Joint Tort Releases: Confusion Reigns!
Just when you thought it was safe to enter the murky waters of joint tortfeasor releases, along comes the Superior Court to re-introduce the sort of uncertainty and fear which has traditionally characterized trial lawyers’ feelings about these settlement devices. The “culprit,” if you will, is the recent decision in Walton v. Avco (Superior Court, Opinion of March 28, 1989).
There are few endeavors which lawyers approach with more trepidation than the signing of a joint tortfeasor release. Historically, counsel, particularly those representing plaintiffs, have wondered whether they were inadvertently walking into a malpractice claim when they signed such agreements. This fear no doubt resulted from the ambiguity that existed in this area of the law for many years. That uncertainty was only enhanced with the advent of comparative negligence which, when applied against the backdrop of common law principles of joint and several liability, confused the legal mix even further.
Fortunately, from the lawyers’ standpoint, much of the uncertainty that had plagued this area was ameliorated in the Supreme Court’s 1987 decision in Charles v. Giant Eagle, 522 A.2d!1 (1987). While one could legitimately question the correctness of that ruling (see discussion below), the Giant Eagle case did have the salutary effect of at least providing lawyers with a degree of certainty and simplicity. Now, however, the Avco decision has once again injected a measure of confusion into the joint tort area.
This article will examine and compare the opinions in Giant Eagle and Avco. The specific dollar amounts involved in each joint tort settlement, however, will not be discussed. Instead, the effect of these respective holdings will be illustrated by reference to a common hypothetical settlement scenario, for the use of a single fact pattern will best expose the differences between the two cases.
The Hypothetical Case
All joint tort problems begin with a pre-trial settlement involving a plaintiff (P) and a settling defendant (SD). Remaining on the periphery is the non-settling defendant (NSD), the party against whom P will direct his focus at trial.
The settlement between P and SD represents an estimate of what SD’s ultimate share of liability would be if the issue were submitted to a jury. At the time the release is signed neither party knows whether they have under-estimated or over-estimated SD’s exposure. Thus, in some instances P will receive more money from SD than he would have obtained had he refused a settlement, and in that case P has made a “good bargain” with SD. Conversely, there always remains the risk that P will settle for substantively less than what SD’s percentage share of the verdict would have been at trial, and in that case he has made a “bad bargain.”
In both Giant Eagle and Avco, the court was dealing with instances where P made a “good bargain.” That is to say, in each case plaintiff got more money from SD via the joint tort settlement than he would have received had he gone to verdict against SD.
Because Giant Eagle and Avco dealt only with the “good bargain” case, the discussion offered here will focus primarily on the effect of a joint tort release in that type of settlement scenario. The concluding section of this article will, however, note the significant hazard faced by the plaintiff in the “bad bargain” settlement.
Having noted the above, and with the intent of illustrating the Giant Eagle and Avco decisions, let us consider the following “good bargain” settlement.
Assume that plaintiff receives $75,000 from SD and then proceeds to trial. At trial, the jury returns a verdict in the amount of $100,000 and apportions 60% of the fault to SD and 40% to NSD.
This trial result, like any joint tort scenario, will raise the following three questions concerning the impact of the settlement on each of
- From P’s standpoint, what amount will be set off from the verdict on account of the joint tort settlement;
- From SD’s standpoint, will he be entitled to contribution from NSD;
- From NSD’s standpoint, is he entitled to a credit for part of the money already received by P?
Let us consider the different answers to these questions provided by Giant Eagle and Avco.
The Giant Eagle Decision
In Giant Eagle, the court focused initially on the third question, i.e., what does NSD owe to P. In order to answer that question, the court had to integrate and reconcile the provisions of two competing statutes, the Uniform Contribution Among Tortfeasors Act (Uniform Act), 42 Pa.C.S. §8321, and the Comparative Negligence Act, 42 Pa.C.S. §7102.
The NSD argued that since the jury awarded plaintiff $100,000 and plaintiff had already received $75,000 in settlement from Giant Eagle, it (NSD) should be responsible only for the remaining $25,000. Plaintiff, on the other hand, took the position that since NSD was found to be 40% at fault, it should be responsible for 40% of the $100,000 verdict, or $40,000.
