Edwards v. Born, Inc.

• Decision Date: 11 June 1986
• Docket Number: No. 85-3312,85-3312
• Citation: 792 F.2d 387
• Parties: Keithley EDWARDS v. BORN, INC. Appeal of Keithley EDWARDS and Edith Edwards.
• Court: U.S. Court of Appeals — Third Circuit

Page 387

792 F.2d 387

55 USLW 2038

Keithley EDWARDS v. BORN, INC.

Appeal of Keithley EDWARDS and Edith Edwards.

No. 85-3312.

United States Court of Appeals, Third Circuit.

Argued April 29, 1986.

Decided June 11, 1986.

Mark L. Milligan (argued), Christiansted, St. Croix, U.S. Virgin Islands, for appellants.

Nancy V. Young (argued), Law Offices of Britain H. Bryant, Christiansted, St. Croix, U.S. Virgin Islands, for St. Croix Petrochemical Corp.

Diane Trace Warlick (argued), R. Eric Moore, Law Office of R. Eric Moore, Christiansted, St. Croix, U.S. Virgin Islands, for Born, Inc.

James L. Hymes, III, Law Office of James L. Hymes, III, Charlotte Amalie, St. Thomas, U.S. Virgin Islands, for Fluor Engineers & Constructors, Inc.

Before HUNTER, WEIS and MANSMANN, Circuit Judges.

OPINION OF THE COURT

JAMES HUNTER, III, Circuit Judge:

Keithley Edwards and Edith Edwards appeal the district court's order enforcing a settlement agreement entered into by their attorney. Subject matter jurisdiction obtained by virtue of V.I. Code Ann. tit. 4, Sec. 32 (Supp.1985). We have appellate jurisdiction under 28 U.S.C. Sec. 1291 (1982). This case presents the question whether the Edwardses' attorney had the authority to compromise their suit. Because we conclude that the district court did not correctly apply the proper legal standards, we vacate and remand.

I.

The facts in this appeal are reported in Edwards v. Born, Inc., 608 F.Supp. 580 (D.V.I.1985). Keithley Edwards, an employee of Hess Oil Virgin Islands, was injured on September 24, 1982 when an access door to a refinery boiler fell on him. The boiler, which was owned by the St. Croix Petroleum Corporation, had been supplied by Born, Inc. and installed by Fluor Engineers & Constructors, Inc. Keithley filed suit against all three firms, alleging that the boiler had been supplied and installed with a defective access door and that the accident resulted in permanent injuries to his back, deprived him of his sense of taste and smell, and caused the loss of income. Keithley sought $1,000,000 in compensation for these injuries. Edith Edwards joined in the complaint, requesting $100,000 for loss of consortium. Gerald T. Groner, the Edwardses' attorney, filed the action on December 10, 1982.

In preparation for a January trial date, the magistrate scheduled a pretrial conference for December 11, 1984. The magistrate's pretrial order required the attorneys to bring to the conference, inter alia, either written settlement authority from their clients or the client or a representative authorized to settle the action. The Edwardses did not attend this conference.

On December 12, the parties attended a pretrial settlement conference in the district judge's chambers. The record does not reveal an order scheduling the conference; indeed, the court referred to it as "informal" as opposed to the formal pretrial conference before the magistrate. Edwards, 608 F.Supp. at 582. The court followed what it described as its standard settlement conference procedure, meeting first with both sides and then with each side separately to facilitate a settlement. The Edwardses were not present. This procedure succeeded in eliciting an offer from the defendants of $150,000 in settlement of all plaintiffs' claims, a figure that Groner had indicated would be acceptable. After Groner orally accepted the offer, the judge called the court reporter into chambers, and the parties reiterated the offer and acceptance for the record. Mr. Groner specifically said, "I accept the offer. I am authorized to accept it on behalf of the plaintiffs." Id. The court then entered a sixty-day order conditionally dismissing the suit.

When the defendants tendered the checks for the settlement amount to Groner, however, the Edwardses rejected the drafts and asserted that Groner did not have the authority to settle their claims. This development prompted an ex parte conference with Groner and Keithley Edwards where the court apparently attempted to assure Edwards of the propriety and adequacy of the settlement agreement. Mr. Edwards did not change his mind. The district court subsequently granted Groner's motion to withdraw, and scheduled an evidentiary hearing for February 27, 1985 on the defendants' motion to enforce the agreement.

