Makins v. District of Columbia

861 A.2d 590, 2004 D.C. App. LEXIS 577, 2004 WL 2471504

Opinions

NEBEKER, Senior Judge:

Pursuant to D.C.Code § 11-723 (1995), the United States Court of Appeals for the District of Columbia Circuit (“Circuit”) has certified the following question to this court:

Under District of Columbia law, is a client bound by a settlement agreement negotiated by her attorney when the client has not given the attorney actual authority to settle the case on those terms but has authorized the attorney to attend a settlement conference before a magistrate judge and to negotiate on her behalf and when the attorney leads the opposing party to believe that the client has agreed to those terms.

Makins v. District of Columbia, 349 U.S.App. D.C. 303, 312, 277 F.3d 544, 553 (2002).

For reasons set forth below, we answer the question in the negative. In so doing, we confine our analysis to the undisputed facts and those recited in the certified question.¹

I.

In November 1998, Brenda Makins, represented by John Harrison, Esquire, brought an action against the District of Columbia in the United States District Court for the District of Columbia claiming sex discrimination and retaliatory firing, in violation of Title VII (42 U.S.C. §§ 2000e et seq.). Makins had been employed in the District’s Department of Corrections from 1995 until her discharge in 1997. Her complaint sought reinstatement, compensatory damages, and attorney’s fees.

In the summer of 2000, at a pre-trial conference, the district judge referred Ma-kins’ case to a magistrate judge “for settlement purposes only” and ordered the District to “have present at all settlement meetings ... an individual with full settlement authority.” A similar admonition was absent as to Ms. Makins. A few days later, the magistrate ordered the “lead attorney(s) for the parties” to appear before him for a settlement conference; the order required that the “parties shall either attend the settlement conference or be available by telephone for the duration of the settlement conference.”

When the conference took place, Makins was not present. After two and a half hours of negotiations, Harrison and the attorneys for the District reached an agreement. Makins would receive $99,000 and have her personnel records amended from “discharged” to “resigned” (to preserve her retirement benefits if she were able to obtain other creditable employment). In return, Makins would dismiss her claims against the District. Mr. Harrison left the hearing room with cell phone in hand, apparently to call Ms. Makins. When he returned, the attorneys “shook hands” on the deal and later reduced it to writing. A few days later, when Harrison presented Makins with a copy for her signature, she refused to sign it. The District then filed a Motion to Enforce Settlement. Makins retained another attorney, and the court held an evidentiary hearing in which Harrison, Makins, and the lead attorney for the District testified.

The testimony of Makins and Harrison was at odds respecting whether Harrison had been given authority to settle absent a provision for her reinstatement to her job. The District Court, observing this “sharp conflict” in testimony, declined to resolve it. Instead, the court assumed arguendo that Harrison did not have actual authority to settle the case short of reinstatement. The court granted the District’s motion to enforce the settlement on the alternative ground that Harrison had apparent authority to bind Makins to the agreement. The court saw “no justification for the District of Columbia not to reasonably believe that Mr. Harrison had the full confidence and authority of his client.”

II.

There is arguably some inconsistency as to the extent of authority required of an attorney in settlement negotiations.² Indeed, a review of relevant case law and principles enunciated by the American Bar Association and the American Law Institute demonstrate some differences not only over the extent of authority, but also the appropriate definitions of authority. To the extent that there tends to be this inconsistency among the cases, it reflects, in part, a difference in the application or integration of agency law with legal ethics principles, the attorney-client relationship and policy considerations.

This dissonance may in part be seen as a result of the intersection of ethical guidelines and rules governing the client-lawyer relationship and the relationship of a principal to her agent in the context of settlement agreements. On the one hand, the District of Columbia Code of Professional Responsibility Ethical Consideration 7-7 provides that it is the exclusive authority of “the client to decide whether [s]he will accept a settlement offer Similarly, District of Columbia Rule of Professional Conduct 1.2(a) (2001) provides that a “lawyer shall abide by a client’s decision whether to accept an offer of settlement of a matter.”³ On the other hand, “it is well established that settlement agreements are entitled to enforcement under general principles of contract law”, Goozh v. Capitol Souvenir Co., 462 A.2d 1140, 1142 (D.C.1983) (quoting Brown v. Brown, 343 A.2d 59, 61 (D.C.1975)). Agency principles are applied to determine whether the attorney or agent had authority to bind his principal to the settlement contract. See, e.g., Bronson, supra note 3, 404 A.2d at 960; Feltman v. Sarbov, 366 A.2d 137, 139 (D.C.1976). Of course, an attorney can settle his Ghent’s case if he or she has actual authority to do so. See United States v. Beebe, 180 U.S. 343, 352, 21 S.Ct. 371, 45 L.Ed. 563 (1901); Bronson, supra note 3, 404 A.2d at 963; Edwards v. Born, Inc., 792 F.2d 387, 389 (3d Cir.1986). Agency principles also recognize the authority of the agent to bind the client based on the doctrine of apparent authority.