The express language of the Uniform Act seemed to support NSD’s position. Section 8326 provides that the release of one joint tortfeasor “reduces the claim against the other tortfeasors in the amount of the consideration paid for the release or in any amount or proportion by which the release provides that the total claim shall be reduced if greater than the consideration paid.” Thus, it would appear on the surface that NSD was correct in asserting that its obligation should be reduced “in the amount of the consideration paid for the release” (in this case $75,000) since that amount was greater than SD’s 60% share of the fault. If so, NSD would owe only $25,000.
The Supreme Court, however, appeared to disregard this express language and instead fashioned a result founded primarily on equitable and policy considerations. While the court was aware of the fact that the plaintiff would receive a windfall of sorts if NSD’s argument was rejected (for example, the plaintiff would receive not only the $75,000 from SD, but would also receive NSD’s 40% of the award, or $40,000, for a total of $115,000, an amount $15,000 in excess of the verdict), it was not much troubled by this fact.
In the court’s view, the concern over plaintiff’s windfall was outweighed by the injustice that would occur if plaintiff was denied the benefit of his bargain with the settling defendant, Giant Eagle. In short, the court concluded that the agreed-upon settlement amount between plaintiff and SD should not be affected by the subsequent verdict against the NSD. To do otherwise, said the court, would provide a windfall to NSD (he would pay $25,000 rather than 40% of the $100,000 verdict) and would also discourage settlement discussions. It should be noted that this so-called “windfall” to NSD would have resulted only because the court went on to eliminate Giant Eagle’s contribution claim against NSD. (See discussion below.)
The key language in the holding was as follows:
“[w]here a release has been executed, the verdict [against the non-settling defendant] is reduced only by the proportionate share of the settling tortfeasor.
The actual amount of the release, if it exceeds this sum, is of no consequence in the satisfaction of the judgment of the remaining defendants. The fact that the plaintiff may receive a larger dollar amount in damages than that fixed by the jury does not militate against such an approach.” (Giant Eagle at p.3)
In addition to the above-noted equitable and policy considerations, the court stated that its holding was consistent with the language of the Comparative Negligence Act insofar as that statute states that “each defendant shall be liable for that proportion of the total dollar amount awarded as damages in the ratio of the amount of his causal negligence to the amount of causal negligence attributed to all defendants.” See §42 Pa.C.S.§7102(b).
The court recognized that as a consequence of its holding it was effectively eliminating any contribution claim that
Giant Eagle would have against NSD as a result of having paid a greater amount than the jury determined its (Giant Eagle’s) responsibility to be. While the Comparative Negligence Act provides that a defendant has a right of contribution where that party has been required to pay more than its pro rata share, the court said that Giant Eagle was not being required to pay more than its share since the release represented an agreed-upon determination of its rightful share.
One could legitimately criticize Giant Eagle on at least two significant points where the holding is arguably at variance with the Uniform Act. First, as noted previously, §8326 of the Uniform Act appears to say that the effect of a joint tort settlement is to reduce plaintiff’s verdict against NSD by the greater of either (a)!the amount received in settlement from SD, or (b)!SD’s proportionate share of the verdict. As pointed out by Justice Zappala’s dissent, the majority seemed to ignore this language, or at a minimum misinterpret it. If it had been applied literally, the plaintiff in Giant Eagle would have faced a verdict set-off of $75,000, not $60,000, since the settlement payment from Giant Eagle was greater than Giant Eagle’s 60% share of the verdict.
The second area in which one may take issue with Giant Eagle is its conclusion that SD had no right of contribution against NSD. In essence, the court concluded that if Giant Eagle “overpaid” on the case, it had to live with that result. Once again, one could argue that this conclusion is at variance with §8324(b) of the Uniform Act which states, “A joint tortfeasor is not entitled to a money judgment for contribution until he has by payment discharged the common liability or has paid more than his pro rata share thereof.” The clear implication of this provision is that a joint tortfeasor is entitled to contribution where he pays more than his pro rata share of the verdict to the plaintiff. Certainly Giant Eagle could argue that, to the extent it paid $75,000 on what turned out to be a $60,000 exposure, it was entitled to $15,000 of contribution from NSD.
