The United States District Court for the Northern District of Indiana has requested our response to two certified questions set out below.
Factual and Procedural Background
The certified questions arise out of a products liability suit in federal court by Michael and Jean Koval against both the manufacturer and distributer of a device that allegedly caused injuries to Michael in the course of his employment. Michael’s employer, Henk-els & McCoy (“H & M”), and H
&
M’s insurance carrier, Liberty Mutual, paid Michael’s medical and disability benefits under the Indiana workers’ compensation law ánd thereby acquired liens on any recovery by the Kovals. The certified questions result from a settlement agreement reached at a mediation attended by persons who seemingly believed they represented all interested parties. One of those was an attorney apparently representing both H & M and Liberty Mutual, who agreed to a settlement that compromised the interests of both the employer and the insurer. H & M had not authorized Liberty Mutual or the attorney to settle and later refused to agree to the settlement. The terms of the mediation required that each party be represented by a person with settlement authority. Although the terms of the mediation included a requirement that the parties sign any settlement in writing before they would be bound, the district court concluded that subsequent events could waive this provision. After a hearing on the Kovals’ motion to enforce the settlement agreement, the court certified two questions to this Court.
Koval v. Simon-Telelect, Inc:,
I. Ability of an Attorney to Bind the Client to a Settlement Agreement
The first question is:
If an attorney settles a claim as to which the attorney has been retained, but does so without the Ghent’s consent, is the settlement binding between third parties and the client?
The answer to this question is the same as.to many others: it depends. An attorney’s authority may be derived from the conduct of the client, either with respect to the third parties who deal with the attorney or with respect to the attorney. It may also derive from the nature, of the proceedings in which the attorney represents the client and enters into a settlement agreement. In order to bind the client the attorney must have either express, implied, or apparent authority, or must act according to the attorney’s inherent agency power. For the reasons explained below, we conclude that the sole act of retaining an attorney does not give the attorney the implied or the apparent authority to settle or compromise a claim in an out of court proceeding. Specifically, retention in and of itself neither confers the implied authority to settle a claim, nor is it a manifestation by the client to third parties such that the attorney is clothed with the apparent authority to settle. However, under longstanding Indiana authority, retention does equip an attorney with the inherent power to bind a client to the results of a procedure in court. We hold that for purposes of an attorney’s inherent power, a procedure governed by Indiana’s Rules for Alternative Dispute Résolution (the “ADR rules”) is a procedure “in court” if the parties are expected to appear by representatives with authority to resolve the matter. Accordingly, in the absence of á communication of lack of authority by the attorney, as a matter of law, an attorney has the inherent power to settle a claim when the attorney attends a settlemeñt procedure governed by the ADR rules.
*1302 A. An attorney’s implied authority
“Authority is the power of the agent to affect the legal relations of the pi'incipal by acts done in accordance with the principal’s manifestations of consent to him.” Restatement (Second) of -Agengy § 7 (1958). Authority can be express or implied and may be conferred by words or other conduct, including acquiescence.
Id.
at cmt. c. Implied authority can arise from words used, from customs, or from the relations of the parties.
Id.
The agent is authorized if the agent is reasonable in drawing an inference from the principal’s actions that the principal intended to confer authority.
Id.
at cmt. b.
1
It is well settled that an attorney, by virtue of the representation, becomes a powerful agent with a great deal of authority. Retention confers on an attorney the general implied authority to do on behalf of the client all acts in or out of court necessary or incidental to' the prosecution or management of the suit or the accomplishment of the purpose for which the attorney was retained.
United Farm Bureau Mut. Ins. Co. v. Groen,
As a general proposition an attorney’s implied authority does not extend to settling the very business that is committed to the attorney’s care without the client’s consent. The vast majority of United States jurisdictions hold that the retention of an attorney to pursue a claim does not, without more, give the attorney the implied authority to settle or compromise the claim.
