Opinion
Civil Action No. 04-610 Section "K" (2).
July 15, 2004
Before the Court is an appeal of Bankruptcy No. 01-12617 filed pursuant to 28 U.S.C. § 158(a) and Federal Rule of Bankruptcy Procedure 8001 by Lion InvestBanc, L.L.C., Lion Capital, L.L.C., and Barabay Property Holding Co., L.L.C., ("the Lion Group"). The Lion Group seeks relief from the Order and Decree (Bank. Rec. Doc. 44) of United States Bankruptcy Judge Jerry A. Brown entered February 6, 2004 in connection with a Motion to Vacate, for New Trial, and to Set a Status and Scheduling Conference (Bank. Rec. Docs. 25 and 40). Having reviewed the pleadings, memoranda, and relevant law, the Court AFFIRMS the bankruptcy court's ruling for reasons stated below
I. BACKGROUND
Ronald James Kennedy and Christine Clark Kennedy ("the Kennedys") are former employees of the Lion Group. Ronald Kennedy held a director position with Lion InvestBanc and a manager position with Barabay Property Holding Corporation, while Christine Kennedy served as both a director and an elected corporate secretary for the Lion Group. Following this employment, the Lion Group filed a civil lawsuit in Louisiana state court against the Kennedys, alleging misappropriation of Lion InvestBanc's property. Specifically, the Lion Group alleges that the Kennedys improperly transferred corporate assets to Windsor Financial Group, Inc. ("Windsor"), a co-defendant in the Louisiana state court civil suit. Ronald Kennedy also received a guilty judgment for criminal charges, pursuant to 18 U.S.C. § 1341, for converting Lion InvestBanc's corporate assets. The U.S. District Court for the Middle District of Louisiana sentenced Ronald Kennedy to 21 months in prison, and ordered him to pay $339,665.67 in criminal restitution.
There are no dates given for these events, but Lion InvestBanc makes it clear that these actions took place prior to the Kennedy's filing for bankruptcy.
Subsequently, on April 5, 2001, the Kennedys filed a Chapter 7 bankruptcy proceeding in the Eastern District of Louisiana. The Lion Group filed a Complaint Objecting to Discharge of Claims on July 24, 2001, specifically objecting to the discharge of claims related to the Lion Group's civil suit in Louisiana state court. The Lion Group based its objection to the discharge of related claims on 11 U.S.C. § 523(a)(2), which provides an exception to the discharge of debts for money or property obtained by fraud. Michael T. Perry, the Lion Group's counsel of record, filed this objection.
The Lion Group then took no action, for over an entire year, to pursue its objection to the discharge of their related claims. United States Bankruptcy Judge Jerry A. Brown subsequently issued a call docket to determine why the Lion Group's complaint should not be dismissed for lack of prosecution, and a hearing was scheduled for October 23, 2002. This call docket hearing was later re-set, at the Lion Group's request, for December 18, 2002 to allow the Lion Group to put together default pleadings. The Bankruptcy Court refused to grant a default judgment, and again the case stalled and no action was taken for almost another year. The Bankruptcy Court issued a second call docket, scheduled for August 20, 2003, stating that "unless good cause to the contrary is shown," the Lion Group's complaint would be dismissed for lack of prosecution.
Prior to the default hearing on August 20, 2003, Joseph Friend, the Kennedys' attorney, contacted the Lion Group through their counsel of record, Perry, offering to give the Lion Group a judgment partially denying the discharge of Ronald Kennedy if the Lion Group would agree to dismiss the complaint against Christine Kennedy. Ronald Kennedy's discharge denial would consist of two things: (1) the amount of restitution Mr. Kennedy owed the Lion Group from his criminal sentence (an already non-dischargeable sum), and (2) some funds located in a Whitney Bank account under Mr. Kennedy's name which had already been seized by the Lion Group. Perry then drafted a Joint Motion for Stipulated Judgment and proposed judgment and sent them to Mr. Friend, who made minor comments. Thereafter, Perry filed the resulting Joint Motion for Stipulated Judgment and proposed judgment on August 18, 2003. Bankruptcy Judge Brown entered the stipulated judgment on August 18, 2003, and cancelled the August 20, 2003 hearing.
