Caplan v. Fellheimer Eichen Braverman & Kaskey

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

10-24-1995

Caplan v Fellheimer
Precedential or Non-Precedential:

Docket 95-1445

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 95-1445 & 95-1478

MAIA CAPLAN,
Appellant in 95-1445

v.

FELLHEIMER EICHEN BRAVERMAN & KASKEY;
DAVID L. BRAVERMAN

and

MAIA CAPLAN,

v.

FELLHEIMER EICHEN BRAVERMAN & KASKEY;
DAVID L. BRAVERMAN

Vigilant Insurance Company,

Appellant in 95-1478

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 94-cv-07506)

Argued August 3, 1995

Before: MANSMANN, HUTCHINSON* and ROTH, Circuit Judges

(Opinion Filed October 24, 1995)

1
* The Honorable William D. Hutchinson participated in the oral
argument and decision in this case, but died before he could join
or concur in this Opinion.

2
William H. Ewing, Esq. (Argued)
Carl Oxholm, III, Esq.
Albert G. Bixler, Esq.
Stephanie A. Philips, Esq.
Connolly, Epstein, Chicco
Foxman, Engelmyer & Ewing
1515 Market Street
Suite 900
Philadelphia, PA 19102
Attorneys for Appellant/Appellee Caplan

Carolyn P. Short, Esq. (Argued)
Kenneth M. Kolaski, Esq.
Reed, Smith, Shaw & McClay
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103-7301
Attorneys for Appellees Fellheimer, Eichen,
Braverman and Kaskey, P.C. and David L.
Braverman

Helen M. Braverman, Esq.
Fellheimer, Eichen, Braverman & Kaskey
One Liberty Place
1650 Market Street
21st Floor
Philadelphia, PA 19103-7334
Attorney for Appellees Fellheimer, Eichen,
Braverman & Kaskey, P.C Appellees

Thomas A. Riley, Jr., Esq.
Riley, Riper, Hollin & Colagreco
240 Daylesford Plaza
P.O. Box 568
Paoli, PA 19301
Attorney for Appellee Braverman

Robert B. White, Jr., Esq. (Argued)
Rapp, White, Janssen & German
1800 JFK Boulevard
Suite 500
Philadelphia, PA 19103
Attorney for Appellant Vigilant Insurance
Company

OPINION OF THE COURT

3
ROTH, Circuit Judge:

Maia Caplan and Vigilant Insurance Company (Vigilant)

have brought this expedited appeal from the District Court's

Order of May 25, 1995. The order declared null and void an

agreement between Vigilant and Caplan, settling a civil action,

entitled Caplan v. Fellheimer Eichen Braverman & Kaskey et al.,

which Caplan had brought in the Eastern District of Pennsylvania.

The May 25 Order also enjoined Caplan from entering into any

settlement of the action unless defendants, Fellheimer Eichen

Braverman & Kaskey (FEB&K) and David Braverman, were parties to

the settlement.

The appellees, FEB&K and Braverman, have moved to

dismiss the appeal on the grounds both that the May 25 Order is

not an injunction appealable pursuant to 28 U.S.C. § 1292(a)(1)

and that the order is interlocutory and does not fall within the

"collateral order" exception to the final judgment rule.

Because we find that the May 25 Order is a preliminary

injunction, we conclude that we do have appellate jurisdiction of

the appeal. We also conclude that Vigilant is a proper party to

the appeal. Finally, because we find that the district court

erred in its assessment of the factors required to grant

injunctive relief, we will reverse the Order of May 25 and remand

this action to the district court for further proceedings

consistent with this opinion.

4
 I. FACTS

In January 1995, Caplan filed a five count amended

complaint against FEB&K, the law firm where she had formerly been

employed, and against its managing partner Braverman, alleging:

(1) violations of Title VII of the 1964 Civil Rights Act, by

creating a hostile environment for women at the firm and by

sexually harassing Caplan's secretary; (2) negligent infliction

of emotional distress; (3) tortious interference with existing

and prospective contracts; (4) intentional infliction of

emotional distress; and (5) defamation. Defendants tendered the

amended complaint to Vigilant, their liability insurance carrier.

