Koval v. Simon Telelect, Inc., 94S00-9710-CQ-552
| Citation | 693 N.E.2d 1299 |
| Decision Date | 31 March 1998 |
| Docket Number | No. 94S00-9710-CQ-552,94S00-9710-CQ-552 |
| Parties | Michael E. KOVAL and Jean M. Koval, Appellees (Plaintiffs Below), v. SIMON TELELECT, INC., et al., Appellants (Defendants Below). |
| Court | Supreme Court of Indiana |
Philip E. Kalamaros, South Bend, for Appellants.
David C. Jensen, John M. McCrum, Hammond, for Appellees.
The United States District Court for the Northern District of Indiana has requested our response to two certified questions set out below.
The certified questions arise out of a products liability suit in federal court by Michael and Jean Koval against both the manufacturer and distributer of a device that allegedly caused injuries to Michael in the course of his employment. Michael's employer, Henkels & McCoy ("H & M"), and H & M's insurance carrier, Liberty Mutual, paid Michael's medical and disability benefits under the Indiana workers' compensation law and thereby acquired liens on any recovery by the Kovals. The certified questions result from a settlement agreement reached at a mediation attended by persons who seemingly believed they represented all interested parties. One of those was an attorney apparently representing both H & M and Liberty Mutual, who agreed to a settlement that compromised the interests of both the employer and the insurer. H & M had not authorized Liberty Mutual or the attorney to settle and later refused to agree to the settlement. The terms of the mediation required that each party be represented by a person with settlement authority. Although the terms of the mediation included a requirement that the parties sign any settlement in writing before they would be bound, the district court concluded that subsequent events could waive this provision. After a hearing on the Kovals' motion to enforce the settlement agreement, the court certified two questions to this Court. Koval v. Simon-Telelect, Inc., 979 F.Supp. 1222 (N.D.Ind.1997). For a detailed factual background, see id. at 1225-26.
The first question is:
If an attorney settles a claim as to which the attorney has been retained, but does so without the client's consent, is the settlement binding between third parties and the client?
The answer to this question is the same as to many others: it depends. An attorney's authority may be derived from the conduct of the client, either with respect to the third parties who deal with the attorney or with respect to the attorney. It may also derive from the nature of the proceedings in which the attorney represents the client and enters into a settlement agreement. In order to bind the client the attorney must have either express, implied, or apparent authority, or must act according to the attorney's inherent agency power. For the reasons explained below, we conclude that the sole act of retaining an attorney does not give the attorney the implied or the apparent authority to settle or compromise a claim in an out of court proceeding. Specifically, retention in and of itself neither confers the implied authority to settle a claim, nor is it a manifestation by the client to third parties such that the attorney is clothed with the apparent authority to settle. However, under longstanding Indiana authority, retention does equip an attorney with the inherent power to bind a client to the results of a procedure in court. We hold that for purposes of an attorney's inherent power, a procedure governed by Indiana's Rules for Alternative Dispute Resolution (the "ADR rules") is a procedure "in court" if the parties are expected to appear by representatives with authority to resolve the matter. Accordingly, in the absence of a communication of lack of authority by the attorney, as a matter of law, an attorney has the inherent power to settle a claim when the attorney attends a settlement procedure governed by the ADR rules.
"Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal's manifestations of consent to him." RESTATEMENT (SECOND) OF AGENCY § 7 (1958). Authority can be express or implied and may be conferred by words or other conduct, including acquiescence. Id. at cmt. c. Implied authority can arise from words used, from customs, or from the relations of the parties. Id. The agent is authorized if the agent is reasonable in drawing an inference from the principal's actions that the principal intended to confer authority. Id. at cmt. b. 1 It is well settled that an attorney, by virtue of the representation, becomes a powerful agent with a great deal of authority. Retention confers on an attorney the general implied authority to do on behalf of the client all acts in or out of court necessary or incidental to the prosecution or management of the suit or the accomplishment of the purpose for which the attorney was retained. United Farm Bureau Mut. Ins. Co. v. Groen, 486 N.E.2d 571, 573 (Ind.Ct.App.1985). See also Miedreich v. Rank, 40 Ind.App. 393, 397, 82 N.E. 117, 118 (1907) (). Decisions relating to trial tactics for example--when to object, what motions to file, which arguments to present--or how to negotiate are left to the attorney. See, e.g., Hoffman v. Hoffman, 115 Ind.App. 277, 57 N.E.2d 591 (1944) (). 2
As a general proposition an attorney's implied authority does not extend to settling the very business that is committed to the attorney's care without the client's consent. The vast majority of United States jurisdictions hold that the retention of an attorney to pursue a claim does not, without more, give the attorney the implied authority to settle or compromise the claim. 3 The rationale for this rule is that an attorney's role as agent by definition does not entitle the attorney to relinquish the client's rights to the subject matter that the attorney was employed to pursue to the client's satisfaction. In Indiana, the rule that retention does not ipso facto enable an attorney to settle a claim has a solid if distant foundation. Several older cases either hold or indicate in dicta that an attorney who settles or compromises a claim without express authority from the client does not bind the client. Union Mut. Life Ins. Co. v. Buchanan, 100 Ind. 63, 76 (1885); Combs v. Combs, 56 Ind.App. 656, 660, 105 N.E. 944, 946 (1914); Jennings v. South Whitley Hoop Co., 50 Ind.App. 241, 249, 98 N.E. 194, 196 (1912); Miedreich v. Rank, 40 Ind.App. 393, 397, 82 N.E. 117, 118 (1907); Repp v. Wiles, 3 Ind.App. 167, 171, 29 N.E. 441, 442 (1891). As summed up in Combs, 56 Ind.App. at 660, 105 N.E. at 946:
Where an attorney is acting under an employment to collect a claim or conduct a lawsuit, such employment does not give him authority to compromise such claim or suit [and bind the client] without the consent of the client, except in cases of emergency, where the interests of the client reasonably appear in jeopardy and delay for consultation would seriously imperil such interests.
See also Miller v. Edmonston, 8 Blackf. 291 (1846) (); accord Wakeman v. Jones, 1 Ind. 517 (1849). Some of these cases explicitly focused on the distinction between the implied authority to conduct litigation and the authority to settle a claim. In Miedreich for example, the court described the scope of an attorney's authority as including "all the proceedings in court to enforce the remedy, to bring the demand, cause of action, or subject-matter of the suit to trial, judgment and execution" but also stated that this authority did not extend to an ability to "compromise, settle, surrender, or impair the cause of action, or the subject-matter of litigation without the consent of [the] client." 40 Ind.App. at 397, 82 N.E. at 118 (internal quotation marks and citation omitted). After a long hibernation, in 1996 this general rule was again recognized by the Indiana Court of Appeals in Gravens v. Auto-Owners Ins. Co., 666 N.E.2d 964 (Ind.Ct.App.1996), trans. denied, 683 N.E.2d 586 (Ind.1997) (table). 4 As the Court of Appeals indicated, parties do not normally assume that an attorney in informal negotiations has authority to bind the client. 5 It is not too much to ask that other parties dealing with an attorney verify the authority to settle before they may expect the negotiation with the attorney to bind the client. Accordingly, the general rule in Indiana is that retention of an attorney does not without more carry implied authority to the attorney to settle. 6
Apparent authority is the authority that a third person reasonably believes an agent possesses because of some manifestation from the principal. Pepkowski v. Life of Ind. Ins. Co., 535 N.E.2d 1164, 1166 (Ind.1989). Some form of communication, direct or indirect, from the principal, must instill a reasonable belief in the mind of the third party. Id. at 1167. A communication of authority by the agent is insufficient to create an apparent agency relationship. Jarvis Drilling, Inc. v. Midwest Oil Producing Co., 626 N.E.2d 821, 826 (Ind.Ct.App.1993). Like implied authority, apparent authority to settle is not conferred simply by the retention of an attorney though of course it may be conferred by other actions of the client. Retention by the client is a routine prerequisite to legal representation. It may be a "communication" to third parties that they should prepare for a lawsuit, but beyond that, it tells third parties little.
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