Rheault v. Lufthansa German Airlines

• Decision Date: 15 September 1995
• Docket Number: No. 94-CV-73152-DT.,94-CV-73152-DT.
• Parties: Samuel E. RHEAULT and, Carol L. Rheault, Plaintiffs, v. LUFTHANSA GERMAN AIRLINES, Brigitte Wolf and Werner Kellerhals, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

899 F. Supp. 325

Samuel E. RHEAULT and, Carol L. Rheault, Plaintiffs, v. LUFTHANSA GERMAN AIRLINES, Brigitte Wolf and Werner Kellerhals, Defendants.

No. 94-CV-73152-DT.

United States District Court, E.D. Michigan, Southern Division.

September 15, 1995.

E. Michael Morris, Birmingham, MI, for plaintiff.

Gregory V. Murray, Detroit, MI, for defendant.

OPINION

DUGGAN, District Judge.

Before this Court is plaintiffs' motion to set aside a dismissal order dated March 15, 1995, pursuant to Fed.R.Civ.P. 60(b).

I. Background

Plaintiff Samuel Rheault was employed by Lufthansa German Airlines, and was terminated according to defendants, as part of a work force reduction in 1993. On July 25, 1994, plaintiffs filed suit before this Court alleging that defendants discriminated against Samuel Rheault on the basis of his age.

Settlement discussions took place between plaintiffs' initial counsel, Richard Carolan, and defense counsel beginning sometime in early 1995. Counsel for both sides "settled" the case on March 7, 1995, for $4,675.00. On March 9, 1995, Carolan sent a letter to plaintiffs, which contained the following pertinent information:

I was able to convince Lufthansa's lawyer to increase the settlement offer to $4,675, exceeding the figure of $4,500 on which you and I had agreed in our last telephone conversation. Basically, the increase covers this firm's expenses of litigation.

Enclosed is the settlement agreement for your signatures. Please, read the agreement carefully.

(Hr'g Ex. 105).

On March 10, 1995, Carolan sent a letter to defense counsel, Gregory Murray, which enclosed the order of dismissal with prejudice (Hr'g Ex. 101). Defense counsel sent the stipulated and approved order of dismissal to the Court for entry, which the Court signed on March 15, 1995 (Hr'g Ex. 102).

On March 17, 1995, defense counsel wrote to Carolan, and indicated that:

Enclosed for your file please find a copy of the Order of Dismissal with Prejudice that was entered by Judge Duggan in the above-referenced matter on March 15, 1995. Please contact me when you have the executed releases from your clients and I will arrange an exchange for the settlement check.

(Hr'g Ex. 104).

Plaintiffs never signed the settlement agreement. In fact, they maintain that a settlement was never entered into because Carolan did not have the authority to settle the matter. Plaintiffs obtained new counsel, and the motion to set aside the dismissal was filed on May 12, 1995.

This Court conducted an evidentiary hearing on June 22, 1995, at which Carolan and Samuel Rheault testified. Carolan testified that prior to the "settlement" communication with defense counsel, he had received authority from his clients to settle the case for $4,500.00. He made a demand of $4,675.00, and informed defense counsel that he had authority to settle the case for that amount. Defense counsel called Carolan back and informed him that he had authority to settle the matter for $4,675.00, and both attorneys believed that the case was settled at that point. Carolan signed the order of dismissal and sent it to defense counsel on March 10, 1995. At that time, he believed the case was settled, and did not have any reason to conclude differently until sometime in April.

However, Carolan testified that he believed that defense counsel would hold the order of dismissal in trust until the settlement agreement was signed by his clients and the settlement check was received. In support of this belief, he refers to the settlement agreement language, which provides that:

IT IS FURTHER UNDERSTOOD AND AGREED that the litigation shall be dismissed with prejudice and without costs, interest or attorneys' fees to any party and the Plaintiffs hereby authorize their attorney to execute a stipulated order to that effect in the form attached hereto marked Exhibit A.

(Hr'g Ex. 103, Settlement Agreement at 3). He also testified that another reason for his belief that the agreement would be held in trust, and not filed with the Court until it was signed and the check received, was based on his experience in practicing law.

Carolan testified that in April, 1995, he learned that his clients were not satisfied with the settlement and were looking for another attorney. On cross-examination, he testified that he never had anyone file a dismissal before the signed settlement agreements were received. He further indicated that his clients never gave him authority to sign the settlement agreement on their behalf and the payment of funds was essential to the settlement. He testified that he did not believe that filing the order of dismissal was consistent with the settlement agreement reached with defense counsel.

