Sunday, April 11, 2010

The Missouri Attorney’s Settlement Authority

When does an attorney in Missouri have the authority to settle your case? The answer to the question may depend upon whether or not he or she has your actual authority, or merely the authority of power in the eyes of third parties.

“Actual authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.” Hardcore Concrete, LLC v. Fortner Ins. Services, Inc., 220 S.W.3d 350, 355 (Mo. App. S.D. 2007) (quoting RESTATEMENT (SECOND) OF AGENCY § 1 (1958)). Actual authority may be express or implied. Id. (citing Nichols v. Prudential Ins. Co. of America, 851 S.W.2d 657, 661 (Mo. App. E.D. 1993)). “‘Express authority is created when the principal explicitly tells the agent what to do’” and “‘[i]mplied authority consists of those powers incidental and necessary to carry out the express authority.’” Id. (citing Nichols, 851 S.W.2d at 661).

In Missouri it is clear that upon the death of a principal an agent no longer has actual authority. Wood v. Hudson, 823 S.W.2d 158, 160 (Mo. App. E.D. 1992) (finding that deceased defendant could not be liable for injuries resulting from accident with truck driven by decedent’s agent because the principal-agent relationship is terminated by death); see also Ridenour v. Duncan, 291 S.W.2d 900, 905-06 (Mo. 1956) (finding that agent did not have authority to execute deed pursuant to principal’s explicit instructions because any authority conferred by a principal upon any agent to act terminated with the principal’s death).

“The rules of law applicable to principal and agent control the relation between an attorney and his clients.” State ex rel. A. M. T. v. Weinstein, 411 S.W.2d 267, 272 (Mo. App. 1967). Therefore, an attorney’s authority to act on behalf of his client terminates upon the client’s death. This rule was clearly stated by the Missouri court of appeals in State ex rel. White v. Terte: "The general rule is that the relationship between an attorney and client in a lawsuit is one of agency, and that upon the death of the client, that relationship terminates, with all authority incidental thereto, and the attorneys have no authority to take any further steps whatsoever in behalf of the deceased party unless and until authorized by the personal representatives of the deceased, duly qualified. Id. 293 S.W.2d 6, 10 (Mo. App. 1956); see also Glaser v. Hornbeck, 477 S.W.2d 432, 433 (Mo. App. 1972) (finding that attorney’s attempt to file notice of appeal after his clients’ deaths was ineffective because his employment as attorney and authority to act as an agent ceased immediately upon his their deaths).

Moreover, a cause of action for personal injuries, other than those resulting in death, shall not abate by reason of the injured person’s death, nor by reason of the death of the person against whom such cause of action shall have accrued; “but in case of the death of either or both such parties, such cause of action shall survive to the personal representative of such injured party.” MO. REV. STAT. § 537.020.1 (2009) (emphasis added).

Further, MO. REV. STAT. § 537.021.1 (2009) provides that: "The existence of a cause of action for an injury to property, for a personal injury not resulting in death, or for wrongful death, which action survives the death of the wrongdoer or the person injured, or both, shall authorize and require the appointment by a probate division of the circuit court of: (1)A personal representative of the estate of a person whose property is injured, or a person injured ...

Absent the grant of express authority to settle a lawsuit, an attorney’s authority to do so should be analyzed in terms of apparent authority." Rosenblum v. Jacks or Better of America West Inc., 745 S.W.2d 754, 760 (Mo. App. E.D. 1988). “It has long been recognized that an attorney can have apparent authority to act for a client.” Id. Apparent authority is created by conduct of the principal (the client) which causes a third person reasonably to believe that another (the attorney) has the authority to act for the principal. Id. Apparent authority exists only concerning third parties that believe and have reason to believe that the authority exists, and “may be shown by evidence of the facts and circumstances attending the actions of the parties.” Parks v. MBNA America Bank, 204 S.W.3d 305, 313 (Mo. App. W.D. 2006).

