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D ock e t 98-1419

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. e du/thir dc ir c uit_1999/132Filed May 17, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-1419

MARGARET FARRIS; CHARLES FARRIS, H/W,

Appellants

v.

JC PENNEY COMPANY, INC.

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 95-cv-07432) District Judge: Honorable Anita B. Brody

Argued March 9, 1999

Before: MANSMANN, SCIRICA and NYGAARD, Circuit Judges.

(Filed May 17, 1999)

Richard P. Abraham, Esquire
(ARGUED) Abraham, Bauer & Spalding

1600 Market Street

32nd Floor Philadelphia, PA 19103

COUNSEL FOR APPELLANTWilliam C. Foster, Esquire

(ARGUED) Kelly, McLaughlin & Foster

260 South Broad Street 1700 Atlantic Building Philadelphia, PA 19102

COUNSEL FOR APPELLEE

OPINION OF THE COURT

MANSMANN, Circuit Judge.

Margaret and Charles Farris appeal from an order of the District Court denying their motion, made pursuant to Fed. R. Civ. P. 60(b), to set aside a settlement reached in and the resulting dismissal of a diversity action filed in the U.S. District Court for the Eastern District of Pennsylv ania.

This appeal requires us to predict whether, in the particular circumstances presented here, the Pennsy lvania Supreme Court would invoke the doctrine of apparent authority to enforce a settlement entered into by a n attorney lacking actual authority to settle the cas e. We addressed a similar, although not identical, issue in Tiernan v. Devoe, 923 F.2d 1024 (3d Cir. 1991). We revisit this area of the law in order to clarify our view o f the doctrine of apparent authority with respect to matt ers of settlement in Pennsylvania. Because we predict that the Pennsylvania Supreme Court would not apply the doct rine to enforce the settlement in this case, we will rev erse the
order of the District Court and remand this matter for further proceedings.

I.

The facts underlying this appeal are straightforwar d and
uncontested. We recount these facts in detail becau se the events leading up to the contested settlement and t hose immediately following the court's "acceptance" of t he settlement are crucial to the legal issues involved

.

2On April 15, 1995, Margaret Farris was injured in a fall

at the J.C. Penney store in downtown Philadelphia. She alleges that her injuries were sustained when she w as restrained by Penney's employees and falsely accuse d of shoplifting. Farris and her husband Charles hired a ttorney Timothy Booker to represent them in connection with the incident, agreeing to pay him a 40% contingent fee. Booker
filed suit on behalf of the Farrises on November 28 , 1995,
in federal court.

A trial, bifurcated with respect to liability and d amages, began before the judge and jury on September 24, 19 96. At about noon on the second day of trial, settlement discussions began.1 Booker and the Farrises met wit h the trial judge alone. The judge then met with attorney Renee Berger, counsel for J.C. Penney. Later that day, in a meeting with both Booker and Berger, the judge aske d Berger if J.C. Penney would authorize her to settle the case for $20,000. After receiving assurance from the jud ge that $20,000 would indeed settle the matter, Berger secu red the necessary authority and communicated that fact to B ooker. Ms. Berger then saw Booker enter a witness room wit h Mrs.
Farris where the two remained for about five minute s. At some later point Booker informed Berger that the $2 0,000 settlement offer had been accepted. In fact, neithe r of the Farrises authorized Booker to accept the offer. To the contrary, Margaret Farris had told Booker that she did not
want the case to be settled until her medical treat ment was complete.

Nonetheless, the $20,000 settlement figure was communicated to the judge. When court reconvened in the afternoon of September 25, the record establishes t he following exchange:

The Court: Good afternoon. What can I do fo r you?

Ms. Berger: Your Honor, we have resolved thi s matter for $20,000.

___________________________________________________ ______________

1. The District Court found that as of the time of these discussions, Booker had not taken steps to secure expert testimo ny bearing on damages.

3The Court: Do you want to get anything on t he

record?

Ms. Berger: Yes. I would like to just get it on the record that we have agreed to se ttle this matter for $20,000.

The Court Defendant will pay $20,000?

Ms. Berger: Will pay $20,000 to Plaintiff. T he Plaintiffs will be responsible f or all
medical bills and Plaintiffs' co sts and
Defendant will be --

The Court: Total settlement of $20,000?

Ms. Berger: That is correct.

