Koval v. Simon-Telelect, Inc.

• Decision Date: 14 August 1997
• Docket Number: No. 3:92-CV-505RM.,3:92-CV-505RM.
• Citation: 979 F.Supp. 1222
• Parties: Michael E. KOVAL and Jean M. Koval, Plaintiffs, v. SIMON-TELELECT, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

979 F.Supp. 1222

Michael E. KOVAL and Jean M. Koval, Plaintiffs, v. SIMON-TELELECT, INC., et al., Defendants.

No. 3:92-CV-505RM.

United States District Court, N.D. Indiana, South Bend Division.

August 14, 1997.

COPYRIGHT MATERIAL OMITTED

David C. Jensen, John M. McCrum, Paul A. Rake, Eichhorn Eichhorn and Link, Hammond, IN, for Michael E. Koval and Jean M. Koval.

Mark D. Boveri, Barnes and Thornburg, South Bend, IN, Andrew J. Detherage, Michael

R. Conner, Barnes and Thornburg, Indianapolis, IN, Larry Klayman, Paul J. Orfanedes, Klayman and Associates, Washington, DC, for Simon-Telelect, Inc., Simon United States Holdings, Inc.

Robert J. Konopa, Konopa and Murphy PC, South Bend, IN, for JGB Industries, Inc., Baker Equipment Engineering Co., Baker Equipment Leasing Co.

Philip E. Kalamaros, Edward N. Kalamaros & Associates, South Bend, IN, for Henkels & McCoy/Liberty Mutual Ins. Co.

MEMORANDUM AND ORDER

MILLER, District Judge.

Michael and Jean Koval filed a motion to enforce a settlement agreement reached among various parties in and related to this case during a September 18, 1996, mediation. The court held a hearing on the Kovals' motion on November 25, 1996, heard oral argument from the parties, and set a briefing schedule that included the filing of stipulated facts. The court then issued a proposed order for comment, and comments and objections were filed.

The court adopts the parties' stipulated facts, filed on December 3. Michael Koval was injured on August 13, 1991 while using an aerial lift device made by Simon-Telelect, Inc. and distributed by the Baker defendants. At the time of his injuries, Mr. Koval was acting in the course and scope of his employment with Henkels & McCoy, Inc., an electrical contracting firm that is not a party to this lawsuit, but which has consented to the court's resolution of the settlement issue. Henkels & McCoy was partially self-insured; Liberty Mutual Insurance Company was its worker's compensation carrier. Mr. Koval's ensuing medical bills were paid through Liberty Mutual, as were temporary total disability benefits. The medical and disability payments totaled $299,609.06; Liberty Mutual holds a worker's compensation lien for $49,609.06, while Henkels & McCoy holds a worker's compensation lien for $250,000.00.

Mr. Koval filed a worker's compensation claim against Henkels & McCoy on July 27, 1992. Liberty Mutual retained the law firm of Edward N. Kalamaros & Associates to defend the workers' compensation claim; the Kalamaros firm appeared for Henkels & McCoy before the Indiana Worker's Compensation Board on September 22, 1992. Mr. Koval filed this product liability suit against Simon-Telelect and the Baker defendants (and eventually, United States Holdings, Inc.) on August 4, 1992. The Baker defendants filed bankruptcy in the Eastern Division of Virginia on September 1, 1995, and these proceedings were stayed.

The Kovals and the Simon defendants reached a tentative settlement in April 1996, under which the Simon defendants would pay $250,000.00. The agreement was contingent on the Baker defendants' dismissal of an indemnity cross-claim against Simon-Telelect. The Kovals' counsel discussed the possibility of mediation with the Baker defendants. In June 1996, counsel for the Kovals (John McCrum), the Baker defendants (Robert Konopa) and Liberty Mutual and Henkels & McCoy (Joseph Forte of the Kalamaros firm) agreed to engage in mediation with attorney Ronald Kuker. The mediation was set for September 18. On June 12, Mr. Kuker sent a letter to counsel that included a form entitled "Terms of Mediation," which included the following:

7. The following persons shall be present at the mediation unless otherwise agreed by the parties and the mediator: (a) all claimants; (b) all defendants, if there is reason to believe that the defendants may be exposed to personal liability; (c) the attorneys for the parties; (d) the representatives of the parties' insurers, such representatives having full settlement authority; and (e) any other persons deemed necessary by the parties to reach full settlement of the dispute.

8. If the parties come to any agreement, the mediator will put such agreement in writing. No agreement will be binding on any party as to any subject, unless in writing, and signed by those to be bound by the agreement. Any agreement signed by the parties constitutes evidence that may be introduced in litigation. If any party should attempt to break or question any agreement, or seeks any other remedy regarding the mediation, then such party shall be responsible for the mediator's fees plus attorney fees, court costs and other costs and expenses incurred by the mediator as a result of such proceedings.