The Restatement (Seoond) of Agenoy § 8 (1958) defines apparent authority as “the power to affect the legal relations of another person by transactions with third persons, professedly as an agent for the other, arising from and in accordance with the other’s manifestations to such third persons.” Thus, unlike actual authority, apparent authority does not depend upon any manifestation from the principal to her agent, but rather from the principal to the third party. Restatement (Seoond), supra, § 27, cmt. a. This court has stated that apparent authority arises when a principal places an agent “in a position which causes a third person to reasonably believe the principal had consented to the exercise of authority the agent purports to hold. This falls short of an overt, affirmative representation by a principal .... ” Feltman, supra, 366 A.2d at 139 (citing Drazin v. Jack Pry, Inc., 154 A.2d 553, 554 (D.C.1959)). In such circumstances, an agent’s representations need not expressly be authorized by his principal. The apparent authority of an agent arises when the principal places the agent in such a position as to mislead third persons into believing that the agent is clothed with the authority which in fact he does not possess. Id. at 140. Apparent authority depends upon “the third-party’s perception of the agent’s authority.” Sigal Construction Corp. v. Stanbury, 586 A.2d 1204, 1219 (D.C.1991) (citing Restatement (Seoond), supra, § 27) (other citation omitted). The third party’s perception may be based upon “written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on [her] behalf by the person purporting to act for [her].” RESTATEMENT (Seoond), supra, § 27.

We reiterate that apparent authority is an established doctrine in this court’s jurisprudence, and that settlement agreements are enforceable under general contract principles. But because apparent authority depends upon the principal’s manifestations to the third party, the issue before us is what conduct by a client in the settlement context is sufficient reasonably to cause a third person to believe that the attorney representing the client has full, final settlement authority, rather than something short of that. Whether an agent had apparent authority is a question of fact and the party asserting the existence of apparent authority must prove it. Feltman, supra, 366 A.2d at 140 (citing Rustler’s Steak House v. Environmental Assoc., Inc., 327 A.2d 536 (D.C.1974); McDonald v. Stone, 86 A.2d 624 (D.C.1952)). In determining whether the agent had apparent authority to bind the principal, “[c]onsideration should be given, inter alia, to the actual authority of the agent, the usual or normal conduct of the agent in the performance of his or her duties, previous dealings between the agent and the party asserting apparent authority, any declarations or representations allegedly made by the agent, and lastly, the customary practice of other agents similarly situated.” Management Partnership, Inc. v. Crumlin, 423 A.2d 939, 941 (D.C.1980). We take as a given that a third party in the shoes of the District of Columbia would reasonably assume that Makins had authorized attorney Harrison (1) to attend the settlement conference, and (2) to negotiate on her behalf; neither Makins nor amicus contends otherwise. We hold, however, that absent further manifestations by Makins- — not Harrison- — -which are not contained in the certified question, there was insufficient conduct by the client to support a reasonable belief by the District that Harrison had full and final authority to agree to the settlement terms.

As pointed out, in the District of Columbia the decision to settle belongs to the client, see D.C. Rule of Prof. Conduct 1.2(a) (2004), a fact confirmed by our decisions. In Bronson, supra note 3, 404 A.2d at 960, for example, an attorney brought a declaratory judgment action to enforce a purported settlement agreement against the client. This court refused to bind the client to the agreement, because the decision to accept the agreement was the client’s and not the attorney’s. “[Regardless of the good faith of the attorney,” we stated, “absent specific authority, an attorney cannot accept a settlement offer on behalf of a client.” Id. at 96B. In In re Hager, 812 A.2d 904 (D.C.2002), similarly, we sanctioned an attorney for violating a number of ethical rules relating to a purported settlement, including the principle that “ ‘[a] client’s right to accept or reject a settlement offer is absolute Id. at 919 (quoting D.C. Bar Opinion 289). The Restatement (Third) of the Law Governing Lawyers echoes these ethical principles, observing that “[a]s between client and lawyer ... the following and comparable decisions are reserved to the client except when the client has validly authorized the lawyer to make the particular decision: whether and on what terms to settle a claim .... ” Restatement (Third) of the Law Governing Lawyers § 22 (2000). It is a principle of long standing that the decision to settle a claim belongs to the client and not the attorney. Beebe, supra, 180 U.S. at 351-52, 21 S.Ct. 371 (citations omitted). Retention of the attorney by itself is insufficient to bestow actual or apparent authority. Id. (“[T]he utter want of power of an attorney, by virtue of his general retainer only, to compromise his client’s claim, cannot, we think, be successfully disputed.”); Bronson, supra note 3, 404 A.2d at 963 (“[Ajbsent specific authority, an attorney cannot accept a settlement offer on behalf of a client.”); Fennell v. TLB Kent Co., 865 F.2d 498, 502 (2d Cir.1989) (“A client does not create apparent authority for his attorney to settle a case merely by retaining an attorney.”); Edwards, supra, 792 F.2d at 390 (It is well settled that an attorney does not have the authority to compromise the client’s claim simply by virtue of his retention for the litigation.).

