Opinion ID: 1033488
Heading Depth: 3
Heading Rank: 2

Heading: Possible Double Recovery

Text: [¶65] We recently discussed the principles governing possible double recoveries in Dorr v. Smith, Keller & Associates, 2010 WY 120, 238 P.3d 549 (Wyo. 2010) (Dorr V). In that case, which spanned approximately twenty years and generated five appeals to this Court, Dorr claimed that settlement funds paid by his father and a bank in a separate case should be credited against the judgment against him, and that he was therefore entitled to a partial satisfaction of the judgment. After holding an evidentiary hearing, the district court disagreed, and that decision was affirmed on appeal. This Court commented as follows: Wyoming law does not favor double recoveries for the same legal injury. A judgment debtor is, therefore, entitled to credit against a judgment for a settlement that pertains to claims included in the judgment, but is not entitled to credit for settlement of claims that were not part of the judgment. The party asserting satisfaction of a judgment has the burden of proof. 20 The decision about whether a credit against an outstanding judgment should be allowed is controlled by principles of equity. Id. at ¶¶ 23–24, 238 P.3d at 554–55 (citations omitted) (internal quotation marks omitted). See also Singer v. Olympia Brewing Co., 878 F.2d 596, 600 (2nd Cir. 1989) (“[W]hen a plaintiff receives a settlement from one defendant, a nonsettling defendant is entitled to a credit of the settlement amount against any judgment obtained by the plaintiff against the nonsettling defendant as long as both the settlement and judgment represent common damages.”); 8 Bollinger v. Rheem Mfg. Co., 381 F.2d 182, 185 (10th Cir. 1967) (“[A]ppellant, who asserted the double recovery, had the burden to show that the settlement and satisfaction of the judgment entered against him would together constitute a double recovery by Rheem for the same losses.”). [¶66] To the extent Herling argues that the judgment against JHCI in federal court alone entitles him to a credit against the judgment in this case, we disagree. A creditor may obtain a judgment against both a debtor and a guarantor on the same debt. Restatement (Second) of Judgments § 49 cmt. a (1982) (early common law rules permitting only one judgment on a joint obligation are obsolete and no longer followed). A judgment creditor does not automatically receive funds–he merely obtains the right to execute on the assets of a judgment debtor to satisfy his judgment.9 [¶67] Payments made by the judgment debtor or resulting from execution on his property should be credited against a judgment against a guarantor, and a satisfaction of both judgments should be entered when the debt is paid in full, regardless of who paid the funds. The modern rule allowing only one satisfaction of multiple judgments on a joint obligation protects against a double recovery. Dorr, ¶ 23, 238 P.3d at 554 (“A judgment debtor is, therefore, entitled to credit against a judgment for a settlement that pertains to claims included in the judgment, but is not entitled to credit for settlement of claims that were not part of the judgment.”) (citation omitted); Restatement (Second) of Judgments § 49 cmt. a; § 50(2), cmt. a, cmt. d (1982) (A judgment determining the amount of a joint obligation which is then paid in full by one obligor precludes recovery by the obligee from others jointly liable for the obligation); id. at § 50(1)(b) (the general rule of nonpreclusion does not apply to the extent of the law of suretyship). 8 Singer was a securities fraud case. The commentary above should not be construed to apply to cases decided under Wyoming’s comparative fault statute. We have held that settlements paid by one tortfeasor are not set off against a judgment against another because each tortfeasor is held to pay only the damages related to his share of fault under Wyoming Statute § 1-1-108. Rudy v. Bossard, 997 P.2d 480, 486–87 (Wyo. 2000). 9 Of course, judgments also become liens on the judgment debtor’s real property. Wyo. Stat. Ann. § 1- 17-302 (LexisNexis 2011). They may be registered and become liens in other states, depending on the law of the particular state. See, e.g., Wyo. Stat. Ann. § 1-17-703 (LexisNexis 2011). 