Joint Tortfeasor Releases: Is There Change in the Wind?
The Pennsylvania Supreme Court’s recent decision in Baker v. AC and S creates uncertainty about the impact of a joint tortfeasor release in this jurisdiction, and it suggests that we may be in for a change in this confusing area of the law. While the specific holding in Baker is consistent with prevailing law, there is clear dictum in the opinion which, if applied literally, would signal that Charles v. Giant Eagle, the seminal case on this subject, may be disavowed and overruled in the future.
Here is a hypothetical which illustrates the tension between Charles and Baker:
Assume that plaintiff (P) accepts a pro-rata joint tortfeasor release from the settling defendant (SD) in exchange for a payment of $70,000.00. The case subsequently goes to trial against the non-settling defendant (NSD), and the jury returns a total verdict of $100,000.00 with liability being apportioned 50/50 between SD and NSD. How much does P collect from SD?
Under Charles the plaintiff would collect $50,000.00 from NSD since he was 50% responsible for a $100,000.00 verdict. Thus, the plaintiff would end up with a total of $120,000.00 in his pocket, i.e. $70,000.00 from SD and $50,000.00 and NSD.
There is dictum in Baker, however, which suggests that NSD should only pay P $30,000.00, in which case the plaintiff would end up with precisely the amount awarded by the jury, $100,000.00, and no more.
To put this apparent disagreement between the two decisions in perspective, it is helpful to review some basics about joint tortfeasor releases and the Charles decision in particular.
In any joint tortfeasor scenario, there are three separate interests at stake: The interest of P, SD and NSD. P’s interest is to maximize his recovery while minimizing the risk of accepting a joint tort which undervalues SD’s exposure. SD’s interest is to pay a sum certain to P and to avoid paying any contribution to NSD. NSD’s interest is to minimize his liability and try to profit from the joint tort by setting off as much as possible from P’s verdict.
There are generally two types of joint tortfeasor releases, pro-rata and pro-tanto. A pro-tanto release, by definition, says that the plaintiff will face a dollar-for-dollar setoff from his verdict against NSD in an amount equal to what he received from SD in settlement. For example, in our hypothetical above, if P had signed a pro-tanto release with SD, there would be no question that P would receive only $30,000.00 from NSD, i.e., the $100,000.00 verdict minus a dollar-for-dollar setoff of the $70,000.00 settlement.
A pro-rata release, on the other hand, calls for P’s verdict to be reduced by the proportionate share of the verdict which is ultimately attributable to SD. When dealing solely with negligence defendants, the proportionate share means SD’s percentage of negligence as apportioned by the jury under the Comparative Negligence Act, 42 Pa. C.S.A. §7102.
Of the two types of releases, the pro-rata is much more common since settling defendants almost uniformly insist upon them so as not to leave SD exposed for a contribution claim. For example, consider what would have happened in the hypothetical above if the settlement amount was $40,000.00 and SD took a pro-tanto release. The plaintiff would receive $60,000.00 from NSD ($100,000.00 minus $40,000.00), but then NSD would turn around and sue SD for contribution in the amount of $10,000.00 since NSD had to pay $60,000.00 when the jury said that their share of responsibility was only $50,000.00. It is precisely to avoid that sort of contribution scenario that leads SD to insist upon a pro-rata release. If SD paid the same $40,000.00 but had obtained a pro-rata release, that $40,000.00 would be accepted by P in full satisfaction of SD’s 50% share of the verdict, thus leaving NSD to pay his rightful share of $50,000.00 without any claim for contribution. In short, a pro-rata release always does away with NSD’s contribution claim because, by definition, NSD never has to pick up any share of the verdict otherwise attributable to SD; instead, the release by its terms provides that the settlement money fully satisfies SD’s share of the verdict, whatever it turns out to be.
With those basic principles in mind, let us review the result in Charles. In that case, P accepted a settlement from SD in the amount of $22,500.00 and signed a pro-rata release. The case then went to trial and the jury returned a verdict of $31,000.00, with 60% of the fault attributed to SD and 40% to NSD. The issue in the case was how much did NSD owe to the plaintiff. NSD argued that it only had to pay $8,500,00, i.e., the $31,000.00 verdict minus the $22,500.00 paid by SD. Plaintiff, on the other hand, argued that since the jury attributed 40% of the fault to NSD, then they owed 40% of the verdict, or $12,400.00. NSD responded by noting that P’s position would result in his receiving a windfall because he would end up with over $34,000.00 on a case that the jury valued at only $31,500.00.
Resolution of the dispute required the Superior Court to apply §8326 of the Uniform Contribution Among Tortfeasors Act (UCATA) which provides as follows:
“A release by the injured person 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.”
