May Lawyers Execute Settlement Agreements for Clients

Basics for Settlement Agreements

A settlement agreement, in essence, is a legally binding contract in which a party agrees to assume certain responsibilities in exchange for the other party waiving any claims or demands. A settlement agreement is the culmination of negotiations between two parties involved in a legal dispute, which often saves both parties the time and expense of going to trial by coming to a mutually acceptable understanding. Settlement agreements are frequently utilized in civil matters as a way for defendants to avoid the expense of engaging in lengthy litigation, and are commonly used in the case of lawsuits. Parties will agree to pay corpus amounts into a specially earmarked trust for future care needs . In exchange, the plaintiff/settling party will execute a release of liability for the defendant and usually agree to stipulate that the factors making the case valuable will not be offered to the judge, jury or arbiter in the proceeding. Some settlement agreements will also include a confidentiality clause, which obligate one or both parties to not speak about or withhold information pertaining to the agreement. Finally, many settlement agreements will specify how disputes about the agreement should be resolved, including mandating that the parties attend mediation to facilitate their differences.

Attorneys’ Authority by Law

Attorneys at law have general authority to act on behalf of their clients subject to statutory and judicial limitations. First, the California Probate Code provides that, except where prohibited by a power of attorney, health care directive, or protective order appointing a conservator for an estate, an attorney in fact has the following general authority concerning the principal’s estate, both real and personal:
An attorney in fact may exercise either general or limited authority. Within the context of a power of attorney, an attorney-in-fact with general authority has "complete" authority over the principal’s estate, (see Cal. Prob. Code § 4260), whereas an attorney-in-fact with limited authority has what is termed as "specific" authority over the principal’s estate. (Cal. Prob. Code § 4261.) A grant of a limited authority does not mean that the attorney-in-fact has greater authority than that possess by an attorney-in-fact with general authority, but rather that the authority is confined to specified acts set forth in the power of attorney.
In addition, when a client’s power of attorney grants authority to the attorney-in-fact to enter into, modify and enforce a contract on behalf of the principal, the attorney-in-fact can sign settlement documents on behalf of a principal. In Smith v. Cleland (1982) 31 Cal.3d 72, the Supreme Court of California held that the attestation of counsel as attorneys-in-fact was sufficient for legally binding defendant to the contract. In Smith, counsel informed his client that he had settled the case on terms the client had previously approved and the attorney then executed the settlement agreements. The Supreme Court determined that the client was bound by the settlement entered into by counsel because counsel had the contractual capacity to bind the client. The Supreme Court noted that the trial court properly relied on clear and convincing evidence proving that plaintiff possessed sufficient contractual authority to execute the settlement agreements.
In addition to Smith, the California Court of Appeal, in the published opinion of Kahn v. Dunn (2012) 204 Cal.App.4th 65, held that California courts have recognized attorneys’ power of attorney can allow attorneys to bind their principals to settlement agreements. The principal in Dunn had granted Dunn a durable power of attorney containing, among other things, a clause authorizing Dunn to settle claims, including those regarding real property, and specifically authorizing Dunn to "sign and deliver instruments necessary to complete such transactions, including, without limitation, all instruments, papers, and notices . . . which may be considered necessary to vest title to any real property purchased as well as the right to claim any refunds due from any sellers." (Id. at p. 77.)
After the principal died, Dunn signed a settlement agreement concerning a real property dispute on behalf of principal. (Id. at p. 73.) The Dunn court, relying on Smith, held that the Dunn had ample authority to sign the settlement agreement on behalf of principal under the express language of the power of attorney. In addition, the court relied on the interpretation of the Gerry decision that the court is bound by the factual findings of the trial court with respect to the attorney’s capacity to enter into settlement agreement. (See Gerry v. Gerardy (1890) 83 Cal. 482, 490 (dismissing appeal for failure to provide a record on appeal sufficient to demonstrate reversible error).)