The Court: Is that correct Mr. Booker?

Mr. Booker: Yes.

The Court: I notice the plaintiffs are pres ent in

court.

The jury was summoned, received the thanks of the c ourt, and was discharged. The entire in-court proceeding with respect to the settlement lasted approximately thre e minutes and the District Court later found that Mrs . Farris
either did not hear or did not understand what was happening until after the jury had been dismissed.

Following discharge of the jury, the Farrises left the courtroom with Booker. Crying, Margaret Farris aske d Booker, "Why did you do this to me?" Mrs. Farris te stified that Booker's response was, "One day you'll thank m e." Within minutes of this exchange, Margaret Farris re entered the courtroom where Ms. Berger stood confer ring with a number of the jurors. Mrs. Farris told Ms. B erger that she had never authorized Booker to settle the case. Berger confirmed Margaret Farris's account.

On September 26, 1996, the trial judge entered an o rder dismissing the case pursuant to Fed. R. Civ. P. 41. 1(b). Berger prepared a general release setting forth the terms of
the settlement and transmitted it to Booker. Becaus e the Farrises declined to sign the release, the settleme nt check was never issued. Booker sought to have the settlem ent

4proceeds disbursed without a signed release but Ber ger

refused. On October 7, 1996, Booker filed a motion to enforce the settlement. In November of 1996, Booker was discharged as attorney for the Farrises.

Richard P. Abraham, Esq., replaced Booker as counse l for the Farrises. On January 13, 1997, a hearing wa s held
on the motion to enforce the settlement. The trial judge recused himself and the matter was reassigned. On January 24, 1997, while the motion to enforce settl ement was pending, Abraham filed a motion pursuant to Rul e 60(b) for relief from dismissal. At an evidentiary hearing on February 5, 1998, the District Court heard testimon y from Booker, Berger and the Farrises. On April 15, 1998, the Court issued a Memorandum and Order denying the Farrises' Rule 60(b) motion and upholding the settl ement.
The District Court based its decision on the doctri ne of apparent authority, holding that Pennsylvania law recognized the doctrine and that the Pennsylvania S upreme Court would find that the circumstances of this cas e warranted its application. This timely appeal follo wed.

II.

The Pennsylvania Supreme Court has never invoked th e doctrine of apparent authority to enforce a settlem ent entered into by an attorney who lacks actual author ity to settle a matter. At best, the court has left the ap plicability of the doctrine open, seeming to suggest in Rothman v. Fillette, 469 A.2d 543 (Pa. 1983), that apparent au thority might be used to enforce a settlement given the rig ht set of facts. In Rothman, the plaintiffs filed suit to rec over damages for injuries sustained in an automobile acc ident. Following negotiations with the Rothmans' insurer, the Rothmans' attorney received a check for $7,000. The facts showed that the Rothmans' attorney, acting without his clients' knowledge or consent, forged the Rothman signature on the settlement agreement and the check and misappropriated the settlement proceeds. On instruc tions of the Rothmans' attorney, the pending personal inj ury action was marked settled and discontinued.

Some five years later, the Rothmans filed a petitio n to remove the order discontinuing the case. The trial court

5granted the petition and reinstated the action. Rev ersing,

the Pennsylvania Supreme Court wrote:

At the outset it must be understood that und er the facts of this case there is no question of a n implied or an apparent agency. The law in this jurisdic tion is quite clear that an attorney must have expre ss authority to settle a cause of action of the client.2

469 A.2d 545.

The only direct endorsement of apparent authority i n Pennsylvania is set forth in an intermediate appell ate court decision, Sustrik v. Jones & Laughlin Steel Corp., 149 A.2d 498 (Pa. Super. 1959). There, the Sustriks' attorne y negotiated a settlement agreement with the defendan ts, accepted a check in full settlement, and dismissed the
Sustriks' claim. When the settlement check and accompanying release were delivered to the Sustriks
, however, they refused to accept either, alleging th at their attorney lacked authority to settle the matter. The Sustriks' request to reopen and to vacate the settlement was denied. Affirming the denial, the Superior Court stated the general

rule that:

[T]he act of an agent or attorney affecting the relation of his principal or client, with a third per son, done in accordance with his principal's manifestatio ns of consent although without special authority, may bind his principal or client.

