Stockton University of New Jersey Business Law Case Study

136 N.J. 401Supreme Court of New Jersey.
Anthony NICOSIA, Plaintiff–Respondent,
v.
WAKEFERN FOOD CORPORATION,
Defendant–Appellant.
Argued Jan. 3, 1994.
|
Decided June 30, 1994.
Opinion (Edited by Professor Diener)
The opinion of the Court was delivered by
HANDLER, J.
In this case, a low-level supervisor was fired for the
mishandling
of
merchandise.
He
filed
a
wrongful-discharge action against his employer. As in the
companion case, Witkowski v. Thomas J. Lipton, Inc., 136
N.J. 385, 643 A.2d 546 (1994), also decided today, the
employee denies that his employer had any grounds to
terminate him and claims that his discharge was wrongful
because the employment manual distributed by the
employer constitutes an implied contract that bars
termination without cause under Woolley v. Hoffmann–La
Roche, 99 N.J. 284, 491 A.2d 1257, modified, 101 N.J. 10,
499 A.2d 515 (1985). The employer contends that the
employee is “at will” and therefore can be fired without
cause and, further, that its employment manual does not
constitute an implied employment contract, particularly in
light of its disclaimer.
Following a jury trial, the trial court entered judgment in
favor of the employee. On appeal, the Appellate Division
upheld the judgment entered on the jury’s verdict. The
employer filed a petition for certification, which this
Court granted, 134 N.J. 476, 634 A.2d 524 (1993). We
affirm the judgment of the Appellate Division.
employment. Wakefern never accused Nicosia of stealing
the goods. Rather, it discharged him for failing to
maintain safe storage of the merchandise and for not
following appropriate procedures on discovering the
thefts. Nicosia claimed that he did in fact follow proper
company procedures by immediately reporting the first
theft to the “Inventory Control Department” and by
reporting the second theft to both that department and his
immediate supervisor.
After Nicosia’s discharge, Wakefern discovered
merchandise in and around Nicosia’s desk that Wakefern
claimed amounted to conversion. Additionally, an
unauthorized signed property removal pass was found in
Nicosia’s possession. Wakefern also claimed that Nicosia
had removed Wakefern property from the warehouse
without submitting a property-removal pass. Wakefern
asserts that had it known of any of those “infractions,” it
would have immediately discharged Nicosia.
Nicosia contends that he was terminated without
receiving the benefit of the progressive-discipline steps
outlined in an eleven-page section entitled “Wakefern
Disciplinary Procedures,” which was part of a larger
manual entitled “Human Resources Policies and
Procedures Manual” (the “manual”). That eleven-page
section did not contain a disclaimer. Nicosia maintains
that either that eleven-page document or the entire
160–page loose-leaf manual creates an implied
employment contract, and that Wakefern breached it by
terminating him without following the manual’s
procedural protections.
Wakefern does not dispute that the progressive-discipline
policy existed at the time of Nicosia’s termination.
Wakefern asserts, however, that its disciplinary policy
was embodied not in the eleven-page section but in the
complete
manual,
which
includes
certain
immediate-termination offenses. It also argues that
because its manual was not “widely distributed,” the
manual does not give rise to an employment contract.
Wakefern further contends that even if it was widely
distributed, the disclaimer, which appeared in the first
paragraph on the manual’s first page, negated any
employment contract. Therefore, the manual was not
binding, and Nicosia could be fired without cause
I
Plaintiff, Anthony Nicosia (“Nicosia”), was hired by
defendant, Wakefern Food Corporation (“Wakefern”), in
1971. Nicosia was promoted several times during his
eighteen-and-one-half years of employment. When
Nicosia was terminated, he held the position of
Warehouse Shift Supervisor.
