Opinion ID: 1505643
Heading Depth: 2
Heading Rank: 4

Heading: The Effect of Partial Settlements

Text: We must also address the question of how a settlement with one tortfeasor affects the remaining defendants' liability and the plaintiff's recovery. We hold that in multiple defendant cases in which grounds of recovery other than negligence are established, the non-settling defendants' liability and the plaintiff's recovery shall be reduced by the percent share of causation assigned to the settling tortfeasor by the trier of fact. The effect of a partial settlement in cases involving negligent tortfeasors was addressed by this court in Palestine Contractors, Inc. v. Perkins, 386 S.W.2d 764 (Tex.1964). In Palestine the court was faced with a choice between allowing a dollar credit or a pro rata credit and chose the latter. This court approved a pro rata credit because the rule allowed finality of settlement without prejudicing the non-settling defendants' rights. A pro rata credit reduces the non-settling defendants' liability by an amount equal to the number of settling tortfeasors divided by the total number of tortfeasors. Allowing a pro rata credit removes the incentive for collusive settlements because the plaintiff bears the risk of accepting an inadequate settlement. The court considered it fair to impose this risk on plaintiffs inasmuch as plaintiffs may avoid the risk entirely by rejecting the settlement offers. Id. at 771-73. A dollar credit reduces the liability of the non-settling defendants, pro tanto, by the dollar amount of any settlement. The defendant's liability thus may fluctuate depending on the amount of a settlement to which he was not a party. This fluctuation cannot be reconciled with the policy of apportioning liability in relation to each party's responsibility, the conceptual basis of comparative causation. A dollar credit also encourages collusion by shielding plaintiffs from the effect of bad settlements while denying them the benefit of good settlements. Allowing a dollar credit does, however, ensure one recovery. Id. Even though the reasoning in Palestine Contractors remains sound, we do not consider pro rata credit to be suitable in a comparative causation system. Pro rata allocation merely divides the damages by the number of defendants without considering their relative roles in causing the injuries. In the twenty years since Palestine, the law has advanced from crude headcounting to a more refined percent allocation of liability based on the relative harm caused by each defendant. Compare Art. 2212, with Art. 2212a. Accordingly, we hold that a settlement with one tortfeasor will reduce the liability of the nonsettling defendants by the percentage of causation allocated to the settling tortfeasor rather than by a pro rata share. The term tortfeasor includes those whose liability is based on strict products liability, breach of warranty, and negligence. [10] A percent credit necessarily means that settling plaintiffs may recover more than the amount of damages ultimately determined, but they also may recover less. Plaintiffs bear the risk of poor settlements; logic and equity dictate that the benefit of good settlements should also be theirs. One objection to giving plaintiffs this benefit is that doing so would violate the one recovery rule of Bradshaw v. Baylor University, 126 Tex. 99, 84 S.W.2d 703 (1935). This case thus requires that we answer a question expressly left open in Cypress Creek v. Muller, 640 S.W.2d 860 (Tex.1982) how does the Bradshaw one recovery rule apply in cases not controlled by Art. 2212a? In stating the one recovery rule, the court in Bradshaw relied on Hunt v. Ziegler, 271 S.W. 936 (Tex.Civ.App.San Antonio 1925), aff'd 280 S.W. 546 (Tex. Comm'n App.1926, judgmt. adopted). See T.L. James & Co. v. Statham, 558 S.W.2d 865 (Tex.1977). The rationale in Hunt v. Ziegler indicates that the one recovery rule was originally adopted because the courts could not conceive of allocating liability. Injuries were considered indivisible; therefore, a settling defendant could only offer to pay for the whole injury, not just his part. A settlement greater than or equal to the amount of damages ultimately found by the trier of fact left nothing to pay for. Consequently, the plaintiff had no remaining injury for which he could recover. The reasoning behind the one recovery rule no longer applies. The system of comparative causation we adopt allows allocation of liability between the parties, even when the injury itself is indivisible. Cf. Art. 2212a (apportioning liability in negligence cases). Because each defendant's share can now be determined, it logically follows that each may settle just that portion of the plaintiff's suit. The settlement does not affect the amount of harm caused by the remaining defendants and likewise should not affect their liability. An additional rationale supporting the one recovery rule was that it prevented unjust enrichment; however, any enrichment of plaintiffs under the new system of comparative causation is not unjust, for the simple reason that no one is harmed. The settling defendant cannot complain, because he agreed to pay. The non-settling defendant has no right to complain, because he was not a party to and is not affected by the settlement. Article 2212a § 2(e) provides for the same result, and we rejected the unjust enrichment argument when Art. 2212a § 2(e) applies, saying: If there is enrichment, it is not at the defendant's expense. Defendant does not seek to make [the settling defendant] whole but rather to profit from the injustice that [the settling defendant] supposedly experienced. If the voluntary agreement between plaintiff and [the settling defendant] were thought so to offend public policy as to require redress, the remedy would run to [the settling defendant] rather than to a stranger to the bargain. Cypress Creek Utility Service Co. v. Muller, 640 S.W.2d at 866-67 (Tex.1982) ( quoting Theobald v. Angelos, 44 N.J. 228, 208 A.2d 129 (1965)); see also Dobson v. Camden, 705 F.2d at 769; Fleming, Report to the Joint Committee of the California Legislature on Tort Liability on the Problems Associated with American Motorcycle Association v. Superior Court, 30 Hastings L.J. 1465, 1497-98; Comment, Comparative Negligence, Multiple Parties, and Settlements, 65 Calif.L.Rev. 1264, 1278-79 (1977). The unjust enrichment argument is equally without merit when Art. 2212a does not apply. This court stated in dictum in McMillen v. Klingensmith, 467 S.W.2d 193 (Tex. 1971) that a claimant in no event will be entitled to recover more than the amount required for full satisfaction of his damages. Although that statement on its face is inconsistent with the system we here adopt, the reasoning in Klingensmith actually supports our adoption of percent credit. Klingensmith rejected the unity of release rule partly to avoid rewarding tortfeasors who were unwilling to settle. Id. at 196. Non-settling tortfeasors will likewise profit if they are allowed to benefit from a generous settlement in which they refused to participate. This unfair result would follow from strict application of the one recovery rule and should not be approved. A percent credit system requires the non-settling defendant to pay his allocated share, neither enhanced nor diminished by the accommodation between the plaintiff and a settling tortfeasor. Finally, settlement dollars are not the same as damages. Settlement dollars represent a contractual estimate of the value of the settling tortfeasor's liability and may be more or less than the proportionate share of the plaintiffs damages. The settlement includes not only damages, but also the value of avoiding the risk, expense, and adverse public exposure that accompany going to trial. There is no conceptual inconsistency in allowing a plaintiff to recover more from a settlement or partial settlement than he could receive as damages. Leger v. Drilling Well Control, 592 F.2d at 1250 & n. 10; Fleming, at 1497. For the reasons stated, we hold that the one recovery rule does not prevent our adopting a system that reduces the plaintiff's recovery and the non-settling defendants' liability by the percentage of causation assigned to any tortfeasor with whom plaintiff has settled. We hereby adopt a percent credit rule, which will leave defendants unaffected by settlements in which they do not participate. Each party's share of liability will be that determined by the jury. Plaintiffs will benefit from good settlements and bear the risk of bad ones, just as they do in single-tortfeasor cases. Allowing plaintiffs to keep the excess from a good settlements may violate the one recovery rule, but no one is harmed. Accordingly, to the extent it conflicts with this opinion, we overrule Bradshaw v. Baylor University .