7th Reverses Dismissal of Employment Discrimination Case Based Upon Purported Settlement

Magallanes v. Ill. Bell Tel. Co., No. 07-3028, ___F.3d___(7th Cir. July 23, 2008), is an important discrimination case and it concerns settlements. The 7th held that dismissal of an employment-discrimination suit because the parties had settled should be reversed because the defendant-employer did not meet its burden to prove that plaintiff's attorney had in fact been authorized to enter into a settlement agreement. The court summarized the applicable standards as follows:

Issues regarding the formation, construction, and enforcement
of settlement agreements are governed by
state contract law. Sims-Madison v. Inland Paperboard and
Packaging, Inc., 379 F.3d 445, 448 (7th Cir. 2004) (citing
Pohl v. United Airlines, Inc., 213 F.3d 336, 338 (7th Cir.
2000)). Under Illinois law, an attorney has no authority
to settle a claim of the client absent the client’s express
authorization to do so. Webster v. Hartman, 195 Ill.2d 426,
433 n.1, 255 Ill. Dec. 476, 749 N.E.2d 958 (2001) (citing
Danziger v. Pittsfield Shoe Co., 204 Ill. 145, 149, 68 N.E.
534 (1903)); Brewer v. National R .R. Passenger Corp., 165
Ill.2d 100, 105-106, 208 Ill. Dec. 670, 649 N.E.2d 1331. (1995).
An attorney’s authority to agree to an out-of-court settlement
will not be presumed, and the burden of proof
rests on the party alleging authority to show that fact.
Higbee v. Sentry Ins. Co., 253 F.3d 994, 1000 (7th Cir. 2001)
(citing Brewer, 165 Ill.2d at 105-06); Webster, 195 Ill.2d
at 433 n.1.  .  . .

Magallanes argues that Illinois Bell did not meet its
burden in showing that she gave Goldman the authority
to settle her case. We agree. Other than Goldman’s statements
to the contrary, the record is devoid of an indication
that Magallanes authorized him to settle the case.
Magallanes has consistently stated that she never gave
Goldman the authority to settle the case and never
signed a document stating that she authorized Goldman
to settle or that she agreed to settle. She never acted in a
manner that would suggest that she wanted to settle or
agreed with the terms of any proposed settlement. Nor
does settling the case for $10,000 make much financial
sense: she had already paid Goldman a $7,500 retainer
and had other outstanding fees and costs. She stood to
gain at most $2,500 and, as counsel for Illinois Bell suggested
at oral argument, as little as $600. Little in the
record suggests that she would abandon her lawsuit for
such a sum.

The lesson from this case is that the client should always sign the settlement agreement. If that is not possible, the attorney should get written confirmation from the client of his or her desire to settle.

Mitchell H. Rubinstein