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Court Compels Settlement Based on Attorney’s Assent and Despite Client Protests

By Tiffany M. Williams, Litigation News Associate Editor – May 10, 2011

A recent decision from the U.S. District Court of Montana examines when a court can compel settlement after a party settles in principle, but then reconsiders before executing a written agreement. United States Fidelity & Guaranty Co. & Continental Ins. Co. v. Soco West, Inc. [PDF]. The decision also highlights the problems that occur when clients and their counsel fail to clearly communicate about the details of settlement agreements.


A month before trial in this “marathon coverage dispute,” counsel began settlement negotiations. After those negotiations stalled, the principals of the defendant, Soco, and the plaintiff insurers continued settlement discussions between themselves. In a string of emails between the parties’ principals, exhaustively examined by the district court, the parties negotiated the material terms of the settlement agreement including definitions of the parties that would include Soco’s “parents” and “affiliates.”


Soco’s president edited the language to make the definition apply “for purposes relating to this release only” but apparently did not otherwise quarrel with the terms. The parties subsequently agreed that there was a settlement in principle and advised the district court of that fact. In its decision, the district court pointedly noted that neither party manifested an intent to be bound by the settlement agreement only “upon the execution of a written agreement.”


The Client’s Change of Heart
After the district court ordered that a final stipulation of dismissal be filed within 30 days, the parties exchanged drafts of a written settlement agreement through their counsel. Soco’s outside counsel conveyed in an email to the insurer’s counsel that the settlement agreement releasing the insurers from liability against Soco and its parents and affiliates was “acceptable to Soco” and that Soco would execute it “in this form.” Two days later, however, Soco refused to execute the agreement. Soco’s in-house counsel had raised concerns that the release provision needed to be amended because it implicated affiliates that Soco had no authority to bind.


Rationale for Compelling Settlement
In reaching its decision to bind Soco to the agreement, the district court reaffirmed the settled principle under Montana law that a party is bound to a settlement agreement if he or she manifested assent to the terms and did not manifest intent not to be bound. Although the decision to settle rests with the client, the district court stated, “it is presumed that an attorney-of-record who enters into a settlement agreement had authority to do so.” The district court concluded that Soco’s attorney was duly authorized as the attorney of record and had not overreached his authority in conveying his client’s assent; that Soco failed to promptly disavow its attorney’s actions by waiting 20 days after the agreement in principle to raise the issue; and that Soco knew that the insurers were bargaining for a complete release of liability and could have obtained authorization from its affiliates before agreeing in principle.


Practical Implications
Section leaders, while not surprised by the result, had some practical advice for litigators, especially less experienced litigators. The duty to communicate all settlement proposals to the client requires “extreme caution that you are fully and completely communicating with the client and conveying the client’s position to the other side with scrupulous accuracy,” says Abbe F. Fletman, Philadelphia, a division director of the ABA Section of Litigation. Fletman adds that ensuring such clarity helps to avoid arguments after the fact regarding whether a settlement actually occurred. Clearly, the district court focused on Soco’s failure to advise the court that it did not intend to be bound to any settlement agreement until a written agreement was actually executed.


“My advice for a young lawyer is that before you make any key commitments on behalf of your client, you must make sure that the client is fully on board, which may require the approval of more than one person at an organization,” notes Michele D. Hangley, Philadelphia, cochair of the Section of Litigation’s Ethics and Professionalism Committee.


Clear communication on the bounds of a lawyer’s settlement authority will protect both the client and the lawyer from being forced into a settlement the client does not want. “Walking away when settling isn't in your client's best interests reinforces the value of clear and effective communication with the client before entering into settlement discussions,” says Elizabeth K. Acee, New Haven, CT, a member of the Section’s Young Lawyer Leadership Program.


Keywords: litigation, compelling settlement, settlement agreement, ethics


 
Related Resources

  • » Montana Home LLC v. BNSF Ry. Co., 287 Fed.Appx. 596 (9th Cir. 2008).
  • » Lockhead v. Weinstein, 81 P.3d 1284 (2003).
  • » In re Artha Management, Inc., 91 F.3d 326 (2d. Cir. 1996).

 

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