In February, Vigilant notified the defendants that it would

provide a defense for them on all counts of the amended complaint

but with a full reservation of rights. Vigilant reserved its

rights because it had determined that the first four counts of

the amended complaint were not covered under the insurance

contract.1

Defendants filed counterclaims against Caplan,

asserting malicious abuse of process and civil conspiracy to

maliciously abuse process. The district court dismissed these

1
Under Pennsylvania law, when an insured tenders multiple claims
to an insurer for defense, the insurer is obligated to undertake
defense of the entire suit as long as at least one claim is
potentially covered by the policy. See, e.g., American Contract
Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71, 75
(3d Cir. 1985). As to indemnification, however, the insurer is
obligated to its insured only for those damages which are
actually within the policy coverage. See, e.g., C.J. Heist
Caribe Corp. v. American Home Assur. Co., 640 F.2d 479, 483 (3d
Cir. 1981).

3
counterclaims as premature because the underlying action had not

been terminated in defendants' favor.

Vigilant's policy with FEB&K allows Vigilant to settle

suits without FEB&K's consent. The relevant provision of the

insurance policy reads as follows:
1. We will defend claims or suits against
the insured seeking damages to which this
insurance applies. We may make:

a. Such investigation of any
occurrence, claim or suit, and

b. Such settlement within the
applicable Amount of Insurance
available;

as we think appropriate.

Appendix (App.) at 248.

In April 1995, Caplan and the defendants entered into

settlement negotiations. Although the parties came close to an

agreement on monetary damages, they could not agree on other

issues, including defendants' demand that Caplan issue a public

retraction as part of any settlement. When they could not agree

on the wording of the public retraction, negotiations broke down.
On May 17, attorneys for both parties informed the district judge

that they could not reach a settlement.

At the same time as defendants were negotiating with

Caplan, they were also negotiating with Vigilant to take over

full defense and liability for the case in return for a payment

to them by Vigilant of $190,000, the settlement amount that

Caplan and defendants appeared to have agreed upon if Caplan

4
could be persuaded to issue a retraction. These negotiations

also broke down on May 17.

After the breakdown of negotiations, Vigilant's

attorney wrote to the district judge on May 17, requesting a

settlement conference. All counsel agreed that such a conference

would be helpful. At the request of the district judge, the

magistrate judge scheduled a conference for May 22. On the

morning of the conference, the defendants notified counsel for

Caplan that they would not be attending because one of their

attorneys was out of the country on vacation. Caplan's counsel

telephoned the magistrate judge's chambers to report defendants'

absence. Defendants did not notify Vigilant, and counsel for

Vigilant appeared at the magistrate judge's chambers to

negotiate. In addition, Caplan herself did not receive notice

that defendants and their counsel would be absent. She came up

from Washington, D.C., for the conference.

Although the conference was rescheduled, the magistrate

judge encouraged those present to discuss the possibility of

settlement. That same day, Vigilant and Caplan came to an

agreement under which Caplan would execute a general release of

all claims in favor of defendants in return for Vigilant's

payment to Caplan of $200,000. Caplan signed the release and her

attorneys executed a stipulation of dismissal with prejudice of

the suit. Both the release and the stipulation were to be held

by Vigilant pending delivery of the settlement funds.

The following day, May 23, defendants filed an

emergency motion with the district court, seeking an order

5
"temporarily restraining and, after hearing, preliminary [sic]

enjoining Plaintiff and her counsel from taking any action

whatsoever to consummate the purported 'settlement' arranged by

Plaintiff and Defendants' insurance carrier without the knowledge

and authorization of Defendants." App. at 128. In support of

the motion, defendants asserted that if the injunction were not

granted, defendants would "suffer irreparable harm" and that the

"harm to Defendants outweighs the harm the injunctive relief

sought may cause Plaintiff". The potential harm to defendants,

cited by them in their memorandum accompanying the motion,

included the loss of the right to vindication at trial and a

wrongful and irreparable deprivation of "the agreed to public

retraction from Plaintiff". Defendants claimed that their

"legitimate interests will be severely prejudiced if the Court

does not turn to its inherent equitable powers to grant

Defendants' motion in order to prevent this injustice." It is

apparent from defendants' memorandum that their prime interest in

voiding the settlement between Caplan and Vigilant was to be able

to bring an action against Caplan for wrongful use of civil

proceedings or for malicious prosecution. Under Pennsylvania's

malicious prosecution statute, 42 Pa. Cons. Stat. Ann. § 8351, an

essential element of such an action is that the underlying

litigation have terminated favorably to the defendant. See Junod

v. Bader, 458 A.2d 251 (Pa. Super. 1983) (holding that a

compromise is not an outcome sufficiently favorable to a

defendant to entitle him subsequently to bring a malicious

prosecution action against his accuser).

6
 The district court held a hearing on the emergency

motion at 4:15 p.m. on May 23. Present at the hearing were the

attorneys for Caplan, for Braverman, for FEB&K, and for Vigilant.

