ATTORNEYS FOR APPELLANT
Judy S. Okenfuss
ATTORNEY FOR APPELLEES
Harry A. Wilson, Jr.
INDIANA TRIAL LAWYERS ASSOCIATION
Thomas C. Doehrman
Courtney E. McGovern
SUPREME COURT OF INDIANA
R.L. McCOY, INC., )
Appellant (Defendant Below), ) Indiana Supreme Court
) Cause No. 49S02-0112-CV-658
) Indiana Court of Appeals
MICHAEL and AMY JACK, ) Cause No. 49A02-0011-CV-749
Appellees (Plaintiffs Below). )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Gerald S. Zore, Judge
Cause No. 49D07-9906-CT-0904
ON PETITION TO TRANSFER
July 24, 2002
In Mendenhall v. Skinner & Broadbent Co., Inc., 728 N.E.2d 140 (Ind. 2000),
this Court held that under the Comparative Fault Act no credit should be
given to non-settling defendants for amounts paid for the same injury by settling
defendants who were not non-party defendants at trial. This case presents the
question explicitly left unresolved by that opinion: under Indianas comparative fault regime, where
defendants are severally liable, does a defendant who goes to trial get credit
for amounts paid by nonparty defendants who settled the plaintiffs claims against them?
We hold that they do not.
Factual and Procedural Background
On November 8, 1996, Michael Jack attempted to pass a semi tractor trailer
driving south on Interstate 69 in Steuben County. The road at that
point was under construction. An excavation abutted the left lane, and the
yellow line marking the left edge of the road was not visible.
Jacks front tire fell into the excavation and the vehicle left the roadway,
hit an orange construction barrel, and then struck the exposed portion of the
northbound lanes. Jack suffered a spinal cord injury resulting in paraplegia when
he was ejected as the vehicle rolled from the impact.
Jack and his wife, Amy, sued the State of Indiana, Indiana Department of
Transportation (INDOT), R.L. McCoy, Inc. (McCoy), the contractor hired by INDOT for the
project, and S.E. Johnson Companies, a subcontractor of McCoy.
Before trial, the
Jacks and McCoy entered into a contract usually referred to as a loan
receipt or loan repayment agreement. Under that arrangement, the Jacks released McCoy
in return for a payment of $1.5 million. Repayment of a portion
of that sum was governed by the following provisions:
7. The parties acknowledge that to the extent an as yet unquantified portion of
the Settlement Payment would otherwise constitute a credit, setoff, or partial satisfaction to
the benefit of any other defendant if it were not a loan, that
as yet unquantified sum is a loan. Accordingly, to the extent that:
a. The settlement payment exceeds a final non-party verdict (total damages suffered by the
plaintiffs multiplied by the percentage at fault, if any, on the part of
McCoy (against McCoy))
b. If such excess of the settlement payment over the amount of the non-party
verdict against McCoy would otherwise operate to reduce the amount which S.E. Johnson,
Inc., the Indiana Department of Transportation, or the State of Indiana or any
other defendant against whom a final jury verdict is rendered is obligated to
pay as a result of the final verdict in said action, after all
appeals have either been abandoned or exhausted, if it were not a loan,
The amount of the excess which would otherwise reduce the amount another defendant
is obligated by a verdict to pay if the excess were not considered
a loan, must be repaid by Jack to McCoy.
The Jacks proceeded to trial against the State and Johnson. Pursuant to
the Comparative Fault Act, Ind. Code § 34-51-2-14, Johnson asserted a nonparty defense
against McCoy. The jury awarded Michael Jack $5,000,000 and Amy $400,000 before
allocating the percentages of fault as follows: Michael Jack, 50 percent; State of
Indiana, 25 percent; Johnson, 15 percent; and McCoy, 10 percent. The Jacks
were precluded from recovery against the State because contributory negligence remains a complete
defense to claims under the Tort Claims Act. I.C. § 34-51-2-2.
I. Credits/Setoffs in Indiana
Under this verdict, Johnson was liable to the Jacks for $810,000 (15% of
$5.4 million). Johnson moved for a setoff
of $960,000 (the excess of
McCoys payment of $1.5 million over McCoys liability of $540,000 under the jurys
verdict). McCoy in turn moved for an order requiring the Jacks to
repay this $960,000 to it. McCoy argued that this amount would constitute
a credit benefiting Johnson if it were not a loan and thus must
be repaid to McCoy, under the quoted paragraph 7 of the settlement agreement.
The trial court denied both motions without discussion.
