Louis Fennell v. Tlb Kent Company and Joseph Pietryka
1989 U.S. App. LEXIS 388, 865 F.2d 498, 12 Fed. R. Serv. 3d 1387 (1989)
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Rule of Law:
An attorney's authority to settle a case is not inferred from the mere retention of the attorney; apparent authority to settle is created only when the principal (client) makes manifestations to a third party (opposing counsel) that the agent (attorney) has such authority.
Facts:
- Louis Fennell sued his employer, TLB Kent Company, and his supervisor for wrongful discharge based on race and age.
- Fennell was represented by attorney C. Vernon Mason and his associate, Fred K. Brewington.
- On January 16, 1987, Brewington and the employer's attorney, Eugene Frink, agreed via telephone to settle the case for $10,000.
- Fennell alleged that he had previously told Brewington he would not approve a $10,000 settlement.
- After the attorneys reported the settlement to the court, Fennell was informed of its terms by Mason on February 20, 1987, at which point Fennell reiterated his dissatisfaction.
- On February 27, 1987, Fennell sent a letter to Mason expressing his dissatisfaction with the settlement and terminating Mason's services.
- The settlement was conditioned upon Fennell signing a general release and a stipulation of discontinuance, neither of which ever occurred.
Procedural Posture:
- Louis Fennell filed an action against his employer, TLB Kent Company, in the United States District Court for the Southern District of New York.
- The attorneys for the parties reported a settlement to the district court via a telephone conference call.
- The district court issued an order dismissing the case with prejudice, but provided that any party could apply to restore the action to the calendar within sixty days.
- Within the sixty-day period, Fennell's counsel applied by letter to restore the action to the calendar, stating that the settlement was no longer acceptable to his client.
- The district court held a hearing and subsequently dismissed the action, ruling that the settlement was binding because Fennell's attorney had apparent authority.
- Fennell, the plaintiff, appealed the district court's final judgment to the United States Court of Appeals for the Second Circuit.
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Issue:
Is a client bound by a settlement agreement entered into by their attorney when the client made no manifestations of the attorney's authority to settle to the opposing party?
Opinions:
Majority - Mahoney, Circuit Judge
No, a client is not bound by a settlement agreement entered into by their attorney unless the client has manifested the attorney's authority to the opposing party. Apparent authority arises from the manifestations of the principal to a third party, not from the representations of the agent. Here, Fennell made no manifestations to the defendants' counsel that would indicate his attorneys had the authority to definitively settle the case. Merely retaining an attorney, knowing that settlement is being discussed, or failing to inform opposing counsel of limits on the attorney's authority does not create apparent authority to settle. The decision to settle a claim belongs to the client, and an opposing party who relies on an attorney's authority to compromise an action in the client's absence does so at their own peril.
Concurring - Feinberg, Circuit Judge
The judgment should be reversed on narrower grounds, without reaching the issue of apparent authority. The district court's initial dismissal order explicitly provided a 60-day window for any party to restore the action to the calendar, which the judge noted was for situations where a settlement might be 'illusory' or 'not approved.' Since the client, Fennell, did not approve the settlement, it was illusory, and his attorney's timely application to restore the case should have been granted under the plain terms of the court's own order. The district court abused its discretion by refusing to restore the case to the calendar when the expressed conditions for doing so were met.
Analysis:
This decision reaffirms the fundamental agency principle that the client is the ultimate arbiter of settlement decisions. It clarifies for practitioners that an attorney's apparent authority to settle cannot be established by the attorney's own actions or by the mere fact of representation. The ruling places the risk on the opposing party to verify an attorney's settlement authority if they wish to ensure an agreement is binding, thereby protecting clients from unauthorized settlements. This precedent strengthens the client's control over their own litigation and prevents them from being forced into a Hobson's choice of either denying their counsel any authority to negotiate or being bound by any settlement their counsel might accept.
