Gonzales v. Armac Industries, Ltd.

• Decision Date: 11 February 1993
• Citation: 595 N.Y.S.2d 360,81 N.Y.2d 1,611 N.E.2d 261
• Parties: , 611 N.E.2d 261 Marvin GONZALES, Plaintiff, v. ARMAC INDUSTRIES, LTD., Defendant and Third-Party Plaintiff; General Thermoforming Corporation, Third-Party Defendant.
• Court: New York Court of Appeals Court of Appeals

Page 360

595 N.Y.S.2d 360

81 N.Y.2d 1, 611 N.E.2d 261

Marvin GONZALES, Plaintiff, v. ARMAC INDUSTRIES, LTD., Defendant and Third-Party Plaintiff General Thermoforming Corporation, Third-Party Defendant.

Court of Appeals of New York.

Feb. 11, 1993.

[611 N.E.2d 262] [81 N.Y.2d 3] Gair, Gair, Conason, Steigman & Mackauf, New York City (Herman Schmertz, of counsel), for plaintiff.

Kroll & Tract, New York City (Robert T. MacDonnell and Jeffrey N. Rejan, of counsel), for third-party plaintiff.

Granik Silverman, New City (David W. Silverman, Ricki H. Berger, Morrie Slifkin and Robert M. Lefland, of counsel), for third-party defendant.

Raymond C. Green, New York City, and Herzfeld & Rubin, [81 N.Y.2d 4] P.C., New York City (Herbert Rubin, David B. Hamm and Linda M. Brown, of counsel), for The State Ins. Fund, amicus curiae.

OPINION OF THE COURT

SIMONS, Acting Chief Judge.

This Court has accepted the following question certified by the United States Court of Appeals for the Second Circuit: "Whether a defendant manufacturer's pretrial agreement with an injured plaintiff, admitting liability for two percent of any damages a jury might award, and preventing plaintiff from enforcing against defendant any judgment in excess of 2% of plaintiff's total damages, is a 'release from liability' within the meaning of § 15-108(c) of the General Obligations Law." (970 F.2d 1123, 1126.) We answer that question in the affirmative.

I

Plaintiff was injured when using a machine in the course of his employment with General Thermoforming Corporation (GTC). The machine was manufactured by defendant Armac Industries, Ltd. and sold to GTC in 1983. After receiving workers' compensation benefits for his injuries, plaintiff commenced an action against Armac in Federal court alleging that it had designed an unreasonably dangerous and defective product. Armac, in turn, commenced a third-party action against GTC alleging claims for contract indemnification and contribution.

Before trial, plaintiff and Armac entered into an agreement by which Armac conceded liability for 2% of any damages which plaintiff might obtain from a jury. In return, plaintiff agreed not to enforce any judgment against Armac in excess of 2% of the total damages awarded, "except as loan arrangements may be necessary to permit the plaintiff to collect any monies from the third-party defendant in the event that there is an apportionment of liability against the third-party defendant [GTC] by the jury."

After this agreement was disclosed to the court, GTC moved for summary judgment dismissing Armac's third-party claims. The United States District Court granted the motion to the extent of dismissing the claim for contribution, but denied it with respect to the indemnification claim. ^* Plaintiff and defendant subsequently stipulated that the value of the case was $500,000 and a final judgment was entered. Plaintiff and defendant then appealed to the Court of Appeals. Following the procedure set forth in 22 NYCRR 500.17, the Court of Appeals certified to us the question set forth above.

II

General Obligations Law § 15-108 explains what happens when one of several tortfeasors obtains a release from liability. A settlement, or release, by one tortfeasor does not relieve the others from liability, but it does reduce the amount which can be recovered from them by (1) the amount stipulated by the settlement, (2) the amount of consideration paid for it, or (3) the released tortfeasor's equitable share of the damages, whichever is greatest (General Obligations Law § 15-108[a]. The settling tortfeasor is relieved from liability to any other person for contribution but, in exchange, is not entitled to obtain contribution from any other tortfeasor (General Obligations Law § 15-108[b], [c]. Thus, the statute establishes a quid pro quo arrangement: the settlor limits its liability but in exchange forfeits any right to contribution. The question before us is whether the agreement between Armac and plaintiff constituted a release of Armac from liability to plaintiff so that its claim for contribution from GTC was properly dismissed pursuant to General Obligations Law § 15-108(c).