Defendant Braverman was the only witness. He testified that

Caplan's suit had caused him and FEB&K embarrassment and loss of

business in the amount of "tens of thousands of dollars a month"

and that settlement of the suit without a public retraction from

Caplan would prevent defendants from clearing their names.

Although Vigilant was not a party to the proceeding and

had not made a motion to intervene, its counsel, Robert B. White,

was present and wished to make a statement. Counsel for FEB&K

opposed any appearance by Vigilant on the basis that Vigilant had

no standing to appear before the court.

The court, however, permitted White to speak. White

explained that the policy language gave Vigilant the unqualified

right to settle actions in which it provided a defense. He also

represented that in return for the agreed settlement payment of

$200,000, Vigilant had obtained a general release from Caplan

covering all five counts, along with a stipulation of dismissal

signed by Caplan's counsel. White stated that the case was over

and no injunction was necessary.

In its Order of May 25, the district court granted

defendants' motion for injunctive relief. In its Memorandum

Opinion, the court recited the four factors a court must consider

before granting injunctive relief: 1) reasonable probability of

success on the merits, 2) irreparable injury, 3) harm to the

other party, and 4) public interest.

7
 In discussing likelihood of success on the merits, the

court defined the issue as "whether Defendants can have the

litigation settled for them by their insurance carrier." App. at

19. The insurance policy at issue was not before the court but

the court assumed for the sake of argument that the settlement

clause, as we have quoted it supra, was in the policy. The court

concluded that under Pennsylvania law an insurance company would

settle a case in bad faith if it settled "without regard to the

fact that it may be barring a counterclaim of the insured." App.

at 20, quoting Bleday v. OUM Group, 645 A.2d 1358, 1363 (Pa.

Super. 1994), allocatur denied 655 A.2d 981 (1955). The court

stated that it had to determine "whether Defendants have a

reasonable likelihood of showing that their rights will be

prejudiced by a settlement and that Vigilant was aware of this

when it negotiated a settlement with Plaintiff." App. at 21.

Because Vigilant was aware that defendants wanted to sue Caplan

for malicious prosecution and because a settlement would bar such

an action, the court concluded that defendants had adequately

demonstrated a reasonable probability of success on the merits of

their assertion that Vigilant had no authority to settle with

Caplan on defendants' behalf.

Turning to irreparable injury, the court found that

defendants would be damaged if a settlement eliminated their

ability to sue Caplan for malicious prosecution. As to harm to

the other party, the court determined that Caplan would suffer

from the delay in receiving her $200,000 check but this harm was

8
not greater than defendants' harm in losing their opportunity to

clear their names.

Finally, the court found that Caplan and Vigilant went

behind defendants' back to work out a settlement and that the

public interest was not served "by taking away Defendants' right

not to be buried without a fight, either at the settlement table

or before a jury of their peers." The court concluded that the

defendants had satisfied the requirements for a preliminary

injunction and "[d]ue to this showing, a preliminary injunction

shall be entered."

In the accompanying Order, the court decreed that:
"the settlement entered into between
Plaintiff and Defendants' Insurance Carrier
on May 22, 1995 is hereby declared null and
void. It is hereby FURTHER ORDERED that
Plaintiff is enjoined from entering into any
settlement of this action unless Defendants
are a party to such settlement."

Caplan and Vigilant both appealed this order.

The district court had jurisdiction of this case under

28 U.S.C. §§ 1331, 1343, and 1367. Our jurisdiction to hear this

appeal will be the first issue discussed.
II. DISCUSSION
A.

Defendants-appellees, FEB&K and Braverman, contend

first that the May 25 Order of the district court is not an

appealable order, either as an injunction or under the collateral

order exception to the final judgment requirement. See Cohen v.

Beneficial Indus. Loan Corp., 337 U.S. 541 (1949). Because we

9
find that the order is appealable as an injunction under 28

U.S.C. § 1292(a)(1),2 we will not go on to consider either the

collateral order exception or appellants' alternative petition

for a writ of mandamus.

Our review of our jurisdiction to hear this appeal is

plenary. Anthuis v. Colt Indus. Operating Corp., 971 F.2d 999,

1002 (3d Cir. 1992).

Despite the language of their emergency motion and of

their argument before the district court and despite the wording

of the May 25 Order, defendants contend that the order is not an

injunction nor is it the type of injunctive order which is

appealable under § 1292(a)(1). They assert instead that "this

action by the Court was an exercise of its inherent and Rule 16

supervisory powers to manage its docket and not an injunction."

