PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

KENNETH D. AUVIL,

Plaintiff-Appellant,

v. No. 95-1085

GRAFTON HOMES, INCORPORATED,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of West Virginia, at Clarksburg.

Irene M. Keeley, District Judge.

(CA-93-165)

Argued: March 4, 1996

Decided: August 6, 1996

Before NIEMEYER and MOTZ, Circuit Judges, and BUTZNER,

Senior Circuit Judge.

_________________________________________________________________

Vacated and remanded by published opinion. Judge Niemeyer wrote

the opinion, in which Judge Motz and Senior Judge Butzner joined.

_________________________________________________________________

COUNSEL

ARGUED: Harry A. Smith, III, Elkins, West Virginia, for Appellant.

Carl Lee Fletcher, Jr., SPILMAN, THOMAS & BATTLE, Charleston, West Virginia, for Appellee. ON BRIEF: Paul E. Parker, III,

SPILMAN, THOMAS & BATTLE, Charleston, West Virginia, for

Appellee.

_________________________________________________________________
OPINION

NIEMEYER, Circuit Judge:

This appeal presents the question of whether a settlement of this

case, consummated by the parties' attorneys, should be enforced

against one of the parties, Kenneth D. Auvil. The district court

enforced the settlement against Auvil, concluding that Auvil had

clothed his attorney with apparent authority to settle. While the record

facts support the conclusion that Auvil manifested his attorney's

authority to negotiate a settlement, we do not agree that they support

the conclusion that Auvil manifested his attorney's authority to

execute a settlement agreement. Therefore, we vacate the district

court's order and remand this case for further proceedings.

I

In 1985, Auvil became president of Grafton Homes, Inc., and

brought with him architectural plans that he had developed for construction of a style of modular home. Five years later, Auvil resigned

from Grafton Homes because of a disagreement and requested the

return of his plans. During the course of the ensuing dispute, Auvil

obtained copyrights for the plans and then brought this copyright

infringement action to enjoin Grafton Homes' continued use of them.

Grafton Homes filed a counterclaim, alleging that Auvil had assigned

his plans to Grafton Homes and that Auvil's use of the plans infringed

its proprietary rights.

During pretrial discovery, counsel for the parties discussed the possibility of a settlement involving mutual releases and mutual use of

the plans without any payment of money. Auvil, however, rejected

that proposal. Following further discovery concerning the validity of

Auvil's copyrights, the attorneys met again on October 24, 1994, and

reached a settlement to which, they believed, their clients thereafter

agreed. When Auvil later denied that he had agreed to any settlement

or that he had authorized his attorney, Melvin C. Snyder, III, to settle

the case on his behalf, Grafton Homes filed a motion to enforce the

settlement. Snyder withdrew as Auvil's counsel, and the district court

conducted a hearing into the events of October 24.

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According to Snyder's testimony at the hearing, the parties and

their attorneys assembled on October 24, 1994, to take a deposition

and discuss settlement. Before the commencement of the deposition,

Snyder met alone with Grafton Homes' counsel, Bernard R. Corbett

and Paul E. Parker, III. The attorneys agreed to terms of a settlement

that they would recommend to their clients involving mutual dismissals of their claims, mutual releases and covenants not to sue, and

mutual authorizations for use of the disputed architectural plans. Each

side would bear its own costs and expenses and neither side would

pay the other any compensation. Although Snyder had been "authorized to negotiate" a settlement on Auvil's behalf, he acknowledged

at the hearing that he had "not [been] authorized to settle [the case]

without [Auvil's] approval."

Following the attorneys' meeting, Snyder met with Auvil and his

wife. Believing that the terms he had agreed to with opposing counsel

were reasonable, Snyder recommended that the Auvils accept the settlement. Even though the proposal was essentially the same as the earlier one that Auvil had rejected, Snyder explained that the proposal

was now reasonable in light of subsequently developed information

about the weakness of Auvil's copyrights. Snyder then asked the

Auvils whether they wished to settle. Snyder understood Auvil's

response to be an authorization to proceed with the proposed settlement; he testified, "While I don't recall the exact words, my basic

understanding was that Mr. Auvil said go ahead and do that."