Merchandise was illegally removed from Wakefern’s
warehouse on at least two occasions during Nicosia’s
The trial court ruled that the disclaimer contained in the
manual was insufficient as a matter of law to negate
Wakefern’s obligations as set forth in its manual. It
submitted to the jury the issue of whether the entire
manual or the eleven-page section, which contained the
progressive-discipline procedure, constituted an implied
employment contract, and if so, whether plaintiff’s
discharge violated those provisions. The jury found that
the eleven-page manual section received by Nicosia
created an implied contract of employment that was
1
subsequently breached by Wakefern. On defendant’s
counterclaim, the jury also found plaintiff not guilty of
conversion.
On appeal, the Appellate Division “recognize[d]
defendant’s argument that even if plaintiff received only a
portion of the manual, he is bound by the entire manual,
including the disclaimer.” However, it declined to resolve
that issue because of its concurrence with the trial judge
regarding “the inefficacy of the disclaimer,” implicitly
holding that either the manual or the eleven-page section
did create an implied contract. The court also ruled that
“[d]isputes of fact as to the contract status of an employee
under a manual are properly submitted to the jury.”
II
This Court in Woolley, supra, 99 N.J. 284, 491 A.2d 1257,
stated that “absent a clear and prominent disclaimer, an
implied promise contained in an employment manual that
an employee will be fired only for cause may be
enforceable against an employer even when the
employment is for an indefinite term and would otherwise
be terminable at will.” 99 N.J. at 285–86, 491 A.2d 1257.
In the companion case, Witkowski, supra, 136 N.J. 385,
643 A.2d 546, we revisited the standards for determining
whether an employment manual constitutes a contract of
employment. We noted:
In sum, under Woolley, the basic test for determining
whether a contract of employment can be implied turns
on the reasonable expectations of employees. A number
of factors bear on whether an employee may reasonably
understand that an employment manual is intended to
provide enforceable employment obligations, including
the definiteness and comprehensiveness of the
termination policy and the context of the manual’s
preparation and distribution.
[136 N.J. at 393, 643 A.2d at 550.]
The context of the preparation and distribution of the
manual in this case supports the finding that the manual
was intended to constitute an enforceable employment
contract. Woolley, supra, 99 N.J. at 299, 491 A.2d 1257;
see Schwartz v. Leasametric, Inc., 224 N.J.Super. 21, 31,
539 A.2d 744 (App.Div.1988). The entire manual was
distributed to a substantial number of Wakefern’s
workforce, although Nicosia may not have received it. See
Woolley, supra, 99 N.J. at 304–05 n. 10, 491 A.2d 1257;
Gilbert v. Durand Glass Mfg. Co., Inc., 258 N.J.Super.
320, 330, 609 A.2d 517 (App.Div.1992). As was the
manual in Woolley, Wakefern’s manual, coincidentally,
was distributed to 300 of the 3,000 person workforce. See
also Witkowski, supra, 136 N.J. at 395, 643 A.2d at 551
(holding enforceable employee manual that was
distributed to all employees); Preston v. Claridge Hotel &
Casino, 231 N.J.Super. 81, 86, 555 A.2d 12
(App.Div.1989) (holding employee manual binding based
in part on its “widespread distribution”). In fact, because
approximately 1,500 of Wakefern’s 3,000–person
workforce is unionized and covered by a collective
bargaining agreement, the manual would apply to only
those 1,500 non-unionized employees. Moreover, Nicosia
did actually receive the eleven-page section of the manual
covering terminations.
Wakefern’s manual also includes a definite,
comprehensive termination policy. See Witkowski, supra,
136 N.J. at 393, 643 A.2d at 550; Woolley, supra, 99 N.J.
at 296, 491 A.2d 1257. Its termination provision provides
a three-step disciplinary procedure, which includes
“employee counseling” (a first written warning),
“caution” (a second written warning), and a “final
warning.” See Witkowski, supra, 136 N.J. at 396–397, 643
A.2d at 552. The manual further provides that “[a]ll steps
must be completed in order to discharge for cause.”
“Cause” includes: “poor job performance; excessive
absenteeism/tardiness/early departures, insubordination,
violation of rules and regulations, gross negligence.”
