15‐1714‐cv
Hillair Capital Invs., LP v. Smith Sys. Transp., Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 10th day of February, two thousand sixteen.
PRESENT: BARRINGTON D. PARKER,
DENNY CHIN,
SUSAN L. CARNEY,
Circuit Judges.
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HILLAIR CAPITAL INVESTMENTS, LP,
Plaintiff‐Appellee,
v. 15‐1714‐cv
SMITH SYSTEMS TRANSPORT, INC.,
Defendant‐Appellant,
INTEGRATED FREIGHT CORPORATION, MORRIS
TRANSPORT, INC., CROSS CREEK TRUCKING,
INC., PAUL HENELY, HENRY P. HOFFMAN,
MATTHEW A. VEAL,
Defendants.*
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* The Clerk of Court is directed to amend the official caption to confirm to the above.
FOR PLAINTIFF‐APPELLEE: Ted Poretz, Florence M. Beauboeuf, Zukerman
Gore Brandeis & Crossman, LLP, New York,
New York.
FOR DEFENDANT‐APPELLANT: Davida S. Scher, Franzino & Scher, LLC, New
York, New York.
Appeal from the United States District Court for the Southern District of
New York (Hellerstein, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Defendant‐appellant Smith Systems Transport, Inc. (ʺSmith Systemsʺ),
appeals a June 5, 2015 judgment of the United States District Court of the Southern
District of New York against it awarding plaintiff‐appellee Hillair Capital Investments,
LP (ʺHillairʺ), damages of $619,356.24.1 By order filed March 27, 2015, the district court
granted summary judgment in favor of Hillair and denied Smith Systemsʹ motion for
leave to amend its answer. The district court reasoned that Smith Systems was bound
by a settlement agreement that had been put on the record in open court, pursuant to
which Smith Systems purportedly agreed that it would continue to be bound by a prior
guarantee of the obligations of its apparent parent corporation, Integrated Freight
1 The judgment also awarded damages against other defendants who did not
appeal. Smith Systems initially appealed, on May 26, 2015, the district courtʹs April 30, 2015
order directing the clerk to enter final judgment. Once the district court finally entered
judgment on June 5, 2015, Smith Systems amended its notice of appeal to include the judgment.
Though the amended notice of appeal was filed on August 13, 2015 ‐‐ more than thirty days
after the entry of judgment ‐‐ we retain jurisdiction because we treat the original, premature
notice of appeal as being ʺfiled on the date of and after the entryʺ of judgment. Fed. R. App. P.
4(a)(2).
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Corporation (ʺIntegrated Freightʺ). We assume the partiesʹ familiarity with the
underlying facts, procedural history of the case, and issues on appeal.
From January 4, 2013, through December 22, 2014, attorney Thomas D.
Atkinson (ʺAtkinsonʺ) represented Smith Systems, Integrated Freight, and the other
defendants in the proceedings below. At an October 30, 2013 hearing with Atkinson
and Integrated Freightʹs CEO present, the district court put on the record a settlement
agreement whereby Integrated Freight conceded liability on Hillairʹs claims against it
and Smith Systems (and other defendants) agreed that guarantees of Integrated
Freightʹs obligations they had previously delivered to Hillair would remain in effect.
As the district court noted, the parties agreed that ʺthe guarantors [which included
Smith Systems], up to the limits of the guarantee, should have joint and several liability
for the settlement payments [that Integrated Freight had agreed to make] up to the
amount stated in the guarantee and not beyond.ʺ App. at 111.
Integrated Freight missed its first payment, and Hillair moved for
summary judgment against Smith Systems (and the other defendants). On March 4,
2015, after replacing Atkinson as its representative, Smith Systems opposed summary
judgment, claiming, inter alia, that Atkinson did not have authority to settle for it, and
moved for leave to amend its answer. In its March 27, 2015 order, the district court
granted Hillairʹs motion for summary judgment, holding that Smith Systems was bound
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by the October 30, 2013 settlement, and denied Smith Systemsʹ motion for leave to
amend.
On appeal, Smith Systems argues that the district court erred in holding
that Smith Systems authorized ʺcounsel for [Integrated Freight]ʺ to settle for it.
Appellantʹs Br. at 18. Though the parties and district court applied the Federal Rule of
Civil Procedure 56 standard of review for summary judgment, we have noted that
ʺmotions for relief from an order or judgment based on an attorneyʹs error or
misconduct are generally made pursuant to Rule 60(b).ʺ Gomez v. City of New York, 805
F.3d 419, 423 (2d Cir. 2015) (per curiam). We review Rule 56 determinations de novo to
determine whether the non‐moving party has demonstrated a genuine issue of material
fact, see Bermudez v. City of New York, 790 F.3d 368, 373 (2d Cir. 2015), whereas we review
Rule 60(b) decisions for abuse of discretion, see Gomez, 805 F.3d at 423. Here, as Smith
Systems is seeking relief from the settlement, it would seem that Rule 60(b) applies.
Regardless of what standard of review we apply, however, Smith Systemsʹ argument
lacks merit.
We have acknowledged that, ʺunlike many other acts that an attorney
undertakes on a clientʹs behalf, the decision to settle or otherwise dismiss claims ʹrests
with the clientʹ and is ʹnot automatically bestow[ed] . . . on retained counsel.ʹʺ Gomez,
805 F.3d at 424 (alterations in original) (quoting In re Artha Mgmt., Inc., 91 F.3d 326, 329
(2d Cir. 1996)). Instead, a settlement agreement is binding only if the attorney (the
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agent) had the clientʹs (the principalʹs) actual or apparent authority to enter into the
agreement. See United States v. Intʹl Bhd. of Teamsters, 986 F.2d 15, 19‐21 (2d Cir. 1993).