May a Lawyer Sign for Their Client

An attorney is entitled to execute any settlement agreement, stipulated judgment, or any other order or judgement on behalf of his or her client for the enforcement of any judgment, court order, mediation or arbitration award or written agreement of the parties, unless it expressly provides that the client must personally sign a separate document. Family Code section 272.
If an order contains an agreement of the parties, (e.g., the stipulated judgment) prior to signing the order, the attorney for one party may sign the other party’s name to the form of the order. In case of a dispute concerning the signature, the alleged signee has the right to assert a challenge to the authenticity of the signature. However, failure to object to the signature within a reasonable period of time may be a ground for estoppel, preventing the objection.
After signing, the signed order must be then served on the parties, along with a Notice of Entry of Judgment. A party has 60 days from the date of service of the Notice of Entry of Judgment to file a motion to set aside based on the failure to comply with due process (for example, failure to serve the appropriate documents). If all is proper, an attorney’s signing and filing of a client’s court appearance form or proof of service constitutes the client’s signature for the purposes of the court proceeding. This does not preclude a party from contesting the validity of the attorney’s signature. Family Code sections 2104(d); 2105.
Despite these circumstances, attorneys are routinely signing for their clients in settlement agreements without proper authroity. For example, in the recent case of Hawkins Pacific Corp. v. West Coast Developers (2006) 139 Cal.App.4th 188, real parties in interest were awarded approximately $220,000.00 in the settlement agreement. However, when the corporate executive outside of the jurisdiction, real parties in interest signed the settlement agreement on behalf of the corporation, which was unenforceable. The corporation successfully moved to set aside the settlement agreement, which was done through attorney’s counsel.

If Client Has Capacity, Consent Still Relevant

If you think back to days before filing a general civil action in California, you would have filed a complaint in order to initiate a lawsuit. Each parties’ counsel would then be expected to engage in some form of meet and confer in an attempt to resolve the lawsuit or at least some of the issues before the Court. Unfortunately, despite the best of intentions, these meet and confers would often result in very little actual progress.
It was because of these problems and the desire to alleviate at least some of the trial court backlog that the Legislature authorized alternative dispute resolution (ADR). Through the use of process, such as binding arbitration and mediation, parties are often able to resolve their disputes without the need for trial. While other types of ADR process may exist, private mediation has become the gold standard for parties attempting to resolve their case prior to trial.
Recognizing this importance, California Rule of Court, 3.221(a), required "All represented parties who participate in any private mediation session . . . [to] must file within 10 calendar days after the completion of any private mediation session a notice in the form prescribed in form ADR-101." An attorney would not desire to file an ADR-101 notice if the settlement agreement is not yet executed because the notice would place the Court on notice that the case was not settled. Further, even if an attorney is allowed to sign their client’s name to a settlement agreement, if the settlement has not been completed, then a notice should not be filed with the Court because the Court cannot grant an order dismissing the case before the case is settled.
So that the attorney may know whether the settlement has been finalized, California Rule of Court, 3.221(c)(10) states that the attorney signing the stipulation to mediation must have "obtained the informed consent of the client concerning settlement authorization and the attorney’s signatory authority." In other words, the attorney must obtain a client’s express authorization before signing a settlement agreement.
To obtain the required authorization the best method is probably through a retainer agreement with a provision where the client gives consent to the attorneys to settle a matter on their behalf. This basically creates an agency relationship between the client and attorney where the client delegates to the attorney the authority to make decisions such as settling the case without consulting with the client.