Both Johnson and McCoy appealed. In separate opinions, the same panel of
the Court of Appeals affirmed the denial of Johnsons motion but reversed the
denial of McCoys. The Court of Appeals concluded that McCoys $960,000 excess
payment would have been a credit against Johnsons liability if payment by McCoy
to the Jacks were not a loan. Therefore, the Jacks were obligated
to repay the $960,000 to McCoy, and Johnson should receive no credit.
See S.E. Johnson Cos., Inc. v. Jack, 752 N.E.2d 72 (Ind. Ct. App.
2001), trans. denied; R.L. McCoy, Inc. v. Jack, 752 N.E.2d 67 (Ind. Ct.
App. 2001). The Jacks petitioned this Court for transfer. They contend
that Indiana law would not allow a credit to Johnson for McCoys settlement
payment, were it not a loan, and therefore the conditions for repayment to
McCoy have not been met. We agree.
Both parties agree that the condition for repayment to McCoy found in paragraph
7(a) of the settlement agreement was met by the jurys finding that McCoy
was liable to the Jacks to the extent of $540,000, $960,000 less than
the $1.5 million payment. The only issue is whether the additional condition
found in paragraph 7(b) was also met. That issue turns on whether,
in light of Indianas Comparative Fault Act, that $960,000 would constitute a credit
against Johnsons liability if McCoy had simply paid the amount to the Jacks
in settlement, and had not entered into a loan receipt agreement. McCoy
contends this issue was resolved in favor of credits in
Mendenhall v. Skinner
& Broadbent Co., Inc., 728 N.E.2d 140 (Ind. 2000). However, no party
in Mendenhall raised the issue of the availability of credits generally under comparative
fault. Mendenhall rejected credit for amounts from parties who are not named
as nonparty defendants but, in footnote 2 of that opinion, expressly reserved the
question of whether the Act affects the traditional way in which our common
law gives credits for settlement amounts when the settling defendant has been added
as a nonparty. Id. at 141 n.2.
We have previously stated that credits, at common law, were a tool to
avoid overcompensation of plaintiffs.
Id. at 143-44. Equally important, credits were
a tool to avoid a single defendants bearing too much responsibility for the
plaintiffs damages. These rules were developed in the pre-comparative fault era of
joint and several liability. Under that common law regime, each defendant whose
negligence contributed to the plaintiffs loss was liable for the entire amount of
damages. Without credits for settlement payments by the other defendants, a defendant
could be liable for an amount greatly in excess of its fair share,
and the result was to overcompensate the plaintiff. There were no nonparty
defenses, and the jury was not aware of an absent tortfeasors settlement.
Credits insured that the defendants at trial would not have to pay more
than their collective share of liability, and overcompensate the plaintiff, simply because the
jury was unable to consider the fault of others.
In 1985, Indianas comparative fault system addressed these problems in two respects.
First, it replaced joint and several liability with several liability, leaving each defendant
responsible only for its share of the total liability.
Control Techniques, Inc.
v. Johnson, 762 N.E.2d 104, 109 (Ind. 2002); Matthew Bender, 2 Comparative Negligence
§ 13.30[c] (2001) (The Indiana statute expressly incorporates several liability.). Second, it
permitted the assertion of a nonparty defense, allowing a defendant to prove the
negligence of an absent or settling tortfeasor. I.C. § 34-51-2-15. Thus
the jurys apportionment of fault now provides a more complete picture of the
relative responsibility for the plaintiffs injuries.
All of this led us in
Mendenhall to hold that credits were no
longer warranted in cases where the remaining defendant at trial did not assert
a nonparty defense against a settling tortfeasor. In Mendenhall we pointed out
that the remaining defendant in that case already had a potent tool to
limit its liabilitythe nonparty defense. Mendenhall, 728 N.E.2d at 144. Allowing
that defendant to resort to a common law doctrine to further reduce its
liability made little sense in light of the modernization of tort law represented
by the adoption of comparative negligence. Bender, supra, at § 13.50[a] (discussing
the common law rule of releases that the release of one amounted to
the release of all defendants). That same logic applies in this case
As one treatise notes:
If defendants are severally but not jointly liable, most of the difficult release
problems are avoided. The release of a severally liable defendant, whether executed
before trial or after judgment, should have no effect upon the liability of
the other defendants. The liability of each defendant stands independently and is
unaffected by that of other defendants.
Id. at § 13.50[c] (emphasis added). That treatise notes that problems may
remain in several liability jurisdictions where the fault of absent tortfeasors is not
considered. Id. But the nonparty defense eliminates those problems in Indiana.
Johnson raised a nonparty defense that permitted it to prove McCoys negligence,
and the jury assigned 15 percent of the fault to Johnson and 10
percent to McCoy. Thus the nonparty defense already accomplished the limitation of
Johnsons liability that a credit would otherwise have achieved.