According to Snyder, Mr. and Mrs. Auvil then left the room and

went home, and he returned to the conference room to advise opposing counsel of the settlement. Because a court reporter was present for

the deposition the parties had scheduled for the afternoon, the lawyers

put the terms of the settlement "on the record." Parker, counsel for

Grafton Homes, undertook responsibility for drafting the settlement

papers, and a few days later he forwarded them to Snyder for Auvil's

approval.

Snyder testified that when Auvil received the settlement papers, he

requested some additional terms regarding the return of some furniture that Auvil had taken to Grafton Homes and the resolution of a

loan Grafton Homes had made to Auvil's son. At the same time Grafton Homes proposed adding a section to the settlement "regarding

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advertising of projects undertaken or completed while Mr. Auvil was

at Grafton Homes." Several days later, Auvil refused to proceed further with the settlement, failing to provide Snyder with any explanation. Snyder testified that Auvil "just did not feel comfortable with

going forward with the settlement."

At the hearing, Snyder testified unequivocally that he believed he

and Grafton Homes' counsel had consummated a valid and enforceable settlement on October 24 with the consent of the clients. In connection with the modifications subsequently proposed to the

settlement, Snyder understood them merely to be negotiations to modify the settlement, rather than a continuation of settlement negotiations begun on October 24. Absent mutual agreement on any of the

proposed modifications, Snyder viewed the terms of the October 24

agreement as binding.

Both Auvil and his wife also testified at the hearing, but to a completely different course of events. The Auvils stated that at the October 24 meeting, Snyder had highlighted the problems with their case,

retreating from his earlier view that their case was strong. They

claimed that they had been shocked by Snyder's "complete turn

around" and had left the room without discussing settlement. Because

the Auvils had not agreed to anything, Mrs. Auvil testified that she

was surprised when she later received settlement papers from Snyder.

Auvil testified similarly, stating that although Snyder's early assessments of the case had encouraged him, Snyder was now urging Auvil

and his wife "to get on with [their] lives." Auvil insisted that he had

"absolutely not [been] presented" with a settlement proposal and that

he had never authorized Snyder to settle the case. Explaining his reason for subsequently requesting modifications to the settlement

papers, Auvil stated that he had lost faith in Snyder by that time and

admitted that he "did toy and tease" in order to "find a little time" to

hire another attorney.

Neither Corbett nor Parker testified under oath at the hearing, but

they did represent to the court that they believed that the settlement

agreement they had reached with Snyder on October 24 was binding

and that Snyder had Auvil's authority to settle.

At the conclusion of the hearing, the district court expressed concern about the vastly inconsistent testimony given by Snyder and the

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Auvils. The court observed that "there is a material question as to . . .

what the Auvils knew and, therefore, what the terms of the agreement

could have been and whether there was a meeting of the minds on the

agreement to settle." Because "it's clear that there has to be here a disputed material fact," the court declined to enforce a settlement agreement and ordered the case to proceed to trial as scheduled.

Following the district court's ruling, Parker wrote a letter to the

court urging it to reconsider Grafton Homes' motion to enforce the

settlement based on the argument that Snyder had"`apparent authority' to settle the case." On reconsideration, the court adopted that theory, enforced the settlement agreement, and dismissed the case. In

ruling that Auvil had "clothed" Snyder with"apparent authority to settle" and therefore was "bound by the settlement regardless of whether

he now denies he gave Snyder actual authority," the court reasoned:

Auvil informed Grafton that Snyder represented him and

allowed Snyder to conduct settlement negotiations on his

behalf. Moreover, Auvil specifically informed Grafton's

attorney that Snyder might offer a settlement after the deposition of Grafton's president, William Shaw, was completed.

