Auvil v. Grafton Homes Inc ( 1996 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
KENNETH D. AUVIL,
Plaintiff-Appellant,
v. No. 95-1085
GRAFTON HOMES, INCORPORATED,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of West Virginia, at Clarksburg.
Irene M. Keeley, District Judge.
(CA-93-165)
Argued: March 4, 1996
Decided: August 6, 1996
Before NIEMEYER and MOTZ, Circuit Judges, and BUTZNER,
Senior Circuit Judge.
_________________________________________________________________
Vacated and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge Motz and Senior Judge Butzner joined.
_________________________________________________________________
COUNSEL
ARGUED: Harry A. Smith, III, Elkins, West Virginia, for Appellant.
Carl Lee Fletcher, Jr., SPILMAN, THOMAS & BATTLE, Charles-
ton, West Virginia, for Appellee. ON BRIEF: Paul E. Parker, III,
SPILMAN, THOMAS & BATTLE, Charleston, West Virginia, for
Appellee.
_________________________________________________________________
OPINION
NIEMEYER, Circuit Judge:
This appeal presents the question of whether a settlement of this
case, consummated by the parties' attorneys, should be enforced
against one of the parties, Kenneth D. Auvil. The district court
enforced the settlement against Auvil, concluding that Auvil had
clothed his attorney with apparent authority to settle. While the record
facts support the conclusion that Auvil manifested his attorney's
authority to negotiate a settlement, we do not agree that they support
the conclusion that Auvil manifested his attorney's authority to
execute a settlement agreement. Therefore, we vacate the district
court's order and remand this case for further proceedings.
I
In 1985, Auvil became president of Grafton Homes, Inc., and
brought with him architectural plans that he had developed for con-
struction of a style of modular home. Five years later, Auvil resigned
from Grafton Homes because of a disagreement and requested the
return of his plans. During the course of the ensuing dispute, Auvil
obtained copyrights for the plans and then brought this copyright
infringement action to enjoin Grafton Homes' continued use of them.
Grafton Homes filed a counterclaim, alleging that Auvil had assigned
his plans to Grafton Homes and that Auvil's use of the plans infringed
its proprietary rights.
During pretrial discovery, counsel for the parties discussed the pos-
sibility of a settlement involving mutual releases and mutual use of
the plans without any payment of money. Auvil, however, rejected
that proposal. Following further discovery concerning the validity of
Auvil's copyrights, the attorneys met again on October 24, 1994, and
reached a settlement to which, they believed, their clients thereafter
agreed. When Auvil later denied that he had agreed to any settlement
or that he had authorized his attorney, Melvin C. Snyder, III, to settle
the case on his behalf, Grafton Homes filed a motion to enforce the
settlement. Snyder withdrew as Auvil's counsel, and the district court
conducted a hearing into the events of October 24.
2
According to Snyder's testimony at the hearing, the parties and
their attorneys assembled on October 24, 1994, to take a deposition
and discuss settlement. Before the commencement of the deposition,
Snyder met alone with Grafton Homes' counsel, Bernard R. Corbett
and Paul E. Parker, III. The attorneys agreed to terms of a settlement
that they would recommend to their clients involving mutual dismiss-
als of their claims, mutual releases and covenants not to sue, and
mutual authorizations for use of the disputed architectural plans. Each
side would bear its own costs and expenses and neither side would
pay the other any compensation. Although Snyder had been "autho-
rized to negotiate" a settlement on Auvil's behalf, he acknowledged
at the hearing that he had "not [been] authorized to settle [the case]
without [Auvil's] approval."
Following the attorneys' meeting, Snyder met with Auvil and his
wife. Believing that the terms he had agreed to with opposing counsel
were reasonable, Snyder recommended that the Auvils accept the set-
tlement. Even though the proposal was essentially the same as the ear-
lier one that Auvil had rejected, Snyder explained that the proposal
was now reasonable in light of subsequently developed information
about the weakness of Auvil's copyrights. Snyder then asked the
Auvils whether they wished to settle. Snyder understood Auvil's
response to be an authorization to proceed with the proposed settle-
ment; he testified, "While I don't recall the exact words, my basic
understanding was that Mr. Auvil said go ahead and do that."
