Cox v. Kelsey-Hayes Co.

• Citation: 1978 OK 148,594 P.2d 354
• Decision Date: 07 November 1978
• Docket Number: No. 49317,KELSEY-HAYES,49317
• Court: Supreme Court of Oklahoma
• Parties: Michael Paul COX, Appellee, v.COMPANY, a corporation, and Carl-Built, Inc., a corporation, Appellants, (Leslie Scott II, Non-Appealing Defendant.)

Page 354

594 P.2d 354

Michael Paul COX, Appellee, v. KELSEY-HAYES COMPANY, a corporation, and Carl-Built, Inc., a

corporation, Appellants,

(Leslie Scott II, Non-Appealing Defendant.)

No. 49317.

Supreme Court of Oklahoma.

Nov. 7, 1978.

Rehearing Denied May 7, 1979.

Appeal from District Court of Oklahoma County; Floyd L. Martin, Trial judge.

Prior to trial of this action for damage for personal injuries, non-appealing defendant Scott and his insurance carrier entered into a settlement agreement with plaintiff, contingent upon any jury award. Jury verdict was in favor of plaintiff against all defendants. Non-agreeing defendants Kelsey-Hayes Company and Carl-Built, Inc. appeal.

REVERSED AND REMANDED FOR NEW TRIAL.

Hunt, Thomas, Dawson & Gile by Jake Hunt, Hastie & Kirschner by George W. Dahnke, Oklahoma City, for appellee.

Wm. G. Smith and Edward L. Ray of Fenton, Fenton, Smith, Reneau & Moon, Oklahoma City, for appellants.

DOOLIN, Justice:

This is an appeal by two defendants from a jury verdict in a tort action based on manufacturers' products liability and negligence. A single issue is dispositive of the appeal and because we reverse on this question we will not consider other errors submitted by appellants.

Plaintiff was driving a hay truck on highway 270 toward Watonga. Defendant Scott's vehicle approached him from the other direction pulling a horse-trailer. As the vehicles neared each other on the two lane road a wheel came off the horse-trailer and rolled across the highway in front of plaintiff. He lost control of the truck, went down an embankment and was injured, ultimately losing a leg.

Plaintiff brought suit against Scott, Kelsey-Hayes who allegedly manufactured the axle assembly of the trailer and Carl-Built, Inc., the distributer. He claimed loss of the wheel from the trailer was due to improper assembly by Scott and defective manufacture of the lug bolts on the hub. Plaintiff dismissed his initial suit without prejudice during trial but later refiled. Prior to refiling he entered into the following agreement with defendant Scott and his insurance carrier:

LIMITATION OF EXECUTION AGREEMENT

"Whereas the undersigned, plaintiff, (Michael Paul Cox) in the event of a judgment in his favor, has an unlimited right of election as to levy of execution against the defendants determined to be jointly and severally liable for the plaintiff's damages; and,

Whereas there is more than one defendant, against whom such election might be made in the case styled Michael Paul Cox, plaintiff, versus Kelsey-Hayes Company, a Delaware corporation, Carl-Built, Inc., an Oklahoma corporation, and Leslie Scott, II, defendants, No. CJ-73-691, in the District Court of Oklahoma County, Oklahoma; and Whereas defendant, Leslie Scott, II, is one of the described defendants potentially exposed to levy of execution; and,

Whereas it is desirable for the plaintiff to receive immediate compensation for the limitation of his unlimited right of election as to levy of execution of any judgment that may be rendered in his behalf; and,

Whereas it is equally desirable for the defendant, Leslie Scott, II, to liquidate his potential exposure to such levy of execution by plaintiff's unlimited election;

Now, therefore the plaintiff, Michael Paul Cox, and the defendant, Leslie Scott, II, agree that:

A. Defendant Leslie Scott, II, through his insurance carrier, Oklahoma Farm Bureau Mutual Insurance Company will pay the sum of Ninety Thousand Dollars ($90,000.00) to plaintiff upon execution of this agreement;

B. Plaintiff will limit his right of election as to levy of execution as follows:

1. In the event of a judgment in favor of the plaintiff and against the defendant, Leslie Scott, II, only, and not against any other defendant, plaintiff will execute and deliver to defendant a release and discharge of such judgment upon the payment to him, by Leslie Scott, II, or his insurance carrier, Oklahoma Farm Bureau Mutual Insurance Company, of the sum of Ten Thousand Dollars ($10,000.00), and plaintiff will not proceed against the defendant, Leslie Scott, II, or Oklahoma Farm Bureau Mutual Insurance Company for any sum or amount in excess of Ten Thousand Dollars ($10,000.00) regardless of the amount of judgment entered, interest accrued or expenses incurred.