This supervisory power, they contend, is the power of the court

to enforce or to undo a purported settlement. The case cited by

defendants to support this proposition is Fox v. Consolidated

Rail Corp., 739 F.2d 929 (3d Cir. 1984), cert. denied 469 U.S.

1190 (1985), in which we affirmed the district court's refusal to

reopen Federal Employers' Liability Act (FELA) cases which had

been brought and then settled in the Pennsylvania state courts.

2
Section 1292(a)(1) provides in pertinent part:

(a) [T]he courts of appeals shall have
jurisdiction of appeals from:
(1) Interlocutory orders of the
district courts of the United States . .
. granting, continuing, modifying,
refusing or dissolving injunctions, or
refusing to dissolve or modify
injunctions . . ..

10
In Fox, we agreed with the district court that settlement

agreements should be enforced in the same court in which the

original litigation had taken place. Id. at 932-33.

In support of their position that the May 25 Order was

not an injunction, defendants also cite the case of Saber v.

FinanceAmerica Credit Corp., 843 F.2d 697 (3d Cir. 1988) in which

the district court had granted plaintiffs' motion to enforce a

settlement agreement against defendants. We dismissed the

appeal, holding that an order to pay money under the settlement,

a legal remedy, was "not transformed into an injunctive remedy

merely by a district court's imposition of a time limit on the

defendants' obligation to pay." Id. at 702-03.3

In their efforts to demonstrate that the May 25 Order

is not an injunction, defendants have also distinguished

appealable injunctions from injunctions which were incidental to

a pending action and which were unrelated to the substantive

issues of the case. See Hershey Foods Corp. v. Hershey Creamery

Co., 945 F.2d 1272, 1279 (3d Cir. 1991) (holding that orders that

focus on procedural issues and do not grant or deny part of the

substantive relief sought by claimant are not immediately

appealable under § 1292(a)(1)).

Caplan and Vigilant, on the other hand, support their

position that the May 25 Order is an appealable injunction by

citing the case of Cohen v. Trustees of the Univ of Medicine &

3
We did note in Saber that we were leaving undecided the question
whether an order to pay money, enforceable by a contempt
citation, was an injunction. Id. at 703.

11
Dentistry of N.J., 867 F.2d 1455, 1464 (3d Cir. 1989) in which we

held that an order by the district court, directing reinstatement

of a medical school professor, was appealable because it granted

part of the ultimate relief sought by the claimant.

We noted:
For purposes of 28 U.S.C. § 1292(a)(1),
injunctions may be affirmatively defined as
follows:

Orders that are directed to a party,
enforceable by contempt, and designed to
accord or protect "some or all of the
substantive relief sought by a
complaint" in more than a [temporary]
fashion.

Id. at 1465 n.9 (brackets in original) (quoting Charles A. et

al., Federal Practice and Procedure, § 3922, at 29 (1977)). We

distinguished non-appealable injunctive orders as having in

common the characteristic that "while significant, [they do] not

either grant or deny the ultimate relief sought by the claimant."

867 F.2d at 1464.

Reviewing the relevant case law, in light of the facts

of the present case, we conclude that the May 25 Order is an

appealable order because it does qualify as an injunction under

28 U.S.C. § 1292(a)(1). The order does not deal with pre-trial

procedural issues. See Hershey Foods, 945 F.2d at 1279. It does

not order the legal remedy of specific performance of the payment

of a sum of money. See Saber, 845 F.2d at 702-03.

The May 25 Order does attempt to undo a settlement.

Even so, Fox, the case cited by appellees to support their

position that approval of settlement orders is part of a district

12
court's supervisory powers, supports only a narrower proposition:

that a federal court should not try to reopen a settlement

arrived at in a case which was litigated and settled in state

court. Fox does not stand for the proposition that federal court

judges may interject themselves into any particular case before

them to pass on the propriety of the settlement in that case.

Our federal courts have neither the authority nor the

resources to review and approve the settlement of every case

brought in the federal court system. There are only certain

designated types of suits, for instance consent decrees, class

actions, shareholder derivative suits, and compromises of

bankruptcy claims where settlement of the suit requires court

approval. Cf. United States v. City of Miami, 614 F.2d 1322 (5th

Cir. 1980), reh'g granted 625 F.2d 1310, aff'd in part, vacated

in part, 664 F.2d 435 (5th Cir. 1981) (en banc):
In what can be termed "ordinary
litigation," that is, lawsuits brought by one
private party against another private party
that will not affect the rights of any other
persons, settlement of the dispute is solely
in the hands of the parties. If the parties
can agree to terms, they are free to settle
the litigation at any time, and the court
need not and should not get involved.

