Tiernan v. Devoe

Decision Date17 January 1991
Docket NumberNo. 89-2024,89-2024
Citation923 F.2d 1024
PartiesFed. Sec. L. Rep. P 95,749 Charles A. TIERNAN, Jr., Richard Ray, Mary Jo Ray, Peter R. Maynard, Gerald Traficante, Susan Traficante, Donald Metzger, Gail Metzger, Albert Auricchio, Noel T. Hill, Richard Cianfrocca, Steven M. Kahn, Robert Bernzweig, Stephen C. Kiely, Paul Croxton, Valerie Croxton, Anthony Annunziata, Louise Annunziata, Stephen Tobias, Jann Tobias, Stuart Kandel, Gloria Kandel, Ralph Davidoff, Martin Feldman, F. William Zimba, Thomas Lemberge, Stephen P. Gudek, Sr., Miriam Friedland, Lawrence Friedland, Donald Rosenzweig, Salvatore T. Salerno, G. Peter Nelson, Mary Lou Nelson, Ernest J. Broadbent, James Andaloro, Arlene Andaloro, Richard Troiano, Diane Troiano, Robert Infarinato, Joan Infarinato, Harold Taub, Barbara Taub, Robert R. Moheban, Joel Davidsen, Kendra Davidsen, Richard J. Civitarese, Ralph J. Civitarese, and Joan A. Colucci v. Harry L. DEVOE, Jr., The Devoe Group, Ltd., Devoe Management Co., Equity Performance Group, Inc., Sterling Securities, Inc., Sterling Investor Services, Inc., Ann Soja, Martin Soja, Rose, Feldman, Radin, Feinsod & Skehan, and Bishop, Liberman & Cook. Appeal of Charles A. TIERNAN, Jr., Richard and Mary Jo Ray, Noel T. Hill, Salvatore T. Salerno, Ernest J. Broadbent, James and Arlene Andaloro, Richard and Diane Troiano, Robert R. Moheban, Joel and Kendra Davidsen, Gerald and Susan Traficante, Albert Auricchio, Richard Cianfrocca, Steven M. Kahn, Anthony and Louise Annunziata, Martin Feldman, F. William Zimba, Stephen P. Gudek, Sr., Miriam Friedland, Donald Rosenzweig, G. Peter and Mary Lou Nelson, Richard J. Civitarese, and Ralph J. Civitarese.
CourtU.S. Court of Appeals — Third Circuit

Marjorie Schaffner (argued), Stephen D. Sharp, Beigel & Sandler, Chicago, Ill., for appellants.

Ronald J. Shaffer (argued), Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., for appellees Equity Performance Group, Inc., Sterling Securities, Inc., Sterling Investor Services, Inc., Ann Soja, and Martin Soja.

David H. Marion (argued), Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for appellee Bishop, Liberman & Cook.

Charles W. Craven (argued), Audrey L. Jacobsen, Marshall, Dennehey, Warner, Coleman & Goggin, Philadelphia, Pa., for appellee Rose, Feldman, Radin, Feinsod & Skehan.

Before MANSMANN and SCIRICA, Circuit Judges, and STANDISH, District Judge *.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

This case involves a challenge to an order of the district court granting summary enforcement of several settlement agreements. Although we recognize the difficulties faced by the district judge in this confusing matter, we will vacate the order and remand to the district court for a determination of the validity of the settlements.

I.
A.

This lawsuit arises out of the collapse of a building renovation project in Philadelphia, Pennsylvania. In 1985, plaintiffs purchased limited partnership interests in a historically certified residential and commercial property located in Philadelphia (the "Malt House"). By April 1987, it was clear that the venture was failing and that the limited partnership was in default of its trade and mortgage obligations. As a consequence, 48 of the limited partners--a substantial majority of the limited partners investing in the underlying venture--created a "Limited Partners Committee" to "address the serious problems relating to (i) the construction, management, and economic viability of the project; (ii) possible legal redress against the General Partner and others[;] and (iii) the economic and tax impact upon the Limited Partners if the Partnership were to be dissolved, the General Partner were to resign or the Partnership were to lose its principal asset." The Agreement provided for the creation of a Limited Partners Executive Committee, which was authorized to, inter alia "[i]nstitut[e] litigation determined to be in the best interest of the Partnership and defend[ ] litigation initiated by others against the Partnership; and ... [e]ngag[e] attorneys, accountants, appraisers and other professionals deemed necessary to assist in carrying out the objectives of the [Limited Partnership]." The Executive Committee retained attorney Michael Bloom to represent their interests.

