Court Opinion

ID: 4762123
Source: CourtListenerOpinion
Date Created: 2021-08-12 17:57:25.607094+00
Date Added: 2024-06-11T08:09:04.053648
License: Public Domain

Schindler, J.
¶77 (dissenting) I respectfully disagree with the conclusion that the secret agreement between the *940plaintiffs and one of the codefendants to enter into a covenant not to execute and release did not result in prejudice to defendant City First Mortgage Services LLC that warrants a new trial. The undisclosed agreement distorted the interests and alignment of the parties and created a sham of adversity that is contrary to Washington law, the right to a fair trial, the integrity of the adversary system, candor to the tribunal, and the administration of justice. Consistent with the requirements of the tort reform act of 1986, chapter 4.22 RCW, the Supreme Court should adopt a rule requiring the timely disclosure of an agreement between a plaintiff and a codefendant to enter into a covenant not to sue and release.
¶78 In multidefendant litigation, an undisclosed settlement agreement between a plaintiff and one or more of the codefendants that limits liability yet retains the settling codefendant as a party can take various forms. However, the critical characteristic of these agreements is secrecy.
Secrecy is the essence of such an arrangement, because the court or jury as trier of the facts, if apprised of this, would likely weigh differently the testimony and conduct of the signing defendant as related to the non-signing defendants. . . .
The search for the truth, in order to give justice to the litigants, is the primary duty of the courts. Secret agreements between plaintiffs and one or more of several multiple defendants can tend to mislead judges and juries, and border on collusion.
Ward v. Ochoa, 284 So. 2d 385, 387 (Fla. 1973).
¶79 The integrity of our system of justice is undermined by a secret settlement agreement between the plaintiffs and a codefendant. Our adversary system of justice is based on the fundamental assumption that each party is motivated by their obvious interest in the litigation. That assumption is no longer valid where a plaintiff and a codefendant enter into a secret covenant not to sue and release. The alignment of the parties is not what it appears to be. The codefendant remains in the case as a defendant. *941The other parties to the litigation are misled, and the jury is deceived by being informed that they are resolving an existing dispute between parties that have already resolved those claims.
¶80 In Washington, a pretrial settlement agreement between the plaintiff and a codefendant in litigation involving multiple defendants is subject to RCW 4.22.060. Under RCW 4.22.060 and RCW 4.22.070, a plaintiff can keep the settling defendant in the litigation by entering into “a release, covenant not to sue, covenant not to enforce judgment, or similar agreement.” RCW 4.22.060(1). Because of the impact of such an agreement on the allocation of liability and the risk of collusion and fraud, the statute requires timely disclosure and a reasonableness hearing. RCW 4.22.060(1);28 Besel v. Viking Ins. Co. of Wis., 146 Wn.2d 730, 738-39, 49 P.3d 887 (2002).
¶81 In recognition of the prejudicial effect of an undisclosed settlement agreement with one or more codefendants in a multidefendant case, the overwhelming majority of jurisdictions require timely disclosure of the existence and terms of an agreement between the plaintiff and a codefendant to the other parties in the case and the court. See Alaska—Breitkreutz v. Baker, 514 P.2d 17 (Alaska 1973); Arizona—Taylor v. DiRico, 124 Ariz. 513, 606 P.2d 3 (1980); Arkansas—Firestone Tire & Rubber Co. v. Little, 276 Ark. 511, 639 S.W.2d 726 (1982); California—Pellett v. Sonotone Corp., 26 Cal. 2d 705, 160 P.2d 783 (1945); Colorado—Bashor v. Northland Ins. Co., 29 Colo. App. 81, 480 P.2d 864 (1970), aff’d, 177 Colo. 463, 494 P.2d 1292 (1972); Florida— *942Ward, 284 So. 2d 385; Idaho—Soria v. Sierra Pac. Airlines, Inc., 111 Idaho 594, 726 P.2d 706 (1986); Illinois—Reese v. Chi., Burlington & Quincy R.R., 55 Ill. 2d 356, 303 N.E.2d 382 (1973); Indiana—Fullenkamp v. Newcomer, 508 N.E.2d 37 (Ind. Ct. App. 1987); Kansas—Ratterree v. Bartlett, 238 Kan. 11, 707 P.2d 1063 (1985); Louisiana—Daniel v. Penrod Drilling Co., 393 F. Supp. 1056 (D.C. La. 1975); Maryland—Gen. Motors Corp. v. Lahocki, 286 Md. 714, 410 A.2d 1039 (1980); Minnesota—Johnson v. Moherg, 334 N.W.2d 411 (Minn. 1983); Nebraska—Hegarty v. Campbell Soup Co., 214 Neb. 716, 335 N.W.2d 758 (1983); New Hampshire—Bedford Sch. Dist. v. Caron Constr. Co., 116 N.H. 800, 367 A.2d 1051 (1976); Ohio—Hodesh v. Korelitz, 123 Ohio St. 3d 72, 2009-Ohio-4220, 914 N.E.2d 186; Oregon—Grillo v. Burke’s Paint Co., 275 Or. 421, 551 P.2d 449 (1976).29
¶82 Here, there is no dispute Donald and Beth Collings and Andrew Mullen entered into the covenant not to execute and release before Mullen’s deposition and did not disclose the existence and terms of the agreement to City First or the court until well after trial.
