raymark, 1997 WL 746125, at *13. Raymark, however,
acknowledges that the court found that the Agreement provided for a
"general retainer," as it indicates in its brief that the court's findings
in
part "rest[ ] upon the erroneous premise that the Agreement comprised
a so-called `general retainer.' " Brief at 23.

                               11
of litigation costs and for managing the legal team. These
provisions demonstrate that Raymark understood the $1
million to be a one-time payment, not an "advance" upon
which Beausang could draw as expenses related to
litigation or administration mounted. Raymark's acceptance
of the Letter Agreement also shows that Raymark
understood that the $1 million was "fully earned" and non-
refundable. Accordingly, we conclude that the district court
correctly held that there was no question of material fact
regarding whether the contract was a permissible,
enforceable agreement with a $1 million fee as a non-
refundable, general retainer. See Dardovitch, 1999 WL
689955, at *8.

3. Reasonableness and Equity

After concluding that on its face the Agreement was
enforceable, the court, as McKenzie requires, assessed the
reasonableness of the Agreement in light of subsequent
events, namely, Raymark's termination of the Agreement.
See McKenzie, 758 F.2d at 101. In making this analysis,
the court held that instead of merely calculating the
amount that Beausang had earned on an hourly basis, it
could consider benefits beyond those paid for"legal
services."13 Raymark, 1997 WL 746125, at *12. Finding that
the legal and organizational services were to be covered by
other payments, the court determined that the $1 million
was a "carrot" or "financial incentive" used to attract
Beausang and was reasonable. Id. at *13. The court
reasoned that Raymark had spent $1 million to buy the
"opportunity" to use Beausang's services at capped costs --
analogizing this to an options contract, where the option is
worth something, though less than the fully-realized
opportunity. Id. Thus, the court concluded that Beausang
had earned the $1 million, despite working for only ten
weeks, because Raymark paid the $1 million for access to
_________________________________________________________________

13. The district court noted that while Pennsylvania law allows courts in
the context of confessions of judgment to reduce unreasonable awards,
see Raymark, 1997 WL 746125, at *9, no standard exists to measure the
reasonableness of an amount. See, e.g., PNC Bank v. Bolus, 655 A.2d
997, 1000 (Pa. Super. Ct. 1995) (charge of more than $70,000 for
attorney fees for filing single document "blatantly unreasonable").

                               12
Beausang's services on terms favorable to Raymark. Id. at
*12-13.

In light of the McKenzie standard, the district court
correctly reasoned that Beausang "cannot be exposed to the
reproach of oppression and overreaching" regarding
retaining the fee. Id. at *14. The court discussed at length
a case similar to McKenzie decided by the Court of Appeals
for the Ninth Circuit in which a prominent attorney
recovered a $1 million contingency fee pursuant to a
written agreement after filing a petition for certiorari. Id. at
*14 n.31. See Brobeck, Phleger & Harrison v. Telex Corp.,
602 F.2d 866 (9th Cir. 1979). While the client in Brobeck
thought that the fee was unreasonable and excessive, the
court of appeals in rejecting this argument took into
account the sophistication of the parties, the fact that the
client wished to attract a certain caliber of attorney, and
the fact that the client, after negotiations with the attorney,
had proposed the fee arrangement which it later
challenged. Id. at 875.

The district court in this case made a similar analysis
predicated on the facts presented here. Furthermore,
Raymark's complaint regarding the $1 million fee is weaker
than the client's position in Brobeck as Raymark offered the
fee to Beausang on a "take it or leave it" basis. In Brobeck
and here, the attorneys clearly were paid very well, but the
context of the payments and the fact that the clients
received some intangible benefits in retaining the attorneys
meant that the courts could conclude that the
compensation in each case was not so high as to be
inequitable and unfair.

