MARY LOU COVINGTON; HARRY COVINGTON, her husband v. Continental General Tire, Inc.; Sears Roebuck and Co.

PRECEDENTIAL
UNITED STATES COURT OF
APPEALS
FOR THE THIRD CIRCUIT
No: 03-3059
MARY LOU COVINGTON; HARRY
COVINGTON, her husband,
Plaintiffs
v.
CONTINENTAL GENERAL TIRE,
INC.; SEARS ROEBUCK AND CO.,
Defendants and Third Party Plaintiffs
v.
EMMA JEAN WILLIAMS,
Third Party Defendant
(D.C. Docket No. 00-cv-01258)
EMMA JEAN WILLIAMS; JAMES H.
WILLIAMS, her husband; JAMIE
WILLIAM S, by and through her
guardian, JAMES H. WILLIAMS,
Plaintiffs
v.
CONTINENTAL GENERAL TIRE,
INC; SEARS ROEBUCK AND CO.,
Defendants and Third Party Plaintiffs
v.
EMMA JEAN WILLIAMS,
Third Party Defendant
(D.C. Docket No. 00-cv-01259)
RICHARD ABRAM S; SHEILA
ABRAMS, his wife,
Plaintiffs
v.
CONTINENTAL GENERAL TIRE,
INC.; SEARS ROEBUCK AND CO.,
Defendants and Third Party Plaintiffs
v.
EMMA JEAN WILLIAMS,
Third Party Defendant
(D.C. Docket No. 00-cv-01260)
Mary Lou Covington; Harry Covington,
her husband;
Emma Jean Williams; James H.
Williams, her husband;
Jamie Williams, by and through her
guardian, James
H. Williams; Richard Abrams; Sheila
Abrams, his wife,
Appellants

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On Appeal from the United States
District Court
for the Western District of Pennsylvania
(Civil Action No. 00-cv-01258)
District Judge: Hon. Arthur J. Schwab
Argued: June 22, 2004
Before: NYGAARD, McKEE and
CHERTOFF, Circuit Judges.
(Filed: August 20, 2004)
DANIEL P. LYNCH, ESQ. (argued)
LORRAINE N. MACKLER
Lynn & Weis, LLC
101 Smith Drive, Suite 10
Cranberry Township, PA 16066
Attorneys for Appellants
CLEM C. TRISCHLER
TIMOTHY R. SMITH (argued)
Pietragallo, Bosick & Gordon
301 Grant Street
One Oxford Centre, 38th Floor
Pittsburgh, PA 15219
Attorneys for Appellee Continental
General Tire Co.
OPINION OF THE COURT
McKEE, Circuit Judge.
In this action to enforce a
settlement agreement, we are asked to
decide whether Pennsylvania law requires
an attorney to have express authority to
settle a suit on behalf of a client or
whether apparent authority is sufficient to
enforce a settlement agreement. For the
reasons that follow, we hold that the
Pennsylvania Supreme Court would
require express authority under the
circumstances here. We will therefore
reverse.
I. FACTS AND PROCEDURAL
BACKGROUND
Plaintiffs Emma Jean Williams,
Jamie Williams, Mary Lou Covington,
Richard Abrams, and Sheila Abrams were
passengers in a car that was involved in an
accident allegedly caused by a defective
tire manufactured by Continental General
Tire, Inc. Plaintiffs subsequently retained
Carl R. Schiffman, Esq. to bring suit
against Continental as well as Sears and
Roebuck.1 As part of the retainer
agreement, plaintiffs executed a power of
attorney in favor of Schiffman, that stated
in relevant part that: Schiffman, “shall not
make any settlements without [clients’]
consent.”
During the ensuing discovery,
Schiffman engaged tire expert Gary A.
Derian who prepared a report and provided
deposition testimony. However, Derian’s
testimony turned out to be problematic for
plaintiffs. Schiffman concluded that
Derian’s testimony seriously weakened his
case against Continental, and he decided to
enter into settlement discussions with
1 Although it is not clear from the
briefs, the opinion of the District Court, or
from the Magistrate Judge’s Report and
Recommendation, we assume that Sears
was sued because it sold the tire to the
owner of the automobile plaintiffs were
riding in.

