The US Tenth Circuit Court of Appeals clarifies the authority of commercial negotiating agents and upholds the law of agency.
A case filed on February 15, 2013 with the United States Tenth Circuit Court of Appeals in Utah illustrates some of the intricacies of the law of agency, an aspect of commercial law concerned with agents, individuals authorized by another party (called the principal) to act on his, her, or its behalf in contractual and other legal negotiations.
The appellate ruling in case No. 11-4214 (D.C. No. 2:09-CV-00896-TC-BCW) (D. Utah) affirms a preceding district court decision on the matter, the details of which follow.
The case pits the plaintiff, Nature’s Sunshine Products, Inc. against the Utah-based Sunrider Corporation and its representative Tei-Fu Chen. In October of 2009, Nature’s Sunshine sued Sunrider on matters of trademark infringement and unfair competition. Over the course of the initial litigation, an attorney for Nature’s Sunshine proposed to move the dispute to mediation.
Counsel for both sides agreed to mediation using authorized agents, specifying that “[t]he Parties agree to participate in good faith and will attend with one or more persons who have full settlement authority to resolve the disputes between the parties.”
Mediation began on April 15, 2011 with Sunrider appointing Owen Smigelski, an internal counsel with the company, as its negotiating agent. Importantly, the executives at Sunrider thereafter alleged in court that they 1) reserved the right of a final say of approval in any mediation settlement, 2) always intended to maintain rights to specific trademark names of certain products, and 3) wished to limit the geographic range of the settlement, regarding US domestic versus international markets.
Significantly, Sunrider's internal limitations on Smigelski’s authority as a negotiator were never conveyed to Nature’s Sunshine.
No settlement was reached over the course of the April 15 mediation, but attorneys for both sides continued to communicate via email over for the next several weeks in an effort to reach an elusive agreement.
By May 20, after several back and forth email exchanges with modifications in language, Nature’s Sunshine claimed that both parties had reached a satisfactory resolution. A final draft of the agreement was emailed five days later. But, by June 29 representatives of Sunrider had still refused to sign the agreement.
The following July of 2012, Nature’s Sunshine filed a motion in an effort to enforce the settlement. Sunrider responding by noting that because the agreement was neither written nor signed, it was unenforceable. And, added that Smigelski was never granted the authority to make such a settlement in the first place.
However, a Utah district court sided with Nature’s Sunshine in the matter, arguing that the emails exchanged between opposing mediators, Smigelski and his counterpart, satisfied the requirement that the mediation agreement be “written and signed.”
The court also rejected Sunrider’s argument that Smigelski lacked the authority to negotiate, draft, and confirm a settlement. Sunrider disagreed, and the case moved to the US 10th Circuit Court of Appeals.
During the appeal, judges cited numerous legal precedents on the issue of the law of agency. In essence they argued that, in the absence of any information to the contrary, participants in mediation may safely assume that sanctioned negotiating agents (such as Smigelski) have significant authority to reach settlements. The judges particularly cited the language of Omega Engineering, Inc. v. Omega, S.A., 432 F.3d 437, 447 (2d Cir. 2005), which states that,
Every agent is likely to have secret negotiating limits dictated by the principal, but other parties may safely assume that any agreement the agent agrees to is within his authority unless there is reason to believe he is exceeding it.
In her opinion, Chief Judge Mary Beck Briscoe of the Tenth Circuit Court of Appeals affirmed the district court’s original decision, granting the motion of Nature’s Sunshine to enforce the settlement agreement negotiated by Smigelski.
Briscoe and the other appellate judges dismissed additional aspects of Sunrider’s arguments (including the claim that Smigelski had exceeded his authority) as “unsubstantial,” thereby holding up both the original district court ruling in favor of Nature’s Sunshine and the implicit powers granted by the law of agency.
Although this case was decided in Utah, the state of Colorado enforces very similar rules regarding the law of agency. The specifics may be found within the Colorado Revised Statutes, Title 4 of the Uniform Commercial Code, the full text of which are available at LexisNexis.com. (Navigate to Colorado Revised Statues and search "law of agency" for details.)
For another Pippenger Hedberg Law post on a recent case of similar interest, this one regarding the related topic of Power of Attorney – which concerns an agent granted personal rather than commercial authority – click on the link above.