[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

, [5]     

Argued May 17, 1996

, [6]      IN RE: ARTHA MANAGEMENT, INC.; ALL-Z CONST. CORP.; ABRAM GIN AND ALEX ZAIKA, AND RELATED CASES, DEBTORS. " />

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In Re Artha Management Inc., 91 F.3D 326 (2d Cir. 07/31/1996)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

No. 1554 August Term, 1995

Docket No. 95-5087

91 F.3d 326, 1996.C02.0000370 <http://www.versuslaw.com>

Argued May 17, 1996

IN RE: ARTHA MANAGEMENT, INC.; ALL-Z CONST. CORP.; ABRAM GIN AND ALEX ZAIKA, AND RELATED CASES, DEBTORS.

[7]    

Decided July 31, 1996

[8]    

JOHN S. PEREIRA, as Chapter 11 Trustee of the Estates of LASER ASSOCIATES, 3875 ASSOCIATES and 3471 ASSOCIATES,

[9]    

Plaintiff-Appellee, v.

SONIA HOLDINGS, LTD. and LAS MANAGEMENT CORP.,

Defendants-Appellants,

JOEL H. RABINE; SALLY RABINE; RABINE & NICKELSBERG, P.C. and BANK LEUMI TRUST COMPANY OF NEW YORK,

Defendants.

B e f o r e: MESKILL and MINER, Circuit Judges, and LASKER,

District Judge. *fn*

This is an appeal from an order of the United States District Court for the Southern District of New York, Schwartz, J., affirming the judgment of the United States Bankruptcy Court for the Southern District of New York, Lifland, C.B.J., denying appellants' motion to vacate and set aside a settlement reached by appellants and appellee and enforcing the settlement. Appellants claim that their attorney lacked the authority to settle the claim brought against them by the bankruptcy trustee. We hold that appellants failed to meet their burden of proving that their attorney-of-record settled the case without authority.

Affirmed.

ELI LEVITIN, New York, NY, for Appellants.

JOHN P. CAMPO, New York, NY (John S. Kinzey, LeBoeuf Lamb Greene & MacRae, New York, NY, of counsel, Scot C. Gleason, New York, NY, on the brief), for Appellee.

MESKILL, Circuit Judge:

This case concerns the enforceability of a purported agreement settling claims that arose out of a suit brought by appellee John S. Pereira, as Chapter 11 Trustee of the Estates of Laser Associates, 3875 Associates, and 3471 Associates (Trustee), against appellants Sonia Holdings, Ltd. and LAS Management Corp. (appellants), and four other defendants not directly involved in this appeal. The Trustee brought an adversary proceeding in the United States Bankruptcy Court for the Southern District of New York, Lifland, C.B.J., under 11 U.S.C. Section(s) 502, 544(b), 547(b), 548 and 550, and N.Y. Debtor and Creditor Law Section(s) 273, 274 & 277 (McKinney 1990), and the common law, alleging fraudulent conveyances and/or preferential transfers. The complaint alleged jurisdiction in the bankruptcy court under 28 U.S.C. Section(s) 1334.

The crux of this appeal is the appellants' contention that their attorney-of-record, Dennis Drebsky, a partner in the firm Rogers & Wells, lacked the authority to bind them to the agreement by his signature. We have appellate jurisdiction under 28 U.S.C. Section(s) 1291.

BACKGROUND

A. The Trustee's Claims

The Trustee alleged in his complaint in the bankruptcy court that the debtors, Laser Associates, 3875 Associates, and 3471 Associates, were formed to invest, hold and manage real estate. The complaint alleged that the debtors executed a note and blanket second mortgage on the properties it owned in favor of Sally Rabine and Sonia Holdings, Ltd., purportedly to secure a $2 million loan, but received only $325,000. The Trustee also alleged that Sonia Holdings assigned its interest in the Note and Mortgage to defendant-appellant LAS Management Corp. In essence, the Trustee's claim was that the debtors gave the defendants a note and mortgage, but that the $2 million supposedly loaned to the debtors was delivered to parties other than the debtors. The Trustee alleged that, in fact, the $2 million was delivered to parties affiliated with the defendants. Thus, the Trustee claimed, the loan transaction was a fraudulent conveyance or preferential transfer in favor of appellants, among others, and the Trustee was entitled to avoid the transaction and recover the funds delivered to parties other than the debtors.

B. The Settlement Agreement

After negotiations among counsel for the parties, counsel for each party signed an agreement that provided for a payment by appellants to the debtors of $325,000 and a dismissal of the claims against appellants by the Trustee. The agreement provided signature lines for the attorneys for each party and for the parties themselves. Appellants' attorney-of-record, Dennis Drebsky, signed on his line; appellants did not sign on their lines. Subsequently, the settlement agreement was presented to the bankruptcy court, which approved the settlement.

After a time, the Trustee made a motion in the bankruptcy court to enforce the terms of the settlement. In response, appellants moved to vacate the settlement pursuant to Fed. R. Civ. P. 60(b). The bankruptcy court found that Drebsky had actual authority to sign the agreement on appellants' behalf and that his signature bound appellants.

The appellants appealed to the district court, which agreed with the bankruptcy court's determination that Drebsky had actual authority to bind appellants. This appeal ensued.

DISCUSSION

As a preliminary matter, we must address the appellants' claim that the district court was overly deferential in its review of the bankruptcy court's findings of fact. The district court reviewed the bankruptcy court's findings under the clearly erroneous standard. Federal Rule of Bankruptcy Procedure 8013 provides that, on appeal, the bankruptcy court's "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous." Fed. R. Bankr. P. 8013. Thus, the district court applied the correct standard of review.

The issue before us is whether the agreement signed by Drebsky is binding on appellants. The relationship between a lawyer and client is one of agent and principal. United States v. International Bhd. of Teamsters


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