III

Our decision is controlled by Lettiere v. Martin El. Co., 62 A.D.2d 810, 406 N.Y.S.2d 510, aff'd, 48 N.Y.2d 662, 421 N.Y.S.2d 879, 397 N.E.2d 390). In Lettiere, the plaintiff sued Martin Elevator Co. and it, in turn, instituted a third-party claim against the plaintiff's employer, Bing and Bing, Inc. Prior to trial, plaintiff and Martin settled the claim for $250,000, but delayed entry of the judgment until after trial. They contended that they had reached a postjudgment settlement which did not jeopardize Martin's contribution claim against Bing under General Obligations Law § 15-108. The Appellate Division rejected that contention, determining that the settlement was not postjudgment, but rather was a prejudgment settlement, the effect of which was postponed until entry of judgment (Lettiere v. Martin El. Co., 62 A.D.2d, at 814, 406 N.Y.S.2d 510, supra). In claiming otherwise, plaintiff and Martin relied upon our decision in Rock v. Reed-Prentice Div. of Package Mach. Co., 39 N.Y.2d 34, 382 N.Y.S.2d 720, 346 N.E.2d 520). In Rock, however, the manufacturer settled after the contribution claim had been fully litigated and reduced to judgment and we held that General Obligations Law § 15-108 did not apply to postjudgment settlements (Rock v. Reed-Prentice Div. of Package Mach. Co., 39 N.Y.2d, at 41, 382 N.Y.S.2d 720, 346 N.E.2d 520, supra). By contrast, in Lettiere neither the cross claim for contribution nor the question of Martin's liability had been determined at the time Martin conceded liability and settled the claim (Lettiere v. Martin El. Co., 62 A.D.2d, at 814, 406 N.Y.S.2d 510, supra). Martin's claim for contribution was dismissed because the prejudgment agreement constituted a release from liability within the contemplation of General Obligations Law § 15-108(c).

Here, as in Lettiere v. Martin El. Co. (supra), the third-party action was instituted against the plaintiff's employer and, at the time Armac conceded 2% liability, neither Armac's nor GTC's liability had been determined. Thus, the only essential difference between the cases is that in Lettiere the defendant stipulated to a dollar amount while here the defendant stipulated to a percentage of damages. The difference is without significance. In both cases, the defendant is attempting to limit its liability while continuing its chance of recovering contribution from the plaintiff's employer, with the recovery being passed on to the plaintiff either directly or, if the defendant has limited resources as in this case, through subsequent "loan arrangements" contemplated by the parties. Agreements such as these violate the quid pro quo system envisioned by the statute and allow a defendant to effectively avoid litigation without making the concomitant sacrifice the statutory scheme contemplates (see, Rock v. Reed-Prentice Div. of Package Mach. Co., 39 N.Y.2d, at 41, 382 N.Y.S.2d 720, 346 N.E.2d 520, supra).

Armac and plaintiff contend that the continuing need to establish manufacturer fault shows that the case has not yet been settled within the contemplation of General Obligations Law § 15-108. The agreement effectively ended the dispute between them however, and, by virtue of the intended disclosure to the jury of Armac's admission of liability for 2% of any damages awarded by the jury, denied GTC any chance of successfully arguing that Armac had no claim for contribution against GTC either because Armac bore all or no responsibility for plaintiff's injuries, or because plaintiff bore 100% responsibility. Having conceded nominal liability and terminated the adversarial relationship between itself and plaintiff, Armac stopped defending the main action, informing the court prior to trial that it had abandoned all its defenses and counterclaims, that it would not seek voir dire of prospective jurors, and that it did not plan to call any witnesses on its behalf. By its agreement, Armac effectively avoided any further litigation of the claims against it and consequently forfeited its contribution claim against GTC as required by section 15-108(c). Having paid to limit its exposure, Armac may not press its contribution claim against GTC, which was not a party to the agreement (cf., Mitchell v. New York Hosp., 61 N.Y.2d 208, 216-217, 473 N.Y.S.2d 148, 461 N.E.2d 285).

IV

Nor is there merit to appellants' contention that the agreement here is simply a loan arrangement similar to the one sanctioned in Feldman v. New York City Health & Hosps. Corp., 56 N.Y.2d 1011, 453 N.Y.S.2d 683, 439 N.E.2d 398, rev'g, 84 A.D.2d 166, 445 N.Y.S.2d 555, for...