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Clem Trischler, counsel for Continental.
Plaintiffs and Schiffman disagree about
whether Schiffman ever informed them of
those negotiations. However, it is
undisputed that Schiffman eventually
represented to Trischler that plaintiffs
were willing to settle their case against
Continental and proceed only against
Sears. Schiffman and Trischler then
reached an agreement whereby plaintiffs
would dismiss their action against
Continental and pursue only Sears in
return for Continental’s agreement to
provide its expert for plaintiffs to use
against Sears. Upon learning of the
purported settlement, plaintiffs told
Schiffman they would not sign the
agreement and stipulated dismissal.
Whe n Schiffman infor m ed
Trischler that plaintiffs would not execute
the settlement documents, Continental
filed the instant motion to enforce the
agreement. The District Court granted the
motion based upon the Magistrate Judge’s
Report and Recommendation. This appeal
followed.
II. JURISDICTION AND
STANDARD OF REVIEW
We have appellate jurisdiction
under 28 U.S.C. §1291. Because this
appeal presents an issue of law, we
exercise plenary review of the District
Court’s decision to grant Continental’s
motion to enforce the dismissal agreement.
Concerned Citizens of Bridesburg v.
Philadelphia Water Dept., 843 F.2d 679,
681 (3d Cir. 1988).
III. DISCUSSION
It is well established that a federal
court exercising diversity jurisdiction must
apply the substantive law of the
appropriate state. In the absence of a
definitive ruling by a state’s highest court,
we must predict how that court would rule
if faced with the issue. Packard v.
Provident Nat. Bank, 994 F.2d 1039, 1046
(3d Cir.1993). “In carrying out that task,
we must consider relevant state
prece dents , a n a l o g o u s d e c i s io n s,
considered dicta, scholarly works, and any
other reliable data tending convincingly to
show how the highest court in the state
would decide the issue at hand.” Id. The
decision of an intermediate state court is
particularly relevant and “is not to be
disregarded by a federal court unless it is
convinced by other persuasive data that the
highest court of the state would decide
otherwise.” C.I.R. v. Bosch’s Estate, 387
U.S. 456, 465 (1967).
Plaintiffs contend that they are not
bound by Schiffman’s representation of
settlement authority because they never
expressly agreed to settle their claims,
which they argue is required under
Pennsylvania law before an attorney can
settle his/her client’s case. Defendants, on
the other hand, argue that Pennsylvania
recognizes an attorney’s apparent authority
to bind a client to a settlement, and that
Schiffman’s apparent authority to act on
behalf of his clients in this instance was
sufficient to compel enforcement of the
settlement agreement.
Although the Pennsylvania
Supreme Court has not recently addressed
this issue, our analysis is informed by our
own decision in Farris v. JC Penny Co.,

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Inc., 176 F.3d 706 (3d Cir. 1999), as well
as early decisions of the Pennsylvania
Supreme Court, which we examined in
reaching our decision in Farris.
In Farris, plaintiffs’ attorney
represented in open court that plaintiffs
had agreed to a settlement with defendant.
However, plaintiffs never actually agreed
to settle the case and, in fact, had told their
attorney that they would not settle until
medical treatment was completed.
Although plaintiffs were in court when the
agreement was read into the record, they
did not understand what was happening
until after the proceeding was over. Upon
realizing the nature of the settlement,
plaintiffs expressed their displeasure to
their attorney and told opposing counsel
they had not authorized the settlement that
had just been presented to the court. Id. at
708-09. Nevertheless, the District Court
entered an order dismissing the suit under
Federal Rule of Civil Procedure 41(b).
Plaintiffs subsequently obtained new
counsel and filed a motion for relief from
the dismissal pursuant to Federal Rule of
Civil Procedure 60(b). The District Court
denied the motion and plaintiffs appealed.
We reversed the District Court’s
decision ba sed large ly upon the
Pennsylvania Supreme Court’s decision in
Starling v. West Erie Bldg. & Loan Ass’n,
3 A.2d 387 (Pa. 1939). In Starling, the
court had stated that “[w]ithout express
authority [an attorney] cannot compromise
or settle his client’s claim . . . .” Id. at 388.
Although the court recognized that the
authority granted an attorney by virtue of
his/her office is broad and includes the
authority to “bind [his/her] clients by
admissions and acts in the course of suit or
in the management of the regular course of
litigation,” it cautioned that “such apparent
or implied authority does not extend to
unauthorized acts which will result in the
surrender of any substantial right of the
client, or the imposition of new liabilities
or burdens upon him.” Id.
Our analysis in Farris also included
a discussion of the potential conflict
between Starling and Rothman v. Fillette,
469 A.2d 543 (Pa. 1983). In Rothman,
plaintiff’s attorney i nf o rm ed th e
defendants’ insurance company that his
client had agreed to a settlement despite
the fact that his client had never given him
any such authority. The attorney then
forged his client’s signature on the release
that was tendered by the insurance
company and pocketed the settlement
check. When the client discovered years
later that he had been deceived by his
attorney, he filed a motion to reopen his
suit arguing that “since he was neither
aware of, nor had he authorized the
settlement and [since] his agent acted
without authority, he should not be
prevented from pursuing his claim against
[defendants] and their insurer.” 469 A.2d
at 545. The trial court agreed, but the
Superior Court reversed the trial court’s
reinstatement of plaintiff’s suit.
The Supreme Court began its
analysis in Rothman by stating that the
case did not present a question of implied
or apparent agency. Id. Nevertheless, the
court stated in no uncertain terms that “an
attorney must have express authority to
settle a cause of action.” Id. Having
dismissed the issue of authority, the court

