DBTC Law Firm

“settlement agreement”

Don’t Count Your Chickens Before They Hatch: When an Attorney Lacks Authority to Settle a Case

In Arkansas, litigation is more likely to be resolved by settlement than by trial. While settlement is generally the quickest route to resolution, settlement negotiations can sometimes be tumultuous and so it is particularly important that all of the attorneys and clients make sure that they are on the same page as they navigate through the settlement process. An example of where this did not occur is the recent case of Terra Land Servs. v. McIntyre, 2019 Ark. App. 118 (Ark. App. 2019), in which the Arkansas Court of Appeals reversed the trial court’s order compelling execution of a settlement agreement, finding that ruling “clearly erroneous.” The outcome in the McIntyre case has significant implications with respect to any attorney who relies upon an opposing attorney’s statements regarding settlement.

This case was complex litigation between partners to resolve the ownership and interests of a partnership which had been ongoing for many years and involved hundreds of thousands of dollars of assets. The disputing partners agreed on very little regarding the business venture. Five years into litigation, pleadings were filed seeking financial records and a summary judgement. While these items were under consideration by the court, ten days of numerous emails, faxes, and telephone calls between counsel for the parties resulted in the attorneys confirming (likewise by emails and faxes) to each other that a settlement had been reached, its details, and that formal settlement documents would be finalized in the coming days.

Then, one of the parties (Terra) declared they had not settled and were still awaiting documents before they would do so. The other side (McIntyre) filed a motion to enforce the obviously reached settlement. In response, Terra asserted that, despite the clear communications between attorneys that settlement had been reached and the terms thereof, they had never explicitly authorized their attorney to agree to a final settlement of the case. This limitation had not been conveyed by Terra’s attorney to McIntyre’s attorney; Terra’s attorney asserted during the negotiations that he had the authority to settle. The trial court ordered that the settlement should be enforced.

On appeal, the Arkansas Court of Appeals found the communications between Terra’s representatives and their attorney to be compelling evidence that Terra’s attorney was never authorized to agree to any settlement arrangement. The Court held that “[u]nder Arkansas law, an attorney has no implied authority to enter into a compromise agreement,” even if that attorney represents to the other side that he or she holds such authority. Finding specific authorization to settle was lacking, the Court ruled that the attorney had no authority to settle for Terra and concluded that McIntyre could not enforce the purported settlement agreement using the statements of Terra’s attorney as to his authority and the settlement terms.

While attorneys routinely negotiate on behalf of their clients, with both sides presuming authority to do so, any reliance on a resulting settlement, absent the written and specific confirmation of the clients, now has no justification until that confirmation is accomplished. Potentially, that may result in a most unhappy surprise for those attorneys and clients who presume the contest is resolved and then cannot acquire such confirmation.