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A lawyer’s “apparent authority” in negotiating on behalf of a client is not enough for a court to enforce the product of those talks, the Pennsylvania Supreme Court has ruled. The justices said that, in a case absent of attorney fraud, they would refuse to grant defense motions to enforce such an agreement, especially if the plaintiffs lawyer made a verbal disclaimer of express authority to accept a particular amount of money. Justice Russell M. Nigro, writing for the majority in Reutzel v. Douglas, made it clear that express authority — directly from the client — is necessary before an attorney may craft a settlement that the court would find enforceable. Joining Nigro in the lead opinion were Justices Ronald D. Castille and Thomas G. Saylor. While they agreed with Nigro and expressly joined the lead opinion, Chief Justice Ralph J. Cappy and Justice Sandra Schultz Newman said in a concurring opinion that they would prospectively adopt a rule recognizing apparent authority. Justice J. Michael Eakin, joined by Justice Max Baer, concurred in the result reached in the case, but called the majority opinion “too far-reaching” and “advisory” in nature. In Reutzel, the justices made clear that previous cases did not recognize the doctrine of apparent authority in Pennsylvania. Any “settlements” that were enforced without express authority were so recognized on equitable principles — to protect a defendant from further exposure in a case because of a plaintiffs attorneys fraud. In such a case, the justices said, the plaintiff would have recourse to the Client Security Fund. There was no fraud in Reutzel, only confusion and an apparent failure to communicate, according to the lead opinion. Litigation in Reutzel stemmed from plaintiff Rozanna Reutzel’s medical treatment following a car accident that left her a paraplegic. She underwent back surgery, performed by Richard Douglas at Allegheny General Hospital. During the surgery, Nigro wrote in the majority opinion, a pedicle screw was incorrectly implanted in the patient’s vertebrae. Her injury was thereby aggravated. Reutzel and her husband sued Douglas and Allegheny General Hospital for malpractice. Lawyers for the parties engaged in negotiations to settle the case, Nigro said. Settlement talks took place in 2002 among the attorney for the Reutzels, and defense counsel for Douglas and for the hospital. In discussions among the lawyers, $100,000 was suggested by the Reutzels’ attorney as an acceptable settlement figure. In a telephone message to the hospital’s lawyer, he said $100,000 would likely make the case go away, but he also said that his clients had not expressly authorized such an offer. When the doctor’s defense lawyer returned from her vacation and learned of the message, she agreed to accept what she viewed as a settlement offer of $100,000. Both defense counsel in the case, Nigro said, believed that a meeting of minds had been reached on a settlement agreement. At the same time, Nigro recounted, the hospital’s defense lawyer told the doctor’s lawyer that the plaintiffs lawyer was attempting to re-open negotiations. The two defense lawyers filed a joint petition to enforce the settlement agreement, arguing that the $100,000 figure broached by the plaintiffs lawyer in a telephone message was in fact an offer. The Reutzels and their lawyer, Nigro said, claimed that the telephone message was “merely … part of ongoing negotiations” and professed to be “shocked” by the defense lawyers’ decision to file a petition to enforce settlement. The Allegheny County Common Pleas Court granted the defendants’ petition, ruling that the Reutzels’ lawyer “had conveyed his ability to settle the suit” in the telephone message, “despite his disclaimer that he did not have client consent,” and that the defense lawyers reasonably relied on that representation. A divided Superior Court affirmed the trial court’s decision. The Supreme Court reversed the Superior Court. Nigro agreed with the plaintiffs that the plaintiffs attorney’s authority to negotiate was insufficient to bind them to a settlement agreement when he expressly stated that he did not have his client’s consent. “The law in this jurisdiction is clear and well-settled that an attorney must have express authority in order to bind a client to a settlement agreement,” Nigro wrote. “[A] client’s attorney may not settle a case without the client’s grant of express authority, and such express authority can only exist where the principal specifically grants the agent the authority to perform a certain task on the principal’s behalf.” Nigro rejected the defendants’ argument that a Superior Court case decided in 2002, Hannington v. Trustees of the University of Pennsylvania, stands for the proposition that an attorney may settle a case based on apparent authority alone. The majority said that Hannington’s statement that an attorney can bind his client based on apparent authority alone “is simply an incorrect statement of the law” and is grounded on a misreading of the 1983 state Supreme Court case, Rothman v. Fillette. In Rothman, an innocent plaintiff was held bound to accept a settlement that his attorney had no authority to enter into. But Nigro pointed out that in that case, the settlement enforced in Rothman “was a particularly egregious case of attorney fraud” and as such, warranted unusual treatment. The equities in Reutzel did not call for the solution reached by the Supreme Court in Rothman, the majority said. The plaintiffs attorney’s actions were not fraudulent toward the defendants, nor did the lawyer seek to defraud his own clients. “[U]nlike the situation in Rothman, we are not faced with two defrauded parties, between whom we must apportion a loss,” Nigro wrote. In his concurring opinion, Cappy said that the high court should adopt, prospectively, the doctrine of apparent authority as set forth in Section 27 of the Restatement (Third) of the Law Governing Lawyers. Under the Restatement, a lawyer’s act is attributable to the client if the “tribunal or third person reasonably assumes that the lawyer is authorized to do the act on the basis of the client’s (and not the lawyer’s) manifestations of such authorization.” Such an approach, Cappy said, takes into account the complexity of settlement negotiation, and recognizes that third parties relying on the lawyers’ representations are blameless. Eakin said that the case should have been resolved in favor of the plaintiffs because the telephone message left by the plaintiffs’ lawyer included a disclaimer, that he did not yet have client consent to the $100,000 figure. All of the analysis of apparent authority, he said, was “too far-reaching and, therefore, advisory in nature.”

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