149 A.2d at 499. The court found that the Sustriks had
manifested their consent to the settlement:

The lower court was justified in concluding that the plaintiffs' conduct in connection with settl ement and discontinuance clearly clothed their counsel with

___________________________________________________ ______________

2. Other Pennsylvania Supreme Court cases reiterate the need for express authority. See Starling v. West Erie Ave. B ldg. & Loan Assn., 3 A.2d 387 (Pa. 1939) (noting that Pennsylvania has n ever utilized "apparent authority" as grounds to enforce settleme nt entered into by attorney without express authority); Yarnall v. Yor kshire Worsted Mills, 87 A.2d 192 (Pa. 1952); and Senyshyn v. Karlak, 299 A.2d 294 (Pa. 1973) (stating that attorney cannot settle litigati on without express authority).

6authority to settle the case upon principles of apparent

authority. . . .

Id. at 500.

III.

We considered the Rothman and Sustrik decisions in our opinion interpreting the doctrine of apparent autho rity under Pennsylvania law in Tiernan v. Devoe, 923 F.2 d at 1024. Tiernan involved a challenge to an order of t he District Court granting summary enforcement of seve ral settlement agreements. Our decision turned on "the nature and extent of the authority that plaintiffs gave th eir attorney and on his conduct towards the district co urt and other parties to the litigation." Id. at 1028. We p roceeded on the assumption that the plaintiffs' attorney lacked actual authority to enter into a settlement agreement on b ehalf of his clients. We explored, therefore, whether Pennsy lvania law recognized an alternative source of authority u pon which the defendants could rely to enforce the sett lement.

Looking first to the Pennsylvania Supreme Court's statements in Rothman, we concluded that the Court' s reasoning "suggest[ed] that [it] was reluctant to r ule out completely the availability of [implied or apparent ] authority in Pennsylvania." 923 F.3d at 1034. The apparent
reservation of the doctrine in Rothman combined wit h the endorsement of the doctrine by the intermediate app ellate court in Sustrick, convinced us to write in the Tie rnan opinion: "[W] e believe that the Pennsylvania Supre me Court might allow implied actual or apparent author ity to suffice in an appropriate case.". 923 F.3d at 1035. 3

In the matter now before us, the District Court, in the context of the Farrises' motion, concluded that thi s is the appropriate case:

___________________________________________________ ______________

3. We balanced this conclusion with an acknowledgme nt that:

[T]his area is clouded somewhat by the fact that the Pennsylvania Supreme Court has on occasion stated without qualification that "[a]n attorney cannot, absent express author ity, settle litigation."

Id. at 1034.

7I read [Tiernan] to permit enforcement of a settlement

where apparent authority is present. [J.C. P enney] reasonably interpreted the Farrises' actions on September 21, 1996 -- specifically, seeing t he Farrises and Booker enter Judge Fullam's chambers, se eing
Booker enter the witness room with his clien ts after the $20,000 offer was communicated, and seeing t he
Farrises at the counsel table as the settlem ent was read into the record, to mean that they [the Farrises] had given authorization to Booker to settle their case for $20,000. These manifestations by the Far rises to defendant's counsel cloaked Booker with appa rent authority sufficient to uphold the settlemen t. Whether or not Booker exceeded his authority as the Farrises attorney (and the credible evidence makes pl ain that he did), the record contains both words and act ions by
both Booker and the Farrises sufficient to s upport
defendant's reasonable conclusion that a set tlement

had been reached.

2 F. Supp.2d at 700. According to the District Cour t, J.C. Penney is "entitled to finality with regard to an a greement it reasonably entered into over eighteen months ago ; the Farrises may pursue their dissatisfaction with thei r attorney in another forum." Id.

We are convinced that the District Court's reliance on Tiernan in predicting that the Supreme Court of Pennsylvania would here recognize an exception to t he general rule requiring that an attorney have actual authority to settle was misplaced. Ultimately, our discussion in Tiernan of Pennsylvania law with resp ect to apparent authority was in dicta:

[W]e believe that the Pennsylvania Supreme C ourt might allow . . . apparent authority to suff ice. We do not believe, however, that [this] ground is so clearly available in this case to justify summary en forcement of the settlement agreements. Furthermore, w e emphasize the general rule that an attorney cannot settle his client's case without express act ual authority.

Id. at 1035.