Raymark argues that, even if the district court properly
decided that the $1 million was a general retainer fee, still
Beausang did not prove that he would not be limited to
recovery in quantum meruit. The Pennsylvania courts have
recognized that an attorney with a contract to perform a
specific service for a specific fee who is discharged may
recover a proper amount for his services on a quantum
meruit basis. See Hiscott and Robinson v. King, 626 A.2d
1235, 1236 (Pa. Super. Ct. 1993); Sundheim v. Beaver
County Bldg. & Loan Ass'n, 14 A.2d 349, 351 (Pa. Super.
Ct. 1940). But this general rule for specific fee contracts

                               13
does not fit the facts in this case. Rather, we are concerned
with a situation in which an attorney with a general
retainer has been discharged. In that situation, he may
recover "at least in some circumstances, beyond payment
for the value of services already rendered." Kelly, 2 F.
Supp.2d at 449. The facts here present one of those
circumstances. In addition, the basic principle that
attorneys should not receive "unearned" income is not in
jeopardy here because the district court correctly concluded
that Raymark did receive benefits -- though not in the form
of legal services rendered on an hourly basis -- for its
payment of $1 million.

4. Chilling effect on right to terminate counsel

Raymark further contends that its right to discharge its
attorneys was "chilled" by its inability to recoup some
portion of the $1 million. Raymark argues that special
retainers hold a client hostage to the attorney. Raymark
analogizes this case to Cohen v. Radio-Electronics Officers
Union, 679 A.2d 1188 (N.J. 1996), in which the Supreme
Court of New Jersey held unenforceable a provision
negotiated by sophisticated parties in which the client was
required to give the attorney six months' notice before it
could terminate the contract. The court held that this
provision chilled the client's right to terminate its
relationship with the attorney. Id. at 1197-1201. The court
concluded, however, that the attorney was entitled to
reasonable notice of termination, which it determined was
one month rather than the three days the client gave.

To the extent that Cohen is inconsistent with our result,
we decline to follow it.14 It appears clear that the retainer in
Cohen was general rather than special, see Cohen v. Radio-
_________________________________________________________________

14. We could distinguish Cohen on the theory that Cohen's $100,000
annual compensation was for 1,000 hours of service and thus was
different from the $1 million retainer here which was not tied directly to
services to be performed measured on a temporal basis. Moreover, in
this case Raymark was to pay Beausang ongoing fees on a quarterly
basis plus fees for trial time directly linked to days of service. The
tenor
of Cohen is such, however, that we doubt that the Supreme Court of New
Jersey if confronted with the facts of this case would distinguish it from
Cohen.

                               14
Electronics Officers Union, 645 A.2d 1248, 1261 (N.J.
Super. Ct. App. Div. 1994) (Villanueva, J., dissenting), but
the court did not seem to consider this point in reaching its
decision. At the very least, the Supreme Court of New
Jersey did not say that it was reaching its result because
the retainer was special rather than general. Nevertheless
our review of cases in other jurisdictions convinces us that
the distinction between general and special retainers is
crucial with respect to non-refundability of an attorney's
fees. We believe that Cohen best can be understood in the
context of the New Jersey Supreme Court's historically
strong powers to regulate attorneys under the New Jersey
Constitution. See Cohen, 679 A.2d at 1195-96. As a federal
court making a determination of state law in a diversity
case, we think that we should predicate our ruling on more
conventional principles. See Leo v. Kerr-McGee Chem. Corp.,
37 F.3d 96, 101 (3d Cir. 1994).

It is true that in Pennsylvania "[t]he right of a client to
terminate the attorney-client relationship is an implied term
of every contract of employment of counsel. . . ." See Hiscott
and Robinson, 626 A.2d at 1237. Nevertheless, this
principle is not in jeopardy here because Beausang does
not contend that Raymark could not discharge him. In any
event, we are satisfied that regardless of the chilling effect
of a non-refundability provision in a general retainer, the
client's right to terminate an attorney must accommodate
an attorney's right to retain the non-refundable retainer.

Finally, we recognize that Raymark argues that there
exists "a substantial factual issue as to whether and to
what extent Raymark's right to discharge counsel was
chilled." But this argument does not require that we reverse
the district court. First, of course, as is obvious and as the
district court found, Raymark did not hesitate to terminate
Beausang. Second, the argument proves too much because
it always could be contended that after paying a non-
refundable general retainer a client would be reluctant to
discharge an attorney and thereby surrender the benefit it
obtained by payment of the retainer.

III. CONCLUSION

In summary, we carefully have reviewed all arguments
which Raymark has put forward, mindful of the obligations

                               15
of attorneys to their clients. After making that review, we
find no reason to disturb the conclusions of the district
court. Consequently, the order of December 2, 1997, will be
affirmed.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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