Davis Law Firm

Contracts

Don’t Count Your Chickens Before They Hatch: When an Attorney Lacks Authority to Settle a Case

In Arkansas, litigation is more likely to be resolved by settlement than by trial. While settlement is generally the quickest route to resolution, settlement negotiations can sometimes be tumultuous and so it is particularly important that all of the attorneys and clients make sure that they are on the same page as they navigate through the settlement process. An example of where this did not occur is the recent case of Terra Land Servs. v. McIntyre, 2019 Ark. App. 118 (Ark. App. 2019), in which the Arkansas Court of Appeals reversed the trial court’s order compelling execution of a settlement agreement, finding that ruling “clearly erroneous.” The outcome in the McIntyre case has significant implications with respect to any attorney who relies upon an opposing attorney’s statements regarding settlement.

This case was complex litigation between partners to resolve the ownership and interests of a partnership which had been ongoing for many years and involved hundreds of thousands of dollars of assets. The disputing partners agreed on very little regarding the business venture. Five years into litigation, pleadings were filed seeking financial records and a summary judgement. While these items were under consideration by the court, ten days of numerous emails, faxes, and telephone calls between counsel for the parties resulted in the attorneys confirming (likewise by emails and faxes) to each other that a settlement had been reached, its details, and that formal settlement documents would be finalized in the coming days.

Then, one of the parties (Terra) declared they had not settled and were still awaiting documents before they would do so. The other side (McIntyre) filed a motion to enforce the obviously reached settlement. In response, Terra asserted that, despite the clear communications between attorneys that settlement had been reached and the terms thereof, they had never explicitly authorized their attorney to agree to a final settlement of the case. This limitation had not been conveyed by Terra’s attorney to McIntyre’s attorney; Terra’s attorney asserted during the negotiations that he had the authority to settle. The trial court ordered that the settlement should be enforced.

On appeal, the Arkansas Court of Appeals found the communications between Terra’s representatives and their attorney to be compelling evidence that Terra’s attorney was never authorized to agree to any settlement arrangement. The Court held that “[u]nder Arkansas law, an attorney has no implied authority to enter into a compromise agreement,” even if that attorney represents to the other side that he or she holds such authority. Finding specific authorization to settle was lacking, the Court ruled that the attorney had no authority to settle for Terra and concluded that McIntyre could not enforce the purported settlement agreement using the statements of Terra’s attorney as to his authority and the settlement terms.

While attorneys routinely negotiate on behalf of their clients, with both sides presuming authority to do so, any reliance on a resulting settlement, absent the written and specific confirmation of the clients, now has no justification until that confirmation is accomplished. Potentially, that may result in a most unhappy surprise for those attorneys and clients who presume the contest is resolved and then cannot acquire such confirmation.

Child’s Severe Burns From Space Heater Do Not Result In Landlord Liability For Failed Heating System.

A landlord had a duty to provide heat to his tenant’s residence and knew that the furnace was broken. Yet, the landlord was held to have no liability when his tenant’s nine-year old granddaughter suffered extensive burns after her dress came in contact with a space heater being used to heat the home. Why? It was not reasonably foreseeable that the landlord’s breach of his duty to provide heat would result in burn injuries from a space heater.

The outcome in Robinson v. Willis, 2018 Ark. App. 542 (November 7, 2018) may seem harsh. Nonetheless, it is consistent with principles of tort law which have been in place in the State of Arkansas for many years. In the Robinson case, Brandy Robinson was staying with her grandmother, Barbara Robinson, on December 23, 2011 in a residence Ms. Robinson leased from landlords James Willis and Marion Starks. The heating system on the property did not work and Ms. Robinson was using space heaters to heat the home. Brandy’s dress caught fire when it came in contact with one of the space heaters, causing her to suffer extensive burns. Brandy’s mother filed suit against the landlords (as well as against the manufacturer and seller of the space heater). She claimed that the landlords breached their duty to provide heat by not fixing the broken furnace, causing the need to purchase space heaters, which then resulted in Brandy’s dress catching fire and causing serious burns.

The trial court granted a summary judgment in favor of the landlords and the Arkansas Court of Appeals affirmed. The case turned on the concept of foreseeability. Even though the landlords admitted that they had a duty to repair the heating system, and even though they acknowledged that it was foreseeable that their tenant might buy a space heater when the heating system did not work, the court stated, “It does not follow, however, that it was also foreseeable Barbara’s grandchild would suffer burn injuries from the use of such space heaters.” The Court emphasized that a defendant is under no duty to guard against risks it cannot reasonably foresee, saying “Harm that is merely possible is not necessarily reasonably foreseeable.” The Court explained that when the voluntary acts of human beings intervene between the defendant’s act and the plaintiff’s injury, the question is always: Was the third person’s conduct sufficiently foreseeable to make the defendant’s act a negligent one?” In this case, the court concluded that reasonable minds could not foresee that Brandy would suffer burn injuries from the use of a space heater.

Interestingly, although Arkansas cases often state that foreseeability is a question for the jury, not the court, to decide, the Robinson court did not allow the issue of foreseeability to go to a jury and instead decided the case as a matter of law. Thus, this case may now make it easier for defendants to have foreseeability issues determined by courts in summary judgment proceedings. You might wonder, “How was it not foreseeable that if the heat failed, the tenants would have to use alternative, inapt, and perhaps dangerous methods to avoid freezing to death?” But, that was the final decision of the Court and it stands as precedent for future decisions.

 

What’s In A Name?

Charities often attract gifts from wealthy donors by agreeing that a building, facility or program will carry the donor’s name. What happens, however, if that donor’s name subsequently becomes tarnished and the charity wishes to remove it? Vanderbilt University was required to repay an 83-year-old donation of $50,000 in present day dollars – to the tune of $1.2 million – in order to remove the word “Confederate” from the name of a building on its campus. The lesson: granting naming rights should be carefully scrutinized and the retention of “un-naming” rights under the gift agreement should be considered.