8The District Court extrapolated from the dicta in T iernan

and predicted that the Pennsylvania Supreme Court w ould invoke the doctrine of apparent authority to enforc e the
settlement at issue in this case. While we reiterat e our conclusion in Tiernan that the Supreme Court of Pennsylvania may recognize apparent authority in so me case, it has yet to do so and we are not convinced that the Supreme Court would invoke the doctrine on the fact s of
this case.

IV.

Our discussions of apparent authority in the contex t of Pennsylvania law and the law generally have emphasi zed that whether the doctrine applies depends upon the client's conduct. In Tiernan, we explained that:

Apparent authority . . . has as its source t he client's conduct toward another party in the litigati on. It arises from a principal's manifestations to a third party that any agent has authority to act on the princi pal's behalf. See Restatement (Second) of Agency S 8 (1958).

923 F.2d at 1034.

We again stressed the fact-dependent nature of the doctrine of apparent authority in Edwards v. Born, Inc., 792 F.2d 387 (3d Cir. 1986). In Edwards, the plaintiffs appealed a District Court order enforcing a settlement agree ment entered into by the Edwardses' attorney. The Edward ses contended that their attorney lacked actual authori ty to settle the case. Because Virgin Islands law was dev oid of statute or precedent governing the issue of an atto rney's authority to settle a client's action, we looked to principles of agency law and "common law rules `as generally understood and applied in the United States' " in accordance with V.I. Code Ann. Tit. 1, S 4. Id. at 389-90. Applying those principles in evaluating the Edwards es' claims, we noted first that:

A strong public policy exists in favor of se ttlements. Such a settlement, once entered, may be set aside only if the client produces "proof that the attor ney had no right to consent to its entry."

9Id. at 389 (quoting Surety Insurance Co. of Califor nia v.

Williams, 729 F.2d 581, 582-83 (8th Cir. 1984). We then considered the applicability of apparent authority, writing
that "there is no consensus" on the doctrine but fi nding that its applicability represents "the better rule" :

[E]nforcing settlement agreements on the bas is of apparent authority is consistent with the pr inciples of agency law, the policies favoring settlement s generally, and the notions of fairness to the parties i n the adjudicatory process.

Id. at 390. In finding that apparent authority coul d be invoked to validate a settlement we emphasized that the "crucial question in ascertaining whether apparent authority has been created is whether the principal has made representations concerning the agent's authori ty to the third party." Id. Evaluating the facts in Edwar ds, we

concluded that

Apparent authority is an equitable doctrine that places
the loss on one whose manifestations to anot her have misled the latter. We agree with the [Edward ses] that
the record is devoid of communications direc tly from the [Edwardses] to defense counsel, much les s representations that might have led defense counsel to believe that Groner had the Edwardses' permi ssion to

settle.

Id. at 391.

In Edwards, we thus declined to rely on apparent authority even though: 1) the attorney in question had been the Edwardses' attorney since the beginning of the case and
had transmitted all communications from the defenda nts to the Edwardses; (2) pretrial conference orders requi red the attorneys to appear with authority to settle; and ( 3) the attorney had been authorized to select medical expe rts to prepare for the trial.

The Tiernan and Edwards decisions, taken together, establish that in order for the doctrine of apparen t authority to apply, the facts must show that the pl aintiffs (principals) communicated directly with defense cou nsel, making representations that would lead defense coun sel to

10believe that the plaintiffs' attorney had authority to settle

the case. The District Court in the matter now befo re us grounded its invocation of apparent authority on tw o findings: (1) the Farrises were seen conferring wit h their attorney during the course of settlement negations; and (2) the Farrises were silent during the in-court announ cement
of the settlement and dismissal of their cases.

The Farrises in-court conduct is the linchpin of th is case. Normally in-court silence during the reading or ent ry of a settlement would be a powerful indicator that the p articular settlement terms were authorized. The unique facts of this case, however, negate the evidentiary force of the Farrises'
silence.

