Hensley v. Alcon Laboratories

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROBERT C. HENSLEY, 
Plaintiff-Appellant,
v.
ALCON LABORATORIES, INC., a foreign
corporation,  No. 01-1442
Defendant-Appellee,
and
ALAN MODLISZEWSKI, an individual,
Defendant.

Appeal from the United States District Court
for the Southern District of West Virginia, at Huntington.
Robert C. Chambers, District Judge.
(CA-99-458-3)
Argued: December 4, 2001
Decided: January 22, 2002
Before NIEMEYER, MOTZ, and TRAXLER, Circuit Judges.
Reversed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge Traxler joined. Judge Motz wrote an
opinion concurring in the judgment.
COUNSEL
ARGUED: William D. Ryan, Hurricane, West Virginia, for Appel-
lant. Charles MacKinley Surber, Jr., JACKSON & KELLY, P.L.L.C.,
2 HENSLEY v. ALCON LABORATORIES
Charleston, West Virginia, for Appellee. ON BRIEF: Sherri D.
Goodman, GOODMAN ADVOCACY, Charleston, West Virginia,
for Appellant.
OPINION
NIEMEYER, Circuit Judge:
On the motion of Alcon Laboratories, Inc. to enforce a settlement
agreement allegedly reached with Robert Hensley in connection with
his wrongful-employment-termination suit against Alcon, the district
court directed the parties to consummate the settlement agreement by
a specified date on the threat of dismissing the wrongful-termination
suit with prejudice. When Hensley refused to sign the settlement
agreement presented to him, protesting that he had not agreed to the
terms included in it, the court dismissed the case with prejudice and
assessed Alcon’s attorneys fees against Hensley because he "unrea-
sonably refused to sign the agreement."
Because the district court failed to conduct a plenary hearing on
whether a binding settlement agreement had been reached and, if so,
to determine its terms and conditions, we remand for further proceed-
ings. We also reverse the judgment of dismissal and award of attor-
neys fees as inappropriate sanctions for Hensley’s failure to sign the
agreement.
I
Beginning in 1981, Robert Hensley worked as an electronic techni-
cian for Alcon Laboratories, Inc. Because of chronic depression, Hen-
sley took a medical leave of absence in December 1996, which he
expected would last until January 1997. Thereafter, however, Hensley
asked for and was granted eight separate medical leave extensions,
lasting until June 1997. At that time, he requested a leave of absence
for an indefinite term. Under existing company policy, Alcon subse-
quently gave Hensley’s job to another employee. In May 1998, when
Hensley was medically released to return to full-time work, he sought
to return to Alcon. At that time, however, Alcon was unable to find
HENSLEY v. ALCON LABORATORIES 3
a comparable job for which Hensley was qualified. A production
technician position was available, but the pay grade was lower than
Hensley’s previous electronic technician position, and Hensley
declined to take the job. Alcon thereupon terminated Hensley’s
employment on May 26, 1998.
Hensley commenced this action in West Virginia state court alleg-
ing, in three counts, "wrongful termination/breach of employment
agreement," "discrimination due to disability and age" under the West
Virginia Human Rights Act, and "punitive damages." Relying on
diversity jurisdiction under 28 U.S.C. § 1332, Alcon removed the
action to federal court and answered the complaint.
At a settlement conference held with the district judge on May 17,
2000, and attended by Hensley, Hensley’s attorney, Jeffrey Taylor,
and Alcon’s attorney, Alcon and Hensley apparently agreed on a
$9,000 amount for settlement of Hensley’s wrongful termination suit.
The district court issued an order stating that it had been "advised by
counsel of the pending settlement of this action" and removed the
case from the active docket, giving the parties 30 days within which
to submit an agreed-upon order of dismissal. The district court’s order
also stated that if no agreed-upon order of dismissal were submitted,
the court would dismiss the case without prejudice, subject to rein-
statement for "good cause."
Following the May 17 conference, Alcon’s attorney sent Taylor a
proposed written settlement agreement which provided for the pay-
ment to Hensley of $9,000 in return for a full release of all claims.
The proposed agreement also included several terms and conditions.
