Thought Leadership

Driscoll and King were partners in a venture operating a restaurant. Their relationship soured, and so as not to sour matters for their customers, they sought to separate amicably. The deal was to be that King would buy out Driscoll’s shares in the operating companies. Easy enough—so they both lawyered up.

The lawyers negotiated the buy-out agreement on behalf of their respective clients, and the exchange of emails and draft contracts extended over several weeks into several months. Nearing the end of the tunnel, King’s attorney sent a “term sheet” with a request for confirmation that the parties were in agreement on all terms. Driscoll’s attorney sent back a draft contract with some of those terms worked into it. King’s attorney responded with a red-lined version of the contract, accepting less than all of Driscoll’s input. Driscoll’s attorney responded with a further-marked-up draft, which he noted he had sent to Driscoll “for his review.” King’s attorney responded that King approved the final draft and requested a copy signed by Driscoll.

Then things just sat.

When Driscoll’s attorney wasn’t forthcoming with a signed final version, King’s attorney again requested a clean, final contract with a signature. No response. King’s attorney asked again. No immediate response. Eventually, Driscoll’s attorney responded that their respective clients “have neither negotiated nor reached a settlement.” So King filed a motion to enforce the settlement, arguing that the lawyers’ exchange of drafts nearing toward a single, agreed, final version achieved a meeting of the minds. The trial court held a hearing.

Driscoll’s attorney testified that he negotiated on behalf of Driscoll but did not have express authority to agree to the final terms sent by King’s lawyer and that there were material terms left up in the air. King testified that the lingering matters identified by Driscoll were not material and that the parties did, in fact, agree on all the material terms of the contract. The trial court granted King’s motion, concluding that the red-lined drafts and emails going back and forth coalesced into a final, agreed contract. It made no finding on Driscoll’s counsel’s actual authority to enter into that contract on behalf of Driscoll.

On appeal, the Superior Court reversed. Identifying the two issues as whether the terms were final and whether Driscoll’s attorney had authority, the court observed that “while [a] settlement agreement need not be reduced to writing, an attorney must still have authority to settle their client’s case.” You see where this is going.

Reiterating the usual understanding that, “if the existence of a settlement is in dispute because it is claimed that the attorney lacked authority to bind his client, the attorney’s authority to bind his client . . . is not inferred, but must be proven,” the Superior Court’s holding is unsurprising. The Superior Court highlighted that “the trial court never resolved what was the main factual dispute at trial—whether [Driscoll’s lawyer] had Driscoll’s express authority to settle the case.” And so, the court vacated the order enforcing the settlement and remanded for a finding on that factual dispute.

The takeaway from King v. Driscoll applies to cases far and wide whenever a lawyer will seek to compromise a matter on behalf of a client. To do so validly, the lawyer must have actual authority from the client to settle the case. And where that is contested, a court deciding a motion to enforce a purported settlement must make a finding on the lawyers’ actual authority.
 

_{Case Law Alerts, 3rd Quarter, July 2023 is prepared by Marshall Dennehey to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2023 Marshall Dennehey, all rights reserved. This article may not be reprinted without the express written permission of our firm.}