Attorney Lacked Apparent Authority to Represent Client When All Representations Concerning Authority Came From Attorney, Rather Than Client

On June 5, 2023, Justice Robert R. Reed of the New York County Commercial Division issued a decision in Dragons 516 Ltd v. Knights Genesis Investment Ltd., Slip Op. 50541(U), holding that an attorney entering a stipulation on behalf of a party lacked apparent authority to do so because all representations concerning the attorney's authority came from the attorney (the agent), rather than the client (the principal), but also holding that the attorney may have had actual authority and setting a hearing to resolve the issue, explaining:

By email dated June 3, 2021, John Lonuzzi, of Lonuzzi & Woodlansd, LLP, reached out to plaintiff's counsel to request an extension of time to respond to the complaint while he determined which of the SMI-related defendants he would be representing. By email dated June 11, 2021, Mr. Lonuzzi "confirmed that [he would] be representing all of the SMI defendants." Plaintiff's counsel responded by listing each defendant, including SMI and SMI Assets, and inquiring if these were the defendants he represented, to which Mr. Lonuzzi replied, "Yes." (NYSCEF doc no. 144.)

By stipulation dated July 26, 2021, Mr. Lonuzzi, as "counsel for Defendants Shanghai Municipal Investment (Group) [*3] Corporation (a/k/a Shanghai Chengtou Group Corporation), Shanghai SMI Assets Management (Group) Co., Ltd.," as well as the other SMI defendants, "acknowledge[d] or accept[ed] service of the Summons with Complaint and Notice of Commencement on behalf of those clients and confirm[ed] that he [was] duly authorized by those clients to do so" and agreed that defendants would have until August 5, 2021 to respond to the complaint (NYSCEF doc no. 31). On August 5, 2021, Mr. Lonuzzi entered into another stipulation, extending the defendants' time to respond to the complaint to August 12, 2021 (NYSCEF doc no. 43). By notice of motion dated August 12, 2021, Mr. Lonuzzi made a pre-answer motion to dismiss the complaint (motion seq. no. 002) on behalf of SMI and SMI Assets, as well as the other SMI defendants in this action. He did not raise lack of personal jurisdiction as a ground for dismissal. (NYSCEF doc no. 44.)

On November 28, 2021, Adam Pollock, of Pollock Cohen LLP, filed a notice of limited appearance on behalf of SMI and SMI Assets, moving to dismiss the complaint for, among other things, lack of personal jurisdiction (NYSCEF doc no. 140, motion seq. no. 007).

On December 15, 2021, prior [*4] to motion sequence number 002 being fully submitted, Mr. Lonuzzi withdrew that motion with respect to SMI and SMI Assets. The notice of partial withdrawal did not provide an explanation, but, for the first time, Mr. Lonuzzi's signature block did not include SMI and SMI Assets among the defendants he represented. (See NYSCEF doc no. 146.)

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Dragons responds that the motion should be denied as untimely under the August 5, 2021 stipulation, which required parties to respond to the complaint by August 12, 2021 (NYSCEF [*7] doc no. 43).

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[T]here is a question as to whether the motion was timely pursuant to the August 5, 2021 stipulation. "Stipulations . . . are favored by the courts and not lightly cast [*9] aside. . . . Only where there is cause sufficient to invalidate a contract, such as fraud, collusion, mistake, or accident, will a party be relieved from the consequences of a stipulation made during litigation" (Hallock v State of New York, 64 NY2d 224, 230, 474 N.E.2d 1178, 485 N.Y.S.2d 510 [1984] [internal citations omitted]; see McCoy v Feinman, 99 NY2d 295, 302, 785 N.E.2d 714, 755 N.Y.S.2d 693 [2002]). "The courts therefore have vacated stipulations when the stipulating attorney lacked both actual and apparent authority . . . ." (Morrison v Budget Rent A Car Sys., 230 AD2d 253, 256, 657 N.Y.S.2d 721 [2d Dept 1997] [internal citation omitted]).

Here, there is no evidence of apparent authority, as Mr. Lonuzzi was the sole source of all representations. "[T]he existence of apparent authority depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal—not the agent" (Indosuez Intl. Fin. B.V. v National Reserve Bank, 98 NY2d 238, 245-246, 774 N.E.2d 696, 746 N.Y.S.2d 631 [2002] [internal quotation marks and citation omitted]; see Skyline Agency v Coppotelli, Inc., 117 AD2d 135, 148, 502 N.Y.S.2d 479 [2d Dept 1986 ] [explaining that a defendant was not bound by the acts of his purported attorney, where the defendant did nothing to create the appearance that the attorney was authorized to act on his behalf]).

However, there is reason to believe that Mr. Lonuzzi may have had actual authority. After all, he specifically took time to inquire into which entities and individuals he was to represent and then repeatedly and [*10] unequivocally represented that he represented SMI and SMI Assets. Defendants' conclusory statements, in their reply brief, that Mr. Lonuzzi did not represent them (see NYSCEF doc no. 4, reply brief at 4, 5) and that his actions in this case were "[b]ased on [a] misunderstanding" (id. at 2), are insufficient to resolve the question of authority (cf George v Trautman, 2003 NY Slip Op 50630[U], *3 [App Term, 1st Dept 2003] [finding that the "(a)ppellant's conclusory assertion, ten years into the action, that there was an unauthorized appearance on his behalf by the attorney in question (was) insufficient to require vacatur of the judgment. . ."]).

As such, before the court can reach the merits of the instant motion to dismiss, it is first necessary to resolve the question of whether SMI and/or SMI Assets authorized Mr. Lonuzzi to appear for them, which requires a hearing. "A full inquiry into all the circumstances surrounding the alleged inadvertent appearance may thus be had" (Amusement Sec. Corp. v. Academy Pictures Distrib. Corp., 251 App Div 227, 230, 295 N.Y.S. 436 [1st Dept 1937]; see George v Trautman, 2003 NY Slip Op 50630[U], *5 [McCooe, J., dissenting] [finding that "(a) hearing should (have) be(en) directed on the issue whether the appearance was authorized"]).

A principal (e.g., client) may be bound by the acts of its agent (e.g., attorney) if the agent had actual authority to act on behalf of the principal, or even if the principal lacked actual authority, if the principal had apparent authority to do so. But as this case shows, apparent authority requires some act on behalf of the principal, not just the agent. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about actual and apparent authority, especially in the context of an attorney-client relationship.