Opinion
Bankruptcy Case No. 00-10992 through 00-10995; Civil Action No. 02-0336; Section: "R" (5)
August 13, 2002
ORDER AND REASONS
Before the Court is an appeal from a judgment of the United States Bankruptcy Court, Eastern District of Louisiana, in In re The Babcock Wilcox Company, sustaining the objections of debtor The Babcock Wilcox Company to Charles Rovida's proof of claim and disallowing the claim. For the following reasons, the Court affirms the decision of the bankruptcy court.
I. Background
This appeal arises from appellant Charles Rovida's assertion that he and the Debtor agreed to settle his claim before the Debtor filed for bankruptcy relief. Appellant's attorneys agreed to a settlement protocol with Debtor under which the claims of thousands of clients were to be settled during the course of the thirteen years before Debtor filed for bankruptcy relief. Appellant contends that he settled his claim with Debtor before the bankruptcy pursuant to the protocol.
In 1987, appellant's counsel and Debtor's counsel exchanged a series of letters in settlement negotiations involving the asbestos-related injury claims of thousands of Pennsylvania steelworkers. In a May 20, 1987 letter from Debtor's counsel to appellant's counsel, Debtor's counsel confirmed that the parties reached an agreement on a general protocol for how to settle pending and future steelworker asbestos claims in Western Pennsylvania. The letter provided that Debtor agreed to pay $4000 to steelworkers who could provide sufficient proof of exposure to one of Debtor's boilers and proof of an asbestos-related disease. In exchange for the money from Debtor, appellant's counsel agreed on behalf of thousands of present and future clients not to oppose Debtor's summary judgment motions in pending cases in which there was no proof of exposure to one of Debtor's products and not to join Debtor in any related cases in Pennsylvania. The letter provides that the agreement "covers pending lawsuits and future claims." The parties further agreed to "operate in good faith and attempt to resolve disputes between them fairly in regard to whether there has been sufficient exposure to a Babcock and Wilcox product or whether there is sufficient medical proof." A January 15, 1988 follow-up letter from Debtor's counsel confirmed that Debtor would honor claims from workers who worked on boilers at the Franklin Works power station at Beth Steel in Johnstown, Pennsylvania.
Appellant's Brief; Appendix at ha (5/20/87 Letter).
Id.
On August 1, 1990, Mr. Rovida, a Pennsylvania steelworker, was diagnosed with asbestos is that allegedly resulted from his exposure to asbestos-containing products in Debtor's boilers at Bethlehem Steel in Johnstown. On July 31, 1992, Mr. Rovida filed a lawsuit in a Pennsylvania state court in which he did not name Debtor as a defendant. Mr. Rovida died, and in 1996, his attorneys submitted his medical reports to Debtor's claims manager, Worldwide Services Company, for settlement of Mr. Rovida's asbestos claim. A letter accompanying the medical reports stated that counsel would submit an "executed release after he received approval for payment from Worldwide of Mr. Rovida's claim. Mr. Rovida's counsel later provided Worldwide with his death certificate and certain other material that Worldwide had requested. In February 1998, Worldwide listed Mr. Rovida's claim as a claim approved for payment and asked for a properly executed release so that the claim could be placed in line for payment. Two years elapsed, but counsel for Mr. Rovida never supplied the release.
Appellant's Brief; Appendix at 14a (6/25/96 Letter).
On February 22, 2000, Debtor filed for relief under Chapter ii. of the Bankruptcy Code. At that time, Debtor and its claims manager ceased evaluating unresolved asbestos claims. The bankruptcy court established claims procedures for individuals who contended that their claims had been settled before the bankruptcy.
