381 F.3d 216 | 3rd Cir. | 2004
CHERTOFF, Circuit Judges. Richard Abrams, and Sheila Abrams were
passengers in a car that was involved in an (Filed: August 20, 2004) accident allegedly caused by a defective tire manufactured by Continental General DANIEL P. LYNCH, ESQ. (argued) Tire, Inc. Plaintiffs subsequently retained LORRAINE N. MACKLER Carl R. Schiffman, Esq. to bring suit Lynn & Weis, LLC against Continental as well as Sears and Roebuck. [1] As part of 101 Smith Drive, Suite 10 the retainer Cranberry Township, PA 16066 agreement, plaintiffs executed a power of Attorneys for Appellants attorney in favor of Schiffman, that stated
in relevant part that: Schiffman, “shall not CLEM C. TRISCHLER make any settlements without [clients’] TIMOTHY R. SMITH (argued) consent.” Pietragallo, Bosick & Gordon
During the ensuing discovery, 301 Grant Street Schiffman engaged tire expert Gary A. One Oxford Centre, 38th Floor Derian who prepared a report and provided Pittsburgh, PA 15219 deposition testimony. However, Derian’s Attorneys for Appellee Continental testimony turned out to be problematic for General Tire Co. plaintiffs. Schiffman concluded that Derian’s testimony seriously weakened his
OPINION OF THE COURT
case against Continental, and he decided to enter into settlement discussions with
McKEE, Circuit Judge. In this action to enforce a [1] Although it is not clear from the settlement agreement, we are asked to briefs, the opinion of the District Court, or decide whether Pennsylvania law requires from the Magistrate Judge’s Report and an attorney to have express authority to Recommendation, we assume that Sears settle a suit on behalf of a client or was sued because it sold the tire to the whether apparent authority is sufficient to owner of the automobile plaintiffs were enforce a settlement agreement. For the riding in. Clem Trischler, counsel for Continental. It is well established that a federal Plaintiffs and Schiffman disagree about court exercising diversity jurisdiction must whether Schiffman ever informed them of apply the substantive law of the those negotiations. However, it is appropriate state. In the absence of a undisputed that Schiffman eventually definitive ruling by a state’s highest court, represented to Trischler that plaintiffs we must predict how that court would rule were willing to settle their case against if faced with the issue. Packard v. Continental and proceed only against Provident Nat. Bank , 994 F.2d 1039, 1046 Sears. Schiffman and Trischler then (3d Cir.1993). “In carrying out that task, reached an agreement whereby plaintiffs we must consider relevant state would dismiss their action against prece dents , a n a l o g o u s d e c i s io n s , Continental and pursue only Sears in considered dicta, scholarly works, and any return for Continental’s agreement to other reliable data tending convincingly to provide its expert for plaintiffs to use show how the highest court in the state against Sears. Upon learning of the would decide the issue at hand.” Id. The purported settlement, plaintiffs told decision of an intermediate state court is Schiffman they would not sign the particularly relevant and “is not to be agreement and stipulated dismissal. disregarded by a federal court unless it is
convinced by other persuasive data that the highest court of the state would decide
Whe n Sch iffman in for m ed otherwise.” C.I.R. v. Bosch’s Estate , 387 Trischler that plaintiffs would not execute
U.S. 456, 465 (1967).
the settlement documents, Continental filed the instant motion to enforce the Plaintiffs contend that they are not agreement. The District Court granted the bound by Schiffman’s representation of motion based upon the Magistrate Judge’s settlement authority because they never Report and Recommendation. This appeal expressly agreed to settle their claims, followed. which they argue is required under
Pennsylvania law before an attorney can
II.
JURISDICTION AND settle his/her client’s case. Defendants, on
STANDARD OF REVIEW
the other hand, argue that Pennsylvania We have appellate jurisdiction recognizes an attorney’s apparent authority under 28 U.S.C. §1291. Because this to bind a client to a settlement, and that appeal presents an issue of law, we Schiffman’s apparent authority to act on exercise plenary review of the District behalf of his clients in this instance was Court’s decision to grant Continental’s sufficient to compel enforcement of the motion to enforce the dismissal agreement. settlement agreement. Concerned Citizens of Bridesburg v.
