                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-18-1999

Farris v. JC Penney Co Inc
Precedential or Non-Precedential:

Docket 98-1419




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Filed 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 APPELLANT
       William 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 Pennsylvania.

This appeal requires us to predict whether, in the
particular circumstances presented here, the Pennsylvania
Supreme Court would invoke the doctrine of apparent
authority to enforce a settlement entered into by an
attorney lacking actual authority to settle the case. 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 of the
doctrine of apparent authority with respect to matters of
settlement in Pennsylvania. Because we predict that the
Pennsylvania Supreme Court would not apply the doctrine
to enforce the settlement in this case, we will reverse the
order of the District Court and remand this matter for
further proceedings.

I.

The facts underlying this appeal are straightforward and
uncontested. We recount these facts in detail because the
events leading up to the contested settlement and those
immediately following the court's "acceptance" of the
settlement are crucial to the legal issues involved.

                               2
On 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 was
restrained by Penney's employees and falsely accused of
shoplifting. Farris and her husband Charles hired attorney
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 damages,
began before the judge and jury on September 24, 1996. At
about noon on the second day of trial, settlement
discussions began.1 Booker and the Farrises met with 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 asked
Berger if J.C. Penney would authorize her to settle the case
for $20,000. After receiving assurance from the judge that
$20,000 would indeed settle the matter, Berger secured the
necessary authority and communicated that fact to Booker.
Ms. Berger then saw Booker enter a witness room with Mrs.
Farris where the two remained for about five minutes. At
some later point Booker informed Berger that the $20,000
settlement offer had been accepted. In fact, neither 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 treatment 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 the
following exchange:

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

       Ms. Berger: Your Honor, we have resolved this
                   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 testimony bearing on
damages.

                                3
       The Court:   Do you want to get anything on the
                    record?

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

       The Court    Defendant will pay $20,000?

       Ms. Berger: Will pay $20,000 to Plaintiff. The
                   Plaintiffs will be responsible for all
                   medical bills and Plaintiffs' costs 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 present in
                    court.

The jury was summoned, received the thanks of the court,
and was discharged. The entire in-court proceeding with
respect to the settlement lasted approximately three
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 asked
Booker, "Why did you do this to me?" Mrs. Farris testified
that Booker's response was, "One day you'll thank me."
Within minutes of this exchange, Margaret Farris re-
entered the courtroom where Ms. Berger stood conferring
with a number of the jurors. Mrs. Farris told Ms. Berger
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 order
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. Because the
Farrises declined to sign the release, the settlement check
was never issued. Booker sought to have the settlement

                                4
proceeds disbursed without a signed release but Berger
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 counsel
for the Farrises. On January 13, 1997, a hearing was 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 settlement
was pending, Abraham filed a motion pursuant to Rule
60(b) for relief from dismissal. At an evidentiary hearing on
February 5, 1998, the District Court heard testimony 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 settlement.
The District Court based its decision on the doctrine of
apparent authority, holding that Pennsylvania law
recognized the doctrine and that the Pennsylvania Supreme
Court would find that the circumstances of this case
warranted its application. This timely appeal followed.

II.

The Pennsylvania Supreme Court has never invoked the
doctrine of apparent authority to enforce a settlement
entered into by an attorney who lacks actual authority to
settle a matter. At best, the court has left the applicability
of the doctrine open, seeming to suggest in Rothman v.
Fillette, 469 A.2d 543 (Pa. 1983), that apparent authority
might be used to enforce a settlement given the right set of
facts. In Rothman, the plaintiffs filed suit to recover
damages for injuries sustained in an automobile accident.
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 instructions
of the Rothmans' attorney, the pending personal injury
action was marked settled and discontinued.

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

                               5
granted the petition and reinstated the action. Reversing,
the Pennsylvania Supreme Court wrote:

       At the outset it must be understood that under the
       facts of this case there is no question of an implied or
       an apparent agency. The law in this jurisdiction is
       quite clear that an attorney must have express
       authority to settle a cause of action of the client.2

469 A.2d 545.

The only direct endorsement of apparent authority in
Pennsylvania is set forth in an intermediate appellate court
decision, Sustrik v. Jones & Laughlin Steel Corp., 149 A.2d
498 (Pa. Super. 1959). There, the Sustriks' attorney
negotiated a settlement agreement with the defendants,
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 that 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 person, done in
       accordance with his principal's manifestations 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 settlement 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. Bldg. & Loan Assn., 3
A.2d 387 (Pa. 1939) (noting that Pennsylvania has never utilized
"apparent authority" as grounds to enforce settlement entered into by
attorney without express authority); Yarnall v. Yorkshire Worsted Mills,
87 A.2d 192 (Pa. 1952); and Senyshyn v. Karlak, 299 A.2d 294 (Pa.
1973) (stating that attorney cannot settle litigation without express
authority).

