Opinion ID: 2130539
Heading Depth: 1
Heading Rank: 2

Heading: Validity and Effect of Settlement Agreement.

Text: Prior to commencement of the testimony a settlement was arrived at concerning a portion of the claims. The jury (which had been impaneled and sworn) was excused for the day, and the court convened an in camera hearing at which the terms of the agreement were dictated into the record. All of the plaintiffsTjernlund, Frerichs, Corrigan Properties, and Draper & Krameragreed that Tjernlund's liability would be limited to $100,000 and Frerichs' to $140,000. The money would be paid over to plaintiffs, the claims of plaintiffs against Tjernlund and Frerichs would be dismissed, these two defendants would dismiss their mutual cross-claims, and Tjernlund would dismiss its third-party claims against Corrigan Properties and Draper & Kramer. The cross-claims of Tjernlund and Frerichs against Yale and Thompson-Yaeger would be maintained. No release would be executed, and all of the parties would remain in the litigation. It was further agreed that in the event that the jury returned a verdict by which either Tjernlund or Frerichs had no liability (which it did with respect to Tjernlund) then the sums paid over would be repaid. All of the parties to the agreement concurred that these terms comprised in essence their agreement. An extended discussion of the nature of the agreement and its effect ensued. The agreement was subsequently reduced to writing, and in written form it contained essentially the same terms as those dictated into the record. Some additional provisions were, however, included. While appellants contend that these provisions constituted substantial variations from the oral agreement, it is clear that they merely provided for the mechanics of the payment and repayment and did not alter the substance of the agreement. The parties refer to this agreement in their briefs as either a Mary Carter settlement or a loan-receipt. It seems to fall outside either classification, but more closely resembles a loan-receipt agreement than anything else. Mary Carter settlement agreements receive their name from the case of Booth v. Mary Carter Paint Co., 202 So.2d 8 (Fla. App.1967). The term was coined by the District Court of Appeals of Florida in Maule Industries, Inc. v. Rountree, 264 So.2d 445 (Fla.App.1972), remanded, 284 So.2d 389 (Fla.1973). The district court said: The term arises from the agreement popularized by the case of Booth v. Mary Carter Paint Co., Fla.App.1967, 202 So.2d 8, and now appears to be used rather generally to apply to any agreement between the plaintiff and some (but less than all) defendants whereby the parties place limitations on the financial responsibility of the agreeing defendants, the amount of which is variable and usually in some inverse ratio to the amount of recovery which the plaintiff is able to make against the nonagreeing defendant or defendants. 264 So.2d 446, note 1. Other essential provisions which earmark a Mary Carter agreement are that the fact that the agreement has been entered into and its terms are kept secret from both the nonagreeing parties and the court, that the defendants remain in the lawsuit as defendants, and that the plaintiff is guaranteed some minimum recovery. The collusive nature of such agreements and the fraud they tend to work upon both the nonagreeing parties and the courts have been severely criticized. See, 25 U. of Fla.L.Rev. 762; 47 So.Cal.L.Rev. 1393; Ward v. Ochoa, 284 So.2d 385 (Fla.1973). About the only aspects of the instant agreement which resemble a Mary Carter-type agreement are the limitation-of-liability provision and the provision for varying the amount the agreeing defendants will pay. The most objectionable aspects, secrecy and collusion, are missing. Unlike a true Mary Carter agreement, the agreement here was fully disclosed to the court and nonagreeing parties, and the claims of plaintiffs against defendants were dismissed. Likewise it seems inappropriate to categorize this agreement as a loan-receipt, although it possesses many of the characteristics of that genre. As originally developed, loan-receipt agreements were devices used between insurers and insureds to allow an insured who could not otherwise afford it to maintain an action against third parties to recover amounts his insurer would otherwise be obligated to pay. Such efforts to have the insured in essence seek to recover the insurer's subrogation interest often ran afoul of real party in interest statutes. The loan-receipt was a method by which the insured was (albeit fictitiously) the real party in interest. See, generally, Annotation, 13 A.L.R.3d 42. Such devices have been accepted in Minnesota. See, Blair v. Espeland, 231 Minn. 444, 43 N.W.2d 274 (1950). The use of loan-receipt agreements has been recognized in other jurisdictions. In transactions between plaintiffs and one or more joint tortfeasors the agreements have often been used as a device to gain de facto contribution where not authorized by law. See, Reese v. Chicago, Burlington & Quincy R. Co., 55 Ill.2d 356, 303 