The procedural protections do not, however, apply in
cases of “immediate discharge.” Grounds for immediate
discharge include:
Theft of Company property
Theft of an employee’s property
Sexual harassment of any employee
Threatening or intimidating fellow employees
Use of alcohol or illegal substances on Company
property, or possession of same
Overstaying a leave of absence
Willful destruction of Company property or property of
other employees
Initialing for another employee’s time on the time sheet
Falsification of records
Gross insubordination
Breach of Confidentiality
The evidence was clearly sufficient to support the
determination that Wakefern’s employees reasonably
expected that the manual, particularly its discipline and
termination policy, was intended to govern the rights and
duties of Wakefern’s workforce based on both the
2
manual’s content and distribution. Id. at 397, 643 A.2d at
552. Therefore, sufficient evidence showed that the
manual, which included the eleven-page section,
constituted an enforceable employment contract.
particulars of the employer’s policies and procedures”
does not matter). That is because a widely-distributed
manual is the “most reliable statement of the terms of the
employment.” Woolley, supra, 99 N.J. at 298–99, 491
A.2d 1257.
III
The lower court here apparently believed that a partial
manual itself could constitute an employment contract
because plaintiff claimed to have received only the
eleven-page section dealing with termination, and not the
entire manual. However, whether Nicosia actually
received only a section of the manual is not the critical
inquiry. Rather, it is whether the Wakefern manual as a
whole, regardless of its actual receipt by the employee,
gives rise to an implied contract of employment because
of its terms—including most importantly those relating to
employment security—and its wide distribution. See
Fregara v. Jet Aviation Business Jets, 764 F.Supp. 940,
953 (D.N.J.1991) (noting that Woolley claim cannot rely
on only portion of manual without being held accountable
for all manual provisions: “Woolley stands for the
proposition that a binding contract can be implied from
provisions contained in an employee handbook. This
contract, if implied, is binding as a whole.”).
Wakefern argues that the existence of a Woolley contract
can be determined only on the basis of the entire or
complete manual, not just a part of the manual.
Accordingly, Wakefern contends that the trial court
committed reversible error by instructing the jury that the
eleven-page excerpt from the Wakefern manual could
constitute the basis for an enforceable implied contract of
employment.
Nicosia testified that he had never seen the 160–page
Wakefern manual, but only the eleven-page excerpt on
disciplinary procedures. The trial court instructed the jury
that it should determine whether either the eleven-page
section or the entire manual “constituted an offer which
could be accepted by him by his continued employment
with the company.” The jury found that the eleven-page
section, not the entire manual, constituted a contract
between Nicosia and Wakefern, and that Wakefern had
breached that contract.
In denying defendant’s motion for dismissal, the trial
court explained: “I find and conclude that when only that
limited part of the manual is made available to the
Plaintiff … he was not bound by the remainder of the
manual which he had never seen. In any event, I find that
the disclaimer provision of this case does not meet the
requirements of the Woolley decision.”
The Appellate Division did not squarely address the issue
of whether only part of an employment manual can
become the basis for implying an enforceable
employment contract: “We recognize defendant’s
argument that even if plaintiff received only a portion of
the manual, he is bound by the entire manual, including
the disclaimer. We need not, however, resolve this issue
in light of our concurrence with the trial judge’s view of
the inefficacy of the disclaimer.”
Woolley indicates that where an entire manual has been
distributed to a workforce, that manual as a whole, not
just a section of the manual, is relevant to the
determination of whether it creates an implied contract of
employment. 99 N.J. at 307, 491 A.2d 1257. The Court in
Woolley also noted that when a manual, in its entirety, is
widely distributed to the workforce, it may give rise to an
implied contract even for an employee who did not read
the manual, know of its existence, or rely on it. Id. at
304–05 n. 10, 491 A.2d 1257; see also Gilbert, supra, 258
N.J.Super. at 330, 609 A.2d 517 (noting that under
Woolley, “that the employee knows nothing of the
An employee may not select among the provisions of a
employment manual to determine which provision should
give rise to enforceable contractual obligations. If Nicosia
“seeks to rely on provisions in the employee handbook as
the source of an implied contract of employment, then he
must accept the agreement as a whole with its attendant
responsibilities.” See id. at 951. In this case, then, the
eleven-page excerpt must be considered in light of the
entire manual, including the disclaimer, even if Nicosia
was unaware that the excerpt was part of a larger
employment policy document.