While the specific issue in Giant Eagle concerned the impact of the settlement on NSD, the case more materially affects the rights of P and SD. Under either of the competing arguments advanced in Giant Eagle, the NSD was going to be legally responsible for paying $40,000 to somebody. Under one argument (the one which prevailed in Giant Eagle), NSD would pay that $40,000 directly to the plaintiff since it represented 40% of the verdict. Even under the rejected argument, however, NSD would ultimately have to pay $40,000 on the case, $25,000 to the plaintiff and $15,000 on a contribution claim asserted by SD. Thus, Giant Eagle did not substantively impact upon the rights of an NSD in a typical case.
The variable in Giant Eagle is which party profits from the “good bargain” made by P. In other words, what is really at issue is the $15,000 “overpayment” made by SD. Giant Eagle concludes that, from an equitable standpoint, P should profit from the fruits of its labor and SD should bear the risk of its agreement by being denied the right to recoup contribution from the co-defendant. In that manner, the plaintiff ends up with $115,000 on a case the jury valued at $100,000.
In the end, therefore, the Giant Eagle decision was favorable to plaintiffs in the sense that it at least created the opportunity for a plaintiff to obtain an “excess” recovery if it struck a “good bargain” with SD. There still remains a significant risk to a plaintiff with any joint tort release if he strikes a “bad bargain.” (See discussion below.)
The Avco Decision
In Walton v. Avco, the Superior Court departed from the Giant Eagle ruling, ostensibly on the ground that the release language employed by SD was different in the two cases.
Stated in simplest terms, Avco accepted the argument that was rejected in Giant Eagle, i.e., that the plaintiff was subject to a dollar-fordollar set-off from his verdict since the settlement payment was greater than SD’s share of fault. Correspondingly, the court held that SD was entitled to “recoup” the amount of its overpayment by asserting a contribution claim against the NSD.
Thus, as applied to the above example, Avco ruled that the plaintiff, once having received $75,000 in settlement, was only entitled to receive $25,000 from NSD. The NSD would still end up paying $40,000 because, in addition to the $25,000 paid to the plaintiff, it would have to pay $15,000 to SD on a contribution claim.
The proffered basis for distinguishing Giant Eagle was the language of the Avco release. In the settlement agreement (which incidentally was signed in 1984, three years before Giant Eagle), SD included the following language which specifically reserved its right of contribution:
“It is the express intent of the parties to this agreement that this release shall not in any way affect the rights of [settling defendant] . . . to pursue claims for contribution and/or indemnity arising out of the same accident against [non-settling defendant].”
The Avco court relied upon this language to distinguish Giant Eagle and thereby “revive” SD’s contribution right which apparently had been eliminated in Giant Eagle. In that regard the court noted:
“Unlike the settling tortfeasor in [Charles v. Giant Eagle] the settling tortfeasor here, Avco, did not pay consideration to the plaintiffs to be released unconditionally from further involvement in the lawsuit. On the contrary, Avco specifically provided in its release agreement with plaintiffs that its involvement in the lawsuit would continue insofar as Avco retained the right to seek contribution. Avco conditioned its payment of the settlement monies on the basis that if it over-estimated its own liability to the plaintiffs, it could remedy this mistake by pursuing its contribution rights against other liable parties. The terms of Avco’s release agreement controls Avco’s right to seek contribution . . ..” (Opinion, p.26)
By so holding, Avco takes a decidedly contractual approach to the problem, for it appears to condition the right of contribution on the presence or absence of particular agreement language. Giant Eagle, on the other hand, focused essentially on the broader issues underlying the interplay between the Uniform Act and the Comparative Negligence Act.
To that extent, therefore, Avco seems to misperceive the principles underlying Giant Eagle. That is to say, Giant Eagle gives no hint that its holding would have been different had the release language specifically reserved a right of contribution. To the contrary, the court’s following comments indicate that it was denying the contribution claim as an equitable matter:
“The settling tortfeasor elected to pay the consideration for the release to avoid further involvement in the lawsuit. Giant Eagle has no basis for receiving a windfall by way of contribution, if by hindsight it is determined that it over-estimated the extent of its exposure.” (Giant Eagle, at p.4.)
“It would be unjust to the plaintiff who makes an unfavorable settlement arrangement and is bound by it,” if the settling defendant were not similarly bound and could seek contribution to ameliorate the effects of its overpayment. (See Giant Eagle at fn.4.)
Thus, to the extent Avco suggests contract language was at the heart of the Giant Eagle ruling and, therefore, the presence of different agreement language justifies its departure from the Supreme Court’s pronouncement, the Avco court is open to criticism.