Were credits still available under comparative fault, Johnson would lower its liability to
an amount less than the jurys determination. Indeed, had Johnson succeeded in
its attempt to have the amount it described as McCoys $960,000 overpayment credited
in its favor, Johnsons liability would have been eliminated despite its being found
at greater fault than McCoy. Thus, elimination of credit requires the comparative
fault defendant to pay for its own share, but no more. Nor
is the plaintiff overcompensated. In a comparative fault regime, the notion that
a plaintiff is overcompensated when he or she settles with a defendant for
more than a jury later awards takes too narrow a view of what
a settlement represents. There is no overpayment if the parties agree on
the dollar value of a several liability claim against a given defendant, even
if a jury reaches a different result. A settlement payment normally incorporates
an assessment of the exposure to liability. But a settlement also reflects
several other considerations, including the parties desires to avoid the expense and effort
of litigation and the tactical effect of eliminating a defendant and its counsel
from trial. In
McDermott, Inc. v. AmClyde & River Don Castings Ltd.,
511 U.S. 202, 215 (1994), the United States Supreme Court rejected a pro
tanto rule in admiralty tort cases in favor of a proportionate share approach
for this reason. It stated:
The law contains no rigid rule against overcompensation. . . . [W]e must
recognize that settlements frequently result in the plaintiffs getting more than he would
have been entitled to at trial. Because settlement amounts are based on
rough estimates of liability, anticipated savings in litigation costs, and a host of
other factors, they will rarely match exactly the amounts a trier of fact
would have set. It seems to us that a plaintiffs good fortune
in striking a favorable bargain with one defendant gives other defendants no claim
to pay less than their proportionate share of the total loss.
Id. at 219-20. Our comparative fault system contemplates similar results. See
Bender, supra, at § 13.50[c] (in several liability systems, [t]he risks of settlement
are borne solely by the settling parties). McCoy received the peace of
mind of eliminating the litigation. And although the Jacks received more compensation
for McCoys liability than they would have at trial, they also bore the
risk of receiving less. The point is that the settlement between McCoy
and the Jacks had no bearing on Johnsons obligation to pay according to
its liability, as determined by the jury. As Mendenhall put it, a
defendant who wants to limit its liability at trial has the tool to
do so: the nonparty defense.
II. The Contract Between McCoy and the Jacks
McCoy points to dicta in Mendenhall that suggests credits advanced the one satisfaction
rule and prevent double recovery by plaintiffs who might settle for a larger
amount with one defendant than a jury might later conclude that defendant was
responsible. Mendenhall, 728 N.E.2d at 144. This was true in a
joint and several liability regime. But where each defendant is severally liable,
a settlement by one of them represents the bargained value of the claims
against that defendant. Unlike a joint and several liability regime, no other
defendant is liable for that claim, and none has a claim to benefit
from its overvaluation by the settling defendant or undervaluation by the plaintiff as
compared to the jurys assessment.
Because Johnson would not have received a credit had the agreement between the
Jacks and McCoy not been a loan, the remaining issue is whether the
agreement requires repayment by the Jacks of the $960,000 that exceeded the jurys
determination of McCoys liability. We conclude that it does not.
McCoy contends that if credits did not survive the Comparative Fault Act, then
the entire settlement agreement is meaningless because the repayment provision could never be
triggered. It alludes to explanatory language in the contract to support its
contention that the purpose of the contract was to eliminate any overpayment by
McCoy. There may be circumstances when a plaintiff would enter into such
an agreement even though it produces a heads we lose, tails we break
even deal for them by capping the defendants liability at the lesser of
the jury award or the settlement amount. In any event, McCoy concedes
that repayment, if it is to occur at all, depends wholly on the
provisions of paragraph 7. The parties are bound to the terms of
that paragraph, and this Court is not free to alter them to conform
to McCoys understanding of their legal effect.
Estate of Spry v. Greg
& Ken, Inc., 749 N.E.2d 1269, 1275-76 (Ind. Ct. App. 2001) ([R]eformations for
mistakes are only available if they are mistakes of fact, not if they
are mistakes of law. . . . [The] mistake was regarding the effect
of the release, not its terms. Consequently, we may not reform the
release . . .) (citation omitted). By its terms, the contract contemplates
repayment to McCoy only to the extent it comes out of Johnsons pocket,
not the Jacks. Therefore, the Jacks are not obligated to repay any
amount to McCoy.
The judgment of the trial court is affirmed.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
The Jacks also filed suit against Three Rivers Barricade & Equipment Co.,
Inc., and RQAW Corporation, but those claims were dismissed on summary judgment.
Footnote: The words credit and setoff are used interchangeably in this opinion.