McDermott,Inc. v. AmClyde and River Don Castings, Ltd.

• Decision Date: 20 April 1994
• Docket Number: 921479
• Citation: 128 L.Ed.2d 148,114 S.Ct. 1461,511 U.S. 202
• Parties: McDERMOTT, INC., Petitioner, v. AmCLYDE and River Don Castings, Ltd
• Court: U.S. Supreme Court

511 U.S. 202

114 S.Ct. 1461

128 L.Ed.2d 148

McDERMOTT, INC., Petitioner,

v AmCLYDE and River Don Castings, Ltd.

No. 92-1479.

Supreme Court of the United States

Argued Jan. 11, 1994.

Decided April 20, 1994.

Syllabus ^*

When petitioner McDermott, Inc., attempted to use a crane purchased from respondent AmClyde to move an offshore oil and gas production platform, a prong of the crane's hook broke, damaging both the platform and the crane itself. The malfunction may have been caused by McDermott's negligent operation of the crane, by AmClyde's faulty design or construction, by a defect in the hook supplied by respondent River Don Castings, Ltd., or by one or more of the three companies that supplied supporting steel slings. McDermott brought suit in admiralty against respondents and the three "sling defendants," but settled with the latter for $1 million. The case then went to trial, and the jury assessed McDermott's loss at $2.1 million, allocating 32% of the damages to AmClyde, 38% to River Don, and 30% jointly to petitioner and the sling defendants. Among other things, the District Court entered judgment against AmClyde for $672,000 (32% of $2.1 million) and against River Don for $798,000 (38% of $2.1 million). Holding that the contract between McDermott and AmClyde precluded any recovery against the latter and that the trial judge had improperly denied respondents' motion to reduce the judgment against them pro tanto by the settlement amount, the Court of Appeals reversed the judgment against AmClyde entirely and reduced the judgment against River Don to $470,000, which it computed by determining McDermott's full award to be $1.47 million ($2.1 million minus 30% attributed to McDermott/sling defendants), and then by deducting the $1 million settlement.

Held: The nonsettling defendants' liability should be calculated with reference to the jury's allocation of proportionate responsibility, not by giving them a credit for the dollar amount of the settlement. Pp. ____.

(a) Supported by a consensus among maritime nations, scholars, and judges, the Court, in United States v. Reliable Transfer Co., 421 U.S. 397, 409, 95 S.Ct. 1708, 1714, 44 L.Ed.2d 251, adopted a rule requiring that damages in an admiralty suit be assessed on the basis of proportionate fault when such an allocation can reasonably be made. No comparable consensus has developed with respect to the issue in this case. Although it is generally agreed that nonsettling joint tortfeasors are entitled to a credit when the plaintiff settles with one of the other defendants, there is a divergence of views about how that credit should be determined. The American Law Institute (ALI) has identified three principle alternatives for doing so: (1) pro tanto setoff with a right of contribution against the settling defendant; (2) pro tanto setoff without contribution; and (3) the "proportionate share approach," whereby the settlement diminishes the injured party's claim against nonsettling tortfeasors by the amount of the equitable share of the obligation of the settling tortfeasor. Pp. ____.

(b) ALI Option 3, the proportionate share approach, best answers the question presented in this case. Option 1 is clearly inferior to the other two alternatives, because it discourages settlement and leads to unnecessary ancillary litigation. As between Options 2 and 3, the proportionate share approach is more consistent with the proportionate fault approach of Reliable Transfer, supra, because a litigating defendant ordinarily pays only its proportionate share of the judgment. Conversely, Option 2, even when supplemented with hearings to determine the good faith of the settlement, is likely to lead to inequitable apportionments of liability, contrary to Reliable Transfer. Moreover, although Option 2 sometimes seems to better promote settlement than Option 3, it must ultimately be seen to have no clear advantage in that regard, since, under the proportionate share approach, factors such as the parties' desire to avoid litigation costs, to reduce uncertainty, and to maintain ongoing commercial relationships should ensure nontrial dispositions in the vast majority of cases. Similarly, Option 2 has no clear advantage with respect to judicial economy unless it is adopted without the requirement of a good-faith hearing, a course which no party or amicus advocates because of the large potential for unfairness to nonsettling defendants, who might have to pay more than their fair share of the damages. Pp. ____.

