Opinion ID: 2518603
Heading Depth: 4
Heading Rank: 2

Heading: Apportionment issues

Text: Although Chatham's offer was unambiguous, it nevertheless confronted Pagenkopf with apportionment problems that placed the implications of accepting the offer in considerable doubt. As already mentioned, in John's Heating we adopted the position that an unapportioned pretrial offer of judgment involving multiple parties will not trigger Rule 68 if the offer creates apportionment difficulties. [17] We must initially consider whether the John's Heating test applies here. The procedural setting in John's Heating differed from the situation at issue in this case. In John's Heating, a married couple, the Lambs, sued John's Heating Service for personal injuries caused by negligent services performed by John's Heating. [18] Before trial, the Lambs sent John's Heating an unapportioned joint offer of judgment for $750,000; after John's Heating failed to accept the offer, the jury awarded damages to the Lambs exceeding the pretrial offer, and the trial court applied Rule 68. [19] On appeal, John's Heating challenged this ruling, citing Brinkerhoff v. Swearingen Aviation Corp. [20] for the proposition that joint offers of judgment present apportionment issues that make them inappropriate for the penalty provision of Civil Rule 68. [21] We distinguished the Lambs' situation, which involved an offer made by joint offerors to a single offeree, from the one addressed in Brinkerhoff, which involved an unapportioned offer made by a single offeror to joint offerees. [22] We emphasized that the Brinkerhoff situation invariably creates problems: Apportionment difficulties are intrinsic to cases involving unapportioned joint offers because the offerees must agree as to how proceeds are to be divided (or how the responsibility for payment should be divided when the offerees are defendants). [23] By contrast, because we found no comparable intrinsic danger in the Lambs' joint offer of judgment to a single offeree, we adopted a more flexible approach that called for an individualized assessment to determine if apportionment difficulties actually existed. [24] We drew this approach from Chief Justice Rabinowitz's dispositional but non-precedential opinion in Taylor Construction Services, Inc. v. URS Co. [25] Our opinion in John's Heating described the approach as follows: Chief Justice Rabinowitz, writing for an equally divided court, identified two factors that should be analyzed in deciding whether a joint offer should trigger Rule 68 penalties in the context of an offer made by joint offerors to a single offeree. First, if the offer was inclusive of all the relationships among the parties and their conflicting claims, and second, if no apportionment difficulty existed, the unaccepted offer could trigger Rule 68 penalties. We adopt the Taylor dispositional opinion's approach today.[ [26] ] Applying this approach to the facts in John's Heating, we concluded that the Lambs' pretrial offer was a valid Rule 68 offer: First, there is no question that the unapportioned offer was `inclusive of all relationships among the parties and their conflicting claims.' That is, had the offer been accepted, all claims between the parties would have been resolved. Second, no apportionment difficulties existed since the offeree, John's Heating, was a single entity. [27] The procedural situation in Pagenkopf's case differs markedly from the situation at issue in John's Heating. In John's Heating we applied Taylor's two-factor approach to assess the validity of an unapportioned joint offer made by two plaintiffs, a married couple, to one defendant. By contrast, the offer here came from an individual defendant, Chatham, [28] and was extended to an individual plaintiff, Pagenkopf. Nominally, then, it was not a joint offer purporting to resolve the rights of multiple parties; yet functionally, the offer created apportionment difficulties involving another party, Dilbeck. The offer neglected to address Chatham's pending third-party equitable apportionment claim against Dilbeck; at the same time, Chatham had apparently failed to disclose a side-agreement calling for Dilbeck to contribute to Chatham's proposed settlement payment. Although this procedural setting can be distinguished from the one in John's Heating, the offer of judgment here nonetheless raises serious concerns grounded in potential difficulties arising from the offer's effect on other parties whose share of the damages remained unapportioned. We see no reason why the approach articulated in Taylor and adopted in John's Heating should not apply in determining whether Chatham's pretrial settlement offer was a valid Rule 68 offer of judgment in this context. Given Alaska's system of comparative fault, Chatham's offer raised unique apportionment difficulties. In cases involving the fault of more than one person, unless otherwise agreed by all