21 [¶68] In the language of the Restatement of Suretyship and Guaranty, the secondary obligor (Herling) has a defense on its obligation to the obligee (Wyoming Machinery) to the extent the underlying obligation has been discharged by performance or satisfaction by the principal obligor (JHCI). Restatement (Third) of Suretyship and Guaranty § 19(a) (1996). A guarantor acquires a right of subrogation against the primary obligor for any payments the guarantor makes on the judgment. Id. § 22; Peter A. Alces, The Law of Suretyship and Guaranty § 7:1 (2003). In this case, in which Herling is the majority shareholder of a company in bankruptcy, that right is probably of no value to him. But stated simply, two separate judgments on a single obligation result in only one satisfaction, and the guarantor has a right to recover whatever he pays to satisfy the judgment from the principal obligor. [¶69] If Tetra Tech did in fact recover a judgment for the $500,000 it paid Wyoming Machinery against JHCI in the federal case described above, a fact which is not clear to us, it may never recover anything at all or less than that amount by execution. A guaranty would be worthless if the rendering of a judgment against the primary obligor would be deemed payment of the underlying obligation. If any portion of the judgment is ever paid, the effect of payment can be determined in post-judgment proceedings to declare the judgment satisfied as in Dorr V. [¶70] The real question is whether the $500,000 paid by Tetra Tech from JHCI’s retainage account belonged to JHCI or to Tetra Tech. If it belonged to JHCI, Herling would be entitled to credit for it, because it would have reduced JHCI’s obligation to Wyoming Machinery. If instead it belonged to Tetra Tech by virtue of JHCI’s default on its contractual obligations, then it should not be credited against the judgment because Tetra Tech settled part of Wyoming Machinery’s claim against JHCI with money it owned and is entitled to recover. Dorr, ¶ 24, 238 P.3d at 555 (principles of equity control decisions regarding credit against an outstanding judgment). [¶71] The record contains evidence that JHCI failed to properly perform its contractual obligations and thereby forfeited its right to the retained funds. Tetra Tech’s vice president of project services testified by deposition that his company’s subcontracts allowed it to stop payments from retained funds if a subcontractor like JHCI was not paying its suppliers. If Tetra Tech is correct in its contentions, Herling may not be “entitled to credit for settlement of claims that were not part of the judgment.” Dorr, ¶ 23, 238 P.3d at 554. Unfortunately, Tetra Tech’s subcontract with JHCI is not a part of the appellate record. The record does reflect that Tetra Tech paid all of the retained funds to JHCI’s suppliers and vendors. [¶72] Herling admitted at his deposition that JHCI would only have been entitled to the retained funds after completing the dirt work on the wind farm projects. However, he also claimed that Tetra Tech breached its agreement with JHCI and prevented it from 22 completing its contract, in which case perhaps the funds rightfully belonged to JHCI for work it had completed. Tetra Tech’s accounting records show that JHCI’s retainage account was reduced by $500,000 by the payment to Wyoming Machinery. The records in question were attached as an exhibit to Herling’s objection to Wyoming Machinery’s proposed order submitted under W.R.C.P. 58(a). The Walker affidavit, along with demonstrative exhibits used by Tetra Tech’s expert accountant in the federal case, likewise attested that Tetra Tech sought recovery of its $500,000 settlement payment in the federal case, although these documents did not reflect whether these funds were paid from JHCI’s retainage account. [¶73] The affidavit and accounting records would normally have had to have been filed, at the very latest, the day before the hearing on the motion for summary judgment. W.R.C.P. 6(c)(1). However, Herling only received notice that Wyoming Machinery claimed $1,383,472.93 rather than the $884,019.59 in Wyoming Machinery’s statement of undisputed facts when it served a proposed order after the hearing. The affidavit and accounting records were before the district court when it entered its order, and Wyoming Machinery did not move to strike them. Given these unusual circumstances, we will consider the accounting records and the Walker affidavit as documents before the district court when summary judgment was granted. See W.R.C.P. 6(b) (“When by these