June 14, 2007
Two questions have arisen with respect to the contract between the City and the city attorney:
1. Under the employment contract between the City and the city attorney, what monetary obligations does the city owe to the city attorney if it terminates his contract?
2. Under that contract, if the city terminates the city attorney, is it obligated to pay his (and his family’s) health insurance for three months after his termination?
Answers to Questions
The answer to Question 1 is that the contract between the city and the city attorney may not even be enforceable by the city attorney.
If we assume that it is enforceable:
- The city is obligated to the city attorney for the higher of compensation based on quantum meruit [the actual value of the service rendered] or the terms of the contract, whichever is greater, if he was dismissed without cause.
- The city is obligated to the city attorney for the lesser of compensation based on quantum meruit (the actual value of the services received) or the terms of the contract, whichever is the lesser, if he was dismissed with cause.
However, dismissal for cause does not necessarily mean what it means in other employment contexts; the attorney need not have done anything “wrong” to support a dismissal for cause. A client can dismiss his attorney for cause for having lost confidence in him. But the client must show that his loss of confidence was objectively reasonable. Here I have no idea of the reasons why the city wishes to terminate the city attorney. For that reason, I cannot even speculate whether the city’s reasons for the dismissal relate to a loss of confidence in him, or whether that loss of confidence is objectively reasonable.
The answer to Question 2 is that under the terms of the contract itself, the city owes the city health insurance only up to the time the city attorney is terminated. However, he is probably entitled under COBRA to continue that health insurance for a year at his own expense.
But as pointed out above in the answer to Question 1, the legality of the entire contract between the city and the city attorney itself is subject to challenge. What I say in that context has application to any argument that can be made that the contract provides the city attorney (and his family) with health insurance past the city attorney’s termination date.
Analysis of Question 1
Is the contract enforceable?
There has not been a case in Tennessee that resolves the question of whether a city can enter into a contract with an at will municipal officer or employee under which that officer or employee upon termination or resignation is paid severance pay. Under the City Charter the city attorney is unquestionably an at will officer of the City. The cases in other jurisdiction go both ways on that question.
If my recollection is correct, a Hamilton County trial court held several years ago that the city could not pay the city manager severance pay upon his termination by the city, notwithstanding the fact that his claim for severance pay was based upon a contract between those parties. I do not recall the details of that case clearly enough for you to rely upon it with respect to the contract between the city and the city attorney, but a copy of the court’s ruling in that case should be in the city’s files. Trial court cases are not “the law” in the same sense as are cases handed down by the Tennessee Courts of Appeal and the Tennessee Supreme Court, but they can give you a good idea of which way a case might go.
Tennessee Attorney General’s Opinion 95-107 also opines that a city operating under the general law manager-commission charter (under which the city manager is an at will employee for all but the first twelve months of his employment) cannot enter into a five year contract with the city manager.
I have previously done a large amount of research on the question of whether cities can enter into employment contracts with at will officers and employees, particularly contracts that provide pay severance pay to the officer or employee. I will be glad to provide that research upon your request. My own opinion is that such contracts are not legal in Tennessee, and that even if they are legal, they do not survive the term of the sitting board. The contract in question has been in existence since 1999, and automatically renews every two years, which puts the burden on incoming boards to terminate the contract. I do not believe this is a burden the courts would impose on such governing bodies.
Assuming the contract is legal, what does
the City owe the city attorney?
It is said in several cases, including Grissam & Associates v. Blue Cross & Blue
Shield of Tennessee, 114 S.W.3d 531 (Tenn Ct. App. 2002 (Permission to appeal denied by Tennessee Supreme Court Feb. 24, 2003), that:
“It is well-settled in Tennessee that a client has a right to discharge his attorney with or without cause, but that upon discharge the attorney is entitled to just and adequate compensation for services rendered.” Adams v. Mellen, 618 S.W..2d 485, 488 (Tenn. Ct. Appl. 1981) (Internal citations omitted). Where the attorney is discharged without cause, he or she is entitled to collect on the basis of quantum meruit or the contract price, whichever is greater. Id. In contrast, if the client had cause to terminate, recovery for the attorney is governed by the lesser of quantum meruit or the contract price. Id. At 488. See also McGee v. Maynard, No. 01-A-01-9810–CV00539, 199 WL 824298 at 1 (Tenn. Ct. App. Aug. 12, 1999). [At 536]
[Also see Chambliss, Bahner & Crawford v. Luther, 531 S.W. 2d 108 (Tenn. 1975).]
