Higbee, Rosemary v. Sentry Insur Co

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 00-1101 & 00-1505
ROSEMARY HIGBEE,
Plaintiff-Appellant,
v.
SENTRY INSURANCE COMPANY,
Defendant-Appellee.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 1349--James B. Zagel, Judge.
Argued March 30, 2001--Decided June 14, 2001
Before FLAUM, Chief Judge, and POSNER and
EVANS, Circuit Judges.
EVANS, Circuit Judge. The district
courts in this circuit have crowded
dockets, and the judges presiding over
those courts work very hard to keep their
heads above water. To that end, district
judges are wise to encourage settlements
and to poke and prod reluctant parties to
compromise, especially when their
differences are not great and/or their
claims or defenses are not airtight. See
Pierce v. Atchison, Topeka and Santa Fe
Ry., 65 F.3d 562, 572 (7th Cir. 1995)
(encouragement of voluntary settlements
is an important federal policy). By the
same token, judges must resist the
temptation to dismiss a case prematurely
before a settlement has truly been
finalized. The question presented in this
case is whether the stellar district
judge, a pillar of the bench of the
Northern District of Illinois, yielded to
that temptation.
Rosemary Higbee filed the complaint
that began this litigation in February
1997, accusing her former employer,
Sentry Insurance Company, of sexual
harassment, age discrimination, and
retaliatory discharge. Higbee’s first two
attorneys withdrew without completing
much discovery, and, as a discovery cut-
off approached, her third lawyer, William
Barasha, still had not taken even a
single deposition of a Sentry witness. On
the last day of discovery, Barasha filed
a motion to vacate the discovery cut-off
and, more importantly, to withdraw his
appearance on behalf of Higbee due to
what he said were irreconcilable
differences with her. Barasha’s motion
was noticed for a hearing on April 2,
1998.
Higbee claims to have been shocked by
Barasha’s motion and to have become
extremely distressed at the prospect of
losing her attorney at such a late stage
in the litigation. To ease her nerves,
Higbee asked her friend Jeff Braiman, an
attorney, to accompany her to the April 2
hearing on Barasha’s motion. On that
date, however, the district judge did not
immediately address the noticed motion,
but instead suggested that the parties
retire to his chambers for an impromptu
settlement conference. They were
separated into two rooms, and the judge
assumed the role of mediator, talking
with each side privately. Eventually,
Sentry’s counsel, Janet Hedrick, obtained
the approval she needed to offer $20,000
to Higbee. The judge presented this offer
to Barasha, Braiman, and Higbee, but
Higbee informed the judge that she had
not calculated her damages and was not in
a position to evaluate the offer.
Nevertheless, at some point during the
negotiation, the parties were all brought
together to discuss other details of the
proposed settlement. They were able to
agree in principle that the settlement
would include a general release of all
claims by Higbee, a waiver by Higbee of
any right to future employment with
Sentry, a confidentiality and
nondisparagement clause, and a provision
that the parties would use their best
efforts to effectuate the settlement. In
addition, they drafted a letter of
reference for Higbee from Sentry. At the
conclusion of negotiations, the judge
denied Barasha’s motion to vacate the
discovery cut-off and withdraw, and
dismissed the case with prejudice. As the
parties were leaving, Higbee asked the
judge what would happen if the parties
could not agree, and he stated, according
to her, something to the effect of "If
you cannot get it together, come back,
and I will, of course, reinstate."/1
Higbee quickly came to the conclusion
that she wanted to press on with her case
and claims to have informed Barasha of
this decision a day or two after the
conference./2 Barasha did not
immediately share this information with
Sentry, however, and on April 9, a week
after the court appearance, Hedrick
forwarded to him a draft settlement
agreement incorporating the terms, as she
understood them, agreed upon in the
judge’s chambers. Shortly thereafter,
Barasha realized that Higbee had a
worker’s compensation claim that had not
been discussed at the settlement
conference and that she wished to have
excluded from the release. Sentry agreed
to this request, and on April 21 Barasha
sent back a "counter-proposed release"
reflecting this change. Sentry’s in-house
counsel, Brad Corbett, made minor
revisions, then signed the agreement and
sent it back to Barasha. According to
Barasha, he thereafter spoke with Higbee,
who proposed several further changes to
the agreement, including adding names of
specific Sentry employees to be bound by
the nondisparagement clause and requiring
Sentry to turn over a psychological
report on Higbee prepared by its expert.