Consequences of a Non-Authorized Signature

Clients must consent to the entry of a settlement agreement. The settlement agreement must conform to the client’s settlement requirements. The attorney cannot and must not, without specific client order and instruction, enter into settlement agreement terms which bind the client to terms other than agreed by the client.
If the attorney signs a settlement agreement on behalf of the client, binds the client beyond settlement of the case as discussed at the settlement conference, or does so without specific client instruction and authority, the attorney may face legal and/or ethical consequences.
Remedies of a Party to a Settlement Agreement
The representative of a party to a settlement agreement who executes the settlement agreement without the authority from the other parties to do so may be personally liable for damages arising from such acts, and may be subject to disciplinary action by the state bar association . PRC, Rule 1-100(A), specifically prohibits attorneys from making false statements or representations in their practice.
In addition to the civil liability which an attorney may incur, the attorney may also be subjected to disciplinary action by the state bar association. In re Simmons, 16 Cal. 4th 159 (1997), set out that false statements made to courts, including those made in court documents, may subject the attorney to disciplinary action. Attorneys have a duty to assure honesty in the courts in which they appear. Since the signature of the attorney on behalf of the client may be misleading, a violation of this duty with regard to court documents may impose discipline.

Best Practices for the Attorney

To protect your client(s) from any negative impact that may arise from your electronic signature, and to ensure legal compliance and ethical standards are met, a number of proactive steps should be taken prior to signing a settlement agreement on behalf of your client(s).
Below are recommended best practices:
If you have any type of agency relationship or fiduciary responsibility to your client(s), as an attorney you cannot simply sign a settlement agreement on behalf of your client(s) without first confirming their consent to the final agreement terms. If no agency relationship exists, you may sign the settlement agreement on behalf of your client(s), but only after confirming that they are in fact aware of and agree to the terms set forth in the document. A best practice is confirmation via email or other written form of communication. All written communication should be stored electronically or in hard copy in your clients’ files. If your clients are located in the same office as you, it is best practice to meet with them in person to confirm that they are in fact aware of and agree to the terms of the settlement agreement to be signed. Document this meeting by creating a quick note that you include in each of your client files and also store in your practice management system.

Case Examples and Law

A case that is commonly cited on both ends of the settlement agreement spectrum is Cangelosi v. ASF federal Corp., 975 So.2d 604 (La. App. 4th Cir. 2008). There, the Fourth Circuit held that a dismissal with prejudice entered under a settlement agreement "is a ‘merger and execution’ of the contract of settlement." Id at 607 (citations omitted). The plaintiff sold his company to the defendants pursuant to a stock purchase agreement. Id. at 606. Later, the plaintiff sued the defendants alleging breach of contract. Id. The defendants filed a third-party demand seeking a refund of the purchase price, which was disclosed and agreed to in the stock purchase agreement, in the event the breaches reduced the value of the company below the price paid. Id. The defendants then filed a motion for summary judgment in a separate case asserting breach of the stock purchase agreement and urged a claim for damages for breach of contract pursuant to the third-party demand. Id. The trial court rendered judgment on the plaintiff’s claim, but not the third-party demand. Id. The defendants then filed suit on the third-party demand and the trial court dismissed the action. Id. at 607. The Louisiana Appellate Court held that the plaintiff and defendant’s entrance into a settlement agreement, execution of a stipulation of dismissal with prejudice, and entry of an order of dismissal by the court dismissed the litigation , including the third-party demand. Id. Another example comes from a somewhat recent case out of the Northern District of Illinois, McMahon v. LVNV Funding, LLC, 2013 WL 655236 (N.D. Ill. Feb. 21, 2013). There, a lawyer signed a settlement agreement on behalf of the corporation he represented but without express authority from the corporation to do so. Id. at *1. After that, the creditor sought to hold the corporation liable for the debt, even after the corporation was dissolved. Id. The court barred the creditor’s attempt to hold the dissolved corporation liable, stating that it was well established that "[t]he law will not permit a company to avoid liability simply because it signs a settlement agreement in the name of a dissolved company." Id. Instead, the court held that a signing lawyer is "an agent of the other parties to a contract, with authority coextensive with their own." Id. at *2 (citation omitted). That is so, provided the lawyer signs "on behalf of the corporation, not individually, and has the authority to sign on behalf of the corporation." Id. While the case did not concern a dispute over the attorney’s authority to execute a settlement agreement on behalf of a client corporation, it nevertheless represents a situation where a lawyer entered into a consequential agreement on behalf of a client that was treated as signed by the client.