Court Opinion

ID: 9851310
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:10:35.164221+00
Date Added: 2024-06-11T09:20:53.323217
License: Public Domain

Shanahan, J.,
dissenting.
Early in its opinion, the majority, with its judicial pencil, strokes a line between a “release” and a “covenant not to sue,” and then, without explanation or hesitation, turns the pencil around and erases that distinctive line. As a consequence, a release and a covenant not to sue become inseparable, indistinguishable, and, therefore, identical as an agreement for settlement of a tort claim. Because I believe that a covenant not *522to sue is essentially different from a release and that settlement through a covenant not to sue an agent does not discharge the principal from liability for the same harm involving the agent, I dissent.
Scott Nielsen; his wife, Cynthia Nielsen; and Nielsens’ insurance company, State Farm Mutual Automobile Liability Insurance Company, entered into an agreement with Dolores McCurry, personal representative of the estate of Danette Robin McCurry, which was titled “COVENANT NOT TO SUE.” The agreement provided that in exchange for $95,000, the McCurry estate “covenant^] not to sue” Scott Nielsen, Cynthia Nielsen, and State Farm “for any and all liability, actions, causes of action, claims, demands known or unknown, upon or by reason of any damage, loss or injury . . . sustained by the [McCurry estate]” concerning the automobile accident which caused the death of Danette Robin McCurry.
The covenant also stated that
the undersigned [personal representative] knowing that the Settling Parties [Nielsens and State Farm] are not paying the total of the undersigned’s full amount of damages as would be paid if all persons, including the School District of Valley (hereinafter “Valley”) were settling said action or cause of action and all claims for damages of the undersigned herein, does hereby credit and satisfy that portion of the total amount of damages- that the undersigned has suffered and will suffer because of the aforesaid accident which has been caused by the negligence, if any, of . . . the Settling Parties ... it being the act and intention of the undersigned to covenant not to sue, and the undersigned does hereby so covenant for that fraction and portion and percentage of the total cause of action and claim for damages against all parties ... for which any or all of the Settling Parties hereto are found to be liable and responsible . . . and the undersigned does hereby reserve, save, maintain and preserve against other parties the balance of the whole cause of action of the undersigned against said other parties, which balance of said cause of action is not released hereunder.
Additionally, the McCurry estate’s settlement agreement *523contained a provision to indemnify Nielsens and State Farm:
In further consideration of the aforesaid payment to the [McCurry estate] by the Settling Parties hereto for the damages, injuries and claims of the undersigned, the [McCurry estate] hereby indemnifies and agrees to indemnify and save harmless the said Settling Parties and State Farm, their agents, employees, successors, assigns and insurers, for a sum up to and not to exceed $95,000.00 that they will or may be required to pay upon any judgment obtained against them by a joint tortfeasor or any other party to said action or any other party for contribution in any way arising out of any damages . . . resulting from said accident____
The settlement agreement or covenant not to sue, signed by the personal representative, concludes with the following: “It is understood and agreed by the parties that this instrument is a covenant not to sue as to the above-mentioned parties and is not a release.”
As characterized by one commentator, a release is “a surrender of the cause of action” and a covenant not to sue is an agreement “by which the plaintiff does not surrender the cause of action, but merely agrees not to enforce it.” W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 49 at 332, 334 (5th ed. 1984). Similarly, according to the Michigan Supreme Court:
“A covenant not to sue is to be distinguished from a release in that it is not a present abandonment or relinquishment of the right or claim but is merely an agreement not to sue on an existing claim. It does not extinguish the cause of action. As between the parties to the agreement, the final result is the same in both cases. The difference is primarily in the effect as to third parties, and is based mainly on the fact that in the case of a release there is an immediate release or discharge, whereas in the other case there is merely an agreement not to prosecute a suit.”
Theophelis v Lansing Hospital, 430 Mich. 473, 492 n.14, 424 N.W.2d 478, 486 n.14 (1988) (quoting from 66 Am. Jur. 2d Release § 2(1973)).
*524This court has said that “in a tort action based exclusively on the alleged negligence of an employee or agent, a valid release of that employee-agent releases the employer or principal from liability, even though the release specifically reserves all claims against the employer-principal.” (Emphasis supplied.) Dickey v. Meier, 188 Neb. 420, 424, 197 N.W.2d 385, 388 (1972). Accord, Plock v. Crossroads Joint Venture, 239 Neb. 211, 475 N.W.2d 105 (1991); Wicker v. City of Ord, 233 Neb. 705, 447 N.W.2d 628 (1989); Pioneer Animal Clinic v. Garry, 231 Neb. 349, 436 N.W.2d 184 (1989); Mallette v. Taylor & Martin, Inc., 225 Neb. 385, 406 N.W.2d 107 (1987); Ericksen v. Pearson, 211 Neb. 466, 319 N.W.2d 76 (1982). The rule expressed in Dickey is based on the rationale that a principal’s liability under the doctrine of respondeat superior is secondary to or derived from and dependent on the agent’s liability for a harm. Therefore, if the agent is released from liability, a legal link in the chain of the principal’s liability is broken, and the principal is discharged from liability for the harm originating with the agent.