On March 28, 2001, the Debtor received Mr. Rovida's claim form which indicated that Mr. Rovida had reached a settlement with Debtor in May 1987. Appellant's counsel attached to the claim form the May 20, 1987 letter, two 1988 letters from Debtor's counsel to appellant's counsel, and an affidavit from a legal assistant who coordinated claims with Debtor on behalf of appellant's counsel as proof of settlement. Debtor objected to Mr. Rovida's proof of claim because it lacked a sufficient pre-petition release. On December 19, 2001, the bankruptcy court held a hearing on Debtor's objection to appellant's proof of claim. The bankruptcy court sustained Debtor's objection and disallowed Mr. Rovida's claim as a settled claim. On January 11, 2002, claimant filed a notice of appeal from the bankruptcy court's ruling.
II. Discussion
A. jurisdiction
This Court has jurisdiction over this case pursuant to 28 U.S.C. § 158 (a) and Federal Rule of Bankruptcy Procedure 8001. See 28 U.S.C. § 158 (a); FED. R. BANKR. P. 8001.
B. Standard of Review
The standard of review for a bankruptcy appeal by a district court is the same as when a Court of Appeals reviews a district court proceeding. See 28 U.S.C. § 158 (c)(2). Accordingly, the Court reviews the bankruptcy court's conclusions of law de novo, findings of fact for clear error, and mixed questions of law and fact de novo. See In re Nat'l Gypsum Co., 208 F.3d 498, 504 (5th Cir. 2000).
C. Burden of Proof
Under Bankruptcy Rule 3001(f), properly filing a proof of claim constitutes prima facie evidence of the claim's validity. FED. R. BANKR. 3001(f); see also In re O'Connor, 153 F.3d 258, 260 (5th Cir. 1998). The objecting party must then produce evidence rebutting the claimant or else the claimant will prevail. In re Fidelity Holding Company, Ltd., 837 F.2d 696, 698 (5th Cir. 1988) (citing In re WHET, Inc., 33 B.R. 424, 437 (D.Mass. 1983)). If, however, the objecting party presents evidence rebutting the claim, then the claimant must produce additional evidence to prove the validity of the claim by a preponderance of the evidence." Id. The ultimate burden of proof always rests upon the claimant. Id.; see also In re Schwegmann Giant Supermarkets Partnership, 264 B.R. 823, 827 (E.D. La. 2001) ("The burden of proof . . . is borne by the same party who would bear the burden if the contest took place outside of bankruptcy.")
D. Enforceable Pre-Petition Settlement
Debtor does not dispute that appellant establishes a prima facie case of the claim's validity because he properly filed his proof of claim. See FED. R. BANKR. 3001(f). Debtor argues that the claim is not valid because appellant cannot prove that there is an enforceable settlement agreement between him and Debtor. Appellant maintains that the evidence objectively demonstrates that the parties reached a settlement of his claim and that both sides performed their respective duties under the terms of the agreement before Debtor filed for bankruptcy protection
(i) Applicable State Law
The parties do not dispute that state substantive law applies to the issues in this appeal and that the relevant contract law is practically the same in the relevant states. See In re Omni Video, Inc., 60 F.3d 230, 232 (5th Cir. 1995) ("Federal bankruptcy law fails to address the validity of settlements and this gap should be filled by state law. As we have held in federal diversity suits, a settlement is a contract and is best resolved by reference to state contracts law."); see also In re Ford, 967 F.2d 1047, 1050 n. 6 (5th Cir. 1992) (citing cases) They do, however, disagree as to which state's law applies. Appellants contend that the Court should apply Pennsylvania contract law to determine whether there is an enforceable settlement. Debtor maintains that because there is no conflict of law problem, the Court may apply Louisiana law.
The Court finds that Pennsylvania contract law is the appropriate state law to resolve the issues in this appeal. Louisiana choice of law rules for contract disputes favor the application of Pennsylvania law. Article 3537 of the Louisiana Civil Code provides that contract issues are to be "governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue." LA. CIV. CODE ANN. art 3537. It further provides that courts should consider the pertinent contacts of each state to the parties and the transaction, such as the place of negotiation, formation, and performance of the contract; the nature and purpose of the contract; and the policies of promoting interstate commerce and protection of one party from the undue imposition of another party. Id. Here, appellant was a Pennsylvania resident, his alleged exposure to asbestos-containing products occurred in Pennsylvania, and the settlement negotiations took place in Pennsylvania. Id.; see also Gonzales v. Government Employees Ins. Group, 2000 WL 1576793, *3 (E.D. La. 2000). Accordingly, the Court will apply Pennsylvania law to resolve the issues in this appeal.