¶83 The Collingses sued Robert and Rebecca Loveless, Andrew Mullen and his spouse, Gavin and Margaret Spencer, Home Front Holdings LLC, and City First. The *943Collingses alleged that Loveless and Mullen owned Home Front and Loveless agreed to purchase their house and lease it back to them. The Collingses claimed that Loveless and Mullen were either employees or authorized agents of City First, and Loveless and Mullen violated the equity skimming act, chapter 61.34 RCW, and other consumer protection statutes.30 The Collingses sought damages and entry of a decree quieting title in the property. The trial was scheduled to begin on September 13, 2010.
¶84 On June 3, 2009, the court entered an order of default against Loveless. On March 31, 2010, the court entered an amended default judgment quieting title in the property to the Collingses.
¶85 On June 9, 2010, the Collingses filed a notice to Mullen to attend the jury trial on September 13 and testify. On June 20, the Collingses noted the deposition of Mullen for July 26. In the days leading up to the July 26 deposition, the Collingses negotiated a covenant not to execute with Mullen and his attorney. The covenant not to execute between the Collingses and Mullen provides, in pertinent part:
WHEREAS, plaintiffs brought claims against defendants Mullen in a legal action commenced in the Superior Court of Washington for King County entitled Collings v. City First Mortgage Services, LLC, et al., King County Cause No. 09-2-13062-1 (SEA) as a result of an alleged rescue foreclosure scam and subsequent foreclosure proceedings perpetrated against plaintiffs; and
WHEREAS, this agreement is being made for the sole benefit of the plaintiffs and defendants Mullen, under the policy of the law favoring the settlement of litigation, which policy would be to some extent impaired if any remaining *944defendants in Collings v. City First Mortgage Services, LLC, et al., King County Cause No. 09-2-13062-1 (SEA) or any other remaining potentially liable persons or entities, are to be in any way construed as third party beneficiaries thereof; and .
WHEREAS, defendants Mullen expressly deny any liability for the alleged rescue foreclosure scam and subsequent foreclosure proceedings perpetrated against plaintiffs; and
WHEREAS, plaintiffs expressly reserve all rights of actions, claims, demands, and rights of execution against any and all other persons or entities, including but not limited to all defendants and intervening parties named in Collings v. City First Mortgage Services, LLC, et al., Ring County Cause No. 09-2-13062-1 (SEA) (e.g., City First Mortgage Services, LLC, etc.), other than defendants Mullen:
1. In consideration of the promise to pay $500.00 to plaintiffs, plaintiffs do covenant, and agree with defendants Mullen, that plaintiffs (or any successor or assignee) will not execute or otherwise seek to enforce or collect on any judgment entered in the pending lawsuit against defendants Mullen. Plaintiffs will not assign any such judgment to any other party and, if such assignment is made, plaintiffs’ assignors will be bound by the terms of this Covenant Not to Execute. Should judgment be entered against any defendant who is a party to this agreement, plaintiff will provide that defendant with a Satisfaction of Judgment promptly upon final disposition of all claims in this matter.
¶86 Neither the Collingses nor Mullen disclosed the existence or terms of the agreement to City First either before the deposition or during the trial. The Collingses’ attorney deposed Mullen on July 26. The City First attorney was present at the deposition but asked no questions.
¶87 Loveless filed for bankruptcy before the jury trial began on September 13. Despite the notice to attend trial, Mullen did not appear at trial. The Collingses presented and read a portion of the transcript from Mullen’s deposition testimony to the jury. City First read other portions of the deposition to the jury.
