                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-20-2004

Covington v. Cont Gen Tire Inc
Precedential or Non-Precedential: Precedential

Docket No. 03-3059




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Recommended Citation
"Covington v. Cont Gen Tire Inc" (2004). 2004 Decisions. Paper 362.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/362


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                      PRECEDENTIAL
                                          Defendants and Third Party Plaintiffs
   UNITED STATES COURT OF
          APPEALS                                          v.
    FOR THE THIRD CIRCUIT
                                              EMM A JEAN WILLIAMS,
           No: 03-3059
                                                          Third Party Defendant
MARY LOU COVINGTON; HARRY
   COVINGTON, her husband,                  (D.C. Docket No. 00-cv-01259)

                      Plaintiffs            RICHARD ABRAM S; SHEILA
                 v.                             ABRAMS, his wife,

 CONTINENTAL GENERAL TIRE,                                      Plaintiffs
INC.; SEARS ROEBUCK AND CO.,                               v.

                                          CONTINENTAL GENERAL TIRE,
 Defendants and Third Party Plaintiffs   INC.; SEARS ROEBUCK AND CO.,

                 v.
                                           Defendants and Third Party Plaintiffs
    EMM A JEAN WILLIAMS,                                  v.

                Third Party Defendant         EMM A JEAN WILLIAMS,

   (D.C. Docket No. 00-cv-01258)                          Third Party Defendant

EMMA JEAN WILLIAMS; JAMES H.                (D.C. Docket No. 00-cv-01260)
  WILLIAMS, her husband; JAM IE
  WILLIAM S, by and through her          Mary Lou Covington; Harry Covington,
 guardian, JAMES H. WILLIAMS,                         her husband;
                                             Emma Jean Williams; James H.
                      Plaintiffs                 Williams, her husband;
                                           Jamie Williams, by and through her
                 v.                                 guardian, James
                                          H. Williams; Richard Abrams; Sheila
CONTINENTAL GENERAL TIRE,                          Abrams, his wife,
INC; SEARS ROEBUCK AND CO.,
                                                                 Appellants
                                                  reasons that follow, we hold that the
   On Appeal from the United States               Pennsylvania Supreme Court would
              District Court                      require express authority under the
for the Western District of Pennsylvania          circumstances here. We will therefore
     (Civil Action No. 00-cv-01258)               reverse.
 District Judge: Hon. Arthur J. Schwab
                                                     I. FACTS AND PROCEDURAL
                                                           BACKGROUND
         Argued: June 22, 2004
                                                          Plaintiffs Emma Jean Williams,
   Before: NYGAARD, McKEE and                     Jamie Williams, Mary Lou Covington,
     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
101 Smith Drive, Suite 10                         Roebuck.1 As part of 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
settlement agreement, we are asked to                     Although it is not clear from the
decide whether Pennsylvania law requires          briefs, the opinion of the District Court, or
an attorney to have express authority to          from the Magistrate Judge’s Report and
settle a suit on behalf of a client or            Recommendation, we assume that Sears
whether apparent authority is sufficient to       was sued because it sold the tire to the
enforce a settlement agreement. For the           owner of the automobile plaintiffs were
                                                  riding in.
                                              2
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      S chiffman     infor 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.,
                                              3
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
                                                    4
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
                                                5
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
                                                6
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.
_____________




      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.
                                                7