(ii) Pennsylvania Contract Law
Under Pennsylvania law, principles of contract law govern the enforceability of settlement agreements. Mazzella v. Koken, 739 A.2d 531, 536 (Pa. 1999) (citing cases). To be enforceable, a settlement agreement must possess all of the elements of a valid contract. Id. "There must be a definitive offer and acceptance, consideration, and parties who have the capacity and authority to agree as they do." 15A Am. Jur.2d, Compromise and Settlement § 10 (2002). "[B]efore preliminary negotiations ripen into contractual obligations, there must be manifested mutual assent to the terms of a bargain." Id. at 536-37 (quoting Essner v. Shoemaker, 143 A.2d 364, 366 (Pa. 1958)). When there is conflicting evidence as to whether the parties intended to make a binding contract, the intent of the parties is a question of fact. Id. at 536; Field v. Golden Triangle Broad., Inc., 305 A.2d 689, 691-92 (Pa. 1973), cert. denied, 414 U.S. 1158, 94 S.Ct. 916 (1974). If all the material terms of a bargain are agreed upon, the settlement agreement will be enforced. Id. at 537 (citing Miller v. Clay Township, 555 A.2d 972, 974 (Pa. 1989)).
(iii) Formation of an Enforceable Settlement
Debtor argues that there is no evidence that Mr. Rovida, as opposed to his attorneys, accepted the terms of Debtor's settlement offer. Under the terms of the May 1987 protocol, Debtor would pay $4000 to Pennsylvania steelworkers who could provide Debtor with sufficient proof of exposure to one of Debtor's boilers which allegedly contained an asbestos product and proof of an asbestos related disease. En exchange for Debtor's promise, claimants' counsel agreed not to join Debtor in any Pennsylvania lawsuit. The 1987 protocol is a generic settlement proposal that covered thousands of current and future claimants represented by appellant's attorneys. Although the letter stated that appellant's counsel agreed on behalf of his clients to accept Debtor's offer, there is no indication from the letter that Mr. Rovida assented to the terms of the proposal in 1987. Nevertheless, appellant contends that his attorneys had apparent authority to bind him to the settlement agreement.
The May 1987 letter provides in pertinent part: Category 2 — Steelworker Cases: We also came to an agreement in regard to the steelworker cases in Western Pennsylvania. You [appellant's counsel] have agreed to accept $4000 on behalf of any steelworker who as an asbestos-related disease provided that you supply (1) sufficient proof of exposure to a Babcock and Wilcox supplied boiler which allegedly contains an asbestos product; and (2) proof that the claimant has an asbestos-related disease.
Under Pennsylvania law, settlement agreements are highly favored. See Muhammad v. Stassburger, McKenna, Messer, Shilobod, Gutnick, 587 A.2d 1346, 1348-51 (Pa. 1991); see also Pennwalt Corp. v. Plough, Inc., 676 F.2d 77, 80 (3d Cir. 1982). Accordingly, it is presumed that a settlement agreement entered into by an attorney has been authorized by the client, "although rebuttal of the presumption will render the purported settlement agreement ineffective." Garabedian v. Allstates Engineering Co., 811 F.2d 802, 803 (3d Cir. 1987). The burden to prove that the client gave express authority to settle to the attorney then shifts to the partly asserting that the attorney had authority. See Smith v. Delaware Valley Auto Spring Co., 642 F. Supp. 1112, 1116 (E.D. Pa. 1986) (applying Pennsylvania agency law).