¶88 The jury instructions directed the jury to decide whether Loveless and Mullen engaged in acts that violated *945the equity skimming act, the Credit Services Organizations Act, the Consumer Loan Act, and the Consumer Protection Act, and whether City First was vicariously liable for their acts. In answer to the special verdict form, the jury found Loveless and Mullen were liable to the Collingses, and that City First was responsible for their acts. The jury awarded the Collingses damages. The jury also awarded punitive damages against Loveless, Mullen, and City First under the Credit Services Organizations Act.
¶89 Two months after trial, City First discovered that the Collingses had entered into a covenant not to execute with Mullen before his deposition on July 26. Included in the 33 pages of billing records that the Collingses submitted in support of their request for an award of attorney fees are entries showing that the Collingses were negotiating a covenant not to execute and release agreement with Mullen beginning on July 23. City First filed a motion for a new trial.
¶90 City First argued that the failure to disclose the covenant not to execute prejudiced City First by compromising Mullen’s deposition testimony, depriving City First of a full opportunity to examine Mullen, and giving “the jury the false impression that the Mullens were still parties to the action.”
¶91 Mullen submitted a declaration stating that he received the final version of the covenant not to execute right before his deposition, and the Collingses would agree to enter into the covenant not to execute only if his deposition testimony was “acceptable.” Mullen testified, in pertinent part:
In the days leading up to the deposition, Plaintiffs’ counsel and my counsel negotiated a covenant not to execute any judgment against my wife and me in anticipation of that deposition. I received the final version of that document from Plaintiffs’ counsel on July 26, 2010 - the morning of my deposition - and was informed that Plaintiffs would only execute the covenant if my deposition testimony was acceptable. The covenant was fully executed after my deposition.
*946¶92 City First also pointed out that many of the jury instructions flatly contradicted the covenant not to execute and were misleading. For example, jury instruction 9 states:
The Codings [es] adege that defendants Robert Paul Loveless, Andrew Mullen, and Gavin Spencer were employees of defendant City First Mortgage Services, LLC and that at ad times defendants Loveless and Mullen and Gavin Spencer were acting within the scope of employment during the course of their dealings with the Codings [es].
If you find that Robert Paul Loveless, Gavin Spencer, and Andrew Mullen, or any of them were acting within the scope of their employment with City First Mortgage Services, LLC during the course of their dealings with the Codings [es], and if you find that Loveless, Mullen or the both of them are liable, then you must find that the particular defendant and City First Mortgage Services, LLC are both liable.
¶93 City First also cited jury instructions 23 and 24. Those jury instructions state, pertinent part:
The Codings [es] claim that defendants Robert P. Loveless, Andrew Mullen, and City First engaged in violations of the Consumer Protection Act by violating the Equity Skimming Act, the Credit Services Organization Act, and the Consumer Loan Act.
The Codings [es] claim that defendants Robert P. Loveless, Andrew Mullen, and City First Mortgage Services, LLC have each violated the Washington Consumer Protection Act. To prove a violation of the Washington Consumer Protection Act as to each of these defendants, the Codings [es] have the burden of proving each of the following propositions.
¶94 The trial court denied the motion for a new trial. The order summarily states that “City First has not identified any preserved error in instructing the jury or in evidentiary or procedural rulings that affect the substantial rights of the parties.”
¶95 In affirming the trial court’s denial of the motion for a new trial and concluding that City First does not show *947prejudice, the majority also ignores the incentive of Mullen to cast City First in an unfavorable light, the inability of City First to cross-examine Mullen, and the right of the jury to know about his alignment with the plaintiffs.
¶96 The cases the majority cites for the proposition that other courts require a “concrete” showing of prejudice in considering the effect of an undisclosed settlement agreement between plaintiffs and a codefendant are distinguishable.
¶97 In Medical Staffing, because the plaintiffs and the defendant “freely disclosed [the] alignment of their interests to the jury during opening statements,” and that alignment did not change, the court concluded it was unlikely the jury would have reached a different verdict. Med. Staffing Network, Inc. v. Connors, 313 Ga. App. 645, 649, 722 S.E.2d 370 (2012).
¶98 In Monti, the court held nondisclosure of the settlement was not prejudicial because “the agreement did not change the adversarial alignment of the parties.” Monti v. Wenkert, 287 Conn. 101, 127, 947 A.2d 261 (2008). The court emphasized that “[significantly, the agreement was executed after the plaintiffs rested their case,” and after the codefendant “testified in her own defense, maintaining her strategy of attempting to shift liability” to the other codefendant. Monti, 287 Conn, at 127. Here, unlike in Medical Staffing and Monti, there is no question in this case that the undisclosed covenant not to execute changed the adversarial alignment of the parties, depriving City First of the right to a fair trial.
