Mid-South Towing Co. v. Har-Win, Inc.

• Decision Date: 04 June 1984
• Docket Number: No. 82-3680,MID-SOUTH,HAR-WI,INC,82-3680
• Citation: 733 F.2d 386
• Parties: TOWING COMPANY, Plaintiff-Appellee, v., et al., Defendants-Appellees, v. OKC CORPORATION LIQUIDATING TRUST, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 386

733 F.2d 386

1985 A.M.C. 658

MID-SOUTH TOWING COMPANY, Plaintiff-Appellee, v. HAR-WIN, INC., et al., Defendants-Appellees, v. OKC CORPORATION LIQUIDATING TRUST, Defendant-Appellant.

No. 82-3680.

United States Court of Appeals Fifth Circuit.

June 4, 1984.

Charles L. Stern, Jr., Phillip A. Wittmann, New Orleans, La., for defendant-appellant.

Robert I. Siegel, Donald A. Hoffman, James R. Holmes, New Orleans, La., for Har-Win, Inc.

J. Kelly Duncan, New Orleans, La., for Mid-South Tow.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BROWN, THORNBERRY and TATE, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This is an appeal from the District Court's enforcement by summary judgment of an agreement to settle a case pending before the Court. The defendant OKC contends that the agreement was invalid for two reasons: (1) OKC's attorney, although believing he had authority to settle the case, actually did not have authority, and (2) even if counsel had authority, the settlement was based on a mistake by OKC regarding the existence of certain evidence. As to the second issue, we hold that if there was a mistake, it was at most a unilateral mistake of fact, which standing alone does not vitiate the settlement. However, because there remained an issue of material fact regarding whether OKC's attorney actually had authority to settle, summary disposition was inappropriate, and we remand for an evidentiary hearing on that issue.

Facts

In June, 1979, Mid-South Towing Corporation (Mid-South) chartered ten of its barges to Har-Win, Inc. (Har-Win), who in turn subchartered them to OKC. ¹ Surveys of the barges were performed by various surveyors both at the beginning and end of the charter. When the barges were returned by Har-Win to Mid-South at the end of the charter period, Mid-South claimed that they had been damaged since delivery to Har-Win and that under the terms of the charter Har-Win was responsible for the expenses of repairs. Mid-South had the repairs made at a cost of about $230,000.

The Gathering Storm

Mid-South filed a complaint against Har-Win in the Eastern District of Louisiana seeking to recover the repair costs, lost charter hire, and survey costs, interest and costs. Har-Win denied liability and filed an admiralty third-party claim under F.R.Civ.P. 14(c) against OKC, who denied any liability to either Mid-South or Har-Win. American Employers' Insurance Company (American Employers'), from whom OKC and Har-Win had obtained a hull policy covering the barges, agreed to defend Har-Win and OKC to the extent of the hull policy's coverage. Har-Win later dismissed the third-party claim against OKC, without prejudice to Mid-South's claim against OKC.

In late August, 1982, Jerry Sawyer, a Dallas, Texas attorney who had been retained by OKC one month earlier to oversee some of its ongoing litigation, learned that potential conflicts existed between OKC and American Employers' with regard to the extent of insurance coverage and the scope of the hull policy deductible. Following a review of OKC's file in the matter, Sawyer forwarded a copy of that file to the New Orleans law firm of Stone, Pigman, Walther, Wittmann & Hutchinson and requested that the firm take the necessary steps to protect OKC's interests. OKC still looked to American Employers' to defend against the merits of the main claim by Mid-South. OKC's New Orleans counsel's duties were limited to monitoring the litigation and representing OKC's interest in any disputes that might arise with American Employers.

Their Finest Hour

Beginning on August 26, 1983, Mid-South, American Employers' and New Orleans counsel for OKC engaged in negotiations for a full and final settlement. Much of this negotiation was between OKC and American Employers' concerning their respective contributions to a settlement with Mid-South. During these negotiations, Sawyer believed that he had authority to settle on behalf of OKC, and Sawyer was informed of and formally approved all actions by the New Orleans counsel whom he had employed. Moreover, Mid-South, American Employers', and OKC's New Orleans counsel were led to believe that Sawyer had authority to settle for OKC. ²

On September 20, 1982, American Employers' and OKC's New Orleans counsel offered Mid-South $150,000, with $100,000 to be funded by OKC ³ and $50,000 by American Employers'. Mid-South accepted this offer by phone the next day. The District Court was immediately notified and in response cancelled the trial scheduled for October 4, 1982. For one pristine moment everyone was happy.