Samuel Rheault testified that Carolan never had authority to settle the case and that he was "not in complete favor" of the settlement. He stated that Carolan talked to him over the phone with respect to the letter of March 9, 1995, and the settlement agreement. Carolan told him that he was sending him some settlement documents. Plaintiff never agreed with the terms of the settlement. Carolan sent him a letter dated April 3, 1995, which indicated in pertinent part that "to date, I have not received it the release agreement from you, signed, as I had requested. Please forward the document at your earliest convenience, so that we can bring this matter to a conclusion." (Hr'g Ex. 105). Rheault testified that he responded to the letter by informing Carolan that he was looking for another attorney.

II. Discussion

Plaintiffs contend that this dispute should be resolved based upon the language of M.C.R. 2.507(H), which provides that an agreement "is not binding unless it was made in open court, or unless evidence of the agreement is in writing, subscribed by the party against whom the agreement is offered or by that party's attorney."

Defendants, however, suggest that M.C.R. 2.507(H) is not controlling, stating that:

... Plaintiffs rely heavily upon Rule 2.507(H) of the Michigan Court Rules. Plaintiffs cite no authority for the applicability of M.C.R. 2.507(H) to this case, nor is Defendant aware of any such authority. To the extent that MCR 2.507(H) is deemed useful as a guideline, however, it indicates that Plaintiffs' motion should be denied.

(Defs.' Br. at 11) (footnote omitted).

M.C.R. 2.507(H) is not a rule of substantive law, but rather is one of Michigan court procedure. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The Michigan Court Rules "govern practice and procedure in all courts established by the constitution of laws of the State of Michigan." M.C.R. § 1.103. Under the Erie doctrine, federal courts sitting in diversity apply substantive laws of the state, but not procedural laws of court. See McKelvie v. City of Mount Clemens, 940 F.2d 661, 1991 WL 139697 at *4 (6th Cir.1991) (Unpublished Opinion) (Attached). Accordingly, this Court finds that Rule 2.507(H) is not controlling.

Defendants contend that the settlement agreement should be enforced, and plaintiffs' motion to set aside the order of dismissal should be denied, because plaintiffs' counsel had "apparent authority" to agree to settle, and therefore his client is bound by the agreement.

Defendants frame the issue as follows:

STATEMENT OF ISSUE PRESENTED

CAN PLAINTIFFS HAVE AN ORDER OF DISMISSAL SET ASIDE UNDER RULE 60(B) OF THE FEDERAL RULES OF CIVIL PROCEDURE, WHERE THE ORDER WAS SIGNED BY THEIR ATTORNEY IN RATIFICATION OF A WRITTEN SETTLEMENT AGREEMENT AND RELEASE FROM LIABILITY THAT THE ATTORNEY HAD APPARENT AUTHORITY TO CONCLUDE?

(Defs.' Br. at ii).

In Michigan, the general substantive rule is that an attorney is presumed to have authority to act on his client's behalf. Jackson v. Wayne Circuit Judge, 341 Mich. 55, 67 N.W.2d 471 (1954). However, an attorney must have specific authority from the client to settle a case. Henderson v. Great Atlantic & Pacific Tea Co., 374 Mich. 142, 132 N.W.2d 75 (1965). The Henderson Court noted that:

the almost unanimous rule, laid down by the courts of the United States, both Federal and State, is that any attorney at law has no power, by virtue of his general retainer, to compromise his client's cause of action; but that precedent special authority or subsequent ratification is necessary to make such a compromise valid and binding on the client.

Id. at 147, 132 N.W.2d 75.

Defendants rely on Capital Dredge and Dock v. City of Detroit, 800 F.2d 525, 531 (6th Cir.1986) and Nelson v. Consumers Power Co., 198 Mich.App. 82, 83, 497 N.W.2d 205 (1993), in support of their contention that plaintiffs' attorney had "apparent authority." A careful reading of both cases leads this Court to conclude that based upon the facts of the instant case, the concept of "apparent authority" is not applicable to this case. The Court in Capital Dredge, articulated two important principles in deciding whether the doctrine of "apparent authority" can be the basis of an agreement to settle.

First, the Court explained that:

an attorney does not generally have implied authority to compromise the client's claim. The Michigan courts have refused to find that a client implicitly authorizes his attorney to settle his claim when the client employes sic the attorney.

Id. at 532. The Nelson court explained that "the general rule in Michigan is that an attorney has no authority by virtue of his general retainer to settle a lawsuit on behalf of his client." Nelson, 198 Mich.App. at 85, 497 N.W.2d 205.

Secondly, the Capital Dredge Court noted that:

apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons. Michigan courts accept this definition of apparent authority. If a third party, based on a principal's manifestations, reasonably believes that the supposed agent is authorized to enter into a

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