Contrary to a recent decision by a Pennsylvania trial court, to borrow from the Bard — all that is redlined is not accepted — as is evidenced by the recent appellate decision reversing the lower Court’s Order.
Under Pennsylvania state law, a lawyer cannot, under any circumstance, settle a client’s case without the client’s express authority to do so. Reutzel v Douglas, 870 A.2d 787, 788 (Pa 2005). Moreover, to do so would be an ethical violation of Rule 1.2 of the Pennsylvania Rules of Professional Conduct.
As set forth in the Rule, the client has the final say about whether to settle a case or go to trial. It is the lawyer’s responsibility to present the client with both options – and any relevant others — and provide clarity, legal interpretations, and recommendations to help the client make an informed decision.
It is critical that counsel fully understand and clearly communicate to one another and their clients what their respective clients desire, and provide timely, appropriate and comprehensible responses — most advisably in writing — to opposing counsel in order to obtain the necessary “meeting of the minds” between the legal and client participants and to avoid results such as occurred in the lower court in this action.
Seems simple enough, doesn’t it? But, the best laid plans often go awry, as can be seen below.
Recently, the Superior Court of Pennsylvania, in John G. King v. Christopher P. Driscoll, 2023 PA Superior 95, reversed the decision of the Court of Common Pleas of Allegheny County granting King’s petition to enforce the parties’ alleged settlement, based on the lower court’s erroneous conclusion that the “the parties reached an enforceable agreement for Driscoll to sell King his shares …because King’s attorney accepted a ‘redlined’ version of the agreement sent by Driscoll’s attorney.” However, in reading the appellate Opinion, it seems clear that at the end of the day the appellate outcome was dictated solely – and most importantly – by the fact that King’s attorney apparently did not have the express authority of his client to settle the dispute on the terms that had been put before the lower court – a condition overlooked by the lower court, as well as opposing counsel, but certainly a fundamental element of any settlement between the parties.
During their negotiations, Driscoll’s Attorney (Conlon) emailed King’s Attorney (Fuchs) a term sheet summarizing their negotiations and inquired “if we are in agreement on all terms.” Fuchs responded by adding handwritten notes to the term sheet, and Conlon incorporated those notes into another draft that he sent to Fuchs a few days later. Fuchs emailed him back with a “redlined” copy of the agreement “with mostly clarifications and a few details”. Conlon replied that he accepted most of the changes and had sent the agreement to Driscoll for his review, highlighting those changes in the draft that he did not accept. Fuchs responded that same day: “Client has approved your redline. Please get your client’s signature and send me a clean copy for my client to sign.”
Thereafter, Fuchs made a second request of Conlon for sign off on the agreement, with no response from Conlon. Finally, when Fuchs then made an additional request a few weeks later, Conlon responded by email stating that “the parties have neither negotiated nor reached a settlement agreement”, noting that in his last email he had advised Fuchs that he was sending the document to his client for review. He also reminded Fuchs of Conlon’s prior request for a copy of the RRF Application before Driscoll could sign off on the Agreement.
During this exchange, King filed a Complaint against Driscoll seeking monetary damages for breach of contract and fiduciary duties, as well as declaratory relief.
Attorney Fuchs argued that he believed that they had an agreement, but when Attorney Conlon did not send him back a clean copy for King to sign, Attorney Fuchs followed up with another email asking him to send a “clean version so we can get this done.” Again, however, there was no response. Finally, when Attorney Fuchs tried again a few weeks later, Attorney Conlon emailed him a letter in which he asserted that “the parties have neither negotiated nor reached a settlement agreement.” Attorney Conlon emphasized that he never represented that they had reached a settlement agreement, noting that in his last email, he wrote that he was sending the agreement to Driscoll for his review. Attorney Conlon also claimed that during a May 21st phone call, he told Attorney Fuchs that Driscoll needed a copy of the restaurant’s RRF application before he would sign off on the agreement.
Based upon these facts, the trial Court found for King and enforced the settlement as contained in the redlined agreement. In its Opinion, the trial Court did not address whether – based upon the above contested facts — Attorney Colton had his client’s express authority to finalize the proposed agreement without obtaining the RRF application, or his client’s acceptance of the terms of the agreement, concluding that even though the agreement was never signed, “[t]he accepted redline version in connection with the term sheet established the essential terms of the parties’ agreement”, ignoring the absence of any evidence of Fuch’s consent thereto or to the authority of his counsel to accept/enter into any settlement agreement.
As recited in the appellate opinion, Driscoll raised two arguments: (a) that the attorneys’ negotiations did not result in a binding, enforceable agreement and (b) Attorney Conlon never delivered to Attorney Fuchs or his client a copy of the RRF application, which non-delivery was undisputed. Although not raised in that Opinion, it is noteworthy that Attorney Colton did not appear to notify Attorney Fuchs earlier of the unacceptability of the agreement.
Although Settlement Agreements are enforceable in Pennsylvania without a writing, an attorney must still have express authority to settle their client’s case and to bind their client to a settlement agreement. As distinguished by the Superior Court, King did not prove that Attorney Conlon, in fact, possessed that authority. Moreover, King did not discredit Attorney Conlon’s and Driscoll’s claims that Driscoll’s receipt of the RRF Application was a condition precedent to any final settlement.
The Superior Court remanded the action to the trial court to resolve these issues, concluding that “the trial court erred in finding “that the parties, through merely the attorneys’ exchange of drafts and negotiations, bound their clients to the agreement.” Based upon the recitation of the Superior Court in its opinion, it is doubtful that that on remand King will prevail. However, it is difficult to conclude how – on the record below – the trial court found for King in the first instance.
Most importantly, the lesson learned from a review of the appellate Opinion in King is that (a) attorneys must have and should obtain, as a precondition of any role they have in negotiating on behalf of their respective clients with the other party(ies) to a dispute, the express approval of their client authorizing them to do so. A best practice would have counsel obtain that approval in a clear, unequivocal writing before counsel makes any settlement offer to opposing counsel, or engages in any negotiations or drafting of settlement documents. Similarly, in addition to obtaining the prior consent of their clients, counsel should make clear to other recipients of counsel’s draft or even of “final” settlement documents, the conditions upon which the acceptance of same by the opposing counsel and any binding effect on counsel’s client, would be acceptable.
Counsel is not only “negotiating” with opposing counsel – and their client – but their own client. Thus, they should ensure that before they bind their client in any matter to a settlement agreement or any proposed terms thereof, they have such authority to do so confirmed in writing.
Last modified: July 31, 2023