* * *

Moreover, procedurally it would seem to
be impossible for the judge to become
involved in overseeing a settlement, because
the parties are free at any time to agree to
a resolution of the dispute by private
contractual agreement, and to dismiss the
lawsuit by stipulation. In this situation,
then, the trial court plays no role in
overseeing or approving any settlement
proposals.

13
614 F.2d at 1330. See also Gardiner v. A.H. Robins Co., 747 F.2d

1180, 1189 (8th Cir. 1984) ("[in] lawsuits between private

parties, courts recognize that settlement of the dispute is

solely in the hands of the parties.").

Defendants argue in opposition to this result that they

did not consent to this settlement of the lawsuit because it is

contrary to their interests. It was only when Caplan and

Vigilant started negotiating "behind defendants' backs" that a

settlement was reached. They contend that that settlement should

not be effective since they were not a party to it. What

defendants overlook, however, is that in their contract with

Vigilant for insurance coverage, they have authorized Vigilant to

act as their agent to settle claims or suits as Vigilant thinks

"appropriate." Vigilant is not required by the policy to obtain

the defendants' approval of any settlement.4

From our examination of facts of the present case, we

conclude that the May 25 Order is an appealable injunction

because it did deny the substantive relief sought by Maia Caplan.

See Cohen, 867 F.2d at 1464. Caplan's suit included a claim for

damages. She reached an advantageous settlement of that claim

with defendants' insurance company, which was acting in its
4
There are insurance policies which require the insured's consent
to settlement. Cf. Brion v. Vigilant Ins. co., 651 S.W.2d 183,
184 (Mo. App. 1983) (holding that provision of insurance contract
requiring insured's consent prior to settlement is essentially a
"pride" provision which gives insured control over litigation
affecting his reputation). Had defendants elected to negotiate
for a policy under which they had the right to approve settlement
of litigation for which the insurer provided the defense, their
position here would be justified. Defendants, however, did not
choose to purchase such a policy.

14
capacity as the agent defendants had authorized to settle claims

for them. Under the terms of the settlement, Caplan was to

receive a payment of $200,000 in return for releasing all her

claims against defendants. By her agreement to the settlement,

Caplan expressed her satisfaction with the relief she had

obtained from the entire litigation. The May 25 Order voided the

settlement and denied Caplan the realization of that relief.

In addition, the May 25 Order would appear to be

enforceable by contempt. It does not say so in so many words but

it implies as much in its commanding tone: "Plaintiff is

enjoined from entering into any settlement of this action unless

Defendants are a party to such settlement." Caplan would defy

such an order at her peril.
B.

Having determined that the May 25 Order is an

appealable injunction under § 1292(a)(1), we turn to defendants'

next argument -- that Vigilant does not have standing to appeal

that order because it was not a party of record before the

district court. Generally, it is true that those who were not

parties before the district court may not appeal an order of the

district court. We have, however, recognized that a non-party

may bring an appeal in a situation where three conditions are

met: 1) the equities favor the appeal; 2) the non-party has

participated in some way in the proceedings before the district

court; and 3) the non-party has a stake in the outcome of the

district court proceedings, which is discernable from the record.

Binker v. Pennsylvania, 977 F.2d 738, 745 (3d Cir. 1992) (citing

15
EEOC v. Pan American World Airways, Inc., 897 F.2d 1499 (9th Cir.

1990), cert. denied, 498 U.S. 815 (1990)).

Defendants assert that Vigilant does not qualify under

the Binker test because it had a chance to intervene in the

district court but chose not to do so, because its interests are

adequately represented by Caplan, because it can still negotiate

a settlement with Caplan as long as the defendants are also

present, and because it can still negotiate a policy release with

the defendants.

The defendants do acknowledge that Vigilant did

participate in the hearing on defendants' emergency motion, over

their objections, and that Vigilant has a stake in the appeal

"because without a settlement it must continue to fulfill its

duty to defend." Appellees' Brief at 33 n.8. With these

concessions, the only Binker factor left for us to determine is

whether the equities favor permitting Vigilant to join in this

appeal. We conclude that Vigilant's interest, both specifically

in this case and generally in upholding its contractual terms

with its policy holders, is adequate to satisfy the Binker

factors. The fact that Vigilant may still negotiate a settlement

which meets with defendants' approval should not preclude it from

asserting its interest in completing the settlement with Caplan

which it negotiated, pursuant to its contractual agreement with

defendants. Any other result would require Vigilant to expend

further defense costs in a suit which it had terminated in a

manner expressly permitted by the terms of the policy.

