## Facts

- The Schneiders held approximately $69 million in promissory notes received from selling two apparel businesses to McNaughton Apparel Group, Inc.; the notes were viewed as distressed and likely to trade at a discount.
- The Schneiders retained broker Glen Rauch (and his firm, Glen Rauch Securities) to locate buyers and negotiate potential sales of the notes.
- Rauch negotiated with RBC Dominion Securities Corp., which intended to buy the notes and resell a large portion to Highland Capital Management, L.P.
- RBC and Rauch executed a letter agreement stating that consummation of any transaction was in the parties’ “sole discretion,” signaling that negotiations might not result in a binding deal without further assent.
- RBC recorded most trading-desk calls; in the recorded negotiations, Rauch repeatedly stated he needed the Schneiders’ authorization (and/or their lawyer’s input) before committing to a sale.
- On March 14, 2001, a recorded call reflected continued negotiation around a 51% price but included Rauch’s refusal to finalize without approval.
- About ten minutes later, an unrecorded call occurred; RBC claimed Rauch confirmed a “done deal” at 51% and said lawyers would paper the transaction, while Rauch denied making a binding commitment.
- The Schneiders ultimately refused to sell; after a later acquisition involving McNaughton, the notes were paid in full, yielding the Schneiders substantially more than a sale at 51%.
- Highland and RBC sued for breach of contract; after trial, a jury found for plaintiffs and awarded substantial damages, and the district court denied post-trial motions for judgment as a matter of law and a new trial.

## Issues

1. Whether the evidence permitted a reasonable jury to find that Rauch had actual authority to bind the Schneiders to a sale of the notes at 51%.
2. Whether the Schneiders’ manifestations to RBC were sufficient to create apparent authority in Rauch to bind them.
3. Whether the evidence permitted a reasonable jury to find that a binding contract was formed during the unrecorded March 14 call.

## Decision

- The Second Circuit reversed the judgment for Highland and RBC and directed entry of judgment for the Schneiders.
- The court held the trial evidence was insufficient as a matter of law to establish Rauch’s actual authority to conclude a binding sale.
- The court held the evidence was insufficient to establish Rauch’s apparent authority because there were no principal manifestations supporting RBC’s belief that Rauch could bind the Schneiders.
- The court held the evidence was insufficient to support a finding that the unrecorded call created a binding contract, particularly in light of the recorded negotiations and the lack of agent authority.

## Legal Principles

- Actual authority requires proof that the principal conferred authority on the agent (or caused the agent reasonably to believe he possessed it) to take the specific binding action at issue; authority to solicit offers or negotiate does not itself establish authority to conclude a contract.
- Apparent authority must be based on the principal’s words or conduct communicated to the third party; an agent’s own statements cannot create apparent authority.
- When a transaction is stated to be subject to a party’s discretion or approval, and negotiations repeatedly reflect the need for principal approval, reliance on an agent’s claimed ability to close without approval is generally unreasonable.
- On review of a denied Rule 50 motion after a jury verdict, appellate deference does not permit affirmance where essential elements depend on speculation rather than a legally sufficient evidentiary basis.

## Conclusion

The Second Circuit set aside the jury’s verdict because the record did not support a finding that the broker had authority—actual or apparent—to bind the sellers, and the alleged acceptance on an unrecorded call could not establish a binding contract in the face of consistent recorded statements requiring seller approval.


Highland Cap. Mgmt., L.P. v. Schneider, 607 F.3d 322 (2d Cir. 2010)