JOHN R. BROWN, Circuit Judge:
This is an appeal from the District Court's enforcement by summary judgment of an agreement to settle a case pending before the Court. The defendant OKC contends that the agreement was invalid for two reasons: (1) OKC's attorney, although believing he had authority to settle the case, actually did not have authority, and (2) even if counsel had authority, the settlement was based on a mistake by OKC regarding the existence of certain evidence. As to the second issue, we hold that if there was a mistake, it was at most a unilateral mistake of fact, which standing alone does not vitiate the settlement. However, because there remained an issue of material fact regarding whether OKC's attorney actually had authority to settle, summary disposition was inappropriate, and we remand for an evidentiary hearing on that issue.
In June, 1979, Mid-South Towing Corporation (Mid-South) chartered ten of its barges to Har-Win, Inc. (Har-Win), who in turn subchartered them to OKC.
The Gathering Storm
Mid-South filed a complaint against Har-Win in the Eastern District of Louisiana,
In late August, 1982, Jerry Sawyer, a Dallas, Texas attorney who had been retained by OKC one month earlier to oversee some of its ongoing litigation, learned that potential conflicts existed between OKC and American Employers' with regard to the extent of insurance coverage and the scope of the hull policy deductible. Following a review of OKC's file in the matter, Sawyer forwarded a copy of that file to the New Orleans law firm of Stone, Pigman, Walther, Wittmann & Hutchinson and requested that the firm take the necessary steps to protect OKC's interests. OKC still looked to American Employers' to defend against the merits of the main claim by Mid-South. OKC's New Orleans counsel's duties were limited to monitoring the litigation and representing OKC's interest in any disputes that might arise with American Employers.
Their Finest Hour
Beginning on August 26, 1983, Mid-South, American Employers' and New Orleans counsel for OKC engaged in negotiations for a full and final settlement. Much of this negotiation was between OKC and American Employers' concerning their respective contributions to a settlement with Mid-South. During these negotiations, Sawyer believed that he had authority to settle on behalf of OKC, and Sawyer was informed of and formally approved all actions by the New Orleans counsel whom he had employed. Moreover, Mid-South, American Employers', and OKC's New Orleans counsel were led to believe that Sawyer had authority to settle for OKC.
On September 20, 1982, American Employers' and OKC's New Orleans counsel offered Mid-South $150,000, with $100,000 to be funded by OKC
An Attorney's Nightmare
An ominous rumble descended from the lofty heights of the OKC corporate hierarchy. When Sawyer presented the settlement to OKC management, he was informed that he was mistaken in believing that he had authority to make a settlement of this magnitude. Such settlement had to be approved, he was told, by Charles Redwine, Trustee, and his advisors. Sawyer passed this message on to his dismayed local counsel in New Orleans. On September 28, 1982, the District Court was informed of this unsettling news. The storm had broken; but, as to the nightmare, the attorneys had not awoken.
Mid-South filed a motion for summary judgment to enforce the compromise settlement, supported by copies of the various settlement negotiation letters. Arguing in support of the motion, American Employers' deposited in the Registry of the Court its settlement contribution of $50,000. In
As an alternative basis for attacking the settlement, Sawyer argued that he would not have approved the settlement if he had known at that time of the existence of several additional surveys of the barges performed at the end of the charter. He argued that these surveys were more favorable to the positions of OKC and American Employers', and thus the settlement was invalid because based on a mistake of fact.
The District Judge did not hold an evidentiary hearing on the motion, but heard arguments. He took a dim view of the assertions of OKC and Sawyer that Sawyer did not have the authority required by the corporation's internal policies, but he concluded that OKC's New Orleans counsel had "acted in positive, absolute good faith." The District Court declared that he was "firmly of the opinion that the New Orleans attorney had the authority to compromise the case," and that "it is simply a case of a corporate defendant trying to get out of settlement by getting counsel [Sawyer] to say that he didn't know what the internal policies were concerning authority." The motion to enforce the settlement was granted by summary judgment.
A District Court has the power to enforce summarily a settlement agreement reached in a case pending before it. E.g., Strange v. Gulf and South American Steamship Company, 495 F.2d 1235, 1237 (5th Cir.1974). Questions regarding the enforceability or validity of such agreements are determined by federal law — at least where the substantive rights and liabilities of the parties derive from federal law. 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). See also Harmon v. United States, 59 F.2d 372, 373 (5th Cir.1932). Because the claims in this case are premised on federal general maritime law, we apply federal law to decide the validity of the agreement to settle the claims.
Mid-South and American Employers' contend that they were entitled to summary judgment on the settlement even if one accepts as true Sawyer's averment that he was mistaken in believing he had authority to settle this case. They argue that the internal policies of OKC, which were not made known to them or to OKC's New Orleans attorney are immaterial to the validity of the settlement where the opposing parties have relied on counsel's assertion that he had authority to settle for his corporate client. In support of this proposition, Mid-South cites Cia Anon Venezolana De Navegacion v. Harris, 374 F.2d 33 (5th Cir.1967), which is factually similar to this case.