In Rosenbloom, 745 S.W.2d at 760, the court noted that, “regrettably, the cases in Missouri arising out of settlements gone awry have entailed a mutation of the general principles of agency.” The court observed that Leffler and its progeny, by focusing on the acts or representations of the attorney (agent), instead of the client (principal), in effect resorted to a new species of authority, “presumptive” or “presumed” authority, rather than the equally serviceable concept of apparent authority. Id. at 761-62. However, the court noted that the Leffler presumption is not wholly irreconcilable with the concept of apparent authority. Id. at 762. In this connection, the court pointed to the RESTATEMENT (SECOND) OF AGENCY, § 49, comment c: "Inferences from agent’s position. Acts are interpreted in the light of ordinary human experience. If a principal puts an agent into, or knowingly permits him to occupy, a position in which according to the ordinary habits of persons in the locality, trade or profession, it is usual for such an agent to have a particular kind of authority, anyone dealing with him is justified in inferring that he has such authority, in the absence of reason to know otherwise. The content of such apparent authority is a matter to be determined from the facts." Id. The court then applied the general principles of agency to the case before it, and found that the trial court could have found that apparent authority existed based on the facts of the case. Specifically, the trial court could have found that the client knew that settlement negotiations were taking place and that the other party’s attorney was never on notice that there was a limitation put on the attorney’s authority. Id. at 762. Moreover, the attorney was knowingly permitted by the client to occupy the position of exclusive negotiator, and to make and reject offers. Id.

The RESTATEMENT (SECOND) OF AGENCY § 120 (1958) states that:

(1) The death of the principal terminates the authority of the agent without notice to him, except as stated in subsections (2) and (3) and in the caveat.

(2) Until notice of a depositor’s death, a bank has authority to pay checks drawn by him or by agents authorized by him before death.

(3) Until notice of the death of the holder of a check deposited for collection, the bank in which it is deposited and those to which the check is sent for collection have authority to go forward with the process of collection.

Caveat: No inference is to be drawn from the rule stated in this Section that an agent does not have power to bind the estate of a deceased principal in transactions dependent upon a special relation between the agent and the principal, such as trustee and beneficiary, or in transactions in which special rules are applicable, as in dealings with negotiable instruments.

RESTATEMENT (SECOND) OF AGENCY § 120 Comment c. Apparent authority, which addresses the precise issue presented in this case, states:

"Like authority, apparent authority terminates with the death of the principal. Third persons who, in ignorance of the death, deal with the former agent (who also may be ignorant of the death) have no rights upon the contract against the estate of the deceased, unless the situation is one within the rules stated in Subsections (2) or (3) or the Caveat, except as they may be subrogated to any right which the agent may have because of a special contract with the principal."

An example of the application of this rule can be found in In re Estate of Kelly, 547 A.2d 284, 286 (N.H. 1988), where the petitioners were not aware of the client’s death at the time they arrived at the settlement with the attorney. The petitioners brought an action to set aside a settlement arrived at after the death of the client. The petitioners alleged that actual, as well as apparent, authority terminated with the death of the principal. Id. at 287. The court, looking to RESTATEMENT (SECOND) OF AGENCY § 120 (1958), concluded that none of the exceptions to § 120 applied, and that consequently the apparent authority of the attorney terminated with the death of his client. Id. at 288-89. Therefore, the settlement would not be enforced. Id. at 289.

Missouri courts have not adopted or cited to RESTATEMENT (SECOND) OF AGENCY § 120. However, since its publication in 1958, Missouri courts have cited to and relied upon other sections of the RESTATEMENT (SECOND) OF AGENCY.

The RESTATEMENT (THIRD) OF AGENCY § 3.11 (2006) states as follows:

(1) The termination of actual authority does not by itself end any apparent authority held by an agent.

(2) Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.

RESTATEMENT (THIRD) OF AGENCY § 3.11 Comment b. Principal’s death or loss of capacity, which addresses the precise issue presented in this case, states:
A principal’s death or loss of capacity does not by itself or automatically end the agent’s apparent authority. This is contrary to the position taken in Restatement Second, Agency § 120, Comment c. Change is warranted for several reasons, including the nature of apparent authority and various indications of policy contrary to the position taken in § 120.

An agent may act with apparent authority following the principal’s death or loss of capacity because the basis of apparent authority is a principal’s manifestation to third parties, coupled with a third party's reasonable belief that the agent acts with actual authority. See §§ 2.03 and 3.03. Neither element requires that the principal consent or manifest assent at the time the agent takes action. When third parties do not have notice that the principal has died or lost capacity, they may reasonably believe the agent to be authorized.

The RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 31(3) (2000) also addresses the issue presented here: "A lawyer’s apparent authority to act for a client with respect to another person ends when the other person knows or should know of facts from which it can be reasonably inferred that the lawyer lacks actual authority, including knowledge of any event described in Subsection(2)." Subsection (2) lists circumstances under which a lawyer’s actual authority to represent a client ends, which includes when the client dies. RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 31(2)(b).

Prior to the publication of either RESTATEMENT (THIRD) OF AGENCY or RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS, courts outside of Missouri found that death does not terminate apparent authority. For example, in Schock v. U.S., 56 F. Supp.2d 185, 187 (D.R.I. 1999), an attorney withdrew all the funds from the account of the decedent. The decedent’s only heir brought an action against the bank from which the funds were withdrawn. Id.

In addressing the issue of whether a principal’s death terminated the apparent authority of the attorney to withdraw the funds, the court looked to RESTATEMENT (SECOND) OF AGENCY § 120 cmt. c (1958), which states that apparent authority terminates with the death of the client. Id. at 193. The court noted that this statement of the law was “illogical.” Id. The court found that:
The public policy for which the state [] created apparent agency would be eviscerated by adopting the rule that [plaintiff] promotes. The doctrine of apparent agency exists in order to allow third parties to depend on agents without investigating their agency before every single transaction. If a third party had to confirm the agency relationship repeatedly, then it might as well deal directly with the principal. [Plaintiff] seeks to place the risk that a principal has died onto third parties, rather than on the principal. That is absurd." Id.

Other cases since the publication of RESTATEMENT (THIRD) OF AGENCY have also found that the death of a principal does not terminate the apparent authority of an agent. See Grizzle v. U.S. Bank, 892 N.E.2d 983, 986 (Ohio Ct. App. 2008) (finding that summary judgment was inappropriate where genuine issue of material fact existed as to whether defendant was acting under apparent authority to withdrawal funds after principal’s death).

Missouri courts have not adopted or cited to either RESTATEMENT (THIRD) OF AGENCY § 3.11 or RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 31(3). It should be noted, however, that both were only recently published, giving Missouri courts somewhat limited opportunity to rely on their provisions. At least one Missouri court has relied upon other sections of the RESTATEMENT (THIRD) OF AGENCY. See Milligan v. Chesterfield Village GP, LLC, 239 S.W.3d 613, 622 (Mo. App. S.D. 2007) (citing to RESTATEMENT (THIRD) OF AGENCY § 6.01 (2005)).

Finally, “The compromise of a pending suit by an attorney having apparent authority will be binding upon his client, unless it be so unfair as to put the other party upon inquiry as to the authority, or imply fraud.” Wenneker v. Frager, 448 S.W.2d 932, 937 (Mo. App. 1969) (citing Black v. Rogers, 75 Mo. 441, 1882 WL 9621 at *4 (Mo. 1882)). In other words, courts will only find a settlement negotiated by an attorney with only apparent authority to be binding on his client if it was not unfair and if there was no fraud in its procurement. See Stearns Bank N.A. v. Palmer, 182 S.W.3d 624, 626 (Mo. App. E.D. 2005) (finding settlement binding because “only allegations of unfairness in the agreement to dismiss or fraud in its procurement would undermine the attorney’s apparent authority” and party attacking the agreement made no allegations that it was unfair or procured by fraud); See also Promotional Consultants, Inc. v. Logsdon, 25 S.W.3d 501, 505 (Mo. App. E.D. 2000) (finding settlement binding because “there was nothing in the record or arguments of counsel that the settlement agreement, or any of the provisions contained within, was unfair or otherwise fraudulently obtained”); see also Mollenbrink v. Gibson, 479 S.W.2d 145, 148 (Mo. App. 1972) (finding settlement binding because “[n]o fraud upon appellants is even slightly in the case.”); see also Wenneker, 448 S.W.2d at 937 (finding the settlement binding because of “the seeming reasonableness of the settlement.”).

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