Settlement Stands Even Though Lawyer Allegedly Settled For Less Than Authorized

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Embarrassing as this is to admit, there was a time when I did not entirely understand the difference between "net" and "gross." I would like to say that time was long ago, but it wasn't that long ago. Rest assured, however, that I know the difference now. The difference between the two was at the heart of Thakkar v. Allers, an unpublished decision from the Appellate Division in which plaintiff claimed that he authorized his attorney to settle for a net recovery of $80,000 but his lawyer settled for the gross amount of $80,000. In other words, plaintiff thought he would receive $80,000 from the settlement but he actually received less than $80,000 after fees and costs were deducted from the gross settlement amount. Plaintiff tried to undo the settlement, but the trial court denied his request and the Appellate Division affirmed.

Thakkar involved a personal injury lawsuit. Plaintiff was awarded $50,000 through mandatory, pre-trial arbitration, but rejected that award and demanded trial de novo. Prior to trial, plaintiff claims that he authorized his attorney to settle the case for "an amount that would yield an $80,000 recovery to [plaintiff], after deductions for fees and costs." He claimed that he gave his attorney these instructions over the telephone and in a letter. Several days after the alleged telephone conversation between plaintiff and plaintiff's counsel, plaintiff's counsel settled the case in a call with defendants' counsel and later confirmed the settlement in an email to defendants' counsel, which read: "As discussed at 5 PM today, [plaintiff] has authorized [plaintiff's counsel] to accept $80,000.00 in settlement."

Four days later, plaintiff's counsel wrote to defendants' counsel to report that plaintiff refused to sign a release because he wanted a settlement yielding a net recovery of $80,000, a fact that plaintiff's counsel indicated was "in no way" communicated to him by plaintiff before plaintiff's counsel advised defendants' counsel that plaintiff's counsel was authorized to settle the case for "the sum of $80,000.00."

Defendants moved to enforce the settlement and sought their legal fees for doing so. Plaintiff's counsel provided a certification setting forth his version of events, and plaintiff "filed by letter an informal pro se motion to terminate his counsel's representation." The court heard oral argument from plaintiff's counsel and defendants' counsel, but not plaintiff. It granted the motion to enforce the settlement, denied the request for fees, and granted plaintiff's motion to terminate his counsel. Represented by new counsel, plaintiff filed a motion for reconsideration, which was denied. In denying the motion, the trial court held that plaintiff's counsel had apparent authority to enter into a binding settlement even if he lacked actual authority to settle for $80,000 gross." The trial court also concluded that the appropriate remedy for plaintiff if he believed he was wronged was a malpractice lawsuit against his former attorney. Plaintiff appealed.

The Appellate Division affirmed the trial court's decision. It held that there was a "genuine issue of fact as to whether plaintiff's counsel had actual authority to [settle the case for $80,000 gross]" (emphasis in original). If this was the only issue before the Appellate Division, it would have reversed and remanded for an evidentiary hearing. But this was not the only issue because "an attorney for a private party may settle a lawsuit based on actual or apparent authority to do so." As the Appellate Division noted, apparent authority "is created when the client's voluntary act has placed the attorney in a situation wherein a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement, not just negotiations, on behalf of a client." For example, "sending an attorney to a settlement conference presumptively establishes that the attorney has authority to settle."

In Thakkar, plaintiff admitted that his attorney was authorized to enter into negotiations with defendants' counsel and "that his attorney was not limited to negotiation subject to [plaintiff's] final consent, but was authorized to reach a final, binding settlement." While plaintiff's counsel may have miscommunicated plaintiff's settlement demand, this had no bearing on whether defendants' counsel was "justified in presuming that her counterpart was authorized to settle for $80,000 gross." Accordingly, the Appellate Division affirmed the trial court's decision and echoed the trial court's conclusion that "Plaintiff's recourse for his attorney's alleged deviation from his actual authority lies in a malpractice action against his attorney."

The important lesson to take from Thakkar is that the question of apparent authority was judged from defendants' viewpoint. This is generally the case. Apparent authority is usually not a question of whether one side to an agreement had authority to enter into the agreement, but rather whether the other side was reasonable in assuming that they did.

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