The trial court’s jury instructions, as noted, allowed the
jury to find that a section of the Wakefern manual alone
created a binding contract. Under the circumstances that
instruction constitutes only harmless error because the
entire
employment
manual—apart
from
the
disclaimer—itself gave rise to an implied employment
contract. That contract included the rights and obligations
in the eleven-page section that plaintiff actually received.
IV
Wakefern contends that its employment manual contained
a disclaimer that negated the enforceability of the
termination provisions set forth in the eleven-page section
on which Nicosia relies.
An effective disclaimer by the employer may overcome
the implication that its employment manual constitutes an
3
enforceable contract of employment. Woolley, supra, 99
N.J. at 309, 491 A.2d 1257. The purpose of such a
disclaimer is to provide adequate notice to an employee
that she or he is employed only at will and is subject to
termination without cause. “It would be unfair to allow an
employer to distribute a policy manual that makes the
workforce believe that certain promises have been made
and then to allow the employer to renege on those
promises.” Ibid. An employer can make such a disclaimer
by
the inclusion in a very prominent position of an
appropriate statement that there is no promise of any
kind by the employer contained in the manual; that
regardless of what the manual says or provides, the
employer promises nothing and remains free to change
wages and all other working conditions without having
to consult anyone and without anyone’s agreement; and
that the employer continues to have the absolute power
to fire anyone with or without good cause.
[Ibid.]
In other words,
[t]he provisions of the manual concerning job security
shall be considered binding unless the manual
elsewhere prominently and unmistakably indicates that
those provisions shall not be binding or unless there is
some other similar proof of the employer’s intent not to
be bound.
[Ibid. at 307, 491 A.2d 1257.]
The Court in Woolley recognized that “[m]any … workers
undoubtedly know little about contracts, and many
probably would be unable to analyze the language and
terms of [an employee] manual.” Id. at 300, 491 A.2d
1257. Therefore, to determine whether a disclaimer
constitutes an “appropriate statement” in a “very
prominent” place, id. at 309, 491 A.2d 1257, a court
should construe the disclaimer “in accordance with the
reasonable expectations of the employees,” id. at 298, 491
A.2d 1257. An effective disclaimer must be expressed in
language “such that no one could reasonably have thought
[the manual] was intended to create legally binding
obligations.” Id. at 299, 491 A.2d 1257.
The disclaimer relied on by Wakefern provides:
A. Introduction
This manual contains statements of Wakefern Food
Corp. and its subsidiaries’ Human Resource policies
and procedures. (Hereafter referred to as “the
Company”). The terms and procedures contained
therein are not contractual and are subject to change
and interpretation at the sole discretion of the
Company, and without prior notice or consideration to
any employee.
Woolley stressed that a disclaimer must be clear. 99 N.J.
at 309, 491 A.2d 1257; see, e.g., Toussaint v. Blue Cross
& Blue Shield, 408 Mich. 579, 292 N.W.2d 880, 891 n.
24, 895 (1980); Thompson v. St. Regis Paper Co., 102
Wash.2d 219, 685 P.2d 1081, 1088 (1984); Suter v.
Harsco Corp., 184 W.Va. 734, 403 S.E.2d 751, 752
(1991). Although Woolley does not require the use of
specific language for an effective disclaimer, it does
require that a disclaimer make clear “that the employer
continues to have the absolute power to fire anyone with
or without cause.” 99 N.J. at 309, 491 A.2d 1257; see
Michael A. Chagares, Utilization of the Disclaimer as an
Effective Means to Define the Employment Relationship,
17 Hofstra L.Rev. 365, 384 (1989) ( “Employers wishing
to confirm the terminable at-will status of their employees
should include three components within their disclaimer:
(1) that the employment relationship is terminable at the
will of either party, (2) that it is terminable with or
without cause, and (3) that it is terminable without prior
notice.”).
