Opinion
No. 01-1733
November 30, 2001
ORDER REASONS
Before the Court is Plaintiff's Motion to Enforce Settlement against Defendant Account Control Technology, Inc. ("ACT"). After reviewing the arguments of counsel, the record, and the applicable law, IT IS ORDERED that the Motion is DENIED.
BACKGROUND Allegations
On June 7, 2001, Plaintiff sued ACT and other Defendants not the subject of this Motion, alleging the following:
In late February 2001, an ACT employee called Plaintiff, demanding that she immediately pay a student loan in full or sign a new promissory note. See Rec. Doc. 1 at 3. The employee told her it was "urgent" that she act immediately or her wages would be garnished. See id. at 3-4. Plaintiff disputed the debt and requested documentation confirming that she owed the debt. See id. at 4. The employee assured Plaintiff that she would receive paperwork within ten days and at least a month before Plaintiff's employer received a garnishment demand from ACT and Defendant United Student Aid Funds, Inc. ("United"). See id.
After ten days had passed, Plaintiff spoke again with the employee, asking the employee when she would receive the paperwork. See id. Plaintiff advised the employee that identical collection activity had previously occurred and that the loan was not hers. See id. The employee told her, "It is your loan, and you had better pay it." Id.
On April 3, 2001, ACT mailed to Plaintiff's employer an "ORDER OF WITHHOLDING FROM EARNINGS" pursuant to 20 U.S.C. § 1095a, demanding immediate withdrawal often percent of Plaintiff's disposable pay. See id. The employer was informed that failure to comply with the order would result in a suit against it for ten percent of Plaintiff's disposable income, attorney's fees, court costs, and possible punitive damages. See id.
After the employer received this demand, Plaintiff received the aforementioned paperwork, which included a copy of loan papers in Plaintiff's name but with a social security number, address, and signature that did not appear to be those of Plaintiff. See id. at 4-5.
Plaintiff believed that ACT's acts arose from those implicated in a prior suit against Defendant Enterprise Recovery Systems, Inc. ("Enterprise"), which was settled. See id. at 3-5; Rec. Doc. 12 at 3-4. In the discovery in that suit, Enterprise could not produce or locate the original documents. See id. at 4. Plaintiff maintained that she would pay the loan if it were hers, but because her father secured most of her student loans and as the Enterprise loan documentation contained discrepancies, she was uncertain if the loan was hers. See id. at 3-4. Accordingly, when ACT contacted Plaintiff, she believed either that United misrepresented facts to ACT after notifications from Enterprise that Plaintiff disputed the debt or that ACT disregarded Plaintiff's prior notifications to Enterprise and United that the debt was not hers. See Rec. Doc. 1 at 5.
Consequently, Plaintiff alleges that ACT's further contacts violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA"); the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA"); and several state laws. See Rec. Doc. 1 at 5-7. Plaintiff seeks damages resulting from these alleged violations. See id. at 5-8.
Settlement negotiation
Plaintiff and ACT agree that they thereafter began negotiating a settlement of the claims against ACT. See Rec. Doc. 12 at 4. The parties also agree that Plaintiff's counsel, Joseph G. Albe, offered to settle the case for $2,500. See id. ACT's counsel, Zooey Wharton, states in an affidavit that Albe made the offer September 4, 2001, and that she relayed the offer to ACT Chief Executive Officer Dale Van Dellen later that day. See Rec. Doc. 13, Ex. 1 at ¶ 4. Wharton claims that she understood Van Dellen wished to make a counter-offer of $1,000 and a $1,000 deduction from Plaintiff's loan. See id. The same day, Wharton wrote to Albe, extending this "counter offer." See id. Wharton also claims that Van Dellen did not receive a copy of the letter to Albe and was unaware that she had forwarded a counter-offer to Albe. See id.
The Court will refer to the "counter-offer," its "acceptance," and the "settlement" without quotations hereinafter, but advances no opinion on whether they are in fact binding.
The parties agree that on September 11, 2001, Albe then accepted Wharton's counteroffer by phone. See id. at ¶ 5. Wharton then claims that she wrote to Albe, requesting that he. confirm the settlement agreement by signing the letter and returning it to her. See Id. She further claims that Albe neither signed, nor returned the letter, nor wrote separately to ACT counsel that Plaintiff accepted the counter-offer. See id.
On September 20, 2001, Wharton states that she first notified Van Dellen, by fax, that Plaintiff had agreed to accept ACT's counter-offer. See Id. at ¶ 6. ACT, however, did not include a copy of the fax with its Memorandum in Opposition to Plaintiff's Motion to Enforce Settlement.
On September 21, 2001, Wharton claims that Van Dellen wrote to her, stating that she had erred and did not have authority to extend the counter-offer. See id. at ¶ 7. Rather, Van Dellen stated in the letter that he had authorized Wharton to make a counter-offer to reduce Plaintiff's loan by $1,000 if Plaintiff paid off the loan. See id. at Exs. C, 4. A stamp on the letter marked Exhibit 4 appears to indicate that it was received September 28, 2001.
On October 2, 2001, Albe claims that he wrote to Wharton, requesting that the settlement documents be forwarded before the end of the week. See Rec. Doc. 12 at 5, Ex. F. Albe also claims that he wrote to inform the Court later that day that the parties had settled. See id. at 5-6. The letter appears in the record. See Rec. Doc. 11.
