RL McCoy, Inc. v. Jack

• Decision Date: 24 July 2002
• Docket Number: No. 49S02-0112-CV-658.,49S02-0112-CV-658.
• Citation: 772 N.E.2d 987
• Parties: R.L. McCOY, INC., Appellant (Defendant Below), v. Michael and Amy JACK, Appellees (Plaintiffs Below).
• Court: Indiana Supreme Court

772 N.E.2d 987

R.L. McCOY, INC., Appellant (Defendant Below), v. Michael and Amy JACK, Appellees (Plaintiffs Below).

No. 49S02-0112-CV-658.

Supreme Court of Indiana.

July 24, 2002.

Cory Brundage, Judy S. Okenfuss, Indianapolis, IN, Attorneys for Appellant.

Harry A. Wilson, Jr., Indianapolis, IN, Attorney for Appellees.

Thomas C. Doehrman, Courtney E. McGovern, Indianapolis, IN, Amicus Curiae Indiana Trial Lawyers Association.

ON PETITION TO TRANSFER

BOEHM, Justice.

In Mendenhall v. Skinner & Broadbent Co., Inc., 728 N.E.2d 140 (Ind.2000), this Court held that under the Comparative Fault Act no credit should be given to non-settling defendants for amounts paid for the same injury by settling defendants who were not non-party defendants at trial. This case presents the question explicitly left unresolved by that opinion: under Indiana's comparative fault regime, where defendants are severally liable, does a defendant who goes to trial get credit for amounts paid by nonparty defendants who settled the plaintiffs' claims against them? We hold that they do not.

Factual and Procedural Background

On November 8, 1996, Michael Jack attempted to pass a semi tractor trailer driving south on Interstate 69 in Steuben County. The road at that point was under construction. An excavation abutted the left lane, and the yellow line marking the left edge of the road was not visible. Jack's front tire fell into the excavation and the vehicle left the roadway, hit an orange construction barrel, and then struck the exposed portion of the northbound lanes. Jack suffered a spinal cord injury resulting in paraplegia when he was ejected as the vehicle rolled from the impact.

Jack and his wife, Amy, sued the State of Indiana, Indiana Department of Transportation ("INDOT"), R.L. McCoy, Inc. ("McCoy"), the contractor hired by INDOT for the project, and S.E. Johnson Companies, a subcontractor of McCoy.¹ Before trial, the Jacks and McCoy entered into a contract usually referred to as a "loan receipt" or "loan repayment" agreement. Under that arrangement, the Jacks released McCoy in return for a payment of $1.5 million. Repayment of a portion of that sum was governed by the following provisions:

7. The parties acknowledge that to the extent an as yet unquantified portion of the Settlement Payment would otherwise constitute a credit, setoff, or partial satisfaction to the benefit of any other defendant if it were not a loan, that as yet unquantified sum is a loan. Accordingly, to the extent that:

a. The settlement payment exceeds a final non-party verdict (total damages suffered by the plaintiffs multiplied by the percentage at fault, if any, on the part of McCoy (against McCoy))

AND

b. If such excess of the settlement payment over the amount of the non-party verdict against McCoy would otherwise operate to reduce the amount which S.E. Johnson, Inc., the Indiana Department of Transportation, or the State of Indiana or any other defendant against whom a final jury verdict is rendered is obligated to pay as a result of the final verdict in said action, after all appeals have either been abandoned or exhausted, if it were not a loan,

THEN

The amount of the excess which would otherwise reduce the amount another defendant is obligated by a verdict to pay if the excess were not considered a loan, must be repaid by Jack to McCoy.

The Jacks proceeded to trial against the State and Johnson. Pursuant to the Comparative Fault Act, Ind.Code § 34-51-2-14, Johnson asserted a nonparty defense against McCoy. The jury awarded Michael Jack $5,000,000 and Amy $400,000 before allocating the percentages of fault as follows: Michael Jack, 50 percent; State of Indiana, 25 percent; Johnson, 15 percent; and McCoy, 10 percent. The Jacks were precluded from recovery against the State because contributory negligence remains a complete defense to claims under the Tort Claims Act. I.C. § 34-51-2-2.

Under this verdict, Johnson was liable to the Jacks for $810,000 (15% of $5.4 million). Johnson moved for a setoff² of $960,000 (the excess of McCoy's payment of $1.5 million over McCoy's liability of $540,000 under the jury's verdict). McCoy in turn moved for an order requiring the Jacks to repay this $960,000 to it. McCoy argued that this amount would constitute a credit benefiting Johnson if it were not a loan and thus must be repaid to McCoy, under the quoted paragraph 7 of the settlement agreement. The trial court denied both motions without discussion.