¶99 The majority also concludes that there is “nothing to suggest that [Mullen’s] answers were crafted to aid the Collingses against City First. His testimony was largely consistent with the testimony of Sherri Russett, a City First employee since December 2009 who testified about how City First operated.” Majority at 922.
¶100 I think it is difficult, if not impossible, to determine whether Mullen’s testimony would have been different *948absent the secret agreement. And even if we could make this determination, it does not change the fact that the undisclosed covenant not to execute distorted the true position of the parties and resulted in misleading City First and the jury.
¶101 Nonetheless, City First points to a number of instances where, consistent with the secret covenant not to execute and release, Mullen gave testimony unfavorable to City First:
That City First supervised Mullen’s and Loveless’s work ....
That all of Home Front Services’ loans were placed with City First ....
Based entirely on “speculation,” that City First profited from Home Front Services’ loans ....
Referring specifically [to] the initial loan relating to the Collingses’ residence, that there was a significant documentation error ....
Based on what Mullen “would imagine,” that City First should have identified the above error.
¶102 City First also points to a number of instances where Mullen omitted certain critical facts. For example,
That Home Front Services operated as an independent branch of City First... and that City First was not involved in preparing loan documents originating out of Mullen’s and Loveless’s Home Front Services office. . . .
That there was and is no common ownership or management or employment or agency agreement between City First and Home Front Holdings, LLC or Integrity Management Group. . . .
That there was no yield spread premium on the loans relating to the Collingses’ residence . . . , that all of the fees charged for those loans were “average” fees . . ., and that City First lost money on those loans. . . .
That City First did not underwrite any loan relating to the Collingses’ residence, did not service any such loan, and was not the actual leader for any such loan. . . .
*949That the paperwork for the loans relating to the Collingses’ residence was prepared in Mullen’s and Loveless’s Home Front Services office and, upon completion, was sent directly to the respective lender - not to City First.
¶103 Because the failure to disclose the covenant not to execute and release deprived City First of the right to a fair trial, I would reverse and remand for a new trial.
Review denied at 179 Wn.2d 1028 (2014).

 RCW 4.22.060(1) provides, in pertinent part:
A hearing shall be held on the issue of the reasonableness of the amount to be paid with all parties afforded an opportunity to present evidence. A determination by the court that the amount to be paid is reasonable must be secured. If an agreement was entered into prior to the filing of the action,, a hearing on the issue of the reasonableness of the amount paid at the time it was entered into may be held at any time prior to final judgment upon motion of a party.
The burden of proof regarding the reasonableness of the settlement offer shall be on the party requesting the settlement.

 A significant number of commentators have criticized undisclosed partial settlement agreements. See, e.g., Robin Renee Green, Comment, Mary Carter Agreements: The Unsolved Evidentiary Problems in Texas, 40 Baylor L. Rev. 449 (1988); John E. Benedict, Note, It’s a Mistake To Tolerate the Mary Carter Agreement, 87 Colum. L. Rev. 368 (1987); Richard Casner, Note, Admission into Evidence of a Mary Carter Agreement from a Prior Trial Is Harmful Error, 18 Tex. Tech. L. Rev. 997 (1987); June F. Entman.Mbo' Carter Agreements: An Assessment of Attempted Solutions, 38 U. Fla. L. Rev. 521 (1986); Katherine Gay, Note, Mary Carter in Arkansas: Settlements, Secret Agreements, and Some Serious Problems, 36 Ark. L. Rev. 570 (1983); David R. Miller, Comment, Mary Carter Agreements: Unfair and Unnecessary, 32 Sw. L.J. 779 (1978); Meriwether D. Williams, Comment, Blending Mary Carter’s Colors: A Tainted Covenant, 12 Gonz. L. Rev. 266 (1977); John Edward Herndon, Jr., Note, “Mary Carter” Limitation on Liability Agreements between Adversary Parties: A Painted Lady Is Exposed, 28 U. Miami L. Rev. 988 (1974); David Jonathan Grant, Note, The Mary Carter Agreement — ■ Solving the Problems of Collusive Settlements in Joint Tort Actions, 47 S. Cal. L. Rev. 1393 (1974).

 The Credit Services Organizations Act, chapter 19.134 RCW; the Consumer Loan Act, chapter 31.04 RCW; and the Consumer Protection Act, chapter 19.86 RCW.