The Appellate Division, in Preston, supra, 231 N.J.Super.
at 81, 555 A.2d 12, addressed the Woolley requirement for
an “appropriate statement” that disclaims the binding
effect of the terms and conditions set forth in an
employment manual. The Preston court stated that an
effective disclaimer must expressly “advise its employees
that they could be discharged at will.” Id. at 87, 555 A.2d
12. In so doing, “the language in the disclaimer must
indicate, in straightforward terms, that the employee is
subject to discharge at will.” Id. at 85, 555 A.2d 12.
Wakefern’s disclaimer language fails to constitute an
“appropriate statement” under Woolley because it does
not use “straightforward terms.” See Preston, supra, 231
N.J.Super. at 87, 555 A.2d 12. Instead, it contains
“confusing legalese,” such as the terms “not contractual,”
“subject to … interpretation,” and “consideration.” See
Woolley, supra, 99 N.J. at 300, 491 A.2d 1257; Chagares,
supra, 17 Hofstra L.Rev. at 381 (stating “a disclaimer …
should not contain harsh language or confusing
legalese”); see also McDonald v. Mobil Coal Producing,
Inc., 820 P.2d 986, 989 (Wyo.1991) (finding ineffective
disclaimer that was unclear “[f]or persons untutored in
contract law” for whom “such clarity is essential”). As the
trial court noted, Wakefern uses “language that a lawyer
would understand, but that an employee would not equate
with the objectives of … Woolley. ” Nicosia should not be
expected to understand that Wakefern’s characterization
of its manual as “not contractual” or “subject to change
and interpretation at the sole discretion of the Company”
meant that the employer, despite the discipline and
termination provisions of its manual, reserved the
“absolute power to fire anyone with or without cause”
without actually changing those provisions. See Woolley,
supra, 99 N.J. at 300, 491 A.2d 1257; see also Swanson v.
4
Liquid Air Corp., 118 Wash.2d 512, 826 P.2d 664, 677
(1992) (noting that term “contract of employment” is
“manifestly unclear” because “at will employee has an
employment contract—it *415 is simply one that may be
ended at any time for any reason”). The burden is not on
the employee “to draw inferences from the handbook
language.” McDonald, supra, 820 P.2d at 989.
Woolley also held that the disclaimer must be in “a very
prominent position.” 99 N.J. at 309, 491 A.2d 1257.
Disclaimers in employee manuals fail for lack of
prominence when the text is not set off in such a way as
to bring the disclaimer to the attention of the reader. Ibid.;
McDonald, supra, 820 P.2d at 988 (finding disclaimer
that appeared on first page of employee manual as part of
lengthy text not conspicuous because it was “not set off in
any way, was placed under a general subheading, was not
capitalized, and contained the same type size as another
provision on the same page”).
The “prominence” requirement can be met in many ways.
Basically, a disclaimer must be separated from or set off
in a way to attract attention. See Jimenez v. Colorado
Interstate Gas Co., 690 F.Supp. 977, 980 (D.Wyo.1988).
For example, “A term or clause is conspicuous when it is
so written that a reasonable person against whom it is to
operate ought to have noticed it.” N.J.S.A.
12A:1–201(10); see Hannah v. United Refrigerated
Servs., Inc., 430 S.E.2d 539 (S.C.Ct.App.1993) (applying
South Carolina U.C.C. to find disclaimer not conspicuous
on second page of first section under heading
“WELCOME”). A reader’s attention may be called by
setting off the disclaimer with different type, including
bold, see Perry v. Sears, Roebuck & Co., 508 So.2d 1086,
1088 (Miss.1987), capitals, see Jimenez, supra, 690
F.Supp. at 980, or italics, see Kari v. General Motors
Corp., 79 Mich.App. 93, 261 N.W.2d 222, 223 (1977),
rev’d on other grounds, 402 Mich. 926, 282 N.W.2d 925
(1978). A disclaimer may be underlined or set off by a
different color or border. See Jimenez, supra, 690 F.Supp.
at 980; Kari, supra, 261 N.W.2d at 223.