Although the Pennsylvania Philadelphia Water Dept. , 843 F.2d 679, Supreme Court has not recently addressed 681 (3d Cir. 1988). this issue, our analysis is informed by our III. DISCUSSION own decision in Farris v. JC Penny Co., Inc. , 176 F.3d 706 (3d Cir. 1999), as well admissions and acts in the course of suit or as early decisions of the Pennsylvania in the management of the regular course of Supreme Court, which we examined in litigation,” it cautioned that “such apparent reaching our decision in Farris . or implied authority does not extend to
unauthorized acts which will result in the In Farris , plaintiffs’ attorney surrender of any substantial right of the represented in open court that plaintiffs client, or the imposition of new liabilities had agreed to a settlement with defendant. or burdens upon him.” Id. However, plaintiffs never actually agreed to settle the case and, in fact, had told their Our analysis in Farris also included attorney that they would not settle until a discussion of the potential conflict medical treatment was completed. between Starling and Rothman v. Fillette , Although plaintiffs were in court when the 469 A.2d 543 (Pa. 1983). In Rothman , agreement was read into the record, they plaintiff’s attorney i nf o rm ed th e did not understand what was happening defendants’ insurance company that his until after the proceeding was over. Upon client had agreed to a settlement despite realizing the nature of the settlement, the fact that his client had never given him plaintiffs expressed their displeasure to any such authority. The attorney then their attorney and told opposing counsel forged his client’s signature on the release they had not authorized the settlement that that was tendered by the insurance had just been presented to the court. Id. at company and pocketed the settlement 708-09. Nevertheless, the District Court check. When the client discovered years entered an order dismissing the suit under later that he had been deceived by his Federal Rule of Civil Procedure 41(b). attorney, he filed a motion to reopen his Plaintiffs subsequently obtained new suit arguing that “since he was neither counsel and filed a motion for relief from aware of, nor had he authorized the the dismissal pursuant to Federal Rule of settlement and [since] his agent acted Civil Procedure 60(b). The District Court without authority, he should not be denied the motion and plaintiffs appealed. prevented from pursuing his claim against
[defendants] and their insurer.” 469 A.2d We reversed the District Court’s at 545. The trial court agreed, but the decision ba sed large ly upon the Superior Court reversed the trial court’s Pennsylvania Supreme Court’s decision in reinstatement of plaintiff’s suit. Starling v. West Erie Bldg. & Loan Ass’n , 3 A.2d 387 (Pa. 1939). In Starling , the The Supreme Court began its court had stated that “[w]ithout express analysis in Rothman by stating that the authority [an attorney] cannot compromise case did not present a question of implied or settle his client’s claim . . . .” Id. at 388. or apparent agency. Id. Nevertheless, the Although the court recognized that the court stated in no uncertain terms that “an authority granted an attorney by virtue of attorney must have express authority to his/her office is broad and includes the settle a cause of action.” Id. Having authority to “bind [his/her] clients by dismissed the issue of authority, the court went on to hold that “where one of two authority to settle the case upon principles innocent persons must suffer because of of apparent authority . . . .” Id. at 710. the fraud of a third, the one who has
Based on Rothman and Sistrik , as accredited him must bear the loss.” Id . well as our own prior interpretations of Significantly, the court also mentioned that those decisions, we held, in Farris , that “in the defrauded client could seek relief from order for the doctrine of apparent authority the Pennsylvania Client Security Fund. Id. to apply, the facts must show that the at 546 n.4. The court did not specifically plaintiffs (principals) communicated consider the issue of apparent authority directly with defense counsel, making except insofar as to reiterate the holding of representations that would lead defense Starling . Rather, it simply held that “a counsel to believe that the plaintiffs’ principal acting through an agent in attorney had authority to settle the case.” dealing with an innocent third party must Id. at 712. In other words, the doctrine of bear the consequences of the agent’s apparent authority does apply where the fraud.” Id . Nevertheless, in Farris , we client’s communications to opposing recognized that Rothman can be read as counsel create the impression that his/her suggesting that apparent authority may own attorney has authority to settle. become the basis for enforcing a “[T]he ‘crucial question in ascertaining settlement where the conduct of the whether apparent authority has been principal warrants that result. Farris , 176 created is whether the principal has made F.3d at 709 (“At best, the court has left the representations concerning the agent’s applicability of the [apparent authority] authority to the third party.’” Id. at 711-12 doctrine open, seeming to suggest in (quoting Edwards v. Born Inc., 792 F.2d Rothman . . . that apparent authority might 387 (3d Cir. 1986)). No one contends that be used to enforce a settlement given the p l a i n ti f f s h e r e m a d e a n y s u ch right set of facts.”). representations to Continental’s counsel. When we decided Farris “[t]he However, Farris is no longer the only direct endorsement of apparent beginning and end of our inquiry. After authority in Pennsylvania [was] set forth in we decided Farris , the Pennsylvania an intermediate appellate court decision, Superior Court decided Hannington v. Sistrik v. Jones & Laughlin Steel Corp. , Trustees of the Univ. of Pennsylvania , 809 189 Pa.Super. 