rules . . . an act is required or allowed to be done at or within a specified time, the court . . . for cause shown may at any time in its discretion . . . upon motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect . . . .”); 10A Charles A. Wright et al., Federal Practice and Procedure § 2719 (3d ed. 2005) (stating that Federal Rule of Civil Procedure 6(b), which is similar to its Wyoming counterpart, “gives the judge authority to accept a tardy affidavit when it is appropriate to do so”). [¶74] The jury in the federal case may have determined that Tetra Tech owned the funds in the retainage account by virtue of a breach of contract by JHCI. A decision as to the ownership of those funds may control in this case under principles of issue preclusion or suretyship law. Herling was aware of the claims by Tetra Tech because he was originally a party to and participated in the federal proceedings as JHCI’s CEO. See, e.g., Little v. Pizza Wagon, Inc., 432 So. 2d 1269, 1271–72 (Ala. 1983) (guarantor failed to carry his burden of showing no genuine issues of material fact as to the preclusive effect of federal proceedings); Bartle v. Health Quest Realty VII, 768 N.E. 2d 912, 919–20 (Ind. App. 2002) (guarantor in privity with debtor bound by judgment against obliger by virtue of collateral estoppel or issue preclusion); Texas W. Oil & Gas Corp. v. First Interstate Bank of Casper, 743 P.2d 857, 865 (Wyo. 1987) (principal obligor entitled to a motion to dismiss on grounds of collateral estoppel where plaintiff had obtained an earlier judgment against the guarantor), adhered to, 749 P.2d 278 (Wyo. 1988); 38 Am. Jur. 2d Guaranty, § 90 (2010) (“A guarantor who had notice of an action brought by the creditor against the principal debtor, and had an opportunity to be heard, is precluded from questioning the debtor’s liability.”) (citation omitted); 74 Am. Jur. 2d Suretyship § 109 (2010). 23 [¶75] At oral argument, counsel agreed that this Court could take judicial notice of the federal court proceedings under Wyoming Rule of Evidence 201. We have referred to that court’s record to the extent necessary to determine the timing of the proceedings of the state district court vis-à-vis those of the federal district court. However, nothing in the record on appeal suggests that the Natrona County District Court had the federal court record available to it. As already noted above, our review is limited to the record before the district court, and we cannot therefore rely on the federal court record when we review the order granting summary judgment. See Redland, ¶ 47, 288 P.3d at 1185 (“We review a summary judgment in the same light as the district court, using the same materials and following the same standards.”) (citation omitted). [¶76] The record before the district court does not independently reflect whether the $500,000 paid in settlement by Tetra Tech rightfully belonged to it or to JHCI. The subcontract between Tetra Tech and JHCI may specify the circumstances under which Tetra Tech was entitled to the retention, but it is not in this record. All we are able to divine from the record before us, viewing the evidence in the light most favorable to Herling, is that the funds came from JHCI’s retainage account, and that there is a dispute as to whether Tetra Tech properly held and used them. [¶77] We therefore conclude that Herling has raised genuine issues of material fact as to the ownership of the funds used to pay the Tetra Tech/Wyoming Machinery settlement. The case must therefore be remanded to determine whether the $500,000 paid by Tetra Tech should be credited to Herling or not. Cf. Little, 432 So. 2d at 1272–73 (reversing and remanding the trial court’s grant of summary judgment for development of a more complete record regarding the preclusive effect of federal litigation on the guarantor’s liability). We reach no conclusion as to whether this issue could be resolved on a motion for summary judgment on remand. The district court may adopt its previous findings regarding the effect (or lack thereof) of the settlement agreement and assignment on Herling’s guaranties and limit further proceedings to those necessary to determine the correct amount of the judgment. See W.R.C.P. 56(d). The parties and the district court may also wish to consider whether Tetra Tech should be joined as a party to determine its rights under the partial assignment, if there was one.