Corbett orally assented to these
modifications and then signed a revised
draft of the agreement which Barasha
forwarded for his approval on July 10.
According to Higbee, Barasha had not yet
consulted her about the language of the
agreement, and when he finally faxed it
to her on July 27 she found it
unacceptable. Higbee instructed Barasha
to demand the original psychological
report (as opposed to the copy offered by
Corbett), as well as additional sums for
accrued vacation and work-related
expenses, which she believed were not
covered by the $20,000 payment. Sentry
refused to make further concessions, Hig
bee refused to execute the draft
agreement, and Barasha resigned as
Higbee’s counsel.
On March 29, 1999, Higbee’s new counsel
filed a motion under Federal Rule of
Civil Procedure 60(b) to vacate the
district court’s order of dismissal and
reinstate the case. The judge denied the
motion and ordered that the agreement be
enforced as memorialized in the July 10
draft. Higbee’s motion to reconsider was
denied. In a second motion to reconsider,
Higbee asked that the case be transferred
to another judge for a hearing on whether
a settlement agreement had been reached.
The judge refused to transfer the case
but held a hearing on November 9 and 10,
1999, during which he heard testimony
from those present at the April 2
conference. After the hearing, the judge
made oral findings of fact, followed by
written conclusions of law. Although
several minor issues were still
unresolved at the conclusion of the April
2 settlement conference (such as the
status of the worker’s compensation claim
and the language of the confidentiality
clause), the judge held that they were
immaterial because they were easily
resolved during the negotiations that
followed. As to the status of the
psychological report, the court held that
it was immaterial because it was not
mentioned at the settlement conference
and its disposition would be governed by
state law. Accordingly, the judge
reaffirmed his decision that the parties
had entered a binding settlement
agreement on April 2.
Contract law, which governs this case,
requires a meeting of the minds on all
material terms. Abbott Lab. v. Alpha
Therapeutic Corp., 164 F.3d 385, 387 (7th
Cir. 1999). The parties agree that some
issues were resolved at the April 2
meeting, that some issues were left
unresolved, and that Higbee subjectively
believed that no binding agreement had
been reached. A layman might think that
these latter two facts preclude the
possibility of a meeting of the minds,
but any lawyer could tell you that a lack
of agreement on minor, immaterial terms,
and a party’s subjective and
unarticulated belief that she would not
be bound by an oral agreement, do not
preclude a finding that a contract has
been formed. See Wilson v. Wilson, 46
F.3d 660, 666-67 (7th Cir. 1995)
(unresolved immaterial terms do not
prevent meeting of the minds); Abbott
Lab., 164 F.3d at 387 ("’meeting of the
minds’ is determined not by [parties’]
actual subjective intent, but by what
they expressed to each other"). Thus, our
inquiry must focus on whether Sentry and
Higbee reached an agreement on all
material terms of a settlement and
whether Higbee’s objective words and
actions--quite apart from her subjective
beliefs--indicated her assent to be
bound.
The judge eventually found that three
issues were left unresolved at the
conclusion of the April 2 conference:
(1) the status of Higbee’s worker’s
compensation claim, (2) the language of
the confidentiality and nondisparagement
clause, and (3) the disposition of the
psychological report on Higbee created by
Sentry’s expert. Although we don’t
presume to speak for Sentry, we think
many defendants would agree that the most
material term in any settlement agreement
is the release, see Abbott Laboratories,
164 F.3d at 388, and, in a case involving
multiple claims, which of those claims
are covered by the release. Here,
although the release discussed at the
conference purported to waive all of
Higbee’s claims, the parties had not even
discussed the worker’s compensation
claim. Indeed, Higbee’s own attorney had
"forgot[ten] all about that" until a day
or two after the conference. Higbee
obviously wished to preserve this
claim,/3 but Sentry, at least at the
conference, sought nothing less than a
full waiver of all claims. Although
Sentry subsequently agreed to exclude the
worker’s compensation claim from the
release, this belated concession has no
bearing on whether an oral settlement was
reached on April 2./4
Similarly, the wording of the
confidentiality and nondisparagement
clause was a material term, at least as
far as Higbee was concerned. During the
negotiations, Higbee made it clear that
she would not settle the case without
such a clause, and it is undisputed that
the conference adjourned without hashing
out its details. Although a contract can
be formed even though the precise
language is not worked out and put into
writing until sometime later, see, e.g.,
Wilson, 46 F.3d at 667, there must at
least be some agreement as to what it
will say. Here, the parties agreed on
little more than the fact that the
settlement agreement would contain a
confidentiality and nondisparagement
clause, and further negotiation was
necessary to come to a specific
agreement. Again, the fact that the
parties eventually agreed, months later,
on mutually satisfactory language is
irrelevant.