Perry and Friend apparently entered into this agreement because it was likely the Bankruptcy Court would issue a default judgment against the Lion Group. Rather than letting that happen, the attorneys agreed to the settlement terms proposed by Friend.
Subsequently, the Lion Group filed a Motion to Vacate the Stipulated Judgment on August 28, 2003; the Lion Group based its argument for a vacation on Perry's lack of authority to bind the Lion Group in the stipulated judgment. The Kennedys did not file an objection to this motion, but the bankruptcy court did allow Windsor, to file an amicus curie brief. In its amicus brief, Windsor acknowledged that its interest in preserving the Stipulated Judgment arose from its belief that the Stipulated Judgment adversely impacted the Lion Group's claims against Windsor in state court.
The Kennedys believe the Lion Group only opposed the Stipulated Judgment once the attorney handling the civil matter against the Kennedys told the Lion Group that the Stipulated Judgment could have an adverse impact on their chances in the civil proceeding.
The bankruptcy court initially set a hearing date for October 1, 2003, but this hearing was later continued twice: once to allow the deposition of Perry and then again to allow the Lion Group's new counsel, B. Franklin Martin, III, to apprise himself of the case. The bankruptcy court heard arguments on the motion on February 5, 2004, and subsequently found that the Stipulated Judgment was within Perry's authority, and therefore binding on all parties. The Bankruptcy Court based its decision on the following: (1) Perry's former execution of a surety bond for the Lion Group in a state court proceeding, which showed Perry's authority to bind the Lion Group in another proceeding; (2) the Lion Group's status as a corporation, requiring some type of agent — specifically, an attorney — in order for the Lion Group to enter into any type of consent agreement; (3) Perry's position as the Lion Group's counsel of record, and thus an individual who would have the authority to enter into a consent agreement for the Lion Group; (4) the Lion Group's status as a foreign corporation, making the Lion Group's personal consent to any settlement agreement more difficult; and (5) Fifth Circuit precedent that, in situations where principals cloak an attorney with apparent authority, third parties are entitled to rely on that attorney's apparent authority to bind the principal. The Bankruptcy Court thereby issued a minute order denying the Lion Group's Motion to Vacate the Stipulated Judgment.
The Lion Group filed its Notice of Appeal regarding Perry's authority to bind them to the Stipulated Judgment on March 3, 2004 (Rec. Doc. No. 1), and its Original Brief (Rec. Doc. No. 2) on March 18, 2004. The Kennedys filed their response and Original Brief on April 2, 2004 (Rec. Doc. No. 3). Windsor also filed a Motion for Leave to file an Amicus Curie brief (Rec. Doc. No. 4) on April 2, 2004 and its Amicus brief (Rec. Doc. No. 5) on April 7, 2004. The Court granted Windsor's request to file the amicus curie brief.
The instant appeal relates to Perry's authority to bind the Lion Group in the Stipulated Judgment. The Lion Group contends that none of its corporate representatives were contacted or had knowledge of the settlement of the discharge objection. The Kennedys argue that neither the Lion Group nor Mr. Perry "ever communicated or manifested anything to the Bankruptcy Court or to Mr. Friend other than that [Mr.] Perry had full authority to negotiate and execute a stipulated judgment." The Kennedys' Brief at 2. The Kennedys also argue that Judge Brown was satisfied with Mr. Perry's authority to bind the Lion Group when he accepted and entered the Stipulated Judgment. Id. at 2-3.
II. LAW ANALYSIS
This Court has jurisdiction over this appeal under 28 U.S.C. § 158(a), which authorizes it to: affirm, modify or reverse a bankruptcy court's judgment, order or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Bankr. R. 8013. Thus, the Court reviews the bankruptcy court's conclusion of law de novo, findings of fact for clear error, and mixed questions of law and fact de novo.