First, it included a "standard reference clause" under which Alcon
agreed to provide Hensley with a reference that he was a "Good Solid
Performer." Second, the agreement included a "reinstatement clause,"
under which Hensley agreed not to seek reemployment by Alcon.
Third, it included a "denial of liability clause," under which Alcon
denied any liability to Hensley. Fourth, it included a "confidentiality
clause." And finally, it included an "approval clause" — in compli-
ance with the West Virginia Human Rights Commission’s ruling con-
cerning declaratory releases — that provided Hensley with a 21-day
period during which he could accept or reject the settlement agree-
4 HENSLEY v. ALCON LABORATORIES
ment and a 7-day period during which he could revoke the agreement
once it had been executed.
Taylor suggested some changes to the proposed agreement, includ-
ing deletion of the 7-day revocation clause. Alcon returned a revised
agreement which deleted not only the 7-day revocation clause but also
the 21-day approval clause. The proposed agreement retained all of
the other terms originally proposed.
When Taylor did not return a signed agreement to Alcon, Alcon
inquired about the status of the settlement. On July 7, 2000, Taylor
told Alcon that Hensley had some concerns with the settlement agree-
ment and would not sign it.
After Alcon failed to make progress on obtaining a signed settle-
ment agreement, it filed a motion to enforce the settlement agreement
or, in the alternative, for summary judgment on the merits of the
underlying case. It also requested attorneys fees and costs. In
response, Taylor filed a motion to withdraw from his representation
of Hensley because Taylor "had made numerous attempts to draft a
release that would be acceptable to Hensley, but [was] unable to do
so." The motion to withdraw stated that Hensley told Taylor that he
had been "forced into settlement," that he "did not intend to sign a
release," and that "he wanted to go to trial."
In affidavits thereafter exchanged by the parties, significant dis-
agreement emerged over what happened during the May 17 settle-
ment conference, which was not on the record. Alcon contended that
it had "reached an agreement to settle the case whereby Alcon would
pay the total sum of $9,000 in complete Release of all plaintiff’s
claims." In his motion to withdraw as counsel for Hensley, Taylor
stated that at the settlement conference "Hensley agreed to dismiss his
claims against Alcon in exchange for payment by Alcon in the
amount of nine thousand dollars ($9,000)." Hensley, on the other
hand, stated that there were merely "representations made by [his]
counsel at a settlement conference that [Alcon] would pay $9,000 for
a release of all claims." And no one who attended the May 17 confer-
ence reported a discussion of the various other clauses included in the
proposed settlement agreement.
HENSLEY v. ALCON LABORATORIES 5
By order dated August 30, 2000, the district court granted Alcon’s
motion to enforce the settlement agreement. It concluded:
On May 17, 2000, this Court and the parties engaged in a
final settlement conference in which the parties diligently
and in good faith negotiated a settlement agreement. In the
settlement agreement, Defendant agreed to pay a sum of
$9,000 for a complete release of Plaintiff’s claims. It is clear
to this Court that both parties intended to settle the case and
agreed upon the terms of the settlement when they reached
their agreement.
The court ordered Hensley to "consummate the settlement on or
before September 15, 2000," and warned him that his failure to do so
would result in the dismissal of his claims against Alcon with preju-
dice and the assessment of costs against him. The court denied Tay-
lor’s motion to withdraw "as moot."
In response to this order, Hensley, pro se, wrote the court request-
ing reconsideration of its August 30 order and stating that he "did not
lead nor infer to [his] attorney that [he] would sign the Confidential
Settlement Agreement." Rather, he "merely stated that [he] would
look it over." Once he read the agreement, Hensley told his counsel
that he would not sign it. In this letter, Hensley pointed out that he
was not "as disturbed with the settlement amount as [he was] with the
releases" and other terms of the agreement, such as the denial of lia-
bility clause and reinstatement clause.
The court rejected Hensley’s version of what transpired and, by
order dated September 15, 2000, extended to September 22, 2000, the
time within which Hensley could consummate the settlement agree-
ment. The court again warned Hensley that his failure to sign the pro-
posed settlement agreement would result in dismissal of his suit with
prejudice and the assessment of costs against him. Also in the Sep-
tember 15 order, the court explained that the proposed settlement
agreement, which it had received from Alcon on September 5, 2000,
was "consistent with the Court’s recollection of the terms of the set-
tlement reached at the Final Settlement Conference" and that the
agreement was "consistent with standard terms and conditions found
6 HENSLEY v. ALCON LABORATORIES
in such agreements." The court concluded that Hensley had "unrea-
sonably refused to sign the agreement."
