Opinion ID: 1486394
Heading Depth: 2
Heading Rank: 6

Heading: The Effect of Settlements in a System of Relative Fault

Text: Our decision in Whitehead and Kales left unanswered numerous questions concerning the effect of a settlement agreement with one concurrent tortfeasor on the liability of other settling and nonsettling tortfeasors. Can the settling tortfeasor be held liable for contribution or indemnity to the nonsettling tortfeasor if the amount of the settlement is less than the settling tortfeasor's proportionate share of the obligation? Or does the settlement contract discharge the settling tortfeasor from all further liability to the plaintiff and from the obligation to contribute to or indemnify the remaining tortfeasors? Does settlement reduce the plaintiff's ultimate judgment for damages against the remaining tortfeasors by the amount paid in settlement or by the amount of the settling tortfeasor's portion of fault? Without answers to these questions, neither plaintiffs nor defendants are able to compromise lawsuits with any confidence as to the legal effect of such agreements. The principles discussed above may be used to generate answers to these questions that are both simple and fair. The purposes of both plaintiffs and defendants in compromising lawsuits are similar. A plaintiff seeks certainty of recovery free from the expense and trauma of litigation; a defendant seeks to avoid the costs of litigation and to avoid the risk that trial might result in a judgment for damages in excess of the amount the plaintiff is willing to accept in settlement. Our rules concerning the effect of a settlement should be tailored to encourage settlements without sacrificing the overall purpose of fairly resolving disputes. The law favors compromise and settlement of disputed claims. `It is to the interest of the commonwealth that there should be an end to litigation.' Mateer v. Missouri Pacific Railway Co., 105 Mo. 320, 354, 16 S.W. 839, 848 (banc 1891). Accord, Vondera v. Chapman, 352 Mo. 1034, 1038, 1039, 180 S.W.2d 704, 705-06 (1944). In order for a settlement to achieve the purpose of resolving disputes, and the parties' purposes of avoiding litigation, we must hold that a tortfeasor who has entered into a good faith settlement is discharged from any claim for indemnity or contribution that may be pressed by a joint or concurrent tortfeasor. See American Motorcycle Association v. Superior Court of Los Angeles County, 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 198, 578 P.2d 899, 915 (1978). Any other rule would remove incentive for one of multiple tortfeasor defendants to settle the case: settlement would not free them from further litigation expenses or from uncertainty of liability. `Few things would be better calculated . . . to discourage settlement of disputed tort claims, than knowledge that such a settlement lacked finality and would lead to further litigation with one's joint tortfeasors, and perhaps further liability.' Id. [A] settlement is made and a general release taken for the purpose of foreclosing further claims. Sanger v. Yellow Cab Co., 486 S.W.2d 477, 481 (Mo. banc 1972). A settlement, release, or covenant not to sue, agreed upon between the plaintiff and one tortfeasor in a multiparty case, should be interpreted to satisfy that portion of the plaintiff's damages that corresponds to the settling tortfeasor's proportionate fault. This rule has been adopted in other jurisdictions that have adopted a system of comparative fault among joint and concurrent tortfeasors. Cartel Capital Corp. v. Fireco of New Jersey, 81 N.J. 548, 410 A.2d 674, 685 (1980); Bartels v. City of Williston, 276 N.W.2d 113, 122 (N.D.1979); Geier v. Wikel, 4 Kan.App.2d 188, 189, 603 P.2d 1028, 1030 (1979). Cf. Frey v. Snelgrove, 269 N.W.2d 918, 921 (Minn.1978); Pierringer v. Hoger, 21 Wis.2d 182, 124 N.W.2d 106, 111-12 (1963). This rule also comports with Section 6 of the Uniform Comparative Fault Act. 12 U.L.A. 42 (Supp.1979). Courts in other states that have adopted a system of comparative fault among joint and concurrent tortfeasors have held that comparative fault does not alter the rule that a settlement with one tortfeasor effects a pro tanto or dollar-for-dollar reduction in the plaintiff's judgment against remaining tortfeasors. See, e. g., American Motorcycle Association v. Superior Court of Los Angeles County, 20 Cal.3d 578, 604, 146 Cal.Rptr. 182, 199, 578 P.2d 899, 916 (1978); Bradley v. Appalachian Power Co., 256 S.E.2d 879, 887 (W.Va.1979). Although the rule of pro tanto reduction would encourage a plaintiff to settle at a discount with some defendants, it would require the plaintiff to retain his or her claim against at least one defendant in order to recover a full measure of his or her damages, diminished only by the amount of the settlements. Plaintiffs under this rule are often not willing to settle with the one tortfeasor whose negligence is proved most easily and against whom a judgment could be collected most easily. Thus, the rule virtually requires that there be at least one lawsuit. Moreover, the ultimate distribution of liability clearly violates the equitable principles underlying adoption of relative fault. In a system in which the plaintiff's damage judgment against nonsettling tortfeasors is reduced only by the amount of payments received from settling tortfeasors, the liability of the remaining defendants would be determined without considering the relative fault of the settling tortfeasor. Such a system permits a disproportionate burden to be placed on nonsettling tortfeasors. For example, suppose that plaintiff A suffers $100,000 in damage resulting from the concurring negligence of defendants B, C and D. Suppose further that B 's proportion of fault is 10%, C 's proportion of fault is 30%, and D 's proportion of fault is 60%. Under our system of relative fault, trial would result in B paying $10,000, C $30,000, and D $60,000. Suppose A settled with B for $1,000. [9] Suppose that C agrees to pay A $25,000 in exchange for a release from liability. A would be permitted to recover the remaining $74,000 from D despite the fact that D was only responsible for $60,000 of A 's loss. A will have little incentive to settle his or her claim against D. The rule that settlements work a dollar-for-dollar reduction in plaintiff's damage judgment against nonsettling tortfeasors thus makes the process of compromising claims into a form of musical chairs in which the last tortfeasor to agree to a settlement often will not be able to settle the case, and will be required to pay more than his proportionate share of the loss. Such a rule of settlements would establish a system of apportioning damages among concurrent tortfeasors that is inartful and capricious and which rel[ies] in excess upon the whim and wrath of a plaintiff, something this Court justly condemned in Whitehead and Kales . 