Questions regarding the enforceability or validity of settlement agreements are determined by federal law, "at least where the substantive rights and liabilities of the parties derive from federal law." Mid-South Towing Co. v. Har-Win. Inc., 733 F.2d 386, 389 ( citing Fulgence v. J. Ray McDermott Co., 662 F.2d 1207 (5th Cir. 1981) (Title VII); Strange v. Gulf and South American Steamship Company, 495 F.2d 1235 (5th Cir. 1974) (general maritime law); Cia Anon Venezolana De Navegacion v. Harris, 374 F.2d 33 (5th Cir. 1967) (general maritime law)). "Apparent authority exists whenever a principal manifests to a third person that an officer or agent may act in its behalf, and the third person in good faith believes that the authority exists. When that third person reasonably relies upon that apparent authority to his detriment, the principal is estopped to deny the authority." United States v. Gil, 657 F.2d 712, 715 (5th Cir. 1981) ( quoting Clark Advertising Agency, Inc. v. Tice, 490 F.2d 834, 836 (5th Cir. 1974); see also Product Productions v. Cousteau, 495 F.2d 483, 493 (5th Cir. 1974); Restatement (Second) of Agency §§ 8, 159 (1958)).
Although this standard is well-established, the question of what constitutes a "manifestation" by a principal to a third party depends to some extent on whether the principal is an individual or a corporation. In Evans v. Skinner, for example, which involved an individual as principal, the court recognized that "as a matter of law, for apparent authority to exist, there must be some conduct on the part of the principal to give rise to the inference of the agent's authority." 742 F. Supp. 30, 33 (D.C. 1990), 53 Fair Empl.Prac.Cas. (BNA) 1118 ( citing Drexel Burnham Lambert v. Commodity Future's Trading Comm'n, 850 F.2d 742, 753 (D.C. Cir. 1988) (Starr, J., concurring in part and dissenting in part)). In Evans, the defendants "failed to single out any actions of the principal — the plaintiff — that led them to believe her attorney had authority to settle this case," and the court therefore declined to enforce the contested settlement agreement. Id. (emphasis in original).
Manifestations of a principal to a third party are more difficult to discern when the principal is a corporation, however, and in cases involving corporate principals, courts appear less inclined to insist on the kind of direct representations required by the Court in Evans. In Golden Panagia Steamship. Inc. v. Panama Canal Commission, for example, there was evidence of continuous correspondence between the principal and its attorney concerning the possibility of settlement, and the court had "difficulty understanding what further `authority' [plaintiff's attorney] should, or could, have had for purposes of settling Golden Panagia's claims." 791 F.2d at 1196-97. The court refused to require evidence of direct authorization from the principal concerning its attorney's authority, reasoning that this requirement would not only be impractical, but "would entail, at the very least, a serious breach of professional ethics by the [defendant]," since it would basically require the defendant to go behind the attorney's back and directly contact his client. Id., at 1197.
In re Collecting Concepts, Inc. similarly required only indirect manifestations of a corporate principal to a third party as evidence of apparent authority. 296 B.R. 683 (Bankr.E.D. Va. 2001). In this case, the United States Bankruptcy Court for the Eastern District of Virginia ruled that the "apparent authority of an agent is created as to third parties by establishing the principal's conduct and course of dealing which, as reasonably interpreted, `induces a third party to believe that the agent has certain authority.'" Id. ( quoting Goger v. Merchants Bank of Atlanta (In re Feifer Industries, Inc.), 155 B.R. 256, 261 (Bankr.N.D.Ga. 1993) (internal citations omitted)). Cia Anon, supra, similarly held that a corporate principal's conduct and course of dealing, reasonably interpreted, sufficed to clothe its attorney with authority to enter into a settlement agreement. 374 F.2d at 35-36.