3
The
*1303
rationale for this rule is that an attorney’s role as agent by definition does not entitle the attorney to relinquish the client’s rights to the subject matter that the attorney was employed to pursue to the client’s satisfaction. In Indiana, the rule that retention does not ipso facto enable an attorney to settle a claim has a solid if distant foundation. Several older cases either hold or indicate in dicta that an attorney who settles or compromises a claim without express authority from the client does not bind the client.
Union Mut. Life Ins. Co. v. Buchanan,
Where an attorney is acting under an em-. ployment to collect a claim or conduct a lawsuit, such employment does not give him authority to compromise such claim or suit [and bind the client] without the consent of the client, except in cases of emergency, where the interests of the client reasonably appear in jeopardy and delay for consultation would seriously imperil such interests.
See also Miller v. Edmonston, 8
Blackf. 291 (1846) (attorney has no authority to compromise with a debtor or bind his principal by any arrangement for the satisfaction of a debt, short of an actual collection of the money);
accord Wakeman v. Jones,
*1304 B. An attorney’s apparent authority
Apparent authority is the authority that a third person reasonably believes an agent possesses because of some manifestation from the principal.
Pepkowski v. Life of Ind. Ins. Co.,
C. An attorney’s inherent agency power in court proceedings
“Inherent agency power is a term used ... to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.” Restatement (Second) of Agengy § 8A (1958). Although not using the term “inherent agency power,” Indiana courts have applied the concept of the inherent power of an agent, usually a general agent, and most typically a general agent of an insurer:
A general agent is one who is authorized to transact all the business of his principal, or all his business of some particular kind, or at some particular place. The principal will be bound by the acts of a general agent, if the latter acted within the usual and ordinary scope of the business in which he was employed, notwithstanding he may have violated the private instructions which the principal may have given him, provided the person dealing with such agent was ignorant of such violation and that the agent exceeded his authority.
Farm Bureau Mut. Ins. Co. v. Coffin,
“Special agents,” in contrast, do not as a general proposition carry inherent agency power. A special agent is one authorized to do one or more specific acts but not to conduct business generally for the principal. As to special agents, the general rule is that:
[t]he principal is not bound by the acts of a special agent, if he exceeds the limits of his authority. And it is the duty of every person who deals with a special agent to ascertain the extent of the agent’s authority before dealing with him. If this is neglected, such person will deal at his per *1305 il, and the principal will not be bound by any act which exceeds the particular authority given.
Farm Bureau Mut. Ins. Co.,
This reasoning has led to the longstanding general rule in Indiana that:
An attorney may without express authority, bind his client by agreement that judgment may be taken against him, and that, too, though the attorney know that his client has a good defense to said action. If [the attorney] acts contrary to the express directions of his client, or to his injury, the client must look to the attorney for redress.
Thompson v. Pershing,
This rule is followed in many, but certainly not all jurisdictions.
See, e.g., Eida v. Stoddard,
It is true that attorneys, under their general authority as such, have no Lpower to release a lien]; but there is a wide and clear distinction between the acts of attorneys under their general authority in matters not in court, and the acts of attorneys in the conduct and progress of a suit in court.... Upon this distinction, in large measure, rest the certainty, verity, and finality of every judgment of a court. Litigants must necessarily be held bound by the acts of their attorneys in the conduct of a cause in court, in the absence, of course, of fraud.