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went on to hold that “where one of two
innocent persons must suffer because of
the fraud of a third, the one who has
accredited him must bear the loss.” Id.
Significantly, the court also mentioned that
the defrauded client could seek relief from
the Pennsylvania Client Security Fund. Id.
at 546 n.4. The court did not specifically
consider the issue of apparent authority
except insofar as to reiterate the holding of
Starling. Rather, it simply held that “a
principal acting through an agent in
dealing with an innocent third party must
bear the consequences of the agent’s
fraud.” Id. Nevertheless, in Farris, we
recognized that Rothman can be read as
suggesting that apparent authority may
become the basis for enforcing a
settlement where the conduct of the
principal warrants that result. Farris, 176
F.3d at 709 (“At best, the court has left the
applicability of the [apparent authority]
doctrine open, seeming to suggest in
Rothman . . . that apparent authority might
be used to enforce a settlement given the
right set of facts.”).
When we decided Farris “[t]he
only direct endorsement of apparent
authority in Pennsylvania [was] set forth in
an intermediate appellate court decision,
Sistrik v. Jones & Laughlin Steel Corp.,
189 Pa.Super. 47, 149 A.2d 498 (1959).”
Farris, 176 F.3d at 709. There, the trial
court enforced a settlement based upon
apparent authority, and the Superior Court
affirmed. However, the decision rested
not upon the agent/attorney’s conduct, but
upon the conduct of the principals, his
clients, who had conducted themselves in
a manner that “clothed their counsel with
authority to settle the case upon principles
of apparent authority . . . .” Id. at 710.
Based on Rothman and Sistrik, as
well as our own prior interpretations of
those decisions, we held, in Farris, 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 believe that the plaintiffs’
attorney had authority to settle the case.”
Id. at 712. In other words, the doctrine of
apparent authority does apply where the
client’s communications to opposing
counsel create the impression that his/her
own attorney has authority to settle.
“[T]he ‘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. at 711-12
(quoting Edwards v. Born Inc., 792 F.2d
387 (3d Cir. 1986)). No one contends that
p l a i n ti f f s h e r e m a d e a n y s u ch
representations to Continental’s counsel.
However, Farris is no longer the
beginning and end of our inquiry. After
we decided Farris, the Pennsylvania
Superior Court decided Hannington v.
Trustees of the Univ. of Pennsylvania, 809
A.2d 406 (Pa. Super. 2002). There, the
university terminated plaintiff, a Ph.D.
candidate, for not paying his tuition. Id. at
407. Plaintiff then brought an action
against the university, and settlement
discussions ensued. A settlement was
ultimately reached; however, plaintiff
refused to sign the final settlement papers
arguing he had not authorized his attorney

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to settle the case. Id. at 408. The court
relied upon the doctrine of apparent
authority to enforce the settlement,
concluding that since the university “had a
reasonable belief that [plaintiff] had
authorized the settlement, the doctrine of
apparent authority is applicable to enforce
the settlement agreement . . . .” Id. at 410.
Continental relies on Hannington in
arguing that the settlement here is binding.
However, we are not persuaded by
Hannington. The Pennsylvania Supreme
Court’s holding in Starling has not only
never been overruled, it has been reiterated
in subsequent cases, and even the Rothman
court paid homage to the holding in
Starling while raising the specter of
“apparent authority.”
Continental also argues that
Hannington is a logical extension of
Rothman. We disagree. Although
questions of agency certainly emanated
from the ethers of Rothman, as we noted
earlier, the court went out of its way to
explain that it was not basing its decision
on principles of agency. See Rothman,
469 A.2d at 545. Rothman is helpful,
however, in those rare instances where an
innocent principal and an innocent third
party are defrauded by an agent and the
court must apportion loss. More narrowly,
it applies where the principal has a remedy
that will not further injure the wronged
third party such as the Client Security
Fund mentioned above. That is certainly
not the case here and we do not find
Hannington to be so persuasive as to cause
us to revisit our holding in Farris. We
therefore conclude that the District Court
erred in relying upon Hannington despite
the circuit precedent of Farris.
In reaching its decision, the District
C o u r t a d opted the R epor t a n d
Recommendation of the Magistrate Judge
with little additional analysis. The court
did cite the Superior Court’s decision in
Hannington, stating that it “is based upon
sound judgment and reason and this court
will not now disturb its finding.” Appx. 3.
How ever, Hannington relies almost
exclusively on Rothman, where, as we
have explained, the Pennsylvania Supreme
Court did not rest its decision on principles
of agency. Moreover, the District Court
did not cite our decision in Farris, nor
explain how it could avoid controlling
precedent. In adopting the Report and
Recommendation, the District Court also
overlooked the problems with the
M agistrate Jud ge’ s an alysis. T he
Magistrate Judge did “recognize [t]hat
Hannington conflicts with the prior
opinion of the United States Court of
Appeals for the Third Circuit . . . in Farris
. . . .” Appx. 40. The Magistrate Judge
also noted that we look to intermediate
appellate court decisions for guidance in
the absence of “a reported decision on
point by the Pennsylvania Supreme
Court.” Appx. 47. The Magistrate Judge
then stated that “[t]his directive effectively
diminishes the significance of Farris
because the Court of Appeals considered
the apparent authority issue without the
benefit of the Superior Court’s subsequent
decision in Hannington.” Id. Of course,
the jurisprudential danger in that analysis
is evidenced by the fact that we do not find
Hannington persuasive for the reasons we

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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.

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