Tuesday, August 07, 2007, 9:02 PM

Harsh Reminder That Counsel's Conduct Is Imputed To Client

Today the Court of Appeals (COA) issued a harsh reminder that a client is, under the law of agency, responsible with the bad conduct of its counsel in almost all instances. The case is Purcell Int'l Textile Group, Inc. v. Algemene AFW N.V., et al.

Here's what happened. Plaintiff sued a number of businesses alleging contract, tort, and Chapter 75 claims after Defendants terminated certain commercial agreements. Attorney W. Rickert Hinnant were retained by Defendants to represent them in the litigation.

Hinnant began settlement negotiations, reached a settlement, and announced the settlement in open court on the trial date. Hinnant then prepared a settlement agreement, committing Defendants to pay $850,000 in three installments over a 6-month period. Hinnant sent Plaintiff settlement agreement signed by Defendants. Or so it seemed.

The trouble is, Hinnant never sent them the written settlement agreement or even told his clients about the settlement. Instead, he forged their names to the agreement after negotiating it without their consent or knowledge. He never had authority to settle for the amount he did.

Unsurprisingly, Defendants defaulted on the payment under the settlement agreement, since they didn't know about it. This prompted Plaintiff to file a motion to enforce the agreement, which resulted a judgment for $850,000 plus attorneys fees of 15% (as provided in the settlement agreement) as well as an order attaching assets of Defendants.

The first time Defendants learned of the settlement agreement was when they learned the court had entered that judgment against them. They moved under Rule 60(b) for relief from the judgment, urging that Hinnant committed fraud on the court and exceeded his authority. The trial court rejected the motion, and the COA affirmed.

As for fraud on the court, the COA relied on Henderson v. Wachovia Bank of N.C. N.A., 551 S.E.2d 464, 468 (2001)--another harsh case with extreme facts leading to the imputation of attorney misconduct--for the proposition that attorney fraud on the court warrants relief only when the adverse party's attorney commits the fraud. Therefore, Defendants were not entitled to relief from any fraud that Hinnant may have committed, since he was Defendants' attorney, not Plaintiffs' attorney. As for Defendants' argument that Hinnant exceeded his authority, the COA held that Hinnant's actions were binding on Defendants under the doctrine of apparent authority, even though he exceeded his actual authority.

Historically the approach taken by North Carolina courts in these cases is to stick the innocent client with the attorneys' misconduct or negligence, leaving the aggrieved client with a malpractice action against the attorney as the only possible remedy.

2 Comments:

Anonymous Anonymous said...

It is noteworthy that while the COA will dismiss an appeal for not following the rules, at great cost to the appellant, it most never sanctions the attorney who caused the error. Nor does it ever state the attorneys action may be grounds for malpractice. While dismissing an appeal does efficiently reduce the current case load it does not solve the problem of sloppy legal practice in appeals. The COA has the power to correct this sloppy work by sanctions against the offending attorney but does not. The COA could dismiss the appeal and sanction the preparer of the appeal. When a court has the power and does not exercise it - It may be what the court wants. Sloppy legal appeals do reduce the work load at the COA. L W Pigg

8:13 AM  
Anonymous Anonymous said...

To respond to the previous comment, I would just point out the new approach taken by some panels with respect to Rules violations -- taxing the attorney with costs and continuing to review the merits of the appeal. See, e.g., Peverall v. County of Alamance, __ N.C. App. __, __, 645 S.E.2d 416, 419 (2007); McKinley Bldg. Corp. v. Alvis, __ N.C. App. __, __, 645 S.E.2d 219, 221 (2007); Caldwell v. Branch, __ N.C. App. __, __, 638 S.E.2d 552, 555 (2007). However, while not prejudicing clients for sloppy appellate practice, this likely isn't a sufficient deterrent to lawyers who engage in such sloppy practice since the printing costs of an appeal are not very substantial.

4:53 PM  

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