An Attorney's Nightmare

An ominous rumble descended from the lofty heights of the OKC corporate hierarchy. When Sawyer presented the settlement to OKC management, he was informed that he was mistaken in believing that he had authority to make a settlement of this magnitude. Such settlement had to be approved, he was told, by Charles Redwine, Trustee, and his advisors. Sawyer passed this message on to his dismayed local counsel in New Orleans. On September 28, 1982, the District Court was informed of this unsettling news. The storm had broken; but, as to the nightmare, the attorneys had not awoken.

Mid-South filed a motion for summary judgment to enforce the compromise settlement, supported by copies of the various settlement negotiation letters. Arguing in support of the motion, American Employers' deposited in the Registry of the Court its settlement contribution of $50,000. In opposition to the motion, OKC filed an affidavit by Sawyer. In the affidavit, Sawyer admitted that the attorneys, with his knowledge and consent, had agreed to the settlement. He also stated that although he is not an employee of OKC, he had "assisted" OKC "in overseeing some of its litigation." He expressly admitted that he believed that at the time the agreement was made he was "vested with full authority to settle this lawsuit on [OKC's] behalf without seeking approval from higher-level management." However, he stated that "when I presented the settlement to the Trust's management, I learned that I was mistaken and that settlements of the magnitude involved in this case had to be approved by Charles Redwine, Trustee, and his advisors."

As an alternative basis for attacking the settlement, Sawyer argued that he would not have approved the settlement if he had known at that time of the existence of several additional surveys of the barges performed at the end of the charter. He argued that these surveys were more favorable to the positions of OKC and American Employers', and thus the settlement was invalid because based on a mistake of fact.

The District Judge did not hold an evidentiary hearing on the motion, but heard arguments. He took a dim view of the assertions of OKC and Sawyer that Sawyer did not have the authority required by the corporation's internal policies, but he concluded that OKC's New Orleans counsel had "acted in positive, absolute good faith." The District Court declared that he was "firmly of the opinion that the New Orleans attorney had the authority to compromise the case," and that "it is simply a case of a corporate defendant trying to get out of settlement by getting counsel [Sawyer] to say that he didn't know what the internal policies were concerning authority." The motion to enforce the settlement was granted by summary judgment.

Settling Down

A District Court has the power to enforce summarily a settlement agreement reached in a case pending before it. E.g., Strange v. Gulf and South American Steamship Company, 495 F.2d 1235, 1237 (5th Cir.1974). Questions regarding the enforceability or validity of such agreements are determined by federal law--at least where the substantive rights and liabilities of the parties derive from federal law. Fulgence v. J. Ray McDermott & Co., 662 F.2d 1207 (5th Cir.1981) (Title VII); Strange v. Gulf and South American Steamship Company, 495 F.2d 1235 (5th Cir.1974) (general maritime law); Cia Anon Venezolana De Navegacion v. Harris, 374 F.2d 33 (5th Cir.1967) (general maritime law). See also Harmon v. United States, 59 F.2d 372, 373 (5th Cir.1932). Because the claims in this case are premised on federal general maritime law, we apply federal law to decide the validity of the agreement to settle the claims.

Mid-South and American Employers' contend that they were entitled to summary judgment on the settlement even if one accepts as true Sawyer's averment that he was mistaken in believing he had authority to settle this case. They argue that the internal policies of OKC, which were not made known to them or to OKC's New Orleans attorney are immaterial to the validity of the settlement where the opposing parties have relied on counsel's assertion that he had authority to settle for his corporate client. In support of this proposition, Mid-South cites Cia Anon Venezolana De Navegacion v. Harris, 374 F.2d 33 (5th Cir.1967), which is factually similar to this case.

In Cia Anon, a suit was brought in federal court based on maritime law. Counsel for defendant negotiated and agreed to a settlement, indicating to opposing counsel that he had authority from his client to settle. The imminent trial date was cancelled. Soon after, counsel for defendant contacted the plaintiff to inform him that the defendant client was asserting a lack of authority for the settlement. The plaintiff filed a motion to enforce the settlement agreement. The District Court heard testimony and received affidavits on the question of whether counsel for defendant had authority to settle. The defendants filed an affidavit averring that the defendant's claims manager, who had been working with counsel on the case, had purported to give authority to counsel without obtaining the permission of higher corporate officials as required by the defendant's internal policies. The District Court considered this lack of compliance with the internal chain of corporate authority to...