Manns v. State, Dept. of Highways

• Decision Date: 01 August 1989
• Docket Number: No. 50S03-8907-CV-576,50S03-8907-CV-576
• Citation: 541 N.E.2d 929
• Parties: Lonnie R. MANNS, Appellant (Plaintiff Below), v. STATE of Indiana DEPARTMENT OF HIGHWAYS, Appellee (Defendant Below).
• Court: Indiana Supreme Court

Page 929

541 N.E.2d 929

Lonnie R. MANNS, Appellant (Plaintiff Below), v. STATE of Indiana DEPARTMENT OF HIGHWAYS, Appellee (Defendant Below).

No. 50S03-8907-CV-576.

Supreme Court of Indiana.

Aug. 1, 1989.

Peter Obremskey, Carol Sparks, Parr, Richey, Obremskey & Morton, Lebanon, Ted A. Waggoner, Peterson & Waggoner, Rochester, for appellant.

Linley E. Pearson, Atty. Gen. of Indiana, William Eric Brodt, Deputy Atty. Gen., Indianapolis, for appellee.

DICKSON, Justice.

Today we revisit and reconsider the trial procedures relating to the evidentiary use of partial settlement agreements.

The lawsuit filed by the plaintiff-appellant, Lonnie R. Manns, alleged that he sustained severe injuries on June 1, 1984, when his vehicle, operating on a preferential state highway, collided with a vehicle operated by Everett Hintz, who failed to yield the right-of-way after stopping at a stop sign. The action also claimed that the defendant-appellee, State of Indiana Department of Highways (Department), negligently designed the intersection. Before the commencement of trial, Manns executed a covenant not to sue Hintz in exchange for $125,000 and dismissed Hintz.

The plaintiff called Hintz as a witness at trial. On cross-examination, the Department was permitted over objection to inform the jury of the settlement agreement as follows:

Q I'm sorry, at one time you were a defendant in the lawsuit filed by Lonnie Manns, is that correct?

A Yeah, that's right I guess.

Q And you entered into a settlement agreement with Mr. Manns, didn't you?

A Just what do you mean in that? Oh, yeah.

Q Okay, and you agreed to--uh--pay Mr. Manns $125,000, is that correct?

A Yes.

Q Okay, and as a result of that agreement that you entered into with Mr. Manns, you were dismissed from the lawsuit, is that correct?

A Yeah, that's the way I read it.

However, the trial court refused to permit plaintiff's counsel on redirect examination to place the covenant not to sue in evidence. In the ensuing trial, the jury returned a verdict for the Department. On appeal, Manns contends that the trial court erred in permitting the Department to advise the jury of the existence of the settlement agreement and the amount received, and that the trial court compounded the error by refusing to allow introduction of the agreement in evidence.

Primarily because of its application of State v. Ingram (1981), Ind., 427 N.E.2d 444, as controlling precedent, the Court of Appeals affirmed the trial court. Manns v. State Department of Highways (1988), Ind.App., 524 N.E.2d 334. In so doing, however, it noted:

It well may be that a better course would be to insulate the jury from the effects and reasons for settlement with one or more, but less than all the defendants, at least where that information does not bear directly on the bias or prejudice of some witness at the trial. If the purpose of admitting the evidence is to reach the question of an intended satisfaction, then, as in other issues of contract interpretation, that question could be resolved as a matter of law by the court from the language of the document. If the issue is pro tanto payment or full compensation in fact, that could be resolved by the court crediting amounts paid against the verdict without the various risks to the parties that the jury will misuse the information.

Id. at 336. Similarly, the Court of Appeals also observed:

The decisions also recite that the actual payment constitutes a pro tanto satisfaction of the claim. This, of course, is true but submitting that question to the jury would appear to provide no benefit to a just determination of the case except as the payment may constitute full satisfaction. The court can easily credit partial payments against the amount found due without any of the prejudicial risks involved in bringing the payment before the jury. Since we forbid interrogatories to the jury, how they use the information of a partial payment necessarily remains a matter for speculation.

Id. at 335, n. 1.

In seeking transfer, Manns argues that the Court of Appeals misconstrued Ingram or, in the alternative, that the subject should be re-evaluated. We now grant transfer to reconsider and clarify the proper trial procedure regarding settlement agreements.