ʺEssential to the creation of apparent authority are words or conduct of
the principal, communicated to a third party, that give rise to the appearance and belief
that the agent possesses authority to enter into a transaction.ʺ Hallock v. State, 64 N.Y.2d
224, 231 (1984). We may therefore find apparent authority where the principal
ʺremained silent when he had the opportunity of speaking and when he knew or ought
to have known that his silence would be relied upon.ʺ Sci. Holding Co. v. Plessey Inc., 510
F.2d 15, 25 (2d Cir. 1974) (quoting Rothschild v. Title Guar. & Tr. Co., 204 N.Y. 458, 462
(1912)); see Restatement (Third) of Agency § 1.03 cmt. b (2006) (ʺSilence may constitute a
manifestation when, in light of all the circumstances, a reasonable person would
express dissent to the inference that other persons will draw from silence.ʺ); see also Intʹl
Bhd. of Teamsters, 986 F.2d at 20 (finding apparent authority when client ʺwaited sixteen
months after the date of the Settlement before attempting to deny [the] attorney[ʹs] . . .
authorityʺ).2 Moreover, the burden on a party challenging its attorneyʹs authority is ʺnot
insubstantial.ʺ Intʹl Bhd. of Teamsters, 986 F.2d at 20. To overcome the general
presumption that an attorney‐of‐record has authority to settle, ʺany party challenging
2 We have held that where the underlying claim arises under federal law, the
question of whether an attorney has authority to settle is also governed by federal law. See
Fennell v. TLB Kent Co., 865 F.2d 498, 500‐01 (2d Cir. 1989). Here, however, the underlying claim
to enforce a guarantee agreement is a state claim. Regardless of whether we apply federal or
New York law, the outcome of this appeal remains the same under principles of agency
applicable in both jurisdictions.
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an attorneyʹs authority . . . bears the burden of proving by affirmative evidence that the
attorney lacked authority.ʺ In re Artha Mgmt., Inc., 91 F.3d at 329 (emphasis added).3
Atkinson possessed, at minimum, apparent authority to settle on behalf of
Smith Systems. The record plainly shows that Smith Systems clothed Atkinson with
apparent authority. Atkinson appeared on behalf of Smith Systems (and other
defendants) from early on in the litigation ‐‐ filing an answer on its behalf and
successfully opposing summary judgment. Smith Systems acknowledges that it, in fact,
was represented by and communicated with Atkinson in the litigation. During this
time, Smith Systems never raised an objection to Atkinsonʹs representation.
Smith Systems continued to manifest no expression of dissent to Hillair or
the district court through the settlement proceedings and beyond. Smith Systems
concedes that it discussed the settlement with Atkinson, who settled the case on behalf
of all defendants, including Smith Systems. See App. at 231. Further, Smith Systems
could not have been ignorant that the case actually settled: Atkinson mentioned that
ʺthe parties to this action agreed to settlement terms announced by the court on the
recordʺ in his May 7, 2014 affidavit in support of his motion to withdraw as counsel of
record; he attached to that affidavit the settlement hearing transcript; and he separately
served those documents on Smith Systems at its corporate office in Nebraska. ECF No.
3 New York does not appear to endorse this burden framework, see Slavin v.
Polyak, 470 N.Y.S.2d 38, 39 (2d Depʹt 1984), but the facts here compel the same conclusion
regardless of which party bears the burden of persuasion.
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45 ¶ 5. Yet Smith Systems did not challenge the settlement agreement until March 4,
2015, almost a year and a half after the agreement and ten months after Atkinsonʹs
affidavit, when it presented an affidavit in opposition to the second summary judgment
motion asserting that it ʺdid not agree to the settlementʺ and that ʺsettlement was not in
Smith Systemʹs best interests.ʺ App. at 231. Smith Systemsʹ delay in raising the issue,
however, is fatal to its claim that Atkinson lacked apparent authority. Compare Intʹl Bhd.
of Teamsters, 986 F.2d at 20 (finding sixteen months to be too long), and Hallock, 64
N.Y.2d at 232 (noting ʺsilence for more than two monthsʺ), with Gomez, 805 F.3d at 422
(remanding to determine authority when objection came ʺjust five days afterʺ).
Finally, Smith Systems attacks the underlying validity of the guarantees
and the guaranteed loans. This issue, however, was not raised in its answer, and thus,
Smith Systems needed leave to amend its answer to assert this affirmative defense. See
Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993) (construing summary
judgment motion as motion to amend answer where affirmative defense was not
previously raised). We therefore address Smith Systemsʹ argument that the district
court should have permitted it to amend its answer. In this case, because the settlement
was binding and conclusive as to Smith Systemsʹ obligations under the guarantees, the
district court did not abuse its discretion in denying Smith Systems leave to amend its
answer at so late a juncture. See Milanese v. Rust‐Oleum Corp., 244 F.3d 104, 110 (2d Cir.
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2001) (holding that when motion to amend is brought in response to motion for
summary judgment, the amendment is futile if summary judgment is inevitable).
We have reviewed Smith Systemsʹ remaining arguments and conclude
they are without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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