The issue of naming rights may become a concern if a major donor is accused or convicted of a crime, declares bankruptcy, or is engaged in nefarious activities with which a charity does not wish to be associated. However, unless “un-naming” rights are preserved, the removal of a donor’s name may not be as easy as removing letters from a building facade. The donor may be able to insist that the name cannot be changed or, if it is, that the contribution be returned.

Vanderbilt University learned this when a Tennessee appeals court ruled that the University could change the name of a building known as “Confederate Memorial Hall” only if it returned to the donor the value – as adjusted by the consumer price index – of the original contribution. In 1933, the United Daughters of the Confederacy (“UDC”) had contributed $50,000 to the George Peabody College for Teachers for the construction of a building. The contract required the building be named “Confederate Memorial Hall.” Peabody College merged into Vanderbilt in 1979, and Vanderbilt assumed all of Peabody’s obligations. The building’s name, etched in stone above its entrance, became controversial over the ensuing years, and Vanderbilt expressed its intent to remove the name. The UDC filed suit, alleging that renaming the building would be a breach of contract. The court ruled in favor of the UDC, holding that the obligation to retain the name continues for as long as the building stands and that if Vanderbilt desired to rename the building, it would be obligated to repay the UDC the value of the original gift in today’s dollars. Tennessee Division of the United Daughters of the Confederacy v. Vanderbilt University, 174 S.W.3d 98 (Tenn. App. 2005).

Ten years after the Tennessee court’s decision was handed down, Vanderbilt decided that would repay the donation – now valued at $1.2 million – and rename the building. The University’s chancellor said that the name was “a symbol that is, for many people, deeply offensive and painful.” The UDC, though disappointed with Vanderbilt’s decision, said that it had no legal choice except to accept the $1.2 million.

There are other examples of institutions attempting to walk-back naming rights. At Villanova University, for example, the “John E. DuPont Pavilion” was re-named the “Pavilion” after DuPont (the great, great grandson of the original E. I. DuPont de Nemours) was convicted of murdering former Olympic wrestler David Schultz. After the namesake of its recreation center was sent to federal prison for bankruptcy fraud and money laundering, Seton Hall’s Board of Regents adopted a new naming policy which allows for the removal of names from facilities. The Houston Astros baseball club had to pay bankrupt Enron Corporation $2.1 million to remove the Enron name from its stadium, which is now known as Minute Maid Park. The Baltimore Ravens and the Tennessee Titans have also gone to court to reclaim naming rights to their stadiums after their donors went bankrupt.

The University of Arkansas and other institutions around this state have proudly named buildings and facilities after their donors – Reynolds Razorback Stadium, Bud Walton Arena, the Walton Arts Center, and the Verizon Arena come readily to mind. If, in the future, a wayward heir or a financial collapse were to sully one of those donor’s names or businesses, could the name be removed? Perhaps not, unless “un-naming” rights were reserved in the contract. Donors and donees, take note and draft accordingly!

* Source material for this post gathered from Robert L. Fox’s article “Vanderbilt University Pays $1.2 Million to Donor to Rename ‘Confederate Memorial Hall’” published by the Planned Giving Design Center on its website, www.pgdc.com.

 

Taking the Bait: Is it justifiable to rely on a bare statement that a toolbox is worth $150,000?

The old adage, “[i]f it seems to be too good to be true, it probably is,” is well worth considering the next time you make a large purchase. That advice would have come in quite handy for a woman and her son who paid an extra $100,000 for a parcel of real estate in order to purchase various tools that were located on the property.

Prior to selling the parcel of real estate, the seller told the purchaser’s son that sale included valuable tools that were located on the property. He represented that the tools were worth $150,000, but offered to sell them along with the real property for “only” an additional $100,000. Considering the offer to be a bargain, and without actually seeing the tools, the woman and her son took the bait – hook, line, and sinker. They made the purchase without any further investigation. However, after the woman and her son eagerly purchased the real estate and accompanying tools, they almost immediately discovered that the tools were actually only worth about $8,000.

As a result of their shocking discovery, the woman and her son pursued a lawsuit against the seller and alleged various causes of action that included fraud. Although there was little doubt that the seller knowingly misrepresented material facts and that the mother and son relied upon those misrepresentations in entering into the real estate purchase agreement, in order for the fraud claim to be actionable they also had to prove that they were justified in relying upon the misrepresentations. The trial court found that the son had justifiably relied upon the seller’s misrepresentations, and it granted him a judgment against the seller in an amount equal to the difference between the $100,000 that was paid for the tools and $8,000, the actual value of the tools. The Arkansas Court of Appeals upheld the trial court’s ruling, concluding that, although the son was familiar with tools and real estate transacting, he was not an “expert.”

While the Arkansas Court of Appeals upheld the judgment against the seller, two dissenting Arkansas Court of Appeals Judges warned that the majority had effectively done away with the requirement that reliance be justifiable in proving fraud. Citing Restatement (Second) of Torts §541 (1977), a legal treatise, the Judge reminded the majority that one “cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation.” Despite the dissenting Judges’ admonitions, the majority’s ruling resulted in the son recovering a judgment against the seller in the amount of $92,000.

Even though the plaintiffs were successful in proving fraud and obtaining a judgment, they were unable to get the contract completely rescinded and they were prevented from recovering any attorneys’ fees that were expended in their various appeals. If there is one lesson to be learned from their misfortune, it is that if a deal appears to be so fantastic that it is almost unbelievable, it might be worth doing some preliminary investigation prior to biting into that shiny hook.