On June 28, Mr. Kuker wrote to Mr. Forte of the Kalamaros firm recommending that someone from the Kalamaros firm and a representative of the lienholder attend the mediation. Mr. Kuker added, "As I understand it, Liberty Mutual is the lienholder."

On September 13, Liberty Mutual advised counsel that Carolyn Young would be their representative at the mediation, and that she would have final compromise authority on the lien. This communication led counsel for Liberty Mutual and Henkels & McCoy to believe that Ms. Young had full compromise authority for both lienholders. Ms. Young so believed, as well. On September 17, the bankruptcy court entered an order allowing the mediation.

The mediation conference was held on September 18. Mr. and Mrs. Koval attended with their attorney, Mr. McCrum; the Baker defendants were represented by their representative, Ingrid Halvorsen, and their attorney, Mr. Konopa; Ms. Young and attorney Eric Ciesielski represented Liberty Mutual and Henkels & McCoy. Neither Mr. Ciesielski nor Ms. Young indicated that their authority to settle the worker's compensation lien was restricted or subject to Henkels & McCoy's approval, but the agreement between Liberty Mutual and Henkels & McCoy gave Liberty Mutual no authority to compromise the liens without Henkels & McCoy's prior approval. At the close of the mediation conference, Ms. Young stated that the worker's compensation liens would be compromised for the payment of $25,000.00 by the Kovals to Liberty Mutual. An agreement was reached under which the worker's compensation liens would be compromised for $25,000.00; the Baker defendants would pay the Kovals $250,000.00 and to dismiss their cross-claim against Simon-Telelect; the Simon defendants would pay the Kovals $250,000.00; the Kovals would dismiss their claims against the defendants in this lawsuit and Henkels & McCoy.

On September 26, Mr. Kuker reported to the court that a settlement had been reached, with stipulations and dismissals being exchanged. On September 27, the Kovals' counsel told Liberty Mutual's counsel that a release and waiver for the compromise of the worker's compensation lien was being sent. Liberty Mutual's counsel received those papers on October 4 and forwarded them to Liberty Mutual on October 9. At about the same time, counsel for the Simon defendants began circulating a global release for signatures of all interested parties and claimants. Counsel for the Baker defendants filed a motion in the bankruptcy court on October 22 for approval of the proposed settlement. The bankruptcy court conducted a hearing on that motion on November 12 and entered an order approving the settlement the following day.

Meanwhile, on October 29, Liberty Mutual had informed its attorney that it needed Henkels & McCoy's approval to compromise the worker's compensation claim. On November 13, the day the bankruptcy court approved the proposed settlement, the Kovals' counsel asked Liberty Mutual's counsel about the status of the release, and was informed that Liberty Mutual was awaiting authority from Henkels & McCoy to compromise the claim. On November 19, Henkels & McCoy told its attorney that it was unaware of the September 18 mediation, had not authorized that day's compromise of its claim, and would not authorize it. Counsel for Liberty Mutual relayed that message to the Kovals' counsel the next day, and also made an offer to the mediator, Mr. Kuker, to pay all parties' mediation costs and reasonable attorney fees, and to participate in a second mediation.

"A settlement agreement is merely a contract between the parties to the litigation," and the parties' dispute regarding the settlement agreement at issue is therefore governed by Indiana contract law. Carr v. Runyan, 89 F.3d 327, 331 (7th Cir.1996). Similarly, Indiana agency law governs the authority of the mediation participants. Under Indiana agency and contract law, a principal will be bound by a contract its agent enters into on its behalf only if the agent had actual or apparent authority, or if the principal subsequently ratifies the agreement. Id. Actual authority exists where the principal has authorized the agent to enter into such a contract on its behalf. Carr v. Runyan, 89 F.3d at 331. The authorization may be explicit, given orally or in writing, or implicit, given by actions by the principal that would lead a reasonable agent to believe he possessed such authority. Id.

The court agrees with Henkels & McCoy that neither Liberty Mutual nor Ms. Young had actual authority to bind Henkels & McCoy; Henkels & McCoy held a lien and invested Liberty Mutual with no authority to compromise it. The court also agrees that Henkels & McCoy did nothing to manifest to third parties, such as the Kovals, that Liberty Mutual had the authority to compromise its lien; accordingly, Liberty Mutual had no apparent authority to do so. Apparent authority exists when a principal holds a third party out as its agent; such a principal is liable for the agent's negligent acts. Sword v. NKC Hospitals, Inc., 661 N.E.2d 10, 12-13 (Ind.Ct.App.1996), trans. granted, Oct. 7, 1996; see also Carr v. Runyan, 89 F.3d at 33 1-332. Apparent agency arises, if at all, "by a manifestation of the principal," w...