The Restatement (Third) further confirms the generally accepted distinction between the power to conduct negotiations and the power to end the dispute. See id. Conducting settlement negotiations is properly in the attorney’s domain: “[i]n the absence of a contrary agreement or instruction, a lawyer normally has authority to initiate or engage in settlement discussions, although not to conclude them ....” Id. § 22 cmt. C. Concluding those settlement negotiations, however, is strictly the client’s prerogative: “[tjhe decision to settle is reserved to the client ... because a settlement definitively disposes of client rights.” Id. § 22 cmt. D; see also Auvil v. Grafton Homes, Inc., 92 F.3d 226, 227-28 (4th Cir.1996) (“While the record facts support the conclusion that Auvil manifested his attorney’s authority to negotiate a settlement, we do not agree that they support the conclusion that Auvil manifested his attorney’s authority to execute a settlement agreement.”) (emphasis in original).

These ethical principles are key to the issue before us, because they not only govern the attorney-client relationship, they inform the reasonable beliefs of any opposing party involved in litigation in the District of Columbia, as well as the reasonable beliefs of the opposing party’s counsel, whose practice is itself subject to those ethical constraints. It is the knowledge of these ethical precepts that makes it unreasonable for the opposing party and its counsel to believe that, absent some further client manifestation, the client has delegated final settlement authority as a necessary condition of giving the attorney authority to conduct negotiations. And it is for this reason that opposing parties— especially when represented by counsel, as here — must bear the risk of unreasonable expectations about an attorney’s ability to settle a case on the client’s behalf. ‘When a lawyer purports to enter a settlement binding on the client but lacks authority to do so, the burden of inconvenience resulting if the client repudiates the [unauthorized] settlement is properly left with the opposing party, who should know that settlements are normally subject to approval by the client and who has [received] no manifested contrary indication from the client.” Restatement (Third), supra, § 27 cmt. D (emphasis added). See Management Partnership, supra, 423 A.2d at 941 (Pertinent to the determination of apparent authority is “the customary practice of other agents similarly situated.”). .

Applying these principles, we conclude that the two client manifestations contained in the certified question — sending the attorney to the court-ordered settlement conference and permitting the attorney to negotiate on the client’s behalf— were insufficient to permit a reasonable belief by the District that Harrison had been delegated authority to conclude the settlement. Some additional manifestation by Makins was necessary to establish that she had given her attorney final settlement authority, a power that goes beyond the authority an attorney is generally understood to have. The District, in its briefs, points only to actions and representation of record by Harrison, not Makins, as support for the reasonableness of its belief. Thus, it asserts that “Mr. Harrison represented that Ms. Makins was available by telephone and that he would consult with her when appropriate”; that “Mr. Harrison spoke on his cell phone with plaintiff at least three times during the conference”; and that “[a]t one point, Mr. Harrison left the room to phone plaintiff about the defendant’s latest settlement proposal, and returned, phone in hand, to accept the proposal with one new condition regarding amendment of personnel forms.” All of this information (including information purportedly about the client, Makins) was known to the District of Columbia only through representations made by Harrison, the attorney.⁴ As the Circuit Court stated in certifying the question to us: “Neither the District nor the magistrate ever heard from Makins, in person or by telephone. What the District derives from the telephone calls between Makins and Harrison amounts to nothing more than Harrison’s representations of — and the District’s educated guesses about — what was said in private between them, a disputed factual question the district court did not resolve.” Makins, 349 U.S.App. D.C. at 810, 277 F.3d at 551. Harrison’s conduct and representations about his own authority, in short, are not dispositive to whether Makins herself furnished the basis for a reasonable belief that he was authorized to conclude the settlement. See Fennell, supra, 865 F.2d at 502 (“Second Circuit case law ... explicitly rejects the notion that an agent can create apparent authority by his own actions or representations.”); Evans v. Skinner, 742 F.Supp. 30, 33 (D.D.C.1990) (“The defendants have only recited communications from the plaintiffs former attorney stating his belief that he had authority, but it is clear that an ‘agent cannot by his own acts imbue himself with apparent authority.’ ”) (quoting Fennell, supra, 865 F.2d at 503) (emphasis in Evans).

