## Facts

- Plaintiffs were injured in an automobile accident allegedly caused by a defective tire manufactured by Continental General Tire, Inc.
- Plaintiffs retained attorney Carl R. Schiffman to sue Continental and Sears Roebuck & Co.
- Plaintiffs executed a retainer agreement/power of attorney stating Schiffman “shall not make any settlements without [clients’] consent.”
- During discovery, plaintiffs’ tire expert’s report and deposition testimony weakened plaintiffs’ case against Continental.
- Schiffman discussed settlement with Continental’s counsel and represented that plaintiffs would settle with Continental and proceed only against Sears.
- The alleged agreement required plaintiffs to dismiss Continental in exchange for Continental providing its expert for plaintiffs’ use against Sears.
- After learning of the alleged agreement, plaintiffs refused to sign the settlement documents and stipulated dismissal.
- Continental moved to enforce the settlement, arguing Schiffman had authority—at least apparent authority—to bind plaintiffs.

## Issues

1. Under Pennsylvania law, may an attorney bind a client to a settlement based on apparent authority, or is express authority required?
2. What effect does an explicit retainer/power-of-attorney term barring settlement without client consent have on enforcement of a purported settlement negotiated by counsel?

## Decision

- The Third Circuit reversed the district court’s order enforcing the settlement and dismissing plaintiffs’ claims against Continental.
- The court predicted the Pennsylvania Supreme Court would require express authority for an attorney to settle under these circumstances.
- Because Schiffman lacked express authority to settle without plaintiffs’ consent, the purported settlement was not enforceable against plaintiffs.
- The case was remanded for further proceedings consistent with the opinion.

## Legal Principles

- Under Pennsylvania law, an attorney does not have inherent power, solely from the attorney-client relationship, to compromise a client’s substantive rights by settlement.
- Settlement requires express client authorization, particularly when the client has expressly limited counsel’s settlement power in a written agreement.
- Apparent authority must rest on manifestations by the principal to the third party, not merely the attorney’s representations.
- A third party’s reliance on counsel’s asserted authority cannot override an explicit limitation that settlement requires client consent.

## Conclusion

The court held that, under Pennsylvania law as predicted by the Third Circuit, an attorney cannot bind clients to a settlement absent express authorization, and a written term requiring client consent defeats enforcement based only on apparent authority.


Covington v. Cont'l Gen. Tire, Inc., 381 F.3d 216 (3d Cir. 2004)