Farris v. JC Penney Co Inc

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Precedential or Non-Precedential: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.

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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.

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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

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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

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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).

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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."

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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

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