Court Opinion

ID: 9673427
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:11:44.867074+00
Date Added: 2024-06-11T18:13:56.642484
License: Public Domain

KING, Justice,
dissenting.
Respectfully, I dissent.
I agree that an attorney must have express authority to settle a client’s cause. However, I disagree with the majority’s holding that without such authority no enforceable settlement agreement will come into existence. The rule is unjustified, against the mainstream of Kentucky law on apparent authority, and will adversely affect the administration of justice. Realizing the harshness of this rule on innocent third parties, the Court attempts to craft an exception allowing the enforcement of such an agreement when the attorney possesses apparent authority and the third party has been “sub-*578stantiaUy and adversely affected.” The exception to the rule, although well-intentioned, is unworkable.
Although a lawyer is ethically required to have the client’s consent before resolving a client’s case, when a settlement is reached without this consent, the settlement should be enforced under the doctrine of apparent authority. Upon a showing by the client that the attorney lacked express authorization, the attorney should be required to bear the cost of any financial losses sustained by the client as a result of the unauthorized act.
The basis of the majority opinion is reliance upon a line of cases beginning with Brown v. Bunger, Ky., 43 S.W. 714 (1897) and continuing to DeLong v. Owsley’s Ex’x, 308 Ky. 128, 213 S.W.2d 806 (1948). Essentially these cases hold that, absent express authority from a client, an attorney lacks authority to settle a client’s case. Although the majority correctly observes that these cases provide no basis or explanation for the rule and ignore the deleterious effect on third parties, the Court, on the basis of stare decisis, perpetuates this rule.
Rules of law affect people’s lives. If no clear, cogent reason can be advanced for a rule of law, one must question its validity. Except for precedential deference, no justification can be advanced for following the so-called “Brown rule.” Hilen v. Hays, Ky., 673 S.W.2d 713, 717 (1984), discussed the appropriate role of precedent:
In broad outline, stare decisis directs us to “stand by” our previous decisions unless there are sound legal reasons to the contrary. Every ease must be decided with a respect for precedent. But the doctrine of stare decisis does not commit us to the sanctification of ancient fallacy.
There are compelling reasons why Brown v. Bunger, supra, and its progeny should be overruled and forever discarded.
Once an attorney commences representing a client, important relationships, other than that between the attorney and client, arise. One such relationship is that between the attorney (acting as agent for the client) and the opposing party (or its attorney). The Brown rule fails to acknowledge the multiple roles of an attorney and limits its focus exclusively to the relationship between the attorney and client. Accordingly, it fails to address the real issue presented in this case.
It is indisputable that, in the relationship between attorney and client, the attorney should first obtain the client’s consent before settling the client’s case. However, the issue for consideration here is who should bear the loss when an attorney has settled a case without obtaining the client’s consent. In the relationship between the innocent third party and the settling attorney, the third party should have the right to rely upon the apparent authority of the attorney to settle the case. Because it focusses solely on the initial attorney-client relationship, the Brown rule allocates the risk of unauthorized settlement to the innocent third party. That risk should be placed on the client who hired the settling attorney and ultimately on that attorney.
The majority also relies on the Kentucky Rules of Professional Conduct for the rule that an attorney may not settle a case without the client’s express authority. However, that rule only governs the conduct between the attorney and client. The Rules of Professional Conduct acknowledge other relationships which necessarily arise from the attorney-client relationship and set standards for those relationships. See for example Rule 3.3 (Candor Toward the Tribunal), Rule 3.4 (Fairness to Opposing Party and Counsel) and Rule 4.1 (Truthfulness in Statements to Others).
The doctrine of apparent authority has long been the law of Kentucky.
It has been held that a principal is bound by the acts of an agent within the apparent scope of authority although the authority may in fact be limited, if one dealing with the agent is ignorant of limitations upon his authority_ [Wjhere one of two parties must suffer loss through acts of an agent the loss should fall upon the one who authorized the agent to act rather than the innocent third party unless the agent is acting beyond the scope of his apparent authority.