At the hearing, the Edwardses rested on their statements in their affidavits that they had never authorized Groner to settle or to make a demand for a settlement. For his part, Groner testified that he had informed Keithley about the upcoming settlement conferences and had inquired as to the amount the Edwardses would consider in settlement of their claims. Keithley had responded that he did not have a specific figure in mind because it was Groner's job, as their attorney, to determine the proper amount. Groner told the court that he believed he had the express actual authority to settle the suit on the basis of this conversation.

The court returned an opinion and order in which it held that Groner did not have the express actual authority to settle, but that it would enforce the agreement on the basis of Groner's apparent authority. The Edwardses timely filed this appeal.

II.

Before we examine the district court's conclusions, we must determine the source and contours of the applicable law. It is clear to us that territorial law provides the rule of decision on the question of an attorney's authority to settle his client's action when the action does not implicate rights and duties derived from federal law. This is precisely the case here. Compare Mid-South Towing Co. v. Har-Win, Inc., 733 F.2d 386, 389 (5th Cir. 1984) (attorney's authority to settle a matter of federal law in a maritime suit) with Glazer v. J.C. Bradford & Co., 616 F.2d 167, 169 (5th Cir.1980) (state law defines attorney's authority in a diversity case). See also General Engineering Corporation v. Martin Marietta, 783 F.2d 352, 357 (3d Cir. 1986) (Virgin Islands law held to control the case when no substantive federal interest involved).

V.I. Code Ann. tit. 1, Sec. 4 (1967) creates a hierarchy of sources for Virgin Islands law. In the event that no statute or precedent governs the issue, Sec. 4 instructs the district court to look to the common law rules articulated in the various Restatements. If there is no Restatement rule on point, Sec. 4 directs the court to the common law rules "as generally understood and applied in the United States." To the extent that the attorney-client relationship involves the ability of the attorney to bind his client to an agreement or stipulation, the relationship is controlled by the principles of agency law. See Blanton v. Womancare, Inc., 38 Cal.3d 396, 403, 212 Cal.Rptr. 151, 154, 696 P.2d 645, 649 (1985). Because this area implicates practical and ethical considerations peculiar to the adjudicatory process, however, courts have glossed agency principles in light of these concerns. Therefore, we look to both the Restatement (Second) of Agency and judicial precedent for guidance in this area.

The common law recognizes two types of authority to settle a lawsuit that would bind the Edwardses to Groner's agreement. It is well settled that an attorney may compromise his client's case when the client has given him the express actual authority to do so. See Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 102 (7th Cir.1979); Associates Discount Corporation v. Goldman, 524 F.2d 1051, 1053 (3d Cir.1975); Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 136, 139 (10th Cir.1966); Annot., 30 A.L.R.2d 944 (1953). The Restatement (Second) of Agency provides, with certain exceptions not relevant here, that actual authority (express or implied) may be created "by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account." Restatement (Second) of Agency Sec. 26 (1958). 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." Surety Insurance Co. of California v. Williams, 729 F.2d 581, 582-83 (8th Cir.1984), quoting Bradford Exchange, 600 F.2d at 102.

It is equally well settled that an attorney does not possess the inherent authority to compromise by virtue of his retention for litigation alone. See Luis C. Forteza e Hijos, Inc. v. Mills, 534 F.2d 415, 418 (1st Cir.1976); Associates Discount Corporation, 524 F.2d at 1053; Blanton, 38 Cal.3d at 404, 212 Cal.Rptr. at 155, 696 P.2d at 650; Annot., 30 A.L.R.2d 944, 945. A number of authorities support the proposition, however, that a client may clothe his attorney with the apparent authority to settle through the client's representations to the opposing party. See Glazer, 616 F.2d at 168; Bergstrom v. Sears, Roebuck & Co., 532 F.Supp. 923, 933 (D.Minn.1982); Annot., 30 A.L.R.2d 944, 951; Spiegel, Lawyering and Client Decisionmaking: Informed Consent and the Legal Profession, 128 U.Pa.L.Rev. 41, 54-57 (1979). The Restatement provides, again with certain exceptions not relevant here, that apparent authority may be created "as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him." Restatement (Second) of Agency Sec. 27.

The Edwardses contend that the district court erred in holding that apparent authority could suffice to render the settlement agreement effective. They suggest that the rule is a minority position, and therefore that the court's adoption of the doctrine contravened V.I. Code Ann. tit. 1, Sec. 4's direction to apply the generally accepted common law rule of decision. We disagree. Although there is no consensus on this question, we do not believe that appellants have...