According to Snyder, Mr. and Mrs. Auvil then left the room and
went home, and he returned to the conference room to advise oppos-
ing counsel of the settlement. Because a court reporter was present for
the deposition the parties had scheduled for the afternoon, the lawyers
put the terms of the settlement "on the record." Parker, counsel for
Grafton Homes, undertook responsibility for drafting the settlement
papers, and a few days later he forwarded them to Snyder for Auvil's
approval.
Snyder testified that when Auvil received the settlement papers, he
requested some additional terms regarding the return of some furni-
ture that Auvil had taken to Grafton Homes and the resolution of a
loan Grafton Homes had made to Auvil's son. At the same time Graf-
ton Homes proposed adding a section to the settlement "regarding
3
advertising of projects undertaken or completed while Mr. Auvil was
at Grafton Homes." Several days later, Auvil refused to proceed fur-
ther with the settlement, failing to provide Snyder with any explana-
tion. Snyder testified that Auvil "just did not feel comfortable with
going forward with the settlement."
At the hearing, Snyder testified unequivocally that he believed he
and Grafton Homes' counsel had consummated a valid and enforce-
able settlement on October 24 with the consent of the clients. In con-
nection with the modifications subsequently proposed to the
settlement, Snyder understood them merely to be negotiations to mod-
ify the settlement, rather than a continuation of settlement negotia-
tions begun on October 24. Absent mutual agreement on any of the
proposed modifications, Snyder viewed the terms of the October 24
agreement as binding.
Both Auvil and his wife also testified at the hearing, but to a com-
pletely different course of events. The Auvils stated that at the Octo-
ber 24 meeting, Snyder had highlighted the problems with their case,
retreating from his earlier view that their case was strong. They
claimed that they had been shocked by Snyder's "complete turn
around" and had left the room without discussing settlement. Because
the Auvils had not agreed to anything, Mrs. Auvil testified that she
was surprised when she later received settlement papers from Snyder.
Auvil testified similarly, stating that although Snyder's early assess-
ments of the case had encouraged him, Snyder was now urging Auvil
and his wife "to get on with [their] lives." Auvil insisted that he had
"absolutely not [been] presented" with a settlement proposal and that
he had never authorized Snyder to settle the case. Explaining his rea-
son for subsequently requesting modifications to the settlement
papers, Auvil stated that he had lost faith in Snyder by that time and
admitted that he "did toy and tease" in order to "find a little time" to
hire another attorney.
Neither Corbett nor Parker testified under oath at the hearing, but
they did represent to the court that they believed that the settlement
agreement they had reached with Snyder on October 24 was binding
and that Snyder had Auvil's authority to settle.
At the conclusion of the hearing, the district court expressed con-
cern about the vastly inconsistent testimony given by Snyder and the
4
Auvils. The court observed that "there is a material question as to . . .
what the Auvils knew and, therefore, what the terms of the agreement
could have been and whether there was a meeting of the minds on the
agreement to settle." Because "it's clear that there has to be here a dis-
puted material fact," the court declined to enforce a settlement agree-
ment and ordered the case to proceed to trial as scheduled.
Following the district court's ruling, Parker wrote a letter to the
court urging it to reconsider Grafton Homes' motion to enforce the
settlement based on the argument that Snyder had"``apparent author-
ity' to settle the case." On reconsideration, the court adopted that the-
ory, enforced the settlement agreement, and dismissed the case. In
ruling that Auvil had "clothed" Snyder with"apparent authority to set-
tle" and therefore was "bound by the settlement regardless of whether
he now denies he gave Snyder actual authority," the court reasoned:
Auvil informed Grafton that Snyder represented him and
allowed Snyder to conduct settlement negotiations on his
behalf. Moreover, Auvil specifically informed Grafton's
attorney that Snyder might offer a settlement after the depo-
sition of Grafton's president, William Shaw, was completed.