parties, AS 09.17.080 requires the court to instruct the jury to allocate a percentage of the total fault to each claimant, defendant, third-party defendant, person who has been released from liability, or other person responsible for the damages. [29] We have interpreted this provision to require that third parties must be joined for purposes of allocating fault and liability, or not at all. [30] But we have also recognized that AS 09.17.080 itself establishes no . . . procedure to allow named defendants to allocate fault to potentially responsible parties that the plaintiff ha[s] not sued. [31] We discussed this omission in Benner v. Wichman and concluded that, absent any explicit statutory procedure, defendants must be allowed to file third-party claims for equitable apportionment against other potentially responsible parties. [32] After Benner was decided, its holding was implemented by a provision in Alaska's civil rules that established the procedure that defendants could use for equitable apportionment of damages to third parties who had no direct liability to the defendant but were potentially responsible to the plaintiff. [33] Civil Rule 14(c) now explicitly provides for equitable apportionment through third-party claims. Under this provision, a defendant may add as a third-party defendant any person whose fault may have been a cause of the damages claimed by the plaintiff; if the third-party claim succeeds, then the court may enter judgment in favor of the plaintiff in accordance with the third-party defendant's respective percentage of fault, regardless of whether the plaintiff has asserted a direct claim against the third-party defendant. [34] Since promulgating Rule 14(c), we have described its equitable apportionment procedure as a cause of action that stands apart from the plaintiff's claim against the defendant  a mechanism for spreading damages that bears a far closer relationship to [a traditional contribution action] than to the underlying tort action[]. [35] But in addition to recognizing that equitable apportionment claims are distinct actions designed to help defendants apportion liability and damages, we have also emphasized that these claims provide a vital benefit to plaintiffs by vindicating not just the right of defendants to have damages apportioned in accordance with their fault, but the commensurate duty of responsible third parties to pay plaintiffs. [36] Thus, Rule 14(c)'s provision directing that judgments on defendants' third-party claims are to be entered in favor of the plaintiff  rather than in favor of the named defendant  plays a vital role in harmonizing the defendant's benefit of spreading damages according to fault with the plaintiff's right to recover full proportionate payment from all responsible parties. By taking advantage of Rule 14(c)'s equitable remedy allowing damages to be apportioned fairly among third parties, the defendant in effect consents to let the apportioned damages inure directly to the plaintiff's benefit. In other words, the defendant undertakes the burden of proving the third-party claim; but the undertaking results in a twofold benefit: it provides a benefit to the defendant in the form of reduced damages reflecting the defendant's proportionate fault and to the plaintiff in the form of a third-party judgment ensuring full payment. Chatham's offer in this case fundamentally distorted Rule 14(c)'s carefully drawn balance of benefits and burden; if accepted, the offer promised to leave Pagenkopf with a substantial apportionment burden not contemplated by the rule. As already pointed out, Chatham's nominal offer to settle only its proportionate share of Pagenkopf's claims evidently masked an undisclosed arrangement calling for Dilbeck or Dilbeck's insurer to contribute to Chatham's settlement payment. This arrangement threatened to undercut Pagenkopf's right to a Rule 14(c) judgment for whatever amount Chatham might be able to recover against Dilbeck by pursuing the third-party complaint. As noted above, Rule 14(c)'s procedure for equitable apportionment was not designed as a mechanism to allow a named defendant like Chatham to reduce its own fair share of the damages by claiming and keeping contributions from a responsible third-party defendant like Dilbeck. At the time of its offer, Chatham had evidently agreed upon a separate arrangement with Dilbeck or Dilbeck's insurer that might have blocked or diminished Pagenkopf's right, under Chatham's third-party claim, to recover a direct judgment against Dilbeck for his proportionate share of the fault. Because of this unrevealed side-agreement, Chatham's offer created apportionment problems that made it fundamentally unfair to draw a comparison between the lump sum Chatham offered before trial to the amount the jury ultimately awarded against Chatham alone. This unfairness flows from two sources: the lump sum offered by Chatham before trial