The District Court, making findings of fact, noted that the entire in-court proceeding from discussion of the s ettlement through dismissal of the jury lasted less than thre e minutes. The Court also found that Mrs. Farris eith er did not understand or did not hear what was happening d uring those three minutes. Moreover, had J.C. Penney cons trued Farrises' silence as a manifestation of authority, it was immediately disabused of that notion. As soon as t he proceedings were concluded, Mrs. Farris expressed h er surprise with and opposition to the settlement both to her own attorney and to counsel for J.C. Penney.4 J.C. Penney was on notice immediately that the settlement was n ot authorized and has never paid any amount to anyone as a result of the settlement.5

Where, as here, the District Court found that Booke r was never authorized to settle on behalf of his client, there is a credible explanation for the client's silence, and the client

___________________________________________________ ______________

4. Had there been any manifestation of authority su fficient to support the doctrine of apparent authority, that manifestat ion was promptly repudiated. The general rule is that a principal ma y promptly repudiate an agent's acts, apparent authority notwithstanding . See Tiernan, 923 F.2d at 1037; Sustrik, 149 A.2d at 501.

5. While we recognize that J.C. Penney suffered at least some degree of prejudice as a result of events surrounding the pur ported settlement, we note that counsel, at oral argument, conceded that he is not aware of any impediment which would prevent his client from proceeding to trial
in this matter.

11made all parties aware of the lack of authority imm ediately

upon learning what had happened, we are convinced t hat these equities lie with the Farrises and that the S upreme Court of Pennsylvania would not rely on the doctrin e of apparent authority to enforce the settlement. This
conclusion is consistent with our own caselaw and t he law of Pennsylvania.

The particular facts supporting our conclusion are unlikely to arise often. This is not the "typical" case where a client has acted to create an ambiguity with resp ect to the attorney's authority, where she has delayed in asse rting the lack of authority, or where it is clear that the re al motive for challenging a settlement involves a change of heart regarding the substance of the settlement.6

V.

In predicting how a matter would be decided under s tate
law we take into consideration the District Court's analysis
and also examine:

(1) what the Pennsylvania Supreme Court has said in related areas; (2) the decisional law of the Pennsylvania intermediate courts; (3) federal appeals and district court cases interpreting the state law; (4) decisions from other jurisdictions that have discussed the issues

we face here.

___________________________________________________ ______________

6. For decisions resting on these more "typical" gr ounds, see Jones v. Stedman, 595 So.2d 1355 (Ala. 1992) (ordering enfor cement of settlement where challenger sat silently while sett lement was read into the record and later argued that by her silence she conveyed disagreement with the settlement); Moreland v. Sutt miller, 397 S.E.2d 910 (W. Va. 1990)(ordering settlement enforced wher e record showed that petitioners vacillated between granting and re voking attorney's authority to settle and real reservations seemed to relate to belief that they had settled for inadequate amount); Sunn v. Me rcury Marine, 305 S.E.2d 6 (Ga. 1983)(enforcing settlement where clie nt was silent when settlement was read and failed to object to settlem ent or to attorney's continued appearance on his behalf); Szymkowski v. Szymkowski, 432 N.E.2d 1209 (Ill. App. 1982)(enforcing settlement w here petitioners were present and failed to object in a meeting where the ir counsel informed opposing counsel that the terms of settlement were accepted).

12Wiley v. State Farm Fire & Casualty Co., 995 F.2d 4 57, 459

(3d Cir. 1993).

Taking all of these authorities into account, we pr edict that while the Pennsylvania Supreme Court might, in some as yet undefined case, apply the doctrine of appare nt authority to uphold a disputed settlement, it would not do so here. Accordingly, we will reverse the order of the District Court denying the motion to set aside the
settlement entered and will remand this matter for further proceedings.

13NYGAARD, J., Concurring.

I concur in the judgment. I believe, however, that it is neither necessary nor desirable that we predict whe ther the Pennsylvania Supreme Court would recognize apparent authority in this odd situation, because as the maj ority opinion makes clear, Farris learned of the settleme nt agreement within minutes and immediately repudiated it. Under these facts, I view this as a contemporaneous repudiation of whatever agreement her attorney reac hed
with counsel for the defendant.

Alternatively, I would suggest that we certify the apparent authority issue to the Pennsylvania Supreme Court f or it to decide. In Hakimoglu v. Trump Taj Mahal Assoc., 70 F.3d 291, 304 (3rd Cir. 1995), we said that an issue sho uld be certified to the state court "when: (1) the issue i s one of importance; (2) it may be determinative of the liti gation; and, (3) state law does not provide controlling pre cedent through which the federal court could resolve the i ssue." I think this case qualifies. In any event, I would av oid making the prediction.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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