16
 Our evaluation of the equitiesnding of bad faith in

settlement has been made against an insurer. Sh and that this

misconduct on Vigilant's part should trump the provisions of the

insurance contract. Defendants are correct in their contentions

that they cannot pursue an action for malicious prosecution

against Caplan unless Caplan's suit against them is terminated

favorably to them and that under Pennsylvania law a settlement is

not considered to be a favorable termination. See, e.g., Junod

v. Bader, 458 A.2d 251 (Pa. Super. 1983). However, the language

in FEB&K's policy with Vigilant expressly authorizes Vigilant to

settle suits as Vigilant deems appropriate. This grant of

discretion to Vigilant permits it, in its evaluation of a

settlement, to consider factors such as the likelihood of

defendants being found liable, the cost to Vigilant of defense of

the suit, the impression which various parties and witnesses may

make at the trial, the strength of the evidence, and the nuisance

value of the claim. Cf. Shuster v. South Broward Hosp. Dist.

Physicians' Professional Liab. Ins. Trust, 591 So. 2d 174 (Fla.

1992) (interpreting "deems expedient" provision to grant insurer

exclusive authority to control settlement, guided by its own

self-interest, including settlement for nuisance value of the

claim).5 This type of provision also permits the insurer to

settle a suit that presents no valid claim against the

defendants. See, e.g., Marginian v. Allstate Ins. Co., 481

5
A policy provision that the insurer may settle a suit it "deems
expedient" is similar to the "settle when appropriate" provision
found here.

17
N.E.2d 600, 602 (Ohio 1985) (interpreting "deems appropriate"

provision to give insurer right to settle on behalf of insured

even if claims are fraudulent or groundless). In view then of

the construction which has been given to this type of policy

language, we cannot see that Vigilant acted in bad faith in

arriving at a settlement with Caplan without first obtaining

defendants' approval of the terms of settlement.

Moreover, the claim by defendants of bad faith on

Vigilant's part is not directed to that category of actions by an

insurer where the courts most often have found bad faith by an

insurer in settlement. It is primarily in cases of an insurer's

failure or refusal to settle within policy limits that a finding

of bad faith in settlement has been made against an insurer. See,

e.g., Gedeon v. State Farm Mut. Auto. Ins. Co., 188 A.2d at 322

(holding that insurer assumes a duty to act in good faith and is

derelict where it unreasonably refuses an offer of settlement);

Marginian, 481 N.E.2d at 603 (finding that a common thread

running through most bad faith settlement claims is that insurer

failed to settle within policy limits); 7C John Alan Appleman,

Insurance Law & Practice (Walter F. Berdal ed., 1979) §§ 4711,
4712.

Cases are much rarer in which an insured claims bad

faith because the insurer has settled within the policy limits.

See Jon Epstein, Annotation, Liability of Insurer to Insured for

Settling Third-Party Claim Within Policy Limits Resulting in
Detriment to Insured, 18 ALR5th 474 (1994). It is that type of

claim, arising from a settlement within policy limits, which is

18
defendants' basis for arguing that the settlement here should be

voided because Vigilant's bad faith will prevent defendants from

recovering from Caplan for their alleged loss of business and

harm to their reputations. Defendants' position is based on

Bleday, 645 A.2d 1358. In Bleday, however, the Pennsylvania

Superior Court held that the insured's complaints of increased

insurance premiums, loss of business, and harm to reputation

would not support a cause of action under Pennsylvania law

against an insurer for bad faith in settling a suit within policy

limits:
We cannot find, in a situation where the
insured freely enters into an insurance
contract with "deems expedient" language,
that an insurer has settled a claim in bad
faith when these types of damages may occur
prospectively.

Id. at 1363. Bleday does not then support defendants' position

that Vigilant's actions in settling with Caplan amount to bad

faith by Vigilant toward defendants.

Vigilant argues that it should not be required to seek

the consent of the insured to settle in the absence of a
provision in the policy that such consent was required.

Vigilant's position in making this contention is supported by

Pennsylvania law. Indeed, Vigilant might be exposed to a finding

of unfair or deceptive acts or practices in the business of

insurance under Pennsylvania's Unfair Insurance Practices Act

(UIPA), 40 P.S. §§ 1171.1 et seq., if it made a practice of:
(xv) Refusing payment of a claim solely on
the basis of an insured's request to do so
unless:

19
 (a) The insured claims sovereign,
eleemosynary, diplomatic, military service,
or other immunity from suit or liability with
respect to such claim;

(b) The insured is granted the right under
the policy of insurance to consent to
settlement of claims; or

(c) the refusal of payment is based upon the
insurer's independent evaluation of the
insured's liability based upon all available
information.