Alma Lumber Co. v. Beecham,
D. Proceedings under ADR rules may be couH 'proceedings for this purpose
The question remains what constitutes an “in court” proceeding in this age of alternative dispute resolution. 12 We find no authority on the question whether a mediation or other formal method 'of resolving claims is akin to an in court settlement or confession or judgment for purposes of an attorney’s inherent power. We conclude that the same reasons that justify the exception to the general rule for in court proceedings are present in proceedings governed by the ADR rules, in which a rule, an order of the convening authority, or the agreement of the parties provides for authorized representation. A variety of rules in Indiana govern mediation, arbitration, mini-trials, summary jury trials, and private judges. Ind.Alternative Dispute Resolution Rule 1.2. As a formal matter, “[a]t all times during the course of any alternative dispute resolution proceeding, the case remains within the jurisdiction of the court which referred the litigation to the process.” A.D.R. 1.7. Specifically, the rules for mediation encompass the qualifications and selection of the mediator as well as the mediation procedures. A.D.R. 2.4, 2.5, 2.7. More importantly, the rules for several forms of ADR, including mediation, explicitly contemplate authority to settle on the part of the parties’ representatives. In those eases all parties are expected to be able to resolve the matter. Rule 2.7(B)(2) requires that in all mediation conferences: “All parties, attorneys with settlement authority, representatives with settlement authority, and other necessary individuals shall be present at each mediation conference to facilitate settlement of a dispute unless excused by the court.” Other methods of ADR have similar provisions that require or permit the parties to be bound, or treat the matter as a court proceeding. See A.D.R. 3.4(F) (arbitration) (parties decide at outset which issues submitted to arbitration will be binding; parties can decide not to reject a non-binding arbitration determination); A.D.R. 4.4(A) (mini-trials) (“The court will ... direct representatives with settlement authority to meet ... in an effort to settle the litigation.”); A.D.R. 5.3(D) (summary jury trials) (“The parties may stipulate that a unanimous verdict or a consensus verdict shall be deemed a final determination on the merits....”); A.D.R. 6.3(B) (private judges) (private judge has same powers as circuit judge including deciding the outcome of case).
Under many of these rules, an ADR method is a formal proceeding where the parties are assembled in a setting subject to the court’s jurisdiction, before a court appointed or otherwise approved official, in a court sanctioned environment, for the express purpose of settling a claim, and with the set expectation that those attending have the authority to do so. These are unlike an unstructured negotiation, where it is reasonable to conclude that the client may not have authorized the settlement and there is no reasonable assumption that the attorney was empowered with the authority to settle. In sum, the rule that an attorney has the inherent power to bind the client to an in court judgment applies to proceedings governed by the ADR rules in which the parties are ordered, required by the rule, or agree to appear through authorized representatives. These proceedings are “in court” for purposes of an attorney’s inherent power, irrespective of whether they actually occur inside a courtroom. This rule will not only further the successful practice of mediation and other ADR methods, as effective means of resolving disputes without resort to a full fledged trial, but it also supports Indiana’s strong judicial policy in favor of settlement agreements.
Manns v. State, Dep’t of Highways,
*1308 II. “Protection” of Subrogees Under the Workers’ Compensation Statute
The second certified question is:
Under the portion of Indiana Code § 22-3-2-13 that provides, “consent shall not be required where the employer or the employer’s compensation insurance carrier has been fully indemnified or protected by court order,” does it constitute “protection] by court order” such that consent is not required for the settlement of claims and satisfaction of judgment in proceedings, for the court to specifically preserve a compensation insurance carrier/lienholder’s right to bring suit against its agent for settling its claim while enforcing an oral settlement of claims by reason of injury or death?
We understand this question to ask whether it constitutes “protection by court order” if a court specifically preserves the employer’s or the employer’s compensation carrier’s right to bring suit against its agent for unauthorized settlement. The answer turns on interpretation of the Indiana Workers’ Compensation Statute, specifically § 22-3-2-13, which provides in part:
No release or settlement of claim for damages by reason of injury or death, and no satisfaction of judgment in the proceedings, shall be valid without the written consent of both employer or the employer’s compensation insurance carrier and employee or his dependents, except in the case of the employer or the employer’s compensation insurance carrier, consent shall not be required where the employer or the employer’s compensation insurance carrier has been fully indemnified or protected by court order.
Ind.Code § 22-3-2-13 (1993). In this case, the attorney may have been an agent for both the employer and the insurer and the insurer may have been an agent for the employer. Accordingly, we are uncertain whose claims would be preserved against whom. However, under any scenario, we do not regard preservation of a contingent claim as “protection” in the meaning of this section. 13
The quoted provision in Indiana Code § 22-3-2-13 is the ninth of nine lengthy unnumbered paragraphs. It is best understood in light of the entire section.