Logic requires a different rule and result when a covenant not to sue is utilized for settlement of claims arising out of the principal-agent relationship. If a plaintiff covenants not to sue an agent, but does not release the agent from liability, the link in the chain of liability is not broken; hence, the principal’s derivative liability is left intact. Many courts have applied the foregoing rationale in holding that a covenant not to sue an agent does not discharge the principal from liability; for instance, see, Atkinson v. Wichita Clinic, P.A., 243 Kan. 705, 763 P.2d 1085 (1988); Dworak v. Olson Const., 191 Colo. 161, 551 P.2d 198 (1976); Holve v. Draper, 95 Idaho 193, 505 P.2d 1265 (1973); Lincoln v Gupta, 142 Mich. App. 615, 370 N.W.2d 312 (1985); Bartrand v C & O R Co, 87 Mich. App. 466, 274 N.W.2d 822 (1978); Thomas v Checker Cab Co, 66 Mich. App. 152, 238 N.W.2d 558 (1975); Centala v Navrude, 45 Mich. App. 282, 206 N.W.2d 544 (1973); and Henry B. Steeg and Associates v. Rynearson, 241 N.E.2d 888 (Ind. App. 1968).
Other courts have held that a covenant not to sue an agent will not discharge a principal from liability so long as the parties to the settlement agreement intend to preserve an action against the principal. An illustrative decision is Stewart v. Village of
*525Summit, 114 Ill. 2d 23, 499 N.E.2d 450 (1986), wherein the Supreme Court of Illinois held that a covenant not to sue an agent, without the express reservation of the right to sue other parties, discharges the agent’s principal, but a covenant not to sue which reserves the right to prosecute a claim against others who are not parties to the settlement agreement does not discharge the principal from liability. The court said in Stewart:
[I]t [is] clear that the claim against an employer, although based on respondeat superior, if reserved, survives the covenant not to sue. This is consistent with the long-established rule that the agreement is the controlling factor and the governing fact to be determined is the intent of the parties. [Citations omitted.]
We conclude that the parties intended that plaintiff’s right to sue all persons or entities other than [the employee] survive the execution of the covenant, and in allowing defendant’s motion for summary judgment, the circuit court erred.
(Emphasis in original.) 114 Illl. 2d at 30, 499 N.E.2d at 453. Accord, Hall v. Schulte, 836 P.2d 989 (Ariz. App. 1992); Ledesma v. Cannonball, Inc., 182 Ill. App. 3d 718, 538 N.E.2d 655 (1989); Ray Korte Chevrolet v. Simmons, 117 Ariz. 202, 571 P.2d 699 (Ariz. App. 1977); Hovatter v. Shell Oil Company, 111 Ariz. 325, 529 P.2d 224 (1974).
To prevent a double recovery, whatever payment has been received for the plaintiff’s covenant not to sue may be applied to reduce pro tanto an eventual recovery against any defendant determined to be liable for the plaintiff’s injury. See, Cullen v. Atchison, T. & S. F. Rly. Co., 211 Kan. 368, 507 P.2d 353 (1973); Whittlesea v. Farmer, 86 Nev. 347, 469 P.2d 57 (1970); Henry B. Steeg and Associates v. Rynearson, supra.
Under current Nebraska common law, when a principal is free from active wrongdoing but is vicariously liable for injuries caused by the principal’s agent, the principal has an action against the agent for indemnification of the principal’s loss. See Warner v. Reagan Buick, 240 Neb. 668, 483 N.W.2d 764 (1992) (indemnity is available to one free from wrongdoing whose liability was vicariously imposed). See, also, City of Wood River v. Geer-Melkus Constr. Co., 233 Neb. 179, 444 N.W.2d *526305 (1989). Looking to the possibility of indemnification from an agent, the majority places much stock in Holmstead v. Abbott G. M. Diesel, Inc., 27 Utah 2d 109, 493 P.2d 625 (1972), in which the Supreme Court of Utah held that a covenant not to sue an employee released the employer because, without the effective release, the employee might be subjected to the employer’s suit for indemnification notwithstanding that the employee, as a recipient of a covenant not to sue, had intended to obtain protection from all liability arising out of the incident in which the plaintiff-covenantor was injured.