(c) Respondents' argument that the proportionate share approach violates the "one satisfaction rule"—which, as applied by some courts, reduces a plaintiff's recovery against a nonsettling defendant in order to ensure that the plaintiff does not secure more than necessary to compensate him for his loss—is rejected, since the law contains no rigid rule against overcompensation, and, indeed, several doctrines, such as the collateral benefits rule, recognize that making tortfeasors pay for the damage they cause can be more important than preventing overcompensation. The argument that the proportionate share approach is inconsistent with Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 99 S.Ct. 2753, 61 L.Ed.2d 521 is also rejected, since Edmonds was primarily a statutory construction case, did not address the question at issue here or even involve a settlement, and can be read as merely reaffirming the well-established principle of joint and several liability, which was in no way abrogated by Reliable Transfer and is not in tension with the proportionate share approach. Pp. ____.

979 F.2d 1068 (CA5 1992), reversed and remanded.

STEVENS, J., delivered the opinion for a unanimous Court.

Arden J. Lea, New Orleans, LA, for petitioner.

William K. Kelley, Washington, DC, for U.S. as amicus curiae, by special leave of the Court.

Robert E. Couhig, Jr., New Orleans, LA, for respondent.

Justice STEVENS delivered the opinion of the Court.

A construction accident in the Gulf of Mexico gave rise to this admiralty case. In advance of trial, petitioner, the plaintiff, settled with three of the defendants for $1 million. Respondents, however, did not settle, and the case went to trial. A jury assessed petitioner's loss at $2.1 million and allocated 32% of the damages to respondent AmClyde and 38% to respondent River Don. The question presented is whether the liability of the nonsettling defendants should be calculated with reference to the jury's allocation of proportionate responsibility, or by giving the nonsettling defendants a credit for the dollar amount of the settlement. We hold that the proportionate approach is the correct one.

I

Petitioner McDermott, Inc., purchased a specially designed, 5,000-ton crane from AmClyde.¹ When petitioner first used the crane in an attempt to move an oil and gas production platform—the "Snapper deck"—from a barge to a structural steel base affixed to the floor of the Gulf of Mexico, a prong of the crane's main hook broke, causing massive damage to the deck and to the crane itself. The malfunction may have been caused by petitioner's negligent operation of the crane, by AmClyde's faulty design or construction, by a defect in the hook supplied by River Don Castings, Ltd. (River Don), or by one or more of the three companies (the "sling defendants") that supplied the supporting steel slings.²

Invoking the federal court's admiralty jurisdiction under 28 U.S.C. § 1333(1),³ petitioner brought suit against AmClyde and River Don and the three sling defendants. The complaint sought a recovery for both deck damages and crane damages. On the eve of trial, petitioner entered into a settlement with the sling defendants. In exchange for $1 million, petitioner agreed to dismiss with prejudice its claims against the sling defendants, to release them from all liability for either deck or crane damages, and to indemnify them against any contribution action. The trial judge later ruled that petitioner's claim for crane damages was barred by East River Steamship Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986).

In its opening statement at trial, petitioner McDermott "accepted responsibility for any part the slings played in causing the damage." ⁴ McDermott, Inc. v. Clyde Iron, 979 F.2d 1068, 1070 (CA5 1993). The jury found that the total damages to the deck amounted to $2.1 million and, in answer to special interrogatories, allocated responsibility among the respective parties: 32% to AmClyde, 38% to River Don, and 30% jointly to McDermott and the sling defendants.⁵ The Court denied a motion by respondents to reduce the judgment pro tanto by the $1 million settlement, and entered judgment against AmClyde for $672,000 (32% of $2.1 million) and against River Don for $798,000 (38% of $2.1 million). Even though the sum of those judgments plus the settlement proceeds exceeded the total damages found by the jury, the District Court concluded that petitioner had not received a double recovery because the settlement had covered both crane damages and deck damages.⁶

The Court of Appeals held that a contractual provision precluded any recovery against AmClyde and that the trial judge had improperly denied a pro tanto settlement credit. It reversed the judgment against AmClyde entirely and reduced the judgment against River Don to $470,000. It arrived at that figure by making two calculations. First, it determined that petitioner's "full damage award is $1.47 million ($2.1 million jury verdict less 30% attributed to McDermott/sling defendants)." 979 F.2d, at 1081. Next, it deducted the "$1 million received in settlement to reach $470,000." Ibid. It treated this figure as the maximum that could be recovered from the non-settling defendants. Because it was less than River Don's liability as found by the jury (38% of $2.1 million or $798,000), it directed the entry of judgment against River Don in that amount. Ibid.

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