40 P.S. § 1171.55(a)(xv)(a)-(c) (emphasis added).

Section 1171.5(a)(xv)(b) of the UIPA demonstrates that

the Pennsylvania legislature recognizes the significance of an

insured's consent to settle provision in an insurance policy.

Such a consent-to-settle provision protects the professional,

such as a doctor or a lawyer, who is concerned about his or her

reputation. See, e.g., Feliberty v. Damon, 527 N.E.2d 261, 262

(N.Y. 1988); Brion v. Vigilant Ins. Co., 651 S.W.2d 183, 184 (Mo.

App. 1983). An insured's subjective opposition to settlement for

reasons such as reputation may impede an insurer from settling

with a third party. The Pennsylvania legislature has, however,

established the policy that, unless the insurance contract so

provides, insurers may not delay settling with third parties on

the ground that the insured objects to settlement. If Vigilant

is prevented from settling the present case, it may find itself

unable to settle other cases involving Pennsylvania insureds who

are unwilling to consent. Such a practice by Vigilant would

violate the UIPA.

We find, therefore, that the equities favor permitting

Vigilant to appeal an injunction that would void this settlement.

20
Vigilant has a strong interest in upholding the provisions of its

insurance policy. Moreover, under Bleday, the damages defendants

are claiming, as a result of bad faith in settlement, are not

recognized under Pennsylvania law as supporting a claim of bad

faith by the insured against the insurer. In addition, under the

UIPA, Vigilant could be found to be engaging in unfair insurance

practices if it made a practice of refusing to settle claims

under a "settle when appropriate" policy simply because the

insured opposed settlement.

The district court came to a different conclusion,

citing Bleday, 645 A.2d 1358, for the proposition that "settle

when appropriate" language in an insurance policy does not give

an insurer the power to settle a case when that settlement is in

bad faith and is contrary to the intent and expectation of the

parties. Defendants also rely on Bleday to support their

position that an insurance company cannot settle a suit over the

objection of the insured if that action would have the effect of

extinguishing a claim of the insured.

The district court's and the defendants' reliance on

those aspects of Bleday is, however, unpersuasive. In Bleday the

Pennsylvania Superior Court was considering the insurer's

authority to settle a suit when such a settlement would

extinguish an existing counterclaim in that same suit.6 The

6
This concept, that settlement and consequent dismissal of an
action should not result in the dismissal of an existing
counterclaim, is also recognized in the Federal Rules of Civil
Procedure. Dismissal of an action in which a counterclaim has
been filed is barred under Rule 41(a)(2) when the defendant
objects "[i]f a counterclaim has been pleaded by a defendant

21
counterclaim which defendants had filed in the present suit had,

however, already been dismissed by the district court as

premature. Vigilant's settlement with Caplan has no effect on

that no-longer-existent counterclaim. The fact that the

settlement may have an effect on a future action which defendants

would like to bring against Caplan is an entirely different issue

from the one discussed in Bleday.

Finally, although Caplan may, as defendants claim, have

a common interest with Vigilant in enforcing the settlement she

negotiated, Vigilant's interest is broader than Caplan's because

of the effect the May 25 Order may have on Vigilant's policies

with other insureds.

We conclude, therefore, that the equities support

permitting Vigilant to participate in this appeal.7
C.

Having determined that the May 25 Order is appealable

and that Vigilant is a proper party to the appeal, we next turn

to the question of whether the district court properly issued the

preliminary injunction. We conclude that the district court

erred in granting the injunction because the court misinterpreted

the clear language of the insurance policy and because it

prior to the service upon the defendant of the plaintiff's motion
to dismiss . . . unless the counterclaim can remain pending for
independent adjudication by the court."
7
Because we have determined that Vigilant may join in this
appeal, we will not go on to analyze appellants' claim that
Vigilant was a necessary party to the district court proceedings
pursuant to Fed. R. Civ. P. 19.

22
incorrectly analyzed the factors of irreparable injury and of

likelihood of success on the merits.

We review the district court's granting of the

injunction to determine whether the court abused its discretion,

committed an obvious error in applying the law, or made a serious

mistake in considering the proof. In re Assets of Myles Martin,

1 F.3d 1351, 1357 (3d Cir. 1993).

The first factor we will review is irreparable injury.