The Pennsylvania Supreme Court has clearly established that an attorney must have express authority to settle a client's case. Rothman v. Fillette, 469 A.2d 543, 545. (Pa. 1983) ("The law in this jurisdiction is quite clear that an attorney must have express authority to settle a cause of action of the client."). The ordinary employment of an attorney to represent a client with respect to litigation does not confer upon the attorney the implied or apparent authority to bind the client to a settlement or compromise, and the attorney cannot do so in the absence of express authority. Senyshyn v. Karlak, 299 A.2d 294, 297 (Pa. 1973) (quoting Starling v. West Erie Ave. Bldg. And Loan Ass'n, 3 A.2d 387, 388 (Pa. 1939)). In the face of the Pennsylvania Supreme Court's clear pronouncements, appellant nevertheless contends that Pennsylvania recognizes that attorneys with apparent authority can enter into binding settlement agreements on behalf of their clients. See Appellant's Reply Brief at 2 n. 1.
The Court has uncovered no Pennsylvania Supreme Court case in which the Pennsylvania Supreme Court retreated from its position that an attorney must have a client's express authority to settle a case. Although a lower court case suggests that the Pennsylvania Supreme Court might look to apparent authority, it has never done so. See Bennette v. Juzelenos, 791 A.2d 403, 408 (Pa.Super. 2002) (noting that Pennsylvania Supreme Court has never adopted doctrine of apparent authority in the context of a settlement). Indeed, the Federal Court of Appeals for the Third Circuit noted that the Pennsylvania Supreme Court has never invoked the doctrine of apparent authority to enforce a settlement agreement entered into by an attorney who lacks actual authority to settle a matter. See Farris v. J.C. Penny Co., Inc., 176 F.3d 706, 709 (3d Cir. 1999); Tiernan v. Devoe, 923 F.2d 1024, 1035 (3d Cir. 1991) In Tiernan v. Devoe, 923 F.2d 1024 (3d Cir. 1991), however, the Third Circuit stated that the "Pennsylvania Supreme Court might allow apparent authority to suffice in an appropriate case" as the source of an attorney's authority to enter into a binding settlement in the appropriate situation. 923 F.2d at 1035.
In any event, there is no evidence that Mr. Rovida cloaked his lawyers with the authority to settle his claim on the terms discussed in the letters. Apparent authority arises from a principal's manifestations to a third party that an agent has authority to act on the principal's behalf. See Restatement (Second) of Agency § 8 (1958); see also Farris, 176 F.3d at 711-12 ("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") (emphasis in original) (citation omitted). The Pennsylvania Supreme Court also emphasizes that the principal's manifestations to the third party or the principal's knowledge of his attorney's exercise of power are requirements for finding apparent authority. In Revere Press, Inc. v. Blumberg, 246 A.2d 407 (Pa. 1968), the Pennsylvania Supreme Court declared that apparent authority is the
power to bind a principal which the principal has not actually granted but which leads persons with whom his agent deals to believe that he had granted. Persons with whom the agent deals can reasonably believe that the agent has power to bind his principal if, for instance, the principal knowingly permits the agent to exercise such power or if the principal holds the agent out as possessing such power.246 A.2d at 410. Here, although the attorneys had appellant's medical records, there is no evidence that appellant or his estate gave the records to the attorney for the purposes of accepting the settlement. A personal injury attorney might obtain a client's medical records simply to evaluate his claim. It would have been easy enough for counsel to get an affidavit or testimony from the estate that established that it furnished appellant's medical records in order to settle the claim for $4000. As this Court has noted, this case involves a generic settlement protocol covering thousands of clients. Significantly, the one document that would have shown that appellant or his estate was aware of the settlement and agreed to it was a release. Tellingly, that is the document that after two years appellant's estate never supplied. That the estate finds the settlement proposal acceptable now that Debtor is in bankruptcy does not mean that it would have been so inclined in the two years in which the request for a release languished.