47, 149 A.2d 498 (1959).” A.2d 406 (Pa. Super. 2002). There, the Farris , 176 F.3d at 709. There, the trial university terminated plaintiff, a Ph.D. court enforced a settlement based upon candidate, for not paying his tuition. Id. at apparent authority, and the Superior Court 407. Plaintiff then brought an action affirmed. However, the decision rested against the university, and settlement not upon the agent/attorney’s conduct, but discussions ensued. A settlement was upon the conduct of the principals, his ultimately reached; however, plaintiff clients, who had conducted themselves in refused to sign the final settlement papers a manner that “clothed their counsel with arguing he had not authorized his attorney to settle the case. Id. at 408. The court the circuit precedent of Farris. relied upon the doctrine of apparent
In reaching its decision, the District authority to enforce the settlement, C o u r t a d opted the R epor t a n d concluding that since the university “had a Recommendation of the Magistrate Judge reasonable belief that [plaintiff] had with little additional analysis. The court authorized the settlement, the doctrine of did cite the Superior Court’s decision in apparent authority is applicable to enforce Hannington , stating that it “is based upon the settlement agreement . . . .” Id . at 410. sound judgment and reason and this court Continental relies on Hannington in will not now disturb its finding.” Appx. 3. arguing that the settlement here is binding. How ever, Hannington relies almost However, we are not persuaded by exclusively on Rothman , where, as we Hannington . The Pennsylvania Supreme have explained, the Pennsylvania Supreme Court’s holding in Starling has not only Court did not rest its decision on principles never been overruled, it has been reiterated of agency. Moreover, the District Court in subsequent cases, and even the Rothman did not cite our decision in Farris , nor court paid homage to the holding in explain how it could avoid controlling Starling while raising the specter of precedent. In adopting the Report and “apparent authority.” Recommendation, the District Court also
overlooked the problems with the Continental also argues that M agistrate Jud ge’ s an alysis. T he Hannington is a logical extension of Magistrate Judge did “recognize [t]hat Rothman . We disagree. Although Hannington conflicts with the prior questions of agency certainly emanated opinion of the United States Court of from the ethers of Rothman , as we noted Appeals for the Third Circuit . . . in Farris earlier, the court went out of its way to . . . .” Appx. 40. The Magistrate Judge explain that it was not basing its decision also noted that we look to intermediate on principles of agency. See Rothman , appellate court decisions for guidance in 469 A.2d at 545. Rothman is helpful, the absence of “a reported decision on however, in those rare instances where an point by the Pennsylvania Supreme innocent principal and an innocent third Court.” Appx. 47. The Magistrate Judge party are defrauded by an agent and the then stated that “[t]his directive effectively court must apportion loss. More narrowly, diminishes the significance of Farris it applies where the principal has a remedy because the Court of Appeals considered that will not further injure the wronged the apparent authority issue without the third party such as the Client Security benefit of the Superior Court’s subsequent Fund mentioned above. That is certainly decision in Hannington .” Id. Of course, not the case here and we do not find the jurisprudential danger in that analysis Hannington to be so persuasive as to cause is evidenced by the fact that we do not find us to revisit our holding in Farris . We Hannington persuasive for the reasons we therefore conclude that the District Court erred in relying upon Hannington despite have explained. [2]
IV. CONCLUSION
Accordingly, for the above reasons we rule that an attorney has to have an express authority to settle a client’s claims therefore, we will reverse. _____________
NOTES
[2] The Magistrate Judge was also troubled by the fact that our decision in Farris suggests that an apparent agency will be recognized based upon the principal’s representations to, and interaction with, opposing counsel. See Appx. 47. The Magistrate Judge noted that counsel could not have such communications with opposing clients without violating Pennsylvania Rule of Professional Conduct 4.2. The Magistrate Judge then opined, “[c]onsequently, under the facts in this case, Trischler would have reached Rule 4.2 if he had conferred directly with the plaintiffs as suggested by Farris .” Ap px. 47 n.6. (citing Hannington , 809 A2d. at 410 n.4.) The Magistrate Judge thought this an additional reason to rely upon Hannington despite our decision in Farris . However, notwithstanding the application of Rule 4.2, or the intervening decision in Hannington , the Magistrate Judge should have relied upon Farris , the controlling law in this circuit.