Both Johnson and McCoy appealed. In separate opinions, the same panel of the Court of Appeals affirmed the denial of Johnson's motion but reversed the denial of McCoy's. The Court of Appeals concluded that McCoy's $960,000 excess payment would have been a credit against Johnson's liability if payment by McCoy to the Jacks were not a loan. Therefore, the Jacks were obligated to repay the $960,000 to McCoy, and Johnson should receive no credit. See S.E. Johnson Cos., Inc. v. Jack, 752 N.E.2d 72 (Ind.Ct.App.2001), trans. denied; R.L. McCoy, Inc. v. Jack, 752 N.E.2d 67 (Ind.Ct.App.2001). The Jacks petitioned this Court for transfer. They contend that Indiana law would not allow a credit to Johnson for McCoy's settlement payment, were it not a loan, and therefore the conditions for repayment to McCoy have not been met. We agree.

I. Credits/Setoffs in Indiana

Both parties agree that the condition for repayment to McCoy found in paragraph 7(a) of the settlement agreement was met by the jury's finding that McCoy was liable to the Jacks to the extent of $540,000, $960,000 less than the $1.5 million payment. The only issue is whether the additional condition found in paragraph 7(b) was also met. That issue turns on whether, in light of Indiana's Comparative Fault Act, that $960,000 would constitute a credit against Johnson's liability if McCoy had simply paid the amount to the Jacks in settlement, and had not entered into a loan receipt agreement. McCoy contends this issue was resolved in favor of credits in Mendenhall v. Skinner & Broadbent Co., Inc., 728 N.E.2d 140 (Ind.2000). However, no party in Mendenhall raised the issue of the availability of credits generally under comparative fault. Mendenhall rejected credit for amounts from parties who are not named as nonparty defendants but, in footnote 2 of that opinion, expressly reserved the question of whether the Act "affects the traditional way in which our common law gives credits for settlement amounts when the settling defendant has been added as a nonparty." Id. at 141 n. 2.

We have previously stated that credits, at common law, were a tool to avoid overcompensation of plaintiffs. Id. at 143-44. Equally important, credits were a tool to avoid a single defendant's bearing too much responsibility for the plaintiff's damages. These rules were developed in the pre-comparative fault era of joint and several liability. Under that common law regime, each defendant whose negligence contributed to the plaintiff's loss was liable for the entire amount of damages. Without credits for settlement payments by the other defendants, a defendant could be liable for an amount greatly in excess of its fair share, and the result was to overcompensate the plaintiff. There were no nonparty defenses, and the jury was not aware of an absent tortfeasor's settlement. Credits insured that the defendants at trial would not have to pay more than their collective share of liability, and overcompensate the plaintiff, simply because the jury was unable to consider the fault of others.

In 1985, Indiana's comparative fault system addressed these problems in two respects. First, it replaced joint and several liability with several liability, leaving each defendant responsible only for its share of the total liability. Control Techniques, Inc. v. Johnson, 762 N.E.2d 104, 109 (Ind. 2002); Matthew Bender, 2 Comparative Negligence § 13.30[3][c] (2001) ("The Indiana statute expressly incorporates several liability."). Second, it permitted the assertion of a nonparty defense, allowing a defendant to prove the negligence of an absent or settling tortfeasor. I.C. § 34-51-2-15. Thus the jury's apportionment of fault now provides a more complete picture of the relative responsibility for the plaintiff's injuries.

All of this led us in Mendenhall to hold that credits were no longer warranted in cases where the remaining defendant at trial did not assert a nonparty defense against a settling tortfeasor. In Mendenhall we pointed out that the remaining defendant in that case already had "a potent tool" to limit its liability—the nonparty defense. Mendenhall, 728 N.E.2d at 144. Allowing that defendant to resort to a common law doctrine to further reduce its liability made little sense "in light of the modernization of tort law represented by the adoption of comparative negligence." Bender, supra, at § 13.50[2][a] (discussing the common law rule of releases that the release of one amounted to the release of all defendants). That same logic applies in this case as well.

As one treatise notes:

If defendants are severally but not jointly liable, most of the difficult release problems are avoided. The release of a severally liable defendant, whether executed before trial or after judgment, should have no effect upon the liability of the other defendants. The liability of each defendant stands independently and is unaffected by that of other defendants.

Id. at § 13.50[2][c] (emphasis added). That treatise notes that problems may remain in several liability jurisdictions where the fault of absent tortfeasors is not considered. Id. But the nonparty defense eliminates those problems in Indiana....