The Court recognizes that a client can ratify his attorney's acts and that an affirmance of an unauthorized transaction may be inferred from a failure to repudiate it. Yarnall v. Yorkshire Wortsted Mills, 87 A.2d 192, 193 (Pa. 1952) (citing Restatement (Second) of Agency § 94 (1958)). But ratification can take place only if the client was in possession of all the material facts and circumstances attending the agreement to be ratified. See McRoberts v. Phelps, 138 A.2d 439, 446 (Pa. 1958); Yarnall, 87 A.2d at 193 ("A client ratifies his attorney's act if he does not repudiate it upon receiving knowledge that the attorney has exceeded his authority."); see also Tiernan, 923 F.2d at 1037. Appellant presents no evidence that Mr. Rovida or his estate ever had knowledge of the terms of the alleged settlement prior to the bankruptcy. Indeed, there is no evidence of any correspondence between the attorneys and appellant or his estate to demonstrate that counsel communicated the terms of the settlement to the client. Further, appellant's attorneys have never stated that they informed appellant or his estate of the terms of the settlement offer before the bankruptcy. Again, the one document that would have reflected appellant's or the estate's knowledge that there was a settlement is a release, which counsel does not have. Therefore, ratification does not apply.
Furthermore, the Court finds that appellants argument that the parties entered into an enforceable option contract is similarly unavailing because an option contract must meet the requirements for the formation of a contract. See Restatement (Second) of Contracts § 25 (1979); see also UIE AFL-CIO Pension Fund v. Barker Williamson, Inc., 788 F.2d 118, 124 (3d Cir. 1986); In re CG Realty Investments, Inc., 79 B.R. 249, 251 (Bankr. E.D. Pa. 1987). Accordingly, in the absence of evidence that plaintiff authorized his counsel to bind him to the terms of a settlement with Debtor, the Court finds that appellant has not met his burden to establish that an enforceable settlement agreement existed before Debtor filed for bankruptcy relief.
(iv) Promissory Estoppel
Appellant contends that the bankruptcy court erred in not finding an enforceable settlement through the application of promissory estoppel. The Restatement of Contracts defines promissory estoppel as
[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
Restatement (Second) of Contracts § 90 (1979) . The doctrine of promissory estoppel is the law of Pennsylvania. Thatcher's Drug Store of West Goshen, Inc. v. Consolidated Supermarkets, Inc., 636 A.2d 156, 160 (Pa. 1994) (citing Central Storage Transfer Co. v. Kaplan, 410 A.2d 292 (1979)). A party asserting a claim of estoppel has the burden of establishing all of the essential elements. Id. (citing Funds for Business Growth, Inc. v. Maraldo, 278 A.2d 922, 926 (1971)).
The Court finds that promissory estoppel is inapplicable here. This follows because the Court finds that appellant cannot establish one of the essential elements of promissory estoppel, that the enforcement of Debtor's promise is necessary to avoid injustice. Thatcher's Drug Store, 636 A.2d at 160. Here, appellant has had ample time to produce evidence that he or his estate authorized counsel to settle his claim with Debtor. Debtor approved appellant's claim for payment in February 1998 and asked appellant's counsel for a release so that the claim could be placed in line for payment. Appellant's counsel then had two years to provide this documentation. Further, at no time since the date of Debtor's bankruptcy petition has appellant provided evidence that he or his estate assented to the terms of the settlement before the bankruptcy. Finally, the Court's refusal to enforce the alleged settlement does not extinguish appellant's right to bring a contested claim against Debtor. Accordingly, the Court rejects appellant's promissory estoppel argument as grounds for the enforcement of his alleged settlement.
See Appellant's Brief; Appendix at 19a-20a (Worldwide Letter, Feb. 11, 1998).
III. Conclusion
In all, the Court finds that appellant fails to establish the existence of an enforceable settlement by a preponderance of the evidence. Accordingly, the Court AFFIRMS the order of the bankruptcy court.
. . .
Category 3 — Johnstown Cases: . . . where a claimant at Johnstown can show sufficient proof of exposure to a Babcock and Wilcox product which contains an asbestos product, then the claim will be handled under Category 2 above.. . .
We have agreed that this agreement covers pending lawsuits and future claims. In addition, you have agreed not to join Babcock and Wilcox in any Pennsylvania action as part of this agreement.Appellant's Brief; Appendix at 8a-9a, 11a (May 20, 1987 Letter).