In Cia Anon, a suit was brought in federal court based on maritime law. Counsel for defendant negotiated and agreed to a settlement, indicating to opposing counsel that he had authority from his client to settle. The imminent trial date was cancelled. Soon after, counsel for defendant contacted the plaintiff to inform him that the defendant client was asserting a lack of authority for the settlement. The plaintiff filed a motion to enforce the settlement agreement. The District Court
On appeal, we construed the District Court proceeding not as a motion for summary judgment, but as "a hearing by the District Court in the exercise of its inherent power to summarily enforce settlements entered into by parties litigant in a pending case." 374 F.2d at 36. We affirmed the District Court's judgment, reasoning, and procedure. We reasoned:
374 F.2d at 35-36. Thus, although we discounted undisclosed corporate internal authorization requirements, we adhered to the requirement that counsel be given authority to settle by someone in the corporate organization. We affirmed on the basis of the factual finding, arrived at after an evidentiary hearing, that counsel had been given authority by the client.
This requirement of authority was explained in St. Amand v. Marriott Hotel, Inc., 430 F.Supp. 488 (E.D.La.1977), which this Court affirmed with reference to the opinion of the District Court. 611 F.2d 881 (5th Cir.1981). Judge Rubin, then District Judge, declared:
Although a district court has inherent power to enforce an agreement to settle a case pending before it summarily, when opposition to enforcement of the settlement is based not on the merits of the claim but on a challenge to the validity of the agreement itself, the parties must be allowed an evidentiary hearing on disputed issues of the validity and scope of the agreement. Autera v. Robinson, 419 F.2d 1197, 1200 (D.C.Cir.1969). This was the procedure which was followed and approved
The difficulty with the decision below is that the District Court effectively made a factual finding that Sawyer actually had been given authority to settle, without holding an evidentiary hearing. The affidavits and arguments of counsel still left this factual question in dispute. Although the admission by Sawyer that he believed he had authority to settle the case is highly probative of whether he actually was given authority, it is not conclusive. See St. Amand, 430 F.Supp. at 489. However, the mere fact that officers of OKC informed Sawyer after agreement had been reached that the settlement was not authorized does not "affirmatively prove" that Sawyer had not been given authority at an earlier time by some authorized person in the OKC organization. If the District Court finds that in effect Sawyer was given authority by someone in OKC without having been informed that final approval could only be made by others, then Cia Anon is directly applicable, and enforcement of the settlement would be proper.
The reasoning in Cia Anon and St. Amand suggest other possibilities for a finding in this case that Sawyer had authority to settle for OKC. Implicit in the Cia Anon holding is the idea that the defendant had clothed its claims manager with apparent authority to settle the case and had caused the opposing parties to rely on that appearance, and were therefore estopped from denying that the claims manager had authority. Only in light of such reasoning does the Court's emphasis on the reliance of opposing counsel and the internal nature of the break in the corporate authorization become relevant. See Cia Anon, 374 F.2d at 35-36 (quoted supra); St. Amand, 430 F.Supp. at 491.
In this case, the District Court may explore the possibility that OKC clothes Sawyer with authority to settle this case by giving him a general authority to settle cases assigned to him, without making Sawyer aware of specific limits on that authority. Sawyer's affidavit states that he learned after agreeing to settle that he had not been given authority to settle case "of the magnitude involved in this case." This is an implied admission, see Cia Anon, 374 F.2d at 35, that Sawyer had some authority to settle OKC's cases. A possible factual inquiry may thus concern whether OKC created such an ambiguity in the authority given to Sawyer as to estop OKC's argument that the authority did not extend to cases "of the magnitude involved in this case."
The Morning After
As an alternative basis for attacking the validity of the settlement, OKC argues that even if there was authority, the agreement was based on a mistake of fact. Specifically, OKC alleges that Sawyer had been unaware of the existence of two additional surveys of the barges that had been performed after the end of the charter period, and that he would not have approved of the settlement if he had known of them. Mid-South answers this attack by arguing that OKC did know of the additional surveys, that they were not more favorable to OKC than the surveys of which OKC was aware, and because in any case a settlement agreement cannot be avoided based on a simple unilateral mistake of fact. Because we agree that a unilateral mistake of fact is not a basis for avoidance of a settlement agreement, we do not reach Mid-South's other arguments.
"Compromises of disputed claims are favored by the courts." Cia Anon, 374 F.2d at 35 (quoting Williams v. First National
In Strange v. Gulf & South American Steamship Company, 495 F.2d 1235 (5th Cir.1974), we rejected a longshoreman's opposition to enforcement of a settlement agreement between him and the shipowner-defendant in the pending action. The longshoreman claimed the agreement was based on a mutual mistake by the parties concerning his medical condition at the time of the settlement. Thus, the alleged mistake went to the strength or value of the plaintiff's case on the merits. We held that because the parties negotiated at arms-length and there was no taint of "fraud, deception, coercion or overreaching," the settlement was binding, despite a claim of mutual mistake. We explained:
In this case, OKC's alleged ignorance of the additional surveys is, at most, a unilateral mistake. There is no claim that either Mid-South or American Employers' concealed these other surveys or misrepresented their contents, nor that there was any overreaching. Moreover, the mistake that OKC complains of is the same type of mistake held to be immaterial in both Strange and Harmon. Thus, the District Court correctly rejected mistake by OKC as a defense to the enforcement of the settlement.
Accordingly, our remand is for the narrow purpose of providing OKC with an evidentiary hearing in which OKC will have the burden of proof, see 332 U.S. at 630, 68 S.Ct. at 298; 430 F.Supp. at 490, on the factual question of whether Sawyer did not actually have authority to settle the case.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.