The consideration of the factor of irreparable injury is relevant

to the granting of a preliminary injunction because the purpose

of such an injunction is to protect the moving party from

irreparable injury until the court can render a meaningful

decision on the merits. See 11A Charles A. Wright et al.,

Federal Practice & Procedure 2D § 2947 (1995).
In order to demonstrate irreparable harm
the [moving party] must demonstrate potential
harm which cannot be redressed by a legal or
an equitable remedy following a trial. The
preliminary injunction must be the only way
of protecting the [moving party] from harm.

Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797,

801 (3d Cir. 1989).

The district court defined the irreparable harm to

defendants here as the damage to their ability to seek legal

redress against Caplan in a malicious prosecution action. App.

at 23. The outcome of the present action will of course

determine defendants' ability to sue Caplan because they cannot

do so unless this action terminates favorably to them. The

termination which defendants fear is a settlement like the one

23
negotiated by Caplan and Vigilant. But defendants contracted

with Vigilant to authorize Vigilant to settle this litigation.

Because defendants have acted to permit the outcome which they

find unacceptable, we must conclude that such an outcome is not

an irreparable injury. If the harm complained of is self-

inflicted, it does not qualify as irreparable. See 11A Charles

A. Wright, Federal Practice & Procedure § 2948.1 pp. 152-53

(1995).

We conclude, therefore, that the harm of which

defendants complain is not irreparable. Moreover, with this

finding, the balancing of harms shifts to weigh in favor of Maia

Caplan. If the present settlement is voided and defendants

required to agree to any future settlement, Caplan at the least

faces a delay in receiving the negotiated settlement amount. In

addition she may be forced to undergo further stress and

harassment by having to continue in this litigation which she had

settled favorably to her interests.

We next consider the factor of likelihood of success on

the merits. The district court defined likelihood of success as

being "not the merits of the litigation between Plaintiff and

Defendants, but the question whether Defendants can have the

litigation settled for them by their insurance carrier." App. at

19. The district court concluded that "Defendants have a

reasonable probability of success on the merits of their

assertion that Vigilant has no authority to make this settlement

with Plaintiff on Defendants' behalf." App. at 22.

24
 The language of the policy, however, clearly provides

for Vigilant to settle suits in which it is defending claims.

Vigilant is required under Pennsylvania law to defend all claims

in a suit if at least one claim is covered by the policy. See

American Contract Bridge League, 752 F.2d at 75. Because the

policy language permits Vigilant to settle a suit it is

defending, it may do so whether or not all claims in the suit are

covered by the policy. There is no provision which limits

settlement of suits to those in which only covered claims are

being defended by the insurer. It is not unusual for an

insurance company to make a reservation of rights in defending a

suit, as to certain of the claims made in the complaint or as to

coverage periods or as to certain named defendants or as to the

whole claim because of untimely notification by the insured.

Under the policy language, the sole determination required of

Vigilant in settling a suit is that it thinks the settlement is

appropriate.

As we have discussed in Part II. B above, this

settlement provision should be enforced as expressed in the

policy. If for reasons of professional reputation an insured

wishes to control the settlement of cases, policies are available

which provide that protection. FEB&K did not, however, purchase

this type of coverage. It is not appropriate for us to amend the

policy here in order to give FEB&K a type of coverage for which

it didn't contract. Cf. Brokers Title Co. v. St. Paul Fire &
Marine Ins. Co., 610 F.2d 1174, 1181 (3d Cir. 1979) ("it is not

the function of the court to redraft a contract to be more

25
favorable to a given party than the agreement he chose to

enter.").

Because we conclude that the policy should be enforced

as written, we consequently conclude that the defendants did not

have a likelihood of prevailing in their claim that Vigilant had

no authority to make the settlement with Caplan on defendants'

behalf. Defendants cannot succeed in their efforts to void a

settlement which we have determined was appropriately arrived at

and which will terminate this case. For this reason, we find

that the district court erred in its analysis of likelihood of

success on the merits.
III. CONCLUSION

Because we find that the district court improperly

determined both that defendants would suffer irreparable harm if

the settlement of the case was permitted to remain in effect and

that defendants were likely to succeed in their assertion that

Vigilant was not authorized to settle with Maia Caplan on behalf

of defendants, we conclude that the court erred in granting the
relief which it did in its May 25 Order. We will reverse the

Order of May 25, voiding the settlement and enjoining Caplan from

entering into any settlement unless defendants were a party to

that settlement. We will remand the case to the district court

with directions to dismiss it with prejudice when the stipulation

of dismissal, signed by Caplan's counsel, has been filed with the

court.

26