At the en banc argument, counsel for the District characterized the record as showing that Makins “sent” Harrison to the settlement conference, thus manifesting to the court and the District his apparent authority to settle her claim. But Makins had little choice, short of discharging Harrison, except to allow him to continue to represent her in the negotiations at the ordered conference. To execute a settlement agreement then and there is quite another matter.

Since Ms. Makins, as principal, did not make any manifestation of authority to the District’s attorneys, other than retaining Harrison, under the facts as certified in the question, a finding of apparent authority is precluded under the law of this jurisdiction. The District also presents several policy arguments supporting enforcement of settlement agreements on apparent authority grounds, none of which we find compelling. To be sure, settlement of disputes, both in trial courts and on appeal, is to be encouraged as sound public policy. Paul v. Bier, 758 A.2d 40, 56 (D.C.2000) (Schwelb, J., dissenting) (citing Autera v. Robinson, 136 U.S.App.D.C. 216, 218, 419 F.2d 1197, 1199 (1969)). However, we are not persuaded that the settlement process will be impeded simply by requiring some manifestation of the client’s authorization to support a claim of apparent authority in these cases where the client challenges the authority of his attorney to settle the claim. In addition, “[a]pparent authority is an equitable doctrine that places the loss on one whose manifestations to another have misled the latter.” Edwards, supra, 792 F.2d at 391; see also Restatement (ThiRd), supra, § 27 cmt. D (As between the client and the third party, the third party should bear the risk of an unauthorized settlement because the third party “should know that settlements are normally subject to approval by the client.”). Our holding is consistent with this principle. Since Ma-kins manifested nothing by words or conduct on which reliance could be placed (she merely continued to retain Harrison), our answer to the certified question is not erosive to that policy.

We answer the certified question in the negative.

1 . The panel decision was filed on December 18, 2003, Judge Ruiz dissenting; Judge Terry and Senior Judge Nebeker were in the majority. It answered the question in the negative, but on different reasoning, arguably leaving no room for apparent authority in court ordered settlement conferences where a party did not attend. On the District’s petition, we vacated the panel opinions and granted en banc reconsideration, appointed the amici, and heard oral argument on June 29, 2004. Makins v. District of Columbia, 838 A.2d 300 (D.C.2003), vacated and reh'g en banc granted, 2004 D.C.App. Lexis 198.

2 . See generally Jeffrey A. Parness & Austin W. Bartlett, Unsettling Questions Regarding Lawyer Civil Claim Settlement Authority, 78 Or. L. Rev. 1061 (1999); Grace M. Giesel, Enforcement of Settlement Contracts: The Problem of the Attorney Agent, 12 Geo. J. Legal Ethics 543 (1999).

3 . Placing emphasis on the client’s authority also finds some support in our case law. See Bronson v. Borst, 404 A.2d 960 (D.C.1979); Ashley v. Atlas Mfg. Co., 7 F.R.D. 77 (D.D.C.1946), affd, 82 U.S.App. D.C. 399, 166 F.2d 209 (1947).

4 . Some of the cases cited by the District in support of apparent authority are distinguishable on the facts. Although the courts in Ashley and Navajo Tribe found the attorneys had apparent authority to settle, the clients in those cases were present in the courtroom. Ashley, supra note 3; Navajo Tribe of Indians v. Hanosh Chevrolet-Buick, Inc., 106 N.M. 705, 749 P.2d 90 (1988). There is an important difference between a settlement reached where the client is present, and therefore has an opportunity to be heard on the matter by all parties, and the case at hand. Signal Construction, supra, based apparent authority in a uniform business custom that a construction project manager acts within the scope of his employment in giving an employment reference to another construction company. 586 A.2d at 1219. In Feltman, supra, the court determined that there was sufficient evidence to allow submission of the issue of apparent authority to the jury where there was evidence not only of the agent's authorization to the attorney to negotiate the lease but also a holding out by the client of his attorney as the person with whom the third party should deal and, significantly, a prior course of conduct between the parties with regard to previous negotiation and leasing of the same property. 366 A.2d at 140. Management Partnership, supra, 423 A.2d at 939, involved a determination of apparent authority of an employee with respect to a lease agreement. None of these cases addressed the special circumstances of a settlement conference and of the appropriate distinctions between manifestations of authority in employer/employee relationships and the conveyance of authority in the lawyer/client relationship (which, as noted, necessitates our consideration of ethical conduct and professional responsibility guidelines in addition to contract and agency principles). While the opinions may be somewhat cryptic as to their facts, we do not construe them as deviating from the rule that apparent authority in the agent depends on whether the principal conveyed the impression of such authority to the third party.