Court Refuses To Void Contract, Says It's Valid & Binding Despite Forged Signatures Where Victims Were Screwed Over By Their Dishonest Attorney/Agent

Financial Fraud Law reports:

• A federal district court in New York has ruled that clients are bound when their attorney forges their signature to a settlement agreement they never authorized.
• In this case, the victims were clients of disgraced New York City lawyer Marc Dreier. The court explained the general rule that "the risk of loss from the unauthorized acts of a dishonest agent falls on the principal that selected the agent."(1)
• Dreier’s clients retained him and authorized him to negotiate a resolution of the dispute with the third party and he served as the conduit for all of the communications between his clients and the other party. As a result of Dreier's fraud, the other party paid over $6.3 million to him, and “should not be compelled to pay a second time,” the court concluded.

Source: Forged Signature Binds Dreier Clients To Settlement, Court Rules.

For the ruling, see In re Dreier LLP (aka Gardi et. al. v. Jana Partners, LLC et. al.) 08-15051 (SMB), Adv. Pro. No. 10-3642 (SMB) (S.D.N.Y. May 23, 2011).

Thanks to Deontos for the heads-up on the story.

(1) The trial judge made this, among other, observations (bold text is my emphasis):

• [D]reier duped both parties, and the well-settled rule of agency law dictates that as between two innocent parties, "the risk of loss from the unauthorized acts of a dishonest agent falls on the principal that selected the agent." Kirschner v. KPMG, LLP, 938 N.E.2d 941, 951 (N.Y. 2010) (quoting Andre Romanelli, Inc. v. Citibank, N.A., 875 N.Y.S.2d 14, 16 (N.Y. App. Div. 2009)).
  
  This precise rule was applied by two state supreme courts in factually similar situations involving an attorney’s forgery of his client’s signature to unauthorized settlement documents.
  
  In the first case, Cohen v. Goldman, 132 A.2d 414 (R.I. 1957), the attorney settled a lawsuit without his client’s knowledge or consent, and forged the client’s signature on a release and the settlement check. Id. at 415. The trial court vacated the settlement because of the forgery, id. at 416, but the Supreme Court reversed.

***

• The Supreme Court of Pennsylvania reached the same result on similar facts in Rothman v. Fillette, 469 A.2d 543 (Pa. 1983). There, Rothman hired Madnick as his attorney to represent him in a personal injury action against Fillette. Without Rothman’s knowledge or consent, Madnick settled the lawsuit and forged Rothman’s name to the release and the settlement check, and converted the proceeds. The lawsuit was marked settled, but after discovering the unauthorized settlement, Rothman sought to reinstate the lawsuit against Fillette. The lower court reinstated the lawsuit and Fillette appealed. Id. at 544–45. The Pennsylvania Supreme Court reversed.