Finally, getting her hands on the
original psychological report was
material to Higbee and, judging from its
post-conference stance on the issue, to
Sentry as well. Clearly there was no
agreement on the disposition of the
report at the settlement conference, and
the parties were not even able
subsequently to come to a compromise.
Sentry argues that Higbee’s right to the
report is governed by law independent of
any settlement agreement, and thus
failure to resolve the issue is not
material. But the fact that Higbee might
later be able to compel Sentry to release
the report via judicial intervention does
not diminish the value of obtaining it
cost-free as part of a global settlement
of all disputes between the parties. And
even if some unidentified state law
governs the disposition of the report,
that law certainly would not prevent
Sentry from voluntarily relinquishing it
as part of a settlement. Alone, the
parties’ failure to dispense with the
psychological report would not prevent a
binding settlement, but combined with the
lack of agreement on the worker’s
compensation claim and the
confidentiality and nondisparagement
clause, we think too much was left
unresolved at the April 2 conference for
the judge to find that a binding oral
settlement agreement was reached. That
finding, we reluctantly conclude, was
clearly erroneous.
We note for completeness that even if
Sentry had made a clear settlement offer
filling all the holes we discussed, we
are not certain that Higbee’s words and
actions sufficiently manifested her
acceptance. In particular, we are
concerned with her question to the judge
and his response that "If you cannot get
it together, come back, and I will, of
course, reinstate." The judge explained
after the evidentiary hearing that he was
offering to reinstate the case only if
the parties mutually agreed to rescind
the settlement agreement. Although he is
in the best position to know the meaning
of his own statement, Higbee’s question
should have raised a red flag regarding
her commitment to the settlement. And the
judge’s response only fueled her
subjective belief-- objectively revealed
by her question--that she had not yet
entered a binding agreement.
Perhaps anticipating our ruling today,
Sentry argues that even if no oral
contract was formed at the conference,
the parties subsequently agreed to a
written settlement via the exchange of
draft agreements between Barasha and Cor
bett. There is no question that Barasha
sent Corbett a revised draft of the
settlement agreement on July 10 and that
Corbett orally accepted this offer and
later did so in writing. The parties
dispute vigorously, however, whether
Barasha had authority to make this offer,
and settle the case, on behalf of Higbee.
An attorney’s authority to settle a
lawsuit is entirely separate from his
authority to represent a client in
litigation and will not be presumed.
Brewer v. National R.R. Passenger Corp.,
649 N.E.2d 1331, 1333-34 (Ill. 1995).
Sentry bears the burden of proof on this
issue. Id. at 1334.
Sentry first asserts that Higbee
expressly conferred authority on Barasha
to settle the case, pointing to the
judge’s finding that Barasha discussed
with Higbee the terms of the July 10
draft agreement before sending it to
Corbett. But Higbee denies that Barasha
consulted her, and this version of events
is supported by the only available
physical evidence--a July 27 fax from
Barasha to Higbee of the July 10 draft
agreement. Notably, Barasha did not send
this draft to Higbee until 17 days after
it had been accepted by Corbett and, upon
receiving it, Higbee found it
unacceptable and proposed extensive
revisions. Barasha could come up with no
other written correspondence between
himself and Higbee during the post-
settlement conference negotiations
referencing the enclosure of any draft
agreement or discussing any proposed
terms./5 On these facts, we find it
difficult to understand how the judge
found that Higbee expressly authorized
Barasha to settle.
