An attorney has a lot of leeway in determining the way to proceed during the course of a lawsuit. However, one specific area that an attorney needs authority from his or her client is during negotiations for a settlement. An attorney needs his or her client to specifically approve any settlement offer made or accepted in order for the settlement to be legally binding.
There were multiple defendants. The attorneys for the parties were negotiating settlement of the claims. An oral agreement was reached on settlement. However, it would become clear that the parties and their attorneys disagreed as to which parties the settlement agreement related.
The facts as stated in the Court‘s opinion are as follows. The defense attorney sent over a settlement agreement with a full release of claims pertaining to all defendants. The plaintiff‘s attorney immediately contacted the defense attorney expressing disagreement with the release of all parties specifically stated that it was not agreed or anticipated that Jones-Wilson (Defendant) would be released under the settlement agreement.
It appears from the Court‘s opinion that the plaintiff‘s attorney communicated to the defense attorney that his client would not sign the release due to the release of Defendant. He expressed to the defense attorney that this had never been part of the negotiation. Because the parties could not agree on the settlement terms, the plaintiff filed suit. After a suit was filed, Defendant filed a motion to enforce the settlement agreement.
The district court judge found that the agreement was enforceable. This is rather surprising in light of the fact that the negotiations were strictly oral in nature and the agreement had not been signed. There seems to be no clearer indication of the absence of an agreement than the absence of a signed agreement. Except here where there was also a clear expression that there was agreement.
The Court of Appeals reversed the district court. When a party wants to enforce a settlement agreement, that party must prove that the opposing party agreed to the settlement. The opposing party is the client in these cases, not the attorney. The client must give his or her or her attorney express permission to settle a claim. In the absence of authority, any settlement that the attorney agrees to is invalid unless the client then subsequently ratifies it through signature of the agreement.
The court further stated that the party seeking to enforce the agreement “has the burden of establishing assent by the opposing party…and that if there is an issue as to whether there was authorization, the party seeking enforcement of an alleged settlement agreement has the burden of establishing authorization.”
Since the burden rested with the defendant in this case, he was required to provide evidence that the plaintiff‘s actions or his attorney‘s actions would indicate that authority existed to settle the claims against the defendant. In this case, it was found that there was no such evidence and at least in this case the defendant‘s attorney could not have possessed any information about the plaintiff‘s wishes or his communications thereon to his attorney.
The Court got to the heart of the matter when it stated:
“Oral settlement negotiations provide fertile ground for miscommunication or misunderstanding, and it is not surprising that two parties to a phone call would have different perceptions of the agreed-upon terms. As a result, it makes sense that the law requires some affirmative indication from each client that his or her attorneys had the appropriate authority to settle before a settlement agreement is enforced.”
In fact, it would be an odd outcome to allow parties to be bound strictly by unsubstantiated one-sided assertions of an oral agreement made over the telephone. This would obviously lead to all manners of abuse. Best case, there might be innocent misunderstandings regarding the terms of settlement. Should an innocent misunderstanding committed to writing then be fully enforceable? If the answer is yes, how then does one distinguish between the innocent misunderstanding and the many other varieties?
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