N.E.2d 382 (1973). However, another, more laudatory, purpose of such agreements is to allow some measure of recompense for an injured plaintiff, during often protracted litigation, rather than force the plaintiff to wait until all proceedings, including the appeals, are completed. See, Northern Indiana Public Service Co. v. Otis, 145 Ind.App. 159, 250 N.E.2d 378 (1969). The instant agreement does possess certain characteristics of a loan-receiptthe monies are paid over to plaintiffs immediately and are to be repaid out of the recovery had, if any, from the nonagreeing defendants. There is the additional and logical provision that in return for this advance payment the defendants gain an upper limit on their liability. The greatest difficulty caused by pretrial settlement agreements is their effect on the adversary nature of the litigation. This fact was recognized by the court in Reese v. Chicago, Burlington & Quincy R. Co., supra . The court said: Defendant    argues that the use of loan agreements tends to undermine the adversary nature and integrity of the proceedings against the remaining defendant. To a limited extent, we agree. It seems not unlikely that, where a defendant has executed a loan-receipt agreement with a plaintiff who thereupon dismisses that defendant and proceeds against the remaining ones, the employees and witnesses of the dismissed defendant may be substantially more cooperative with plaintiff than would otherwise be true, since any recovery by that defendant of the loaned amount is frequently contingent upon plaintiff's success against the remaining defendants. To some degree the same may be said of many third-party actions. But we believe adequate protection for those defendants exists if by cross-examination they are permitted to establish that a witness knows of the existence of a loan agreement, and, if so, that the witness may be biased or prejudiced as a result thereof. 55 Ill.2d 364, 303 N.E.2d 387. We have also voiced our displeasure at secret settlements and the unfairness they promote. See, Faber v. Roelofs, 298 Minn. 16, 212 N.W.2d 856 (1973). Disclosure and an adequate opportunity to cross-examine insure that the adversary process is not so subverted as to deny a fair trial. In the instant case the agreement was disclosed to the court and counsel before the jury heard any testimony, and arguments made regarding the discoverability of the agreement seem inapposite. Additionally, counsel for Yale fully argued the effect of the agreement on the adversary position of the other parties to the jury, without objection. Even after the agreement, the posture of the parties was not changed substantially. Tjernlund and Frerichs would have had interests adverse to those of the other defendants irrespective of the agreement and would have endeavored to place as much of the burden on them as possible. Despite assertions by appellants to the contrary, it seems that the agreement in the instant case did not affect the liability of the nonassenting defendants. As noted above, the claims of Tjernlund and Frerichs for contribution and indemnity from Yale and Thompson-Yaeger were limited to the amounts paid by the former two parties under the agreement; Yale and Thompson-Yaeger must pay no more than their own apportioned share of the damages. Appellants also argue that the agreement constituted a release by plaintiffs, and, being the release of some joint tortfeasors, constituted a release of all of them. This argument is not persuasive. The agreeing parties made it clear that the agreement was not a release. As we stated in Gronquist v. Olson, 242 Minn. 119, 64 N.W.2d 159 (1954), agreements of settlement, no matter what form they take, act to discharge all joint tortfeasors only if it appears to be the intention of the parties that sums paid under an agreement constitute full compensation to the plaintiff for the damages sustained; if there is only partial compensation, then the plaintiff remains free to pursue his remedy against the other joint tortfeasors. The amounts paid, however, do constitute a pro tanto reduction in liability of the joint tortfeasors. Cf. Minn.St. 604.01. Appellants' assertions that it was error for the trial court not to admit the agreement itself into evidence seem equally unfounded. The jury was advised of the fact of the settlement both in the court's preliminary charge and in the closing instruction. As noted previously, the effect of the agreement was argued to the jury. No useful purpose would have been served by admitting the written agreement itself into evidence. It is not proper or desirable for this court to condone or condemn types of settlement agreements generically. Rather, we must examine them on a case-by-case basis and assess their validity and effect. If there is no secrecy surrounding a settlement, and if it does not act to prejudice the rights of the nonagreeing parties, then we see no general prohibition against such agreements. In this case, no prejudice appears to have resulted to any of the parties, and we thus find nothing objectionable in the settlement reached.