However, in McCurry’s case, the parties to the covenant not to sue expressly and very definitely acknowledged the possibility of an indemnificatory action by the School District of Valley. The covenant not to sue contained a specific provision for the McCurry estate’s indemnification of Nielsens and State Farm to the extent of $95,000 payable on any judgment against Nielsens and State Farm as the result of the auto accident which caused the death of Danette Robin McCurry. Consequently, the concerns and rationale expressed in Holmstead are irrelevant to McCurry’s case. Also, this court’s majority loses sight of the fact that the covenant not to sue, as a settlement agreement, is between the McCurry estate, Nielsens, and State Farm. The School District of Valley is not a party to that agreement. Whatever may have been their motivation, Nielsens and State Farm accepted the covenant not to sue as a means to compromise and settle the tort claim by the McCurry estate. Scott Nielsen’s exposure to possible indemnification, dependent on a future judgment for the McCurry estate against the School District of Valley, supplies no legal basis to bar the estate’s action against the school district.
Returning to the Holmstead decision, it is fortunate that the Utah Legislature recognized and eliminated the inequity of the Holmstead rule by enacting Utah Code Ann. § 78-27-42 of the Utah comparative negligence act in 1973, legislation that, in its effect, is quite similar to Neb. Rev. Stat. § 25-21,185.11(1) (Cum. Supp. 1992), which states:
(1) A release, covenant not to sue, or similar agreement entered into by a claimant and a person liable shall discharge that person from all liability to the claimant but *527shall not discharge any other persons liable upon the same claim unless it so provides. The claim of the claimant against other persons shall be reduced by the amount of the released person’s share of the obligation as determined by the trier of fact.
Even a cursory examination of the covenant not to sue involved in the McCurry case discloses that none of the parties contemplated that the School District of Valley would be released from liability as a consequence of the settlement agreement. No matter how many times one reads the covenant not to sue, the settlement agreement remains a clear expression that the McCurry estate would not sue Nielsens or State Farm. Through the McCurry estate’s expressly reserving rights against the School District of Valley, the settlement agreement shows on its face that the covenant not to sue was never intended to release the school district from liability. In the final analysis, the settlement agreement between the McCurry estate, Nielsens, and State Farm is the only evidence of intent concerning the covenant not to sue and, as an unambiguous expression, must be construed in accordance with the parties’ manifest intent as shown by the language of the settlement agreement. Moreover, the majority acknowledges that the difference between a release and a covenant not to sue is the intent underlying the settlement agreement and, to support that distinction, quotes from Crim v. Jones, 204 Ga. App. 289, 291, 419 S.E.2d 130, 131 (1992), which stated: “ ‘ “ ‘The difference [between a release and a covenant not to sue] is one of intent and grows out of the construction placed on the terms of the instrument Later, the majority approves of the Prosser and Keeton insight that the real issue is the intent of the parties, that is, “a plaintiff should never be deprived of a cause of action against any wrongdoer when the plaintiff has neither intentionally surrendered the cause of action nor received substantially full compensation.” Keeton et al., supra, § 49 at 335.
Finally, the majority mouths the standard expressed by the U.S. Supreme Court in Zenith Radio Corp. v. Hazeltine Research, 401 U.S. 321, 347, 91 S. Ct. 795, 28 L. Ed. 2d 77 (1971), which stated: “The straightforward rule is that a party releases only those other parties whom he intends to release.”
*528Yet, in infinite irony, the majority concludes: “[I]t matters not how the settlement was reached; whether by release or covenant not to sue, settlement with the agent constitutes a settlement with the principal, no matter what the parties may have intended.” So much for intent as an important arid determinative factor in ascertaining whether a settlement agreement is actually a release.
Until this court construes § 25-21,185.11(1) to change the unjust and absolutely inequitable result in McCurry’s case, today’s decision will undoubtedly have a dramatic and undesirable impact on tort litigation based on vicarious liability. Tort claims involving a principal and agent will have to proceed to resolution through a trial, lest a covenant not to sue, as a settlement agreement with an agent, terminate any issue of a principal’s liability. Severely curtailing settlements is hardly a sound and steady step toward practical resolution of disputes.
In summary, there is no showing that the covenant not to sue, as a settlement agreement, was intended to discharge the School District of Valley from liability for the death of Danette Robin McCurry. Rather, the settlement agreement between the McCurry estate, Nielsens, and State Farm is permeated with the intent that the covenant not to sue discharged only Nielsens and State Farm from liability for the death of Danette Robin McCurry and that the estate reserved its right to proceed against the School District of Valley. The majority concedes that a fact question exists concerning Scott Nielsen’s agency relationship with the School District of Valley, that is, “unless the settlement agreement with Nielsen forecloses the personal representative from pursuing her action against the school district, the grant of summary judgment would have been improvident.” The summary judgment against the McCurry estate was not only “improvident,” but downright wrong. Since the summary judgment is incorrect as a matter of law, this court should have reversed the summary judgment and remanded this cause to the district court for further proceedings.