carried an unknowable cost by jeopardizing Pagenkopf's procedural right to recover apportioned damages from Dilbeck under Chatham's third-party claim; and the damages awarded by the jury against Chatham for its share of the fault excluded the apportioned damages Pagenkopf gained by holding Chatham to its original decision to pursue a third-party claim. A similar apportionment difficulty would have existed even without any side-agreement for contributions from Dilbeck or Dilbeck's insurer. As we have seen, by enabling Chatham to file an equitable apportionment claim against Dilbeck, Rule 14(c) gave Chatham the significant advantage of reducing its potential damages by apportioning fault and damages to Dilbeck; in return for this benefit, Chatham assumed the burden of proving its third-party claim against Dilbeck  a quid pro quo designed to benefit Pagenkopf as well as Chatham. Without Chatham's third-party claim, Pagenkopf's decision not to sue Dilbeck would have left the parties in agreement to exclude Dilbeck from the lawsuit. Alaska Statute 09.17.080(a) allows potentially responsible parties to be excluded from the jury's apportionment of fault and damages when agreed by all parties participating in the action. So if Chatham had elected at the outset not to proceed against Dilbeck, Pagenkopf could have sought to recover all of his alleged damages directly from Chatham, and Chatham would have been unable to allocate any portion of the fault or damages to anyone other than Pagenkopf. [37] In other words, Chatham was able to divide Pagenkopf's claim and shift liability to Dilbeck only by undertaking the burden of attempting to prove Dilbeck's fault in its third-party complaint. Yet by later proposing a settlement covering only its limited portion of the freshly divided claim, Chatham created an obvious problem from Pagenkopf's perspective: the proposed settlement would have dismissed Chatham from the case completely, thus leaving no basis for pursuit of the third-party claim between Chatham and Dilbeck. [38] This offer left Pagenkopf with a lose-lose proposition. On the one hand, if he settled with Chatham for part of his losses and then sought to pursue the remainder from Dilbeck, Pagenkopf would have had to shoulder the burden of proving Dilbeck's fault  the very burden that Chatham had elected to assume in return for the opportunity of apportioning part of the damages to Dilbeck; in addition, of course, Pagenkopf would have had to assume the risk of being blocked from pursuing a direct claim against Dilbeck because, by the time Chatham made its offer, the deadline for amending the pleadings had already passed. On the other hand, by declining to settle so that he could preserve his right to benefit from Chatham's equitable apportionment claim against Dilbeck, Pagenkopf exposed himself to the prospect of a Rule 68 claim demanding payment of Chatham's fees for performing the work of proving its claim against Dilbeck  again, the very burden that Chatham had voluntarily undertaken as a necessary cost of apportioning part of its damages to Dilbeck. Chatham has offered no justification that would explain why it should be allowed to use Rule 68 as a lever to push a settlement that would have shifted to Pagenkopf Chatham's freely undertaken burden of proving Dilbeck's fault, while offering Pagenkopf nothing for his cost of assuming that burden. Like the prospect of an undisclosed side-agreement calling for Dilbeck to contribute to the settlement, this apportionment difficulty added incalculable costs and risks to the lump-sum payment Chatham offered for its limited share of Pagenkopf's damages. Thus, both difficulties preclude a fair comparison between the amount of the lump-sum offer and the amount Pagenkopf later recovered from Chatham at trial. By passing up the offer, Pagenkopf undeniably obtained more from Chatham than just the amount awarded against Chatham at trial. We therefore conclude that these apportionment difficulties prevented Chatham's offer from triggering an award of fees and costs under Rule 68. In so ruling we do not suggest that a voluntary settlement incorporating Chatham's offer would have been invalid or unenforceable; that issue is not before us here, and we express no view on it. We hold only that for purposes of Rule 68's fee-shifting provisions, Chatham's offer did not present a fair basis for comparing the offer's monetary provision to the amount Pagenkopf actually recovered against Chatham in the judgment. Rule 68 is designed to encourage reasonable settlements and avoid protracted litigation. [39] These aims can only be attained when the offer advanced is clear, unambiguous, and does not saddle the offeree with unfathomable complexities relating to apportionment. Because the offer in this case created unfair apportionment difficulties, we must vacate the superior court's order awarding Rule 68 costs and fees to Chatham.