On October 24, 1994, Snyder negotiated with the attorneys

for Grafton and then met with Auvil to obtain authorization

to settle the case. After that meeting, Auvil and his wife left,

and Snyder informed the attorneys for Grafton that the settlement offer had been accepted. Moreover, on October 28,

1994, after receiving settlement papers from Snyder, Auvil

directed him to inquire about additional terms. In Auvil's

own words, he was "toying" with Snyder and Grafton in

order to gain time to seek for new counsel. From his own

actions, he permitted Grafton to believe that Snyder had

authority to settle the case on his behalf.

II

It is generally accepted that when a client retains an attorney to represent him in litigation, absent an express agreement to the contrary,

the attorney has implied authority to conduct the litigation and to

negotiate its resolution. But the "[s]ubstantive decisions of whether to

bring suit, to dismiss suit, or to settle are not by implication ones that

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the attorney is authorized to make." Schafer v. Barrier Island Station,

Inc., 946 F.2d 1075, 1079 (4th Cir. 1991). The law of West Virginia

--the state in which this alleged settlement agreement was made--is

not to the contrary. See Humphreys v. Chrysler Motors Corp., 399

S.E.2d 60, 62 (W. Va. 1990) (per curiam); Dwight v. Hazlett, 147 S.E.

877, 879 (W. Va. 1929).

At the hearing in the case, Snyder recognized that although he had

implied authority "to negotiate," he "certainly was not authorized to

settle [the case] without [Auvil's] approval." But Snyder claimed that

when presented with his proposed settlement, Auvil approved it and

gave Snyder authority to consummate it. Auvil, on the other hand,

denied having given Snyder any authority to settle. The district court,

rather than resolve the factual dispute over whether Auvil had

expressly authorized Snyder to act, elected to enforce the settlement

on the theory that Snyder had apparent authority to settle the case.

Apparent authority results from a principal's manifestation of an

agent's authority to a third party, regardless of the actual understanding between the principal and agent. See Crothers v. Commodity

Futures Trading Comm'n, 33 F.3d 405, 410 (4th Cir. 1994); Restatement (Second) of Agency § 8 (1957); see also General Elec. Credit

Corp. v. Fields, 133 S.E.2d 780, 783-84 (W. Va. 1963). Indeed,

apparent authority is "entirely distinct" from--and sometimes conflicts with--both express and implied authority. Restatement (Second) of Agency § 8 cmt. a. When a principal, through his acts or

omissions, causes a third party, in good faith and in the exercise of

reasonable prudence, to rely on the agent's authority to act on the

principal's behalf, the agent can bind the principal. See Crothers, 33

F.3d at 410; General Elec. Credit Corp., 133 S.E.2d at 783-84.

From the well-established tenet that an agent cannot create his own

authority to represent a principal, see NLRB v. Local 1058, UMW, 957

F.2d 149, 153 (4th Cir. 1992), it follows that an agent's statements

that he has such authority cannot, without more, entitle a third party

to rely on his agency, see Fennell v. TLB Kent Co., 865 F.2d 498, 502

(2d Cir. 1989); D&G Equip. Co. v. First Nat'l Bank of Greencastle,

764 F.2d 950, 954 (3d Cir. 1985); see also Restatement (Second) of

Agency §§ 7, 285 (1957). An agent's authority must be conferred by

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some manifestation by the principal that the agent is authorized to act

on the principal's behalf. Id. §§ 7-8.

Auvil's manifestations to Grafton Homes and its attorneys in this

case undoubtedly indicated that Snyder was Auvil's attorney and that

Snyder had the authority to negotiate a resolution of the dispute on

Auvil's behalf. The authority to negotiate, however, is far different

from the authority to agree to a specific settlement. Our review of the

record uncovered no manifestation by Auvil to Grafton Homes or its

attorneys from which Grafton Homes could reasonably conclude that

Auvil had authorized Snyder to consummate a settlement.