We concur in the finding of the Appellate Division that
Wakefern had failed to meet the prominence test in part
because its “statement is not highlighted, underscored,
capitalized, or presented in any other way to make it
likely that it would come to the attention of an employee
reviewing it.”
We conclude that although the requirement of prominence
can be satisfied in a variety of settings, and that no single
distinctive feature is essential per se to make a disclaimer
conspicuous, in this case the disclaimer was not placed or
presented in a way calculated to focus the attention of a
reader.
We are also satisfied that when the facts surrounding the
content and placement of a disclaimer are themselves
clear and uncontroverted, as in this case, the effectiveness
of a disclaimer can be resolved by the court as a question
of law. Conspicuousness will always be a matter of law.
See, e.g., N.J.S.A. 12A:1–201(10); Jimenez, supra, 690
F.Supp. at 980 n. 1; Hannah, supra, 430 S.E.2d at 542;
McDonald, supra, 820 P.2d at 988. In other cases, the
effect of a disclaimer’s content will also be a question of
law. Jimenez, supra, 690 F.Supp. at 980 (“No genuine
issue of fact exists as to matter such as the disclaimer’s
location or size, but exists to its effect only.”). In some
cases, however, just as a jury determines whether an
employment manual gives rise to an implied contract, so
too may a jury need to decide whether the content of a
disclaimer is effective. See Witkowski, supra, 136 N.J. at
400–401, 643 A.2d at 554. In this case, the trial court
could find as a matter of law, as it did, that the placement
of Wakefern’s disclaimer was not prominent and
consequently, the disclaimer was ineffective.
In summary, the trial court correctly submitted to the jury
the question of whether a Woolley contract existed
because, as the Appellate Division noted, “disputes of fact
as to the contract status of an employee under a manual
are properly submitted to the jury.” See, e.g., Woolley,
supra, 99 N.J. at 298, 491 A.2d 1257; Gilbert, supra, 258
N.J.Super. at 331, 609 A.2d 517; Preston, supra, 231
N.J.Super. at 85, 555 A.2d 12; Giudice v. Drew Chem.
Corp., 210 N.J.Super. 32, 36, 509 A.2d 200
(App.Div.1986). The evidence, as recounted, was
sufficient to support the determination that, by virtue of
its specific provisions and distribution, the entire
Wakefern employment manual, including the eleven-page
section actually received by plaintiff, constituted an
implied contract of employment that barred termination
without cause. In addition, based on the uncontroverted
lack of prominence, the issue of the effectiveness of the
disclaimer under the circumstances posed only a question
of law that the trial court properly resolved by
determining that the disclaimer was ineffective in
negating the enforceable obligations of the employment
manual.
V
The judgment of the Appellate Division is affirmed.
5
Business Law
Case Briefs
Students will be assigned cases (court opinions) which they are to brief (summarize)
in writing using their own words. Each brief should be 1 to 2 double-spaced pages in
length and no more than that, otherwise it would not be brief. 😉 Your work will be
graded primarily on the basis of its accuracy, thoughtfulness, conciseness, and
clarity of expression. Briefs should be prepared using the following sections:
Heading: The name of the case, the year it was decided, and the court that decided
it. Also put your name in the header on both pages of the brief.
Facts: A brief recounting of the essential facts of the case. To a certain extent, the
court already has done this in any opinion, but students should use their own words
as they further distill the court’s narration.
Issue: A statement, in the form of a question, of the question(s) the court must
answer in order to be able to decide the case. If the issue is not explicitly stated in
the court opinion, its identification can be tricky.