Despite the requirement that a principal make some manifestation to a third party concerning an agent's authority to settle, however, it is also well-established that "an attorney of record is presumed to have authority to compromise and settle litigation of his client, and a judgment entered upon an agreement by the attorney of record will be set aside only upon affirmative proof of the party seeking to vacate the judgment that the attorney had no right to consent to its entry." Mid-South Towing, 733 F.2d at 390 ( quoting St. Amand v. Marriott Hotel, Inc., 430 F. Supp. 488) (emphasis in original; internal citations omitted). See also United States v. Texas, 680 F.2d 356, 370-71 (5th Cir. 1982); In re Collecting Concepts, Inc., 296 B.R. at 690. The mere fact that a party moving to vacate a settlement informs its attorney, after an agreement has been reached, that he was not authorized to settle does not "affirmatively prove" that the attorney had no authority, actual or apparent. Mid-South Towing, 733 F.2d at 391.
The Lion Group contends that it "made no manifestations whatsoever to the Kennedys," and thus that they had no reason to believe that Mr. Perry had been clothed with apparent authority to settle their claims. Rec. Doc. No. 2, at 9-10. Additionally, the Lion Group maintains that any manifestations made by Mr. Perry would not be sufficient to establish apparent authority. Id., at 10. The Lion Group also contends that neither Perry's appearance in court on Lion's behalf nor his execution of a surety bond as principal for Lion would confer apparent authority to settle Lion's dischargeability claims. Id.
In the alternative, Lion avers that the Bankruptcy Court erred in failing to hold an evidentiary hearing to determine the extent of Perry's authority to enter into the Stipulated Judgment. Id. Lion contends that "no evidence was presented at the hearing [on its Motion to Vacate] as to the issue of apparent authority," and insists that the Bankruptcy Court based its findings, instead, on "arguments and exhibits found in the Windsor amicus brief." Id., at 12-13. Lion argues that the court could permissibly make such findings only "after an evidentiary hearing on the issue," relying on Mid-South Towing Co. v. Har-Win, Inc.
The Court disagrees with the Lion Group's criticism of the bankruptcy court's ruling. In practical terms, the legal standard for apparent authority requires that the Lion Group overcome the presumption that Perry had authority to enter into the Stipulated Judgment by offering affirmative proof that it did not by its conduct and course of dealing, induce appellees reasonably to believe that Perry had such authority. See Mid-South Towing, 733 F.2d at 390. Apart from denying Perry's authority and insisting that it "made no manifestations whatsoever to the Kennedys," the Lion Group has not offered "affirmative proof" that its conduct and course of dealing, as reasonably interpreted, could not have induced the Kennedys and their attorney to believe that Perry had authority to settle this case. Recognizing the intangible nature of "manifestations" made by a corporate principal to a third party, courts have consistently refused to vacate settlements without some tangible proof that apparent authority had not been created. The Lion Group failed to meet this burden at the hearing on its Motion to Vacate, according to Judge Brown. Neither his findings of fact nor his conclusions of law appear to be in error.
Furthermore, the Lion Group's contention that it was denied an evidentiary hearing is without merit. The bankruptcy court's record indicates that the appellant had on opportunity to introduce witness testimony and other evidence in support of its motion at that court's hearing on the motion to vacate. Judge Brown's division hears motions every other Wednesday. However, pursuant to Local Bankruptcy Court Rule 9013-1(B)(e), hearing of appellant's Motion to Vacate was reset for Thursday, February 5, 2004 in order to permit testimony in excess of one hour. That day, the bankruptcy court held a hearing on the matter. There is nothing in the record indicating that the court prevented the Lion Group from presenting the testimony of witnesses or any other form of evidence. Moreover, Judge Brown's statement, "I'll hear anything more you have to offer," makes clear that the bankruptcy court was receptive to a full evidentiary hearing. The Lion Group's unilateral decision not to offer witness testimony is insufficient to overturn the bankruptcy court's ruling. Thus, for reasons stated above.
IT IS ORDERED that the Order and Decree (Bank. Rec. Doc. 44) of United States Bankruptcy Judge Jerry A. Brown entered February 6, 2004 in connection with a Motion to Vacate, for New Trial, and to Set a Status and Scheduling Conference (Bank. Rec. Docs. 25 and 40) is hereby AFFIRMED.