On October 3, 2001, the parties agree, Wharton sent a letter to Albe, informing him that ACT had requested that she withdraw the counter-offer. See Rec. Doc. 13, Ex. 1 at ¶ 8. Plaintiff subsequently filed this Motion.
ANALYSIS Choice of law
As a threshold issue, the Court must decide which body of law, federal or state, governs the dispute. The parties agree that a settlement agreement is a contract and as such must be interpreted in accordance with laws affecting this subject. The parties disagree, however, as to whether federal or state law applies.
Defendant asserts that state law governs under the Rules of Decision Act, 28 U.S.C. § 1652, which provides that "the laws of the several states, except where the Constitution or Treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as Rules of Decision in civil actions in the courts of the United States, in cases where they apply." See Piatcheck v. Fairview Reliable Loan, Inc., 474 F. Supp. 622 (S.D. Ill. 1979). Neither the FDCPA nor the FCRA addresses the enforceability of settlements of claims arising under them. Thus, Defendant asserts, state law should be applied here.
The Fifth Circuit, however, has held that "[c]reation of a federal rule rather than absorption of a state rule is appropriate where . . . the rights of the litigants and the operative legal policies derive from a federal source." Fulgence v. I. Ray McDermott Co., 662 F.2d 1207. 1209 (5th Cir. 1981) (federal law determines the validity of settlement agreements in Title VII cases). Thus, the Fifth Circuit decided, federal common law should govern. See Id.
Defendant relies on decisions by the Fifth Circuit and this Court for the proposition that state law should control. See Lee v. Hunt, 631 F.2d 1171, 1173-74 (5th Cir. 1980); E. Energy, Inc. v. Unico Oil Gas, Inc., 861 F.2d 1379, 1380 (5th Cir. 1988); Lewis v. Transload Transport, Inc., 642 F. Supp. 865, 867 (E.D. La. 1986).
The Fifth Circuit decisions Defendant relies on do not control, however. Unlike the instant case, which involves both federal and state claims, Lee was a diversity case. Thus, state law was properly applicable under Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), and its progeny. Lee cited Florida Education Ass'n, Inc. v. Akinson, 481 F.2d 662 (5th Cir. 1973), for its holding, but Atkinson does not indicate whether the plaintiffs' claims in that case derived from federal law. Thus, this Court declines to conclude that Atkinson commands that the enforceability of the settlement agreement in the instant case is governed by state law. Eastern Energy involved RICO claims, but it cited only to Lee and Lockette v. Greyhound Lines, Inc., 817 F.2d 1182, 1185 (5th Cir. 1987), another diversity case, for the proposition that state law should be applied. Lewis also does not definitively decide the question. For its choice-of-law decision in that case, this Court relied on the holdings in Lee and Atkinson.
This case, of course, involves both federal and state law. In a case similarly involving causes of action under both types of law, this Court applied state law. See Technical, Inc. v. Allpax Prods., Inc., 786 F. Supp. 581, 585 (E.D. La. 1992). Technical involved the issue of whether the parties had violated a settlement agreement. See 786 F. Supp. 581. Plaintiff moved to reopen the case and to rescind the agreement. See id. at 582. The Court held that justice would not be served by granting relief and that, even if it would, Plaintiff had not requested the relief within the reasonable time afforded by Federal Rule of Civil Procedure 60(b)(6). See id. at 583-84. The Court went on to address a contract-law claim and in so doing concluded that state law applied. See id. at 584-87. Nevertheless, the Court noted that the 60(b)(6) bar resolved the issue and that it was considering the contract claim "in an abundance of caution." Id. at 584. Thus, this Court reads the Technical court's choice-of-law decision as dictum.
Accordingly, given the precedence the Fifth Circuit has accorded to federal law when the settlement of federal claims is at issue, federal law governs the analysis here.
Enforceability of the agreement
Under Fifth Circuit precedent, an attorney may not settle a case without his client's express authority. See Mid-South Towing, 733 F.2d at 389. On the other hand, "an attorney of record is presumed to have authority to compromise and settle litigation of his client, and a judgment entered upon an agreement by the attorney of record will be set aside only upon affirmative proof of the party seeking to vacate the judgment that the attorney had no right to consent to its entry." See id. at 390 (citing St. Amand v. Marriott Hotel, Inc., 430 F. Supp. 488, 490 (E.D. La. 1977)). Although a district court may summarily enforce an agreement settling a case before it, "the parties must be allowed an evidentiary hearing on disputed issues of the validity and scope of the agreement." See Mid-South Towing, 733 F.2d at 390.
Thus, if Plaintiff decides to pursue such a hearing, the Court directs the parties to consider, inter alia, the following evidentiary matters: (1) the admission by Wharton that she believed she had authority to settle the case for the amount of the counter-offer, and (2) the later contention by ACT that Wharton did not have authority to settle the case for this amount. See id. at 391.
CONCLUSION
Plaintiffs Motion to Enforce Settlement is hereby DENIED. Plaintiff shall file any motion for an evidentiary hearing on said Motion within ten days of the date of this Order.