Indiana State Highway Comm’n v. White,
judgment is obtained and paid, and accepted or settlement is made ... with or without suit, then from the amount received by the employee ... there shqll be paid to the employer ... the amount of compensation paid to the employee ... plus the medical, surgical, hospital and nurses’ services and supplies and burial expenses....
Ind.Code § 22-3-2-13 (1993). The employer may join any suit against the third party “so that all orders of court after hearing and judgment shall be made for [the employer’s] protection.” This joinder provision appears
*1309
in the paragraph preceding the “protection” at issue. In this sense, the section “protects or indemnifies” the employer by creating a statutory obligation to pay the subrogated amounts to the employer.
See, e.g., Sowers v. Covered Bridge Tree Serv.,
The section provides for only two means of settling a claim against a third party. The employer must either give written consent or be “fully indemnified or protected by court order.” The reason the legislature required written consent as one alternative is obvious. Because settlement serves as a bar to further recovery against the third party,
State v. Mileff,
In the absence of written consent, a settlement is valid only if the employer is “indemnified or protected by court order.” As a substitute for the consent requirement, this language is directed to the same purpose: making sure the employer is not deprived of its recovery. An employer will be protected if, for example, the monies owed are set aside for the employer by court order in an escrow account or a similar arrangement.
See, e.g., Kleeman v. Fragman Constr. Co.,
Preservation of the right of the employer to sue its agent does not “indemnify” or “protect” the employer in this sense. The likelihood of recovery against the agent is far from a certainty. Not only would the employer have to prove breach of a duty by its carrier and/or attorney, but the employer must also establish that if there had not been a breach, either the agent would have settled for more money or the plaintiff would have maintained a successful claim against the defendant in court and recovered more than the amount settled for, net after all expenses of proceeding through this second dispute. The cost of pursuing such a claim is undoubtedly substantially greater than the cost of collecting from an escrow or recovery on a court ordered judgment. In short, this is not the sort of “protection” that the legislature envisioned. Accordingly, we answer that for purposes of the statute, it does not constitute “protection by court order” for a court merely to preserve the employer’s or the employer’s insurance carrier’s right to sue the agent.
Conclusion
We conclude that a client’s retention of an attorney does not in itself confer implied or apparent authority on that attorney to settle or compromise the client’s claim. However, retention does confer the inherent power on the attorney to bind the client to an in court *1310 proceeding. For purposes of an attorney’s inherent power, proceedings that are regulated by the ADR rules in which the parties are directed or agree to appear by settlement authorized representatives are in court proceedings. We also conclude that for purposes of Indiana Code § 22-3-2-13 it does not constitute “protection] by court order” for a court specifically to preserve an employer’s or an employer’s insurance carrier’s right to bring suit for breach of duty by its agent.
Notes
. The Seventh Circuit, applying Indiana law, recently articulated a standard for implied authority: "[I]t may be implied by actions of the principal that would lead a reasonable agent to believe that he possessed such authority.”
Carr v. Runyan,
. An attorney not only has the authority to conduct and control a lawsuit and make tactical decisions, but also to stipulate to binding admissions of fact.
See, e.g., Bramblett v. Lee,
.See generally
7A C.J.S.
Attorney & Client
§ 214 (1980) (“ordinary employment or retainer of an attorney to represent a client with respect to litigation or other matters does not of itself give the attorney the implied or apparent authority to bind his client by a settlement or compromise of the cause of action...’."); Eunice A. Eichelberger, Annotation,
Authority of Attorney to Compromise Action-M
odern
Cases,
. In Cravens, the plaintiff retained an attorney to pursue a claim against an insurance company. The attorney settled the claim without the plaintiff's consent. When notified of the settlement, the plaintiff immediately rejected it, refused to sign a release, obtained new counsel, and filed a lawsuit against the insurance company. The company invoked accord and satisfaction as an affirmative defense, asserting that the case had already been settled by the original attorney. The Court of Appeals reversed the trial court's grant of summary judgment in favor of the insurance company and held that an attorney did not have the implied authority to settle a case without the authorization or consent of the client.