The Supreme Court in Charles, per Justice Nix, said that §8326 affords the parties the opportunity to choose the method by which the plaintiff’s verdict shall be reduced, so long as the total amount of the claim exceeds the amount of the settlement, which it did in this case. According to the court, the parties have the choice to select either a pro-tanto or a pro-rata reduction. In this instance, since the parties selected a pro-rata reduction, the settlement of some $22,500.00 was received in full satisfaction of SD’s share of the verdict, whatever it turned out to be, and that left NSD to pay whatever its share of the verdict turned out to be. The court was not at all troubled by the fact that this interpretation led to the plaintiff receiving a windfall. In fact, the court observed that under either argument someone was going to get a windfall and better it be the plaintiff than the non-settling defendant. For example, the court noted that if it accepted NSD’s argument, then NSD would end up paying only $8,500.00 when the jury apportioned $12,400.00 worth of fault to them. This would be a “windfall” of sorts for NSD. For a variety of policy reasons, the court felt that the better of those two options was clearly for the plaintiff to get the windfall.
It should be noted that Justice Zappala filed a vigorous dissent in Charles in which he said the court was misconstruing §8326. In his view, that section clearly provides that the pro rata reduction is not to be honored when the amount of the settlement (the “consideration paid for the release”) is greater than the pro-rata share, which was the case in Charles. Thus Justice Zappala would have sided with NSD and made they pay only $8,500.00.
The Charles holding has been consistently applied in the trial courts and appellate courts of this state over the past several years. While some may have questioned the wisdom of the ruling, no subsequent appellate case ever directly challenged its holding or its interpretation of §8236, no case that is until Baker.
In Baker, the specific issue which the court had to decide was whether a pro-tanto release would be honored in the context of a case in which all parties were sued on a strict liability basis. The Court answered in the affirmative, saying the principles set forth in §83266 apply regardless of whether the defendants are sued on negligence or strict liability grounds.
That specific holding does n
o violence to Charles. However, in the course of discussing joint tortfeasor law, the Supreme Court, per Justice Cappy, made several unequivocal statements, perhaps unwittingly so, which appear to be in direct conflict with the holding in Charles. For example, in discussing §8326, the court said that the parties’ agreement to have a pro-rata setoff will only be honored if SD’s pro-rata share of the verdict is greater than the amount of the settlement. The court went on to give an example in which SD pays $60,000.00 in settlement and the case then goes to verdict and produces a $100,000.00 verdict apportioned 50/50 between the two defendants. According to the Baker court, in this scenario, the verdict would be reduced not by the pro-rata share as set out in the release, but by the $60,000.00 settlement since it (the settlement) was greater than the pro-rata share. This example, albeit dictum, is directly contrary to Charles. Indeed, the hypothetical described by the Baker court is the Charles scenario, namely, the pro-rata share of responsibility attributed to SD, $18,600.00, was less than the amount paid for the release, $22,500.00, yet the pro-rata set-off called for in the release was honored.
It is not clear whether the Baker court was aware that its dictum was directly contrary to Charles, but it would seem that they were because in footnote 6, after noting that Baker did not squarely raise the Charles issue, the court said “We must therefore wait for a matter where a windfall situation is presented if we choose to revisit our holding in Charles.”
To the extent, therefore, that Baker lays open the possibility that Charles will be “revisited,” it naturally leads one to consider which of the two approaches is the more enlightened one. In order to appreciate the debate on that subject, it is helpful to see both the similarities and differences between the Charles result and the dictum in Baker. What they have in common is this. Both decisions indicate that once SD settles a case, they will never have to pay any more money to the plaintiff, and they will be insulated from a contribution by NSD. They also agree that if SD’s settlement agreement is less than the pro-rata share of the verdict (i.e. plaintiff in hindsight made a bad deal with SD), the verdict will be reduced by that pro-rata share, and plaintiff will end up with less money than the total dollar amount awarded by the jury.
Where they differ is what happens in the situation where the plaintiff negotiates what, in hindsight, is a good deal with SD, namely, where the settlement amount extracted from SD turns out to be greater than SD’s pro-rata share. Under the Charles result, if the release calls for a pro-rata setoff, then so be it, and it does not matter that the pro-rata amount is larger or smaller than the settlement amount. Thus, NSD would have to pay their full share of the verdict, and the plaintiff would end up with more total money than the verdict. Under the Baker dictum, however, the pro-rata setoff would be disregarded and the verdict would be reduced by the amount of the settlement since it turned out to be larger than the SD’s pro-rata share. The bottom line result, therefore, is that even though plaintiff negotiated a good deal with SD, they are only going to receive an amount equal to the total verdict.
When the difference between the two cases is boiled down in that fashion, the policy issue may be framed as follows: When a plaintiff signs a pro-rata release, should they get to keep the “extra” money over and above the verdict amount if SD’s settlement agreement turns out to be greater than the pro-rata share of the verdict? Viewed in those terms, a compelling argument can be made in favor of the Charles approach.
First, it must be understood that a pro-rata settlement is a proverbial “crap shoot” from the plaintiff’s standpoint because at the time they make the agreement, they are merely guessing at what SD’s pro-rata share of the verdict will be. As with any crap shoot, there is a certain amount of risk inherent in the arrangement. For example, if the plaintiff settles for an amount less than the NSD’s pro-rata share, the plaintiff will get “burned” and end up with less money than the jury awarded. Both Charles and Baker agree that if the plaintiff makes a bad deal with SD they must live with the consequences.