In November, 1987, all members of the Limited Partners Committee filed suit in U.S. District Court seeking recovery from four groups of defendants: (1) the general partner in the project, and the entities that were to lease and manage the renovated property (the "Devoe Defendants"); (2) the placement and investor services agents for the project (the "Soja Defendants"); (3) the accountants who reviewed the financial projections for the project (the "Accountant Defendants"); and (4) the tax counsel for the project (the "Attorney Defendants"). The complaint included federal securities fraud and RICO claims and pendent state fraud and contract claims. The lawsuit blamed the project's failure on defendants' mishandling of the property's renovation and faulted the defendants for misrepresenting the financial prospects and tax benefits of the venture.

By October 20, 1988, all the defendant groups believed they had reached agreement with plaintiffs' attorney on the terms of settlement. In the settlements, the Soja Defendants agreed to pay $29,000, and to assign to plaintiffs their one-half interest in a second mortgage on property to be developed; the Attorney Defendants agreed to pay $35,000; the Accountant Defendants, $35,000; and the Devoe Defendants, $30,000. Plaintiffs contend, however, that these purported agreements were merely offers of settlement. It is this dispute that forms the basis of the appeal.

After plaintiffs rejected the purported settlement agreements in January, 1989, defendants moved to enforce the settlements. On June 1, 1989 the district court ordered the settlements enforced with respect to all the defendant groups except the Devoe defendants. After denying a motion for reconsideration, the district court issued an order declaring a release executed and directing defendants to deposit settlement proceeds into court.

Plaintiffs appeal from each of these rulings and raise three challenges to the district court's enforcement of the settlements. First, they assert that the district court should have held a hearing before enforcing the settlements. Second, they contend that there were no settlement agreements, because their attorney lacked authority and they never ratified his acts by failing to repudiate them. Third, they argue that there were no settlement agreements because the parties never reached agreement on whether plaintiffs could opt out.

B.

Our decision turns on the nature and extent of the authority that plaintiffs gave their attorney and on his conduct towards the district court and the other parties to the litigation. Therefore, it is necessary to recite the details of those relationships.

We begin by examining the transcript of the June 1, 1989 conference before the district court which addressed the defendants' motion to enforce the settlement agreements. By this time, plaintiffs had retained a new lawyer, Stephen Sharp, who represented them after they had rejected the alleged settlements. At the conference, Sharp represented that settlement was first discussed among the plaintiffs in an August, 1988 meeting between Bloom and a member of the Executive Committee, Joel Davidsen. According to Sharp, Bloom explicitly told Davidsen that each partner would have to sign off individually and that no partner would be involuntarily bound to any settlement agreement. Bloom emerged from this meeting with authority only to "determine the best offer that would be made by the defendants." During settlement negotiations he spoke only to Davidson and never submitted any proposed agreements to plaintiffs. Sharp also contended that even if the Executive Committee had undertaken to settle the litigation, no settlement could have occurred because the Agreement did not grant the members of the Executive Committee authority to settle the other plaintiffs' claims. Sharp proffered the testimony of Davidsen and of Charles Tiernan, another Executive Committee member, to establish this version of events.

Bloom's correspondence to defendants and the district court, however, paints a different picture. On September 7, 1988, Bloom wrote a letter to the district court that stated:

I am pleased to report that following the last conference before the Court, the Plaintiffs authorized their counsel to initiate and thereafter participate in settlement negotiations with each of the three possible settling defendant groups (i.e., the Soja defendants, the attorneys, and the accountants). Based upon our preliminary discussions, we are cautiously optimistic that there may be a joint tortfeasor settlement reached with each of the three settling defendant groups. Additionally, there are ongoing discussions with counsel for the Devoe defendants which may give rise to a global settlement among all parties.

The letter also stated that a bank had initiated state-court foreclosure proceedings on the property.

On September 7, 1988, counsel for the Attorney Defendants wrote Bloom stating that "we accept plaintiffs' offer of settlement in return for a payment by us of $35,000." 1 Bloom did not object to this characterization. On October 11, 1988, Bloom wrote the Soja Defendants stating that "[t]his letter will confirm that the Plaintiffs[ ] have agreed to settle their claims, by way of final settlement or joint tortfeasor release, with the Soja defendants in consideration of the payment to plaintiffs of $29,000 together with the tender to plaintiffs of the Sojas' interest in the second mortgage." That letter also expressed optimism that a settlement would be reached with respect to the Devoe Defendants, "thereby giving rise to a global settlement."

On October 20, 1988, the parties had...

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