                                6
       authority 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 authority
under Pennsylvania law in Tiernan v. Devoe, 923 F.2d at
1024. Tiernan involved a challenge to an order of the
District Court granting summary enforcement of several
settlement agreements. Our decision turned on "the nature
and extent of the authority that plaintiffs gave their
attorney and on his conduct towards the district court and
other parties to the litigation." Id. at 1028. We proceeded on
the assumption that the plaintiffs' attorney lacked actual
authority to enter into a settlement agreement on behalf of
his clients. We explored, therefore, whether Pennsylvania
law recognized an alternative source of authority upon
which the defendants could rely to enforce the settlement.

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 rule 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 with the
endorsement of the doctrine by the intermediate appellate
court in Sustrick, convinced us to write in the Tiernan
opinion: "[W] e believe that the Pennsylvania Supreme
Court might allow implied actual or apparent authority 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 this is the
appropriate case:
_________________________________________________________________

3. We balanced this conclusion with an acknowledgment 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 authority, settle
litigation."

Id. at 1034.

                               7
       I read [Tiernan] to permit enforcement of a settlement
       where apparent authority is present. [J.C. Penney]
       reasonably interpreted the Farrises' actions on
       September 21, 1996 -- specifically, seeing the Farrises
       and Booker enter Judge Fullam's chambers, seeing
       Booker enter the witness room with his clients after the
       $20,000 offer was communicated, and seeing the
       Farrises at the counsel table as the settlement 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 Farrises to
       defendant's counsel cloaked Booker with apparent
       authority sufficient to uphold the settlement. Whether
       or not Booker exceeded his authority as the Farrises
       attorney (and the credible evidence makes plain that he
       did), the record contains both words and actions by
       both Booker and the Farrises sufficient to support
       defendant's reasonable conclusion that a settlement
       had been reached.

2 F. Supp.2d at 700. According to the District Court, J.C.
Penney is "entitled to finality with regard to an agreement
it reasonably entered into over eighteen months ago; the
Farrises may pursue their dissatisfaction with their
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 the
general rule requiring that an attorney have actual
authority to settle was misplaced. Ultimately, our
discussion in Tiernan of Pennsylvania law with respect to
apparent authority was in dicta:

       [W]e believe that the Pennsylvania Supreme Court
       might allow . . . apparent authority to suffice. We do
       not believe, however, that [this] ground is so clearly
       available in this case to justify summary enforcement
       of the settlement agreements. Furthermore, we
       emphasize the general rule that an attorney cannot
       settle his client's case without express actual authority.

Id. at 1035.

                               8
The District Court extrapolated from the dicta in Tiernan
and predicted that the Pennsylvania Supreme Court would
invoke the doctrine of apparent authority to enforce the
settlement at issue in this case. While we reiterate our
conclusion in Tiernan that the Supreme Court of
Pennsylvania may recognize apparent authority in some
case, it has yet to do so and we are not convinced that the
Supreme Court would invoke the doctrine on the facts of
this case.

IV.

Our discussions of apparent authority in the context of
Pennsylvania law and the law generally have emphasized
that whether the doctrine applies depends upon the client's
conduct. In Tiernan, we explained that:

       Apparent authority . . . has as its source the client's
       conduct toward another party in the litigation. It arises
       from a principal's manifestations to a third party that
       any agent has authority to act on the principal'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 agreement
entered into by the Edwardses' attorney. The Edwardses
contended that their attorney lacked actual authority to
settle the case. Because Virgin Islands law was devoid of
statute or precedent governing the issue of an attorney'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 Edwardses'
claims, we noted first that:

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

                               9
Id. at 389 (quoting Surety Insurance Co. of California 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 finding
that its applicability represents "the better rule":

       [E]nforcing settlement agreements on the basis of
       apparent authority is consistent with the principles of
       agency law, the policies favoring settlements generally,
       and the notions of fairness to the parties in the
       adjudicatory process.