2. In the event of a judgment in favor of the plaintiff and against the defendant, Leslie Scott, II, and One or more of the other defendants, the plaintiff will use his best efforts to collect all of said judgment from the other said defendant or defendants. If the amount collected by the plaintiff from the other defendants equals or exceeds Two Hundred Fifty Thousand Dollars ($250,000.00), plaintiff will reimburse defendant or his insurance carrier, Oklahoma Farm Bureau Mutual Insurance Company, in the amount of Forty Thousand Dollars ($40,000.00); and, in addition to such Forty Thousand Dollars ($40,000.00), plaintiff will reimburse defendant and his insurance carrier on the basis of twenty percent (20%) of any excess amount recovered over Two Hundred Fifty Thousand Dollars ($250,000.00) collected by the plaintiff from the other defendants but not to exceed the amount of Fifty Thousand Dollars over and above the original Forty Thousand Dollars ($40,000.00)."

Under this agreement Scott would remain as a defendant although he and his insurer had conditionally settled with plaintiff prior to trial. Further Scott and his insurer could receive a rebate in proportion to the size of the verdict in plaintiff's favor against the non-agreeing defendants Kelsey-Hayes and Carl-Built, appellants herein.

Appellants became aware of this agreement through answers to interrogatories. Following discovery appellants filed motions to dismiss and to realign the parties, and amendments to their original answers, claiming the agreement resulted in a defect in parties and was a fraud and sham on the court. The trial court overruled appellants' motions and further refused to allow appellants to cross examine regarding the agreement or introduce it into evidence. The court also refused to permit any impeachment questions of Scott as to his financial interest in a verdict against appellants. The jury returned a verdict in plaintiff's favor against all three defendants for $1,800,000.00. The trial court overruled appellants' motions for new trial or judgment n. o. v., denied a remittitur and refused to credit the $90,000.00, previously paid to plaintiff by Scott, against the joint judgment. This appeal resulted. Scott of course does not appeal as he benefited from the verdict.

Appellants submit numerous allegations of error concerning this pre-trial agreement, basically arguing they did not receive a fair trial because Scott was no longer an adversary defendant. They argue the trial court erred in refusing to allow the jury to consider the agreement and the effect it had on Scott's testimony.

The pre-trial agreement is in the nature of an aleatory contract, execution of which depends on the contingency of the jury verdict. This type of agreement was judicially spawned in Booth v. Mary Carter Paint Company, 202 So.2d 8 (Fla.App.1967). In that case a jury trial resulted in a $15,000.00 verdict in favor of the plaintiff. After trial it was revealed one of the defendants had contracted with plaintiff, in essence, if the verdict was for more than $37,500.00, plaintiff would execute only against Mary Carter Paint Company, and under no circumstances would the contracting defendant be liable for more than $12,500. The contract further provided contracting defendant would continue to defend and the agreement should be kept secret and not revealed to the jury. The appellate court apparently sanctioned the agreement as the trial court was upheld.

In 1973, the Florida Supreme Court, although ostensibly overruling the Mary Carter decision, found this type of settlement agreement was valid. The court in Ward v. Ochoa, 284 So.2d 385 (Fla.1973) required full disclosure and vacated a Court of Appeals decision that held a set-off of amount paid to agreeing defendant against total award cured any possible injustice created by the contract.

The Florida Court in Ward coined the name "Mary Carter Agreement" defining it as a contract by which one co-defendant secretly agrees with the plaintiff that if that defendant will continue as an active defendant in the suit, his own maximum liability will be diminished proportionately by increasing the liability of the non-agreeing defendants.

Florida courts, since the Mary Carter decision, while admonishing that these agreements have potential for extreme prejudice against non-agreeing defendants have continually and cautiously upheld them provided any harm must be mitigated by full disclosure. Further if the agreeing defendant will have his maximum liability reduced by increasing the liability of a co-defendant, these courts have held the agreement should be admitted into evidence. ¹

Obviously the number of variations upon such agreements is limited only by the ingenuity of the mind of man. ² A typical Mary Carter agreement usually has the following features:

A. secrecy

B. contracting defendant remains in the lawsuit

C. contracting defendant guarantees plaintiff a certain monetary recovery

D. contracting defendant's liability is decreased in direct proportion to the increase in the non-agreeing defendants' liability.

It is the last element that is unique to the "Mary Carter" agreement and creates the most unfair prejudice to the non-agreeing defendant and his right to a fair trial. ³ Plaintiff is guaranteed a certain amount from one defendant regardless of the outcome of the verdict. In return that defendant receives the right to benefit from any joint verdict, or a verdict solely against the non-agreeing defendants. The agreeing defendant therefore partakes of direct interest in the outcome of the litigation. The normal adversary relationship between plaintiff and defendant...