On October 24, 1994, Snyder negotiated with the attorneys
for Grafton and then met with Auvil to obtain authorization
to settle the case. After that meeting, Auvil and his wife left,
and Snyder informed the attorneys for Grafton that the set-
tlement offer had been accepted. Moreover, on October 28,
1994, after receiving settlement papers from Snyder, Auvil
directed him to inquire about additional terms. In Auvil's
own words, he was "toying" with Snyder and Grafton in
order to gain time to seek for new counsel. From his own
actions, he permitted Grafton to believe that Snyder had
authority to settle the case on his behalf.
II
It is generally accepted that when a client retains an attorney to rep-
resent him in litigation, absent an express agreement to the contrary,
the attorney has implied authority to conduct the litigation and to
negotiate its resolution. But the "[s]ubstantive decisions of whether to
bring suit, to dismiss suit, or to settle are not by implication ones that
5
the attorney is authorized to make." Schafer v. Barrier Island Station,
Inc., 946 F.2d 1075, 1079 (4th Cir. 1991). The law of West Virginia
--the state in which this alleged settlement agreement was made--is
not to the contrary. See Humphreys v. Chrysler Motors Corp., 399
S.E.2d 60, 62 (W. Va. 1990) (per curiam); Dwight v. Hazlett, 147 S.E.
877, 879 (W. Va. 1929).
At the hearing in the case, Snyder recognized that although he had
implied authority "to negotiate," he "certainly was not authorized to
settle [the case] without [Auvil's] approval." But Snyder claimed that
when presented with his proposed settlement, Auvil approved it and
gave Snyder authority to consummate it. Auvil, on the other hand,
denied having given Snyder any authority to settle. The district court,
rather than resolve the factual dispute over whether Auvil had
expressly authorized Snyder to act, elected to enforce the settlement
on the theory that Snyder had apparent authority to settle the case.
Apparent authority results from a principal's manifestation of an
agent's authority to a third party, regardless of the actual understand-
ing between the principal and agent. See Crothers v. Commodity
Futures Trading Comm'n, 33 F.3d 405, 410 (4th Cir. 1994); Restate-
ment (Second) of Agency § 8 (1957); see also General Elec. Credit
Corp. v. Fields, 133 S.E.2d 780, 783-84 (W. Va. 1963). Indeed,
apparent authority is "entirely distinct" from--and sometimes con-
flicts with--both express and implied authority. Restatement (Sec-
ond) of Agency § 8 cmt. a. When a principal, through his acts or
omissions, causes a third party, in good faith and in the exercise of
reasonable prudence, to rely on the agent's authority to act on the
principal's behalf, the agent can bind the principal. See Crothers, 33
F.3d at 410; General Elec. Credit Corp., 133 S.E.2d at 783-84.
From the well-established tenet that an agent cannot create his own
authority to represent a principal, see NLRB v. Local 1058, UMW, 957
F.2d 149, 153 (4th Cir. 1992), it follows that an agent's statements
that he has such authority cannot, without more, entitle a third party
to rely on his agency, see Fennell v. TLB Kent Co., 865 F.2d 498, 502
(2d Cir. 1989); D&G Equip. Co. v. First Nat'l Bank of Greencastle,
764 F.2d 950, 954 (3d Cir. 1985); see also Restatement (Second) of
Agency §§ 7, 285 (1957). An agent's authority must be conferred by
6
some manifestation by the principal that the agent is authorized to act
on the principal's behalf. Id. §§ 7-8.
Auvil's manifestations to Grafton Homes and its attorneys in this
case undoubtedly indicated that Snyder was Auvil's attorney and that
Snyder had the authority to negotiate a resolution of the dispute on
Auvil's behalf. The authority to negotiate, however, is far different
from the authority to agree to a specific settlement. Our review of the
record uncovered no manifestation by Auvil to Grafton Homes or its
attorneys from which Grafton Homes could reasonably conclude that
Auvil had authorized Snyder to consummate a settlement.