What is the “contract price.” Under Rose v. Welch, 115 S.W.3d 478 (Tenn. Ct. App. 2003), “According to the weight of authority, the measure of damages is the full contract price.” [At 485-86]
The question of what constitutes dismissal for cause is discussed in Rose v. Welch, 115 S.W. 3d 478 (Tenn. Ct. App. 2003) (permission to appeal denied by Tennessee Supreme Court Sept. 2, 2003). There, the Court declared that:
[W]e hold that in order for a client...to establish that he terminated his attorney’s, services for cause because he lost confidence in his attorney, his client must prove that he actually did lose confidence
in his attorney and that the reasons for the loss of confidence leading to the attorney’s discharge were objectively reasonable. [At 487]
I do not know for what reasons the city wishes to terminate the city attorney. If the city can show that it lost confidence in the city attorney for reasons the courts find objectively reasonable, the termination is for cause, and the city would be liable only for compensation to the city attorney on a quantum meruit basis.
What would quantum meruit be in the City’s case?
Most of the cases dealing with the question of whether a client is required to pay his former attorney a fee based on quantum meruit or on a contract price involve contingent fee contracts. For that reason, it is difficult to apply the rules in those cases for calculating quantum meruit compensation, and I will not cite those rules here. The reason is that it does not appear to me that such calculations are even a problem in this case because the contract between the city and the city attorney itself contains the rules for calculating quantum merit compensation. Under Paragraph VI, the base services the city attorney is obligated to provide to the city for $4, 166,67 per month are:
[A]ll services rendered to the City...including but not limited to phone conferences, conferences at the City, preparation of ordinances and resolutions etc.. . It is the intent of the parties that the base salary shall include payment for all services regularly performed by the City Attorney for the City Attorney of the City except for litigation [and for]...litigation and preparation for litigation in any court or tribunal....
Presumably, the city attorney has been paid, and will be paid on his termination date, compensation based on that monthly rate.
The same paragraph goes on to provide that basic services also do not include “fees charged for re-writing the code of the City...”
Under Paragraph VI, for any litigation in which the city attorney is involved on behalf of the city, the city attorney is entitled to be paid at the rate of $100 per hour and in 15 minute increments. It is not clear what fee the city attorney would be entitled to for re-writing the city code or for any other services that he might argue are not part of the base services. If any such fees become an issue we can take them up at that time.
If the city terminated the city attorney without cause, it is liable to him under the terms of the contract, and he is entitled to the “full contract price.” Under that contract, the city attorney is entitled to three months severance pay if he was terminated by the city or resigned at the request of the city, “during such time as Mr. A is willing and able to perform his duties.” Under paragraph V, the contract automatically renews every two years, beginning May 1, 1999. Presumably, then, the contract automatically renewed May 1, 2007, unless it had been terminated by the city. However, the automatic renewal of the contract, does not block either the city attorney nor the City from terminating the contract. Under Paragraph VI, the city attorney can terminate the contract with 30 days notice to the city, and the City can terminate the agreement “at any time subject to the termination conditions in Paragraph VII of this agreement.” It is Paragraph VII, which provides for three months severance pay.
Analysis of Question 2
Paragraph V of the agreement allows the city to terminate the city attorney at any time subject to the “termination conditions in paragraph VII of the agreement. Under Paragraph VII, if the agreement is terminated by the city or if the city attorney resigns at the request of the city council (during such time as he is willing and able to perform his duties), he is entitled to three months base salary. Paragraph VII says nothing about the city attorney’s entitlement to health insurance past the date of his termination or resignation. Indeed the only reference in Paragraph VII to benefits other than severance pay is in the provision that declares that if he is terminated or resigns at the council’s request because he was convicted of any of (a), (b), (c) or (d), he will not be entitled to “severance pay and benefits described herein.” Paragraph V mentions “other benefits,” but it would stretch that reference far past the breaking point to interpret it to mean that unless the city attorney was not convicted of (a), (b), (c) or (d), but was dismissed by the city or resigned at the request of the city council he is entitled to health insurance for three months past his termination. Mr. A is an attorney; he could easily have written into Paragraph VII, a provision that if he were terminated by the city or resigned at the question of the city council, he would be entitled to three months bases and health insurance for three months.
But under COBRA, the city attorney may have a right to continue his (and his family’s ) health insurance for up to one year at his own expense.
Sidney D. Hemsley
Senior Law Consultant