Sentry also has a fallback position:
even if Barasha lacked actual authority
to settle the case on Higbee’s behalf, he
had apparent authority to do so. Sentry
points out that Higbee permitted Barasha
to negotiate for her at the conference,
and even nodded as he agreed to certain
terms. In addition, she sat silently as
the attorneys agreed to later work out
the details of the language of the
agreement. Based on these facts, Sentry
argues that Barasha’s authority to settle
may be presumed and that it was
reasonable for Sentry to indulge that
presumption. See Szymkowski v.
Szymkowski, 432 N.E.2d 1209, 1211 (Ill.
App. Ct. 1982) ("the existence of the
attorney of record’s authority to settle
in open court is presumed unless rebutted
by affirmative evidence that authority is
lacking").
The problem with Sentry’s argument is
that Szymkowski addresses an attorney’s
authority to settle in open court, in his
client’s presence. In that context, it is
easy to presume that an attorney speaks
for the client because the client is
there and free to object if she disagrees
with what is said. Id. A very different
situation is presented here, where the
alleged (written) settlement occurred
outside of court, in the client’s
absence. Under these circumstances, we
think it wise to revert to the general
rule that an attorney’s authority to
settle will not be presumed. Brewer, 649
N.E.2d at 1333-34./6 Nothing in the
record--other than Barasha’s self-serving
testimony--indicates that Higbee was ever
prospectively aware of the terms of any
offer made to Sentry or that she
authorized Barasha to make any such
offer. Accordingly, we decline Sentry’s
invitation to affirm on the alternative
ground that the exchange of drafts
between the attorneys formed a written
contract.
We conclude by noting the obvious: Ms.
Higbee seems to be a bit of a difficult
plaintiff. Just the number of attorneys
she has had in this case is vivid
testimony to that fact. And we can
certainly understand the desire that any
judge would have to move a case like this
off his docket. Nevertheless, for the
reasons noted, we think Ms. Higbee did
not agree to settle her case and so it
should not have been dismissed.
Accordingly, the judgment of the district
court is REVERSED and the case is REMANDED
for further proceedings. Circuit Rule 36
shall apply on remand.
FOOTNOTES
/1 Sentry’s counsel represented at oral argument
that this exchange took place at some point
earlier in the negotiations, but the court’s
memorandum opinion and order states that it
occurred at the conclusion of the settlement
conference. The proceedings in the judge’s
chambers were not transcribed, so we can only
guess at the sequence of the conversation, but,
given the context, we think it more likely that
the judge made this statement at the conclusion
of the negotiations.
/2 Barasha admits that he spoke to Higbee around
this time but claims that she merely expressed
her belief that she could withdraw from the
settlement, not that she wished to do so.
/3 In addition, Higbee claims certain work-related
expenses were not covered by the $20,000 offer.
Although the judge specifically found that they
were included in Higbee’s "laundry list" of
damages covered by the lump sum payment, Higbee’s
confusion on this point further illustrates that
no meeting of the minds occurred.
/4 It is true, as Sentry argues, that the Illinois
Workers’ Compensation Act provides that a work-
er’s compensation claim cannot be settled without
the prior approval of the Illinois Industrial
Commission. 820 ILCS 305/23. All the same, the
Act would not have precluded an agreement between
the parties that would have become effective only
upon the approval of the Commission. Instead of
trying to design such a settlement, the parties
neglected to address the worker’s compensation
claim at all.
/5 Sentry points out that Barasha was no longer
Higbee’s counsel on the dates of the evidentiary
hearing, so he no longer had access to the case
file and therefore could not be expected to
produce such correspondence. We consider it
unlikely, however, that an attorney would fail to
keep a separate file, independent of any case
file, containing at least his outgoing correspon-
dence.
/6 To the extent our conclusion conflicts with In re
Marriage of Clarke, 550 N.E.2d 1220 (Ill. App.
Ct. 1990), we reject that decision as inconsis-
tent with the Illinois Supreme Court’s subsequent
decision in Brewer.