. In
Nature Corp. v. Aquatic Renovation Systems Inc.,
.An attorney’s implied authority in this respect parallels the attorney client relationship established by Indiana Professional Conduct Rule 1.2(a). “A lawyer shall abide by a client’s decisions concerning the objectives of representation ... and shall consult with the client as to the means by which they are to be pursued. A lawyer shall abide by a client's decision whether to accept an offer of settlement of a matter.” See also id. at 1.2(c), cmt. Although the Rules of Professional Conduct govern the relationship between attorney and client as between the two, *1304 they do not set forth the full parameters of the attorney’s ability to bind the client in dealings with third parties. The client may not intend for the attorney to settle a claim but may nonetheless imply that intention to the attorney. If so, the client is bound by a resulting settlement. Further, both apparent authority and inherent agency power may be created by actions of the client in its dealings with third parties even if the attorney knows there is no actual authority. Under these circumstances the client is bound even if it is a breach of the attorney’s professional obligations to make the commitment.
. The Restatement (Second) of Agency's version is set out in § 161:
A general agent ... subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized.
. In
Thompson,
the court referred to an “implied" authorization,
. In this case, depending on facts unknown to us, the attorney may have acted perfectly properly and incurred no exposure to the employer. The facts of this case may present multiple agency relationships. If Liberty Mutual was H & M’s agent for purposes of securing and informing an attorney and in that capacity incorrectly advised the attorney as to the authority to compromise the lien, H & M's redress may be against Liberty Mutual, its intermediate agent, rather than against the attorney. Even if the attorney did not act based on some oversight by Liberty Mutual, depending upon the agreement between a principal and an intermediate agent, an intermediate agent may be responsible for the conduct of subagents. Accordingly, under an intermediate agency theory, Liberty Mutual may be liable to H & M for any damage done. See, e.g., Restatement (Second) of Agency §§ 5, 406 (1958).
. Under the federal rule, an attorney is presumed to have the authority to consent to judgment but the presumption is not conclusive, i.e., there is no federal rule of law to this effect. If the client contends on appeal that the attorney lacked authority, the client is entitled to an evi-dentiary hearing in the trial court but "carries] a heavy burden to establish that their attorney acted without any kind of authority in agreeing to entry of judgment.”
Surety Ins. Co. of Cal. v. Williams,
. The quote continues: "but if such decree was by fraud and covin, the party may be relieved against it, not by re-hearing or appeal, but by original bill." The rule in Indiana is similar in that "a fraudulent combination or collusion between the attorney and the other side” is not attributable to the client.
Ferrara,
. In this case we are told that a neutral mediator presided and there were formal written terms of mediation that required that the insurers' rep-rcscntative[s] attending have full settlement authority and that all persons ■ necessary to reach full settlement of the dispute be present. Howcv-cr, the facts do not indicate whether the mediator met the requirements for the selection of mediators pursuant to ADR rule 2.4, whether the mediation was otherwise administered pursuant to these rules, or whether it was conducted wholly outside the rules.
. The district court concluded that the terms of the mediation agreement requiring written consent were not controlling because Liberty Mutual waived that requirement. We arc not asked and express no opinion whether the reasons the district court identified to effect a waiver of this term of mediation could also waive the written consent requirement of the statute. Nor do we express an opinion as to whether the consent of the insurer alone is sufficient under this statute. We note that the section is phrased in terms of the consent of "both the employer or the employer’s compensation insurance carrier and the employee.” As a grammatical and logical proposition, by referring to the "employer or the carrier," the statute can be read as requiring (a) the employee's consent and (b) either the employer’s or the carrier's consent. This may make some practical sense because the carrier, as happened here, may be handling the claim for both its own subrogated interests and those of the employer. By requiring the consent of either and leaving it to the two to resolve any dispute over authorization, the General Assembly may have intended to facilitate consummation of settlements.