In Ingram, all but one defendant entered into a loan receipt agreement with the plaintiffs in which the plaintiffs received $3,500 and promised to repay $1,500 if the verdict against the remaining defendant exceeded $6,000. The settling defendants were thereafter dismissed from the case. In asserting its defense of full compensation, the remaining defendant called the plaintiffs as witnesses and asked them to explain their understanding of the agreement. During rebuttal, the plaintiffs placed the entire loan receipt agreement in evidence. At trial and on appeal, the defendant contended that the admission of the loan receipt agreement was error in that prejudicial statements regarding the defendant's negligence and liability were not excised. Ingram, 427 N.E.2d at 446.

The issues in Ingram did not include the initial admissibility of the existence or amount of the loan receipt agreement. Rather, we resolved only two issues related to its admissibility: 1) it was not error to permit the plaintiffs' introduction of the entire agreement in rebuttal because the defendant had "opened the door as to the content of the agreement"; and 2) assuming arguendo that certain unexcised parts of the agreement may have been erroneously admitted, reversible error did not result because such parts were "merely cumulative in nature and thus contributed nothing to the jury's verdict." Id. at 447. Our holding in Ingram did not rule that the amount or existence of a settlement agreement was necessarily admissible.

The judicial policy of this State strongly favors the use of partial settlement agreements.

"[C]ovenants not to sue, covenants not to execute and loan receipt agreements are legal and are to be encouraged in the settlement of litigation."

City of Bloomington v. Holt (1977), 172 Ind.App. 650, 655, 361 N.E.2d 1211, 1215 (quoting Scott v. Krueger (1972), 151 Ind.App. 479, 515, 280 N.E.2d 336, 357). Accord American Transport Co. v. Central Indiana Ry. Co. (1970), 255 Ind. 319, 264 N.E.2d 64 (loan receipt agreement).

However, controversy often arises regarding the use of such settlement agreements at the trial of a plaintiff's remaining unresolved claims against a non-settling defendant. When a jury is unnecessarily informed of a prior partial settlement, a plaintiff is likely to suffer unfair prejudice. As noted by Judge Hoffman in Gray v. Davis Timber and Veneer Corp. (1982), Ind.App., 434 N.E.2d 146, 149:

The danger which occurs is that if the settlement amount is small, the nonparticipating defendant will use it to downgrade the amount of damages. If the amount is large, the nonparticipating defendant will contend the plaintiff has been compensated.

In addition, jurors may misconstrue such partial settlement as evidence of the plaintiff's belief that the settling defendant is the truly culpable or responsible party. The admission of a settlement agreement is unjust where the only purpose behind putting it in evidence is to reveal that a plaintiff has already received compensation. Health and Hosp. Corp. v. Gaither (1979), 272 Ind. 251, 258, 397 N.E.2d 589, 594. We likewise observe the potential for unfair prejudice to a defendant if a jury is shown language in a settlement document "poisoned" with irrelevant, evocative language calculated to inflame prejudice.

The admission of prior partial-settlement evidence rarely provides probative and relevant evidence and generally injects extraneous, irrelevant, and confusing circumstances and issues which are likely to impair a jury in its fair and impartial ascertainment of truth. Such negative evidentiary considerations, however, are significantly outweighed by the sound judicial policy favoring the use of partial settlement agreements as tools for prompt and amicable dispute resolution. In order to encourage the use of such settlements, we conclude that the risks and hazards of their unfair use at trial should be minimized.

In the present case the Department urges that "whether or not the consideration given for a covenant not to sue is full or partial compensation" constitutes a question of fact for jury determination, and cites numerous supporting authorities grounded in Bedwell v. DeBolt (1943), 221 Ind. 600, 50 N.E.2d 875. In Bedwell, this Court stated:

It is well settled that all joint tort-feasors liable for an injury are discharged by the unqualified release of one. The amount of the consideration paid for such a release is immaterial so long as it is sufficient to support a contract and the transaction is not tainted by fraud or mistake. Likewise, full satisfaction of such a claim for damages by one of the tort-feasors operates to discharge all, though no release is executed. On the other hand, it is equally well settled that a covenant not to sue one tort-feasor does not bar an action against the others, but only operates as a satisfaction of the damages, pro tanto, as to the benefits received. But if the consideration paid for a covenant not to sue is full compensation for the injury, the liability is discharged as to all, regardless of the character of the instrument. And it may be added that under an answer of full satisfaction by a joint tort-feasor a defendant is entitled to a pro tanto credit for anything less than full payment which the plaintiff has received from that source. Whether the payment was in full or partial is for the jury to determine from the evidence. This is consistent with the rule that an answer of payment will authorize proof of a credit.

221 Ind. at 609, 50 N.E.2d at 878-79. Even if evidence of settlement agreements is not before the jury, the trial court must still "consider the nature of the agreements and credit funds received against a...