Outcome: Give the answer to the issue. What is the decision of this court? How
does the court dispose of the case (e.g., reversed and remanded to lower court)?
Reasoning: Explain how the court arrived at its decision. What are the logical
steps in the court’s reasoning (whether they in fact are logical or not)? What rule(s)
does this court apply?
Dissent: If there was any dissenting opinion in the case, summarize it here. A
dissenting opinion is a written explanation of why one or more appellate judges who
heard the case disagreed with the majority of judges whose opinion decides the
case. Most cases will not have a dissenting opinion. You will recognize the
dissenting opinion, if there is one, because it will appear at the end and be clearly
labeled as such.
Comments: Your chance to go beyond telling the story of the case, here you can
add your analysis of any weaknesses you detect in the court’s opinion. Examples of
questions to consider include the following: What public policies are evident in the
opinion? What are the practical implications of the case for people other than the
parties to the case? What could the losing party have done differently to avoid the
loss? What could the winning party have done differently to avoid this costly
litigation? These are not specific questions you are required to answer, but only
examples of the way you might think about the case.
So that the briefs are brief, stay within these limits:
o 2 pages
o Double-spaced, except the heading
o Minimum 12-point font
o Normal margins – no more than 1 inch top and bottom and 1.25 inches left
and right.
Sample Case Brief
Prof. Keith Diener
Hannington v. Trustees of the University of Pennsylvania
Superior Court of Pennsylvania (2002)
FACTS:
Hannington was Ph.D. student at the University of Pennsylvania until he
was terminated for failure to pay tuition. He then sued the University for breach of
contract, alleging that the University agreed to waive all tuition in exchange for services
he performed. The University countersued Harrington for past due tuition. The parties’
attorneys told the court they had agreed to settle the case, and over the next several
months, they exchanged drafts of the details of that settlement. Harrington’s attorney
informed the University’s attorney that Harrington agreed to their final draft and notified
the court that a final settlement was reached. Later, however, Harrington refused to sign
the final settlement agreement and filed a motion asking the court to restore his case on
the grounds that his attorney had no authority to settle the dispute. The trial court denied
Harrington’s motion, and Harrington appealed.
ISSUE:
Does an attorney have apparent authority to settle a lawsuit without the
express authority of the client?
OUTCOME: Yes, Harrington’s attorney had apparent authority to make the settlement
agreement, thus the settlement agreement is enforceable against Harrington. The lower
court’s denial of Harrington’s motion to restore his case is affirmed.
REASONING: The court relies upon two precedents, Rothman and Manzitti. In both
cases the court held that the client was bound by the attorney’s apparent authority to
Sample Case Brief
Prof. Keith Diener
settle the case if the third party had no reason to know of the attorney’s lack of actual
authority. When an attorney settles a case without the client’s consent, both the client
and the third party are innocent, yet one of them must suffer the loss. The rule followed
by the courts assigns that loss to the client because the client put the attorney in a position
“to perpetrate the wrong.” In the present case, the court noted that (1) the University was
free from fault, (2) it reasonably believed Harrington’s attorney had authority to settle the
case, and (3) Harrington “clothed his lawyer with the authority to communicated with the
University on his behalf.” Finally, the rule does not make it more likely that attorneys
will settle cases without their clients’ consent; there are deterrents in the law that punish
such actions and give the client a remedy against the attorney.
COMMENTS: [These are examples of ideas that students could develop further:]
a.
The court never determined whether Harrington told his attorney to settle the
case; however, it doesn’t matter, because the decision is based on apparent authority
rather than actual authority.
b.
Settling disputes helps to relieve congestion in the courts, and therefore
settlements ought to be encouraged. The rule in this case removes some of the
uncertainty and risk associated with settlement agreements, and to that extent, makes
settlement more efficient.
c.
The rule is necessary because parties frequently rely on the appearance that an
attorney is authorized by the client to make a settlement agreement.
d.
The court incorrectly assumes it is reasonable to believe the other party’s attorney
is acting properly and within his authority. Lawyer’s should not be trusted!