Furthermore, and wholly apart from its compatibility with Giant Eagle, Avco is arguably in conflict with the provisions of the Uniform Act. In effect, Avco holds that a settling defendant has a right of contribution against NSD if it (SD) specifically retains such a right in the joint tort document. The inference, of course, is that no such contribution right exists if the release is silent on the issue.
This premise appears to be at odds with §8324(b) of the Uniform Act. As noted above, that provisi
on suggests that a joint tortfeasor is entitled to contribution where he pays more than his pro rata share of the verdict to the plaintiff. Hence, the right of contribution appears to exist as a matter of law, in which case its inclusion in the settlement agreement is mere surplusage.
Paradoxically, Avco seemed to admit this point when it stated, “Finally, apart from the terms of its release agreement with the plaintiffs, we believe that Avco’s right to seek contribution can be said to arise from the operation of §8324(b).” (Opinion at p.26) While from an analytic standpoint the statement appears to be a correct interpretation of 8324(b), the Avco court fails to recognize or acknowledge that this conclusion — that a right of contribution exists as a matter of law under 8324(b) — is directly at odds with Giant Eagle, for there the Supreme Court specifically rejected that principle to the extent it had been embodied in a decision of years past, Mong v. Hershberger, 200 Pa. Super. 68, 186 A.2d 427 (1962).
The Impact of Avco
The impact of the Avco decision is to inject uncertainty back into the joint tort dilemma. The whole question of SD’s right to contribution seemed to have been put to rest in Giant Eagle, the court having held that the SD bears the burden of P’s “good bargain” by being prohibited from recouping any of its overpayment from the NSD. Thus, under Giant Eagle, a settling defendant definitely knew that, once having paid monies prior to trial, it would not be entitled to contribution if it over-estimated its exposure. Instead, the amount of the “overpayment” would inure to the benefit of the plaintiff by his receiving more money than the jury awarded.
Now, however, the whole contribution issue seems to have been raised from the dead by Avco and made to depend upon the peculiar language contained in the release agreement. To the extent that Avco makes it possible for SD to recoup the amount of its overpayment (as opposed to that “extra money” going to the plaintiff) the decision is not favorable to injury victims.
From an equitable standpoint, the Giant Eagle result appears to be the better one. There is a very basic appeal in its underlying notion that if P strikes a “good bargain” he, rather than the SD, should profit from that circumstance, even though that may mean P is made “more than whole.”
On the other hand, one may credibly argue that Avco came to the correct conclusion under the Uniform Act. Unfortunately, it did so by offering a questionable distinction between itself and the controlling precedent in Giant Eagle, namely, a difference in release language.
A Cautionary Note
The above discussion has focused only on a settlement scenario in which P negotiates a “good bargain” with SD. In this sort of situation, under either Giant Eagle or Avco, the plaintiff really has little to lose. Under the Giant Eagle result, the plaintiff gets to keep the amount of overpayment and thereby end up with an “excess” recovery. Even under the Avco decision, while the plaintiff does not get to retain the overpayment, he at least gets an amount equal to the jury verdict.
However, it must be emphasized that joint torts are not risk free to the plaintiff. Obviously, one never knows ahead of time if he has negotiated a “good bargain” or “bad bargain” with SD. If it turns out to be the latter circumstance, P stands to lose a great deal.
For instance, assume in our above example P, rather than receiving $75,000 in settlement, got $25,000, and the verdict was identical both in amount and apportionment of fault between SD and NSD. In this situation, plaintiff will have received $25,000 from SD and the release will prohibit him from obtaining any additional money from SD. From NSD, plaintiff will be entitled to recover that party’s full proportionate share of the verdict, $40,000. As is readily apparent, however, the plaintiff will end up with only $65,000 on a case the jury valued at $100,000, hardly a pleasant result!
Thus, there remains a significant risk to any plaintiff who enters into a joint tort release, that risk being the chance that the money received from SD is less than the amount which represents his (SD’s) ultimate proportion of the verdict. On this point, there is no uncertainty in either Giant Eagle or Avco.
The only uncertainty reintroduced by Avco is whether, on those occasions when plaintiff makes a “good bargain,” he will be able to retain the amount of SD’s overpayment and thereby obtain more compensation than the jury
awarded. Giant Eagle says “Yes,” Avco says “No,” depending on the language of the joint tort release.