Id. at 390. In finding that apparent authority could 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 authority to
the third party." Id. Evaluating the facts in Edwards, we
concluded that

       Apparent authority is an equitable doctrine that places
       the loss on one whose manifestations to another have
       misled the latter. We agree with the [Edwardses] that
       the record is devoid of communications directly from
       the [Edwardses] to defense counsel, much less
       representations that might have led defense counsel to
       believe that Groner had the Edwardses' permission 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 defendants to
the Edwardses; (2) pretrial conference orders required the
attorneys to appear with authority to settle; and (3) the
attorney had been authorized to select medical experts to
prepare for the trial.

The Tiernan and Edwards decisions, taken together,
establish that in order for the doctrine of apparent
authority to apply, the facts must show that the plaintiffs
(principals) communicated directly with defense counsel,
making representations that would lead defense counsel to

                               10
believe that the plaintiffs' attorney had authority to settle
the case. The District Court in the matter now before us
grounded its invocation of apparent authority on two
findings: (1) the Farrises were seen conferring with their
attorney during the course of settlement negations; and (2)
the Farrises were silent during the in-court announcement
of the settlement and dismissal of their cases.

The Farrises in-court conduct is the linchpin of this case.
Normally in-court silence during the reading or entry of a
settlement would be a powerful indicator that the particular
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 settlement
through dismissal of the jury lasted less than three
minutes. The Court also found that Mrs. Farris either did
not understand or did not hear what was happening during
those three minutes. Moreover, had J.C. Penney construed
Farrises' silence as a manifestation of authority, it was
immediately disabused of that notion. As soon as the
proceedings were concluded, Mrs. Farris expressed her
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 not
authorized and has never paid any amount to anyone as a
result of the settlement.5

Where, as here, the District Court found that Booker 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 sufficient to support
the doctrine of apparent authority, that manifestation was promptly
repudiated. The general rule is that a principal may 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 purported 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.

                               11
made all parties aware of the lack of authority immediately
upon learning what had happened, we are convinced that
these equities lie with the Farrises and that the Supreme
Court of Pennsylvania would not rely on the doctrine of
apparent authority to enforce the settlement. This
conclusion is consistent with our own caselaw and the 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 respect to the
attorney's authority, where she has delayed in asserting the
lack of authority, or where it is clear that the real 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 state
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" grounds, see Jones v.
Stedman, 595 So.2d 1355 (Ala. 1992) (ordering enforcement of
settlement where challenger sat silently while settlement was read into
the record and later argued that by her silence she conveyed
disagreement with the settlement); Moreland v. Suttmiller, 397 S.E.2d
910 (W. Va. 1990)(ordering settlement enforced where record showed
that petitioners vacillated between granting and revoking attorney's
authority to settle and real reservations seemed to relate to belief that
they had settled for inadequate amount); Sunn v. Mercury Marine, 305
S.E.2d 6 (Ga. 1983)(enforcing settlement where client was silent when
settlement was read and failed to object to settlement or to attorney's
continued appearance on his behalf); Szymkowski v. Szymkowski, 432
N.E.2d 1209 (Ill. App. 1982)(enforcing settlement where petitioners were
present and failed to object in a meeting where their counsel informed
opposing counsel that the terms of settlement were accepted).

                               12
Wiley v. State Farm Fire & Casualty Co., 995 F.2d 457, 459
(3d Cir. 1993).

Taking all of these authorities into account, we predict
that while the Pennsylvania Supreme Court might, in some
as yet undefined case, apply the doctrine of apparent
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.

                                13
NYGAARD, J., Concurring.

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

Alternatively, I would suggest that we certify the apparent
authority issue to the Pennsylvania Supreme Court for it to
decide. In Hakimoglu v. Trump Taj Mahal Assoc., 70 F.3d
291, 304 (3rd Cir. 1995), we said that an issue should be
certified to the state court "when: (1) the issue is one of
importance; (2) it may be determinative of the litigation;
and, (3) state law does not provide controlling precedent
through which the federal court could resolve the issue." I
think this case qualifies. In any event, I would avoid
making the prediction.

A True Copy:
Teste:

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

                               14