In response to the September 15 order, Hensley, again pro se,
expressed "concerns and questions" regarding the settlement agree-
ment and asked for reconsideration of the district court’s order "after
hearing [his] issues of why [he was] not satisfied with the enforce-
ment." Hensley also indicated that he was in the process of obtaining
new counsel.
By order dated September 25, 2000, the district court scheduled "a
hearing in this matter" for October 4 and directed both Hensley and
Taylor to appear.
On October 4, 2000, the district court held the hearing in the form
of a conference among Alcon’s counsel, Taylor, and Hensley. No
court reporter was present and, therefore, no transcript exists of what
occurred. Following this conference, the district court entered an
order, dated October 4, 2000, dismissing Hensley’s claims against
Alcon with prejudice and assessing against Hensley Alcon’s reason-
able expenses and attorneys fees in seeking to enforce the settlement
agreement. The court also granted Taylor his motion to withdraw as
counsel for Hensley. In this order, the court stated that it had carefully
considered Hensley’s objections and found them "to be without
merit." It reiterated that the proposed settlement agreement was "con-
sistent with the court’s recollection of the terms of the settlement
reached at the Final Settlement Conference" and was "consistent with
standard terms and conditions found in such agreements." Finally, the
court concluded again that Hensley had "unreasonably refused to sign
the agreement."
In a follow-up order dated November 15, 2000, the court deter-
mined that the amount of attorneys fees and expenses assessed against
Hensley was $2,238.39.
From the judgment dismissing his case with prejudice and award-
ing attorneys fees in favor of Alcon, Hensley filed this appeal.
II
Court-facilitated settlements are an important aspect of the judicial
process and of its purpose in providing an orderly and peaceful reso-
HENSLEY v. ALCON LABORATORIES 7
lution of controversies. But resolution by agreement, as distinct from
trial, is appropriate only when the parties have actually reached agree-
ment. Absent agreement, a party may demand and receive full judicial
process, including a trial, for the resolution of legitimate disputes.
Although resolution of a motion to enforce a settlement agreement
draws on standard contract principles, it may be accomplished within
the context of the underlying litigation without the need for a new
complaint. To this extent, district courts have inherent authority,
deriving from their equity power, to enforce settlement agreements.
See Millner v. Norfolk & W. Ry. Co., 643 F.2d 1005, 1009 (4th Cir.
1981). The exercise of this authority has the "practical effect" of
entering a judgment by consent. Id.Because exercise of the authority to enforce settlement agreements
depends on the parties’ agreement to a complete settlement, the court
cannot enforce a settlement until it concludes that a complete agree-
ment has been reached and determines the terms and conditions of
that agreement. See Ozyagcilar v. Davis, 701 F.2d 306, 308 (4th Cir.
1983). "[I]t is improper for the district court, by its own motion or by
agreement of the parties, to place itself in the role of ‘final arbiter’ of
a settlement agreement." Id.Thus, if an agreement for complete settlement of the underlying lit-
igation, or part of it, has been reached and its terms and conditions
can be determined, the court may enforce the agreement summarily
as long as the excuse for nonperformance of the agreement is "com-
paratively insubstantial." Millner, 643 F.2d at 1009 (quoting Autera
v. Robinson, 419 F.2d 1197, 1200 (D.C. Cir. 1969)). "[H]aving sec-
ond thoughts about the results of a valid settlement agreement does
not justify setting aside an otherwise valid agreement," Young v.
FDIC, 103 F.3d 1180, 1195 (4th Cir. 1997), and the fact that the
agreement is not in writing does not render it unenforceable, Alexan-
der v. Industries of the Blind, Inc., 901 F.2d 40, 41 (4th Cir. 1990).
Thus, to exercise its inherent power to enforce a settlement agree-
ment, a district court (1) must find that the parties reached a complete
agreement and (2) must be able to determine its terms and conditions.