566 S.W.2d at 473. The rules governing settlements should be structured in order to give effect to the principle of fairness, that the ultimate liability for tortious injury falls on the person who negligently caused the damage. Our settlement rules certainly should not encourage disproportionate distributions of the burden and discourage complete settlements. A system in which a settlement effects a dollar-for-dollar reduction in the plaintiff's recovery against remaining tortfeasors would deprive a plaintiff of a favorable settlement agreement in cases in which he or she settles with one tortfeasor for more than that tortfeasor's proportionate share of fault. In such a case, the nonsettling tortfeasor would enjoy the benefit of the plaintiff's bargain. For example, suppose again that A suffers $100,000 in damage resulting from the concurring negligence of defendants B, C and D. Suppose again that B 's proportion of the fault is 10%, C 's is 30%, and D 's is 60%. Suppose further that A settles with B for $10,000 and settles with C for $40,000. In a system which reduces the plaintiff's award of damages by the amount received from settling tortfeasors, D will be held liable for only $50,000 of A 's loss, despite the fact that D is responsible for $60,000 of the loss. D would receive the entire benefit of A 's bargain with C. This result is not required by any policy against permitting plaintiffs multiple recovery. The $10,000 premium paid by C is supported by ample consideration. C was spared the burden of litigation expenses defending against A 's claim, and was spared months of uncertainty pending resolution of the suit. No principle of equity requires that D be awarded the benefit of A 's bargain; the principles against unjust enrichment require that A retain that benefit. A settlement contract must operate to satisfy that portion of a plaintiff's loss that corresponds to the percentage of fault of the settling tortfeasor. Such a rule would provide incentive for the plaintiff to settle with all parties, and not require a plaintiff to retain one tortfeasor as a scapegoat. Such a rule would permit the last tortfeasor in the case to negotiate for a settlement on the same footing as the first tortfeasor to settle. Such a rule would not impose on the nonsettling tortfeasors any of the settling tortfeasors' share of the obligation. And such a rule would not let the plaintiff's advantageous settlement agreement with one tortfeasor become a windfall to the remaining tortfeasors. For the same reasons set out above in connection with the workmen's compensation employer, a tortfeasor who has settled is a person in whose absence complete relief cannot be accorded among those already parties. Rule 52.04(a), (b). The relative fault of the settling tortfeasor should be determined so that the judgment entered against the remaining tortfeasors reflects only their proportionate fault. In summary, settlements within a relative fault system of tort liability should be governed by the following rules: (1) a settlement agreement between one tortfeasor and the plaintiff bars any claim for indemnity or contribution brought by a concurrent tortfeasor against the settling tortfeasor; (2) a settlement agreement between one tortfeasor and the plaintiff satisfies that portion of the obligation that corresponds to the settling tortfeasor's proportionate fault; and (3) the settling tortfeasor remains a party to the plaintiff's lawsuit against nonsettling tortfeasors. These rules will carry through our tort law a systematic application of the doctrine of relative fault. Under these rules, if the plaintiff settles with one tortfeasor for less than that tortfeasor's proportionate fault, the difference usually will be attributable to the value of quick and certain recovery. Any difference not so explained may be the result of a bad bargain; but the general rule of freedom of contract includes the freedom to make a bad bargain. Sanger v. Yellow Cab Co., 486 S.W.2d 477, 482 (Mo. banc 1972). See Vondera v. Chapman, 352 Mo. 1034, 1039, 180 S.W.2d 704, 705-06 (1944). If the plaintiff settles with one tortfeasor for more than that tortfeasor's proportionate fault, the plaintiff alone is entitled to the benefit of his or her bargain. The fact that one tortfeasor has agreed to compromise the claim will neither reduce nor increase the amount of liability of the remaining tortfeasorseach will be liable for the plaintiff's damages in direct proportion to his or her degree of fault. [10] The above rules are easily applied in the case at bar. Appellant's briefs indicate that, after the trial court's order sustaining respondent's motion for judgment on the pleadings was made final on January 13, 1978, appellant settled the case with Parks. Respondent's briefs reject appellant's statement of facts as going outside the record and including matters impertinent to the order sustaining respondent's motion for judgment. The transcript filed in this Court does not contain any evidence that the case was disposed of by a settlement agreement. In the absence of a stipulation by the parties, the transcript may not be supplemented by extraneous matter in the briefs of one party, and such extraneous matter may not be considered on appeal. Consumer Contact Co. v. Department of Revenue, 592 S.W.2d 782, 785 n. 1 (Mo. banc 1980); Pretti v. Herre, 403 S.W.2d 568, 569 (Mo.1966). On remand, if the trial court determines that a release has been given to appellant, I would direct the court to treat Union Carbide's proportionate liability to Parks in a manner consistent with this opinion.