*579Tennessee Gas & Transmission Co. v. Cooke, 306 Ky. 160, 206 S.W.2d 491 (1947) (emphasis added).
No doctrine is better settled than that a principal is bound by the act of his appointed or recognized agent when it is within that sphere [of the agent’s apparent authority]. Concretely, if the principal has held out that an agent is authorized to buy goods for him he is bound by the purchases made which are fairly and reasonably within the class specifically authorized and within the apparent scope of the authority where the seller is ignorant of any limitations upon the character of goods to be bought or the scope of authority.... It matters not that the agent acts contrary to the instructions of his principal where a third person with whom he deals is ignorant of his circumscribed authority or has no reason to believe he is exceeding it or violating the instructions of his princi-pal_ If that were not the rule, commercial relations would be constantly disturbed and chaos result.
American Nat. Red Cross v. Brandeis Machinery & Supply Co., 286 Ky. 665, 151 S.W.2d 445, 451 (1941) (citations omitted).
When a client employs counsel and counsel investigates the facts, files suit, takes proof, and enters into negotiations, the client clothes the attorney with apparent authority to settle the claim. Kentucky law recognizes an attorney is vested with powers superior to those of other agents because of the attorney’s quasiudicial status. Daugherty v. Runner, Ky.App., 581 S.W.2d 12 (1978). Accordingly, the client should be bound by the actions of the agent.
The rule announced in Brown and followed by the majority is also impractical. Our system of justice is already overburdened. There are nearly 12,000 attorneys licensed to practice law in our Commonwealth. Each year they collectively negotiate hundreds of thousands of legal matters. Not being able to rely upon the apparent authority of opposing counsel, cautious lawyers will now demand proof that opposing counsel has the express consent of the client for each offer and counter-offer. The practical impact of this is considerable. Telephone and person to person negotiations "will only constitute prefatory discussions. The settlement process will take longer and further court delays will result.
The majority recognizes that an innocent party could be “substantially and adversely affected by an attorney possessing apparent authority but who lacked actual authority” and seeks to fashion a remedy for those injured. Unfortunately, for the most part, this remedy is illusory.
Innocent third parties should be given the benefit of their bargain. Although they may be “substantially and adversely affected” rarely will they initially be able to meet that test. By the time they can meet that standard, it might be too late. Two examples, with parties “X” and “Y,” illustrate the ineffectiveness of the remedy fashioned by the court.
First, assume a case is set for trial. The outcome will probably be determined by the testimony of a particular witness. The case is “settled” the day before the trial. Within days the settlement is renounced because express permission was not given to X’s attorney. The matter is set for trial at a later date. Under the “substantial and adversely affected” test, Y would be unable to enforce the settlement. Subsequently, the key witness unexpectedly dies, moves, or otherwise becomes unavailable, the case is tried, and the jury finds against Y. Will the court vacate the jury verdict and enforce the original settlement?
In today’s world many cases are determined by a “battle of the experts.” Imagine a second case in which X agrees to settle, recognizing the small chance of success at a jury trial because of lack of appropriate expert witnesses. Days later, the settlement is renounced due to lack of express permission to X’s attorney. By the time the case is tried X has a full complement of experts and prevails on the merits of the case. Has Y been “substantially and adversely affected?” Will the jury verdict be vacated and the settlement enforced?
The majority opinion and ah the decisions upon which it relies fail to state any reason why attorneys should be treated differently *580than other agents. The rule for attorneys unfairly allocates the risk of loss to an innocent third party. In a fair and just society, innocent parties should not bear the cost of wrongdoers. People who commit wrong should bear the consequences of their actions. The actions of an attorney, cloaked in apparent authority, should bind the principal who hired that attorney. The principal has adequate relief against the attorney, who should ultimately bear the ethical and financial consequences of settling a case without the client’s express authority. This rule would place the full responsibility where it belongs, on the person who committed the wrong. To make an innocent third party bear this risk is intrinsically unfair.