The district court mistook Auvil's manifestations of Snyder's
authority to negotiate a settlement on Auvil's behalf for manifesta-
tions of his authority to execute a settlement. In support of its finding
of apparent authority, the court stated, "Auvil informed Grafton that
Snyder represented him and allowed Snyder to conduct settlement
negotiations on his behalf." (Emphasis added). Similarly, the court
relied on facts that Auvil told a Grafton Homes' attorney before Octo-
ber 24 that Snyder might propose a settlement; that Snyder negotiated
on October 24 with Grafton Homes' attorneys and then met with
Auvil to obtain settlement authorization; and that after receiving set-
tlement papers, Auvil directed Snyder to inquire about additional
terms. At most, Auvil's manifestations evince Snyder's actual author-
ity to conduct settlement negotiations; Auvil never indicated to Graf-
ton Homes that he was relinquishing his right to approve a settlement,
and Grafton Homes apparently recognized that fact when it later for-
warded settlement papers for "Auvil's approval."
These circumstances are not unlike those in Edwards v. Born, Inc.,
792 F.2d 387 (3d Cir. 1986), where the court held that the record facts
did not "warrant the legal conclusion that [the plaintiffs' attorney] had
the power to settle." Id. at 390-91. In Edwards, the district court had
determined that an attorney had apparent authority to settle his cli-
ents' case because (1) he had represented the clients since they filed
their suit; (2) he had transmitted all communications between his cli-
ents and the opposing litigants; (3) a magistrate judge had entered
pretrial conference orders requiring the attorneys to appear with
authority to settle; and (4) one of the clients had entrusted the attorney
to select physicians and a psychiatrist to prepare for trial. Because,
7
however, the "record [was] devoid of communications from the plain-
tiffs to defense counsel, much less representations that might have led
defense counsel to believe that [the plaintiffs' counsel] had [their]
permission to settle," the Third Circuit reversed, concluding that the
plaintiffs' attorney did not have apparent authority to settle.
The one manifestation that might have gone farther in this case is
that after meeting with Snyder on October 24, the Auvils left the
building while Snyder returned to the conference room to inform
Grafton Homes' counsel that the Auvils had agreed to the settlement.
Grafton Homes argues that this combination of events is sufficient to
create Snyder's apparent authority to settle. But the Auvils' conduct
--leaving the building after meeting with Snyder--communicated
nothing about their attorney's authority. The Auvils were not present
when Snyder announced that the case had been settled, and their con-
duct in leaving did not manifest acquiescence in Snyder's later state-
ment of authority. The meaning Grafton Homes imparts to the Auvils'
departure derives not from their conduct, but rather from Snyder's
statement. To permit a finding of apparent authority on that basis
would abrogate the fundamental requirement of agency law that the
agent's apparent authority flow from the principal's conduct. See
Local Union 1058, 957 F.2d at 153.
The testimony before the district court would undoubtedly have
permitted the court to find that Auvil was attempting to manipulate
the settlement process. If Snyder is believed, the Auvils expressly
authorized him to negotiate a settlement and agreed to it, only to back
away from it later. The district court thus could well have believed
Snyder and, in a proper exercise of its equitable power, enforced the
settlement. See Napier v. Chesapeake and Ohio Railway Co., 582
F.2d 1344 (4th Cir. 1978). Unfortunately, however, the court did not
find the crucial facts, one way or the other. A remand will permit the
district court, in the first instance, to resolve the factual dispute con-
cerning Snyder's actual authority. But this ruling is not intended to
suggest any view concerning Snyder's actual authority to settle the
case; we merely conclude that the facts do not support the conclusion
that Snyder's settlement of the case can be justified on principles of
apparent authority.
8
Accordingly, we vacate the district court's order enforcing the set-
tlement and remand the case for further consideration. In light of our
disposition, we need not address Auvil's other arguments.
VACATED AND REMANDED
9