Moore v. Beaufort County, 936 F.2d 159, 162 (4th Cir. 1991); Ozyag-
cilar, 701 F.2d at 308. If there is a factual dispute over the existence
8 HENSLEY v. ALCON LABORATORIES
of an agreement, over the authority of attorneys to enter into the
agreement,* or over the agreement’s terms, the district court may not
enforce a settlement agreement summarily. See Alexander, 901 F.2d
at 41; Millner, 643 F.2d at 1010. Instead, when such factual disputes
arise, the court must "conduct a plenary evidentiary hearing in order
to resolve that dispute," Millner, 643 F.2d at 1009, and make findings
on the issues in dispute, see Ozyagcilar, 701 F.2d at 308 n.*. If a dis-
trict court concludes that no settlement agreement was reached or that
agreement was not reached on all the material terms, then it must
deny enforcement.
We review the district court’s findings of fact for clear error and
its decision whether to enforce a settlement agreement for abuse of
discretion. See Young, 103 F.3d at 1194.
In this case, the evidence is ambiguous as to whether Hensley’s
claims were actually settled. Alcon and Hensley’s attorney, Taylor,
concurred that Hensley had agreed to release all claims against Alcon
for $9,000. Hensley, however, disputes that a complete settlement
agreement was reached. He avers that his attorney represented that
Alcon would pay $9,000 to settle and he agreed only to "look . . .
over" a proposed settlement agreement. When he saw the full agree-
ment, Hensley refused to sign it, explaining that he was not "as dis-
turbed with the settlement amount" as with the other terms of the
agreement such as the reinstatement, confidentiality, and denial of lia-
bility clauses. At bottom, however, he asserts that he never agreed to
any of the agreement’s terms, including the amount.
Because the parties disagree over both the existence and terms of
the settlement agreement, and perhaps Taylor’s authority at the settle-
ment conference, the district court could not summarily enforce the
agreement. To resolve these factual questions, the district court was
required to hold a plenary evidentiary hearing. See Ozyagcilar, 701
F.2d at 308 n.*. While the court did announce that it would conduct
a hearing on October 4, 2000, that "hearing" consisted only of an off-
*Absent express agreement between an attorney and client, the attor-
ney’s implied authority is limited to negotiating a settlement, not agree-
ing to it. See Auvil v. Grafton Homes, Inc., 92 F.3d 226, 229-30 (4th Cir.
1996).
HENSLEY v. ALCON LABORATORIES 9
the-record conference at which Hensley, Taylor, and Alcon’s counsel
appeared. As reported by the court, Hensley’s objections to the settle-
ment agreement were discussed at the conference and given "careful
consideration." Nonetheless the court did not take any evidence, nor
did it make any factual findings.
Alcon argues that, despite any deficiency in the October 4 hearing,
the parties in fact reached an agreement during the May 17 settlement
conference and that any dispute is over merely "ancillary" matters that
were unimportant to the essence of the agreement. Unfortunately,
however, no record was made of the May 17 settlement conference,
and all we are left with are disputed claims about what transpired.
Hensley’s September 11 letter to the court indicates that he did not
agree to the $9,000 figure but agreed only to "look [the agreement]
over." Moreover, it is not clear from the record whether the terms not
specifically addressed at the May 17 settlement conference — such
as the "confidentiality," "denial of liability," and "reinstatement"
clauses — were merely ancillary and unimportant. Even if these terms
were "standard" terms, there is no evidence in the record to indicate
that they were agreed to and that they were not material. These are
all matters that should have been addressed at a plenary hearing and
that should have been the subject of formal fact-finding by the district
court.
Accordingly, we must remand these issues to the district court to
resolve following a plenary hearing. If the court finds that a settle-
ment was reached and is able to determine the terms and conditions
of the settlement, it may enforce the settlement agreement through an
order. On the other hand, if it finds that no settlement agreement was
reached or that a material term of settlement was not agreed to, then
it may not enforce the settlement nor supply a material term. Rather,
it must allow Hensley to proceed on the merits.
Because of the district judge’s personal involvement in the factual
circumstances relevant to the issues on remand, we remand to a dif-
ferent district judge to conduct the plenary hearing.
III
We turn now to the district court’s dismissal of the underlying suit
with prejudice and its award of attorneys fees.