The district court mistook Auvil's manifestations of Snyder's

authority to negotiate a settlement on Auvil's behalf for manifestations of his authority to execute a settlement. In support of its finding

of apparent authority, the court stated, "Auvil informed Grafton that

Snyder represented him and allowed Snyder to conduct settlement

negotiations on his behalf." (Emphasis added). Similarly, the court

relied on facts that Auvil told a Grafton Homes' attorney before October 24 that Snyder might propose a settlement; that Snyder negotiated

on October 24 with Grafton Homes' attorneys and then met with

Auvil to obtain settlement authorization; and that after receiving settlement papers, Auvil directed Snyder to inquire about additional

terms. At most, Auvil's manifestations evince Snyder's actual authority to conduct settlement negotiations; Auvil never indicated to Grafton Homes that he was relinquishing his right to approve a settlement,

and Grafton Homes apparently recognized that fact when it later forwarded settlement papers for "Auvil's approval."

These circumstances are not unlike those in Edwards v. Born, Inc.,

792 F.2d 387 (3d Cir. 1986), where the court held that the record facts

did not "warrant the legal conclusion that [the plaintiffs' attorney] had

the power to settle." Id. at 390-91. In Edwards, the district court had

determined that an attorney had apparent authority to settle his clients' case because (1) he had represented the clients since they filed

their suit; (2) he had transmitted all communications between his clients and the opposing litigants; (3) a magistrate judge had entered

pretrial conference orders requiring the attorneys to appear with

authority to settle; and (4) one of the clients had entrusted the attorney

to select physicians and a psychiatrist to prepare for trial. Because,

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however, the "record [was] devoid of communications from the plaintiffs to defense counsel, much less representations that might have led

defense counsel to believe that [the plaintiffs' counsel] had [their]

permission to settle," the Third Circuit reversed, concluding that the

plaintiffs' attorney did not have apparent authority to settle.

The one manifestation that might have gone farther in this case is

that after meeting with Snyder on October 24, the Auvils left the

building while Snyder returned to the conference room to inform

Grafton Homes' counsel that the Auvils had agreed to the settlement.

Grafton Homes argues that this combination of events is sufficient to

create Snyder's apparent authority to settle. But the Auvils' conduct

--leaving the building after meeting with Snyder--communicated

nothing about their attorney's authority. The Auvils were not present

when Snyder announced that the case had been settled, and their conduct in leaving did not manifest acquiescence in Snyder's later statement of authority. The meaning Grafton Homes imparts to the Auvils'

departure derives not from their conduct, but rather from Snyder's

statement. To permit a finding of apparent authority on that basis

would abrogate the fundamental requirement of agency law that the

agent's apparent authority flow from the principal's conduct. See

Local Union 1058, 957 F.2d at 153.

The testimony before the district court would undoubtedly have

permitted the court to find that Auvil was attempting to manipulate

the settlement process. If Snyder is believed, the Auvils expressly

authorized him to negotiate a settlement and agreed to it, only to back

away from it later. The district court thus could well have believed

Snyder and, in a proper exercise of its equitable power, enforced the

settlement. See Napier v. Chesapeake and Ohio Railway Co., 582

F.2d 1344 (4th Cir. 1978). Unfortunately, however, the court did not

find the crucial facts, one way or the other. A remand will permit the

district court, in the first instance, to resolve the factual dispute concerning Snyder's actual authority. But this ruling is not intended to

suggest any view concerning Snyder's actual authority to settle the

case; we merely conclude that the facts do not support the conclusion

that Snyder's settlement of the case can be justified on principles of

apparent authority.

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Accordingly, we vacate the district court's order enforcing the settlement and remand the case for further consideration. In light of our

disposition, we need not address Auvil's other arguments.

VACATED AND REMANDED

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