10 HENSLEY v. ALCON LABORATORIES
When it concluded that a settlement agreement had been reached
in this case, the district court directed Hensley "to consummate the
settlement" by September 15, 2000, or have his suit "dismissed with
prejudice." When Hensley protested, asserting that he had not agreed
to the terms of the agreement that the court ordered him to sign, the
district court disagreed and concluded that "Hensley has unreasonably
refused to sign the agreement." The court gave Hensley a short exten-
sion but again directed him to sign the submitted agreement by Sep-
tember 22, 2000, or have his suit "dismissed with prejudice and costs
assessed to [him]." When Hensley asked for a hearing of "[his] issues
of why [he was] not satisfied with the enforcement," the court held
a conference at which Hensley explained his position. The court over-
ruled his objections concluding, "As the plaintiff has unreasonably
refused to sign the agreement, the court DISMISSES this case with
prejudice against him." It also assessed "reasonable expenses and
attorneys fees" against Hensley, which it ultimately determined to be
$2,238.89.
In sum, for Hensley’s "unreasonable" refusal to sign the settlement
agreement — an agreement with which he took issue — the district
court forfeited Hensley’s underlying wrongful termination claim and
ordered him to pay Alcon $2,239 in attorneys fees and expenses.
Because the appropriate relief might again, on remand, become an
issue if the district court concludes that a settlement was reached, we
review these sanctions for abuse of discretion.
While the district court has within its inherent power the ultimate
authority to dismiss a case with prejudice, see United States v. Shaffer
Equip. Co., 11 F.3d 450, 462 (4th Cir. 1993), dismissal other than on
the merits must be supported by a finding of bad faith or other similar
abuse. Even then, because it is "the most extreme sanction," dismissal
may not be entered without the court’s first considering numerous
factors, including the availability of other sanctions. Id. at 462-63(enumerating six factors). In this case, not only is the record devoid
of the bad faith or abuse necessary to justify dismissal, see Chambers
v. Nasco, Inc., 501 U.S. 32, 45-46 (1991); Shaffer, 11 F.3d at 462(noting "that when a party deceives a court or abuses the process at
a level that is utterly inconsistent with the orderly administration of
justice or undermines the integrity of the process, the court has the
inherent power to dismiss the action"), but the district court also
HENSLEY v. ALCON LABORATORIES 11
failed to consider the six factors enumerated in Shaffer, particularly
whether other less harsh but effective sanctions were available. In this
case, the court could have specifically enforced the settlement agree-
ment or could have included its terms in a decree similar to a consent
decree. Accordingly, we conclude that, based on the record before us,
the sanction of dismissal was inappropriate.
Also under its inherent powers, the district court has authority to
shift attorneys fees, but again only in the extraordinary circumstances
where bad faith or abuse can form a basis for doing so. See Cham-
bers, 501 U.S. at 45-46. Without such findings, under the American
Rule, each party remains responsible for its own attorneys fees absent
explicit statutory authority or agreement to shift them. See Alyeska
Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 250 (1975).
Because the district court made no findings of bad faith or abuse, fee-
shifting was inappropriate in this case.
Accordingly, we reverse both the sanction of dismissal with preju-
dice and the sanction of fee-shifting that the district court imposed in
this case.
IV
In sum, we reverse the judgment of dismissal with prejudice and
the award to Alcon of its attorneys fees, and we remand this case to
the district court and to a different district judge to conduct a plenary
hearing on whether a complete settlement agreement was reached and
if so, to determine its terms and conditions. If the court is unable, fol-
lowing such a hearing, to enforce a settlement agreement, it shall
afford Hensley the opportunity to proceed with his case on the merits.
REVERSED AND REMANDED FOR FURTHER PROCEED-
INGS
DIANA GRIBBON MOTZ, concurring in the judgment:
I concur only in the judgment. The district court made a commend-
able attempt to work with the parties to settle this case. Unfortunately,
no one — neither the parties nor the court — put the terms of the set-
12 HENSLEY v. ALCON LABORATORIES
tlement on the record. Similarly, no transcript was made of the hear-
ing held on Alcon’s motion to enforce the asserted settlement
agreement. Thus, appellate review is impossible. For these reasons, I
agree that we must remand the case for on-the-record fact finding on
the disputed issues.