Slaughter v. Pennsylvania X-Ray Corp.

• Citation: 638 F.2d 639
• Decision Date: 15 January 1981
• Docket Number: X-RAY,No. 80-1564,80-1564
• Parties: Jerry N. SLAUGHTER, A Minor By and Through His Father and Next Friend James Slaughter v. PENNSYLVANIACORPORATION and John J. Geiger v. DELCO GENERAL TRUCK SALES CO., INC.; International Harvester Co.; Suburban Truck Sales, Inc.; Fort Recovery Industries; Grief Bros. Corporation; Ryder Truck Rental Systems, Inc.; Duralite Body Company, Inc. Appeal of DELCO GENERAL TRUCK SALES CO., INC.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 639

638 F.2d 639

Jerry N. SLAUGHTER, A Minor By and Through His Father and Next Friend James Slaughter v. PENNSYLVANIA X-RAY CORPORATION and John J. Geiger v. DELCO GENERAL TRUCK SALES CO., INC.; International Harvester

Co.; Suburban Truck Sales, Inc.; Fort Recovery Industries;

Grief Bros. Corporation; Ryder Truck Rental Systems, Inc.;

Duralite Body Company, Inc.

Appeal of DELCO GENERAL TRUCK SALES CO., INC.

No. 80-1564.

United States Court of Appeals, Third Circuit.

Argued Oct. 14, 1980.

Decided Jan. 15, 1981.

Theodore H. Lunine (argued) Philadelphia, Pa.; William T. Campbell, Jr., Swartz, Campbell & Detweiler, Philadelphia, Pa., for appellant Delco General Truck Sales Co., Inc.

Joseph F. Moore, Jr. (argued), J. Kurt Straub, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for appellee International Harvester Co.

George Sheehan, Jr. (argued), Donald J. P. Sweeney, McWilliams & Sweeney, Philadelphia, Pa., for appellee Pennsylvania X-Ray Corp.

Alfred Sarowitz, Philadelphia, Pa., for appellee John J. Geiger.

H. M. Girsh, Steinberg & Girsh, Philadelphia, Pa., for appellee Ryder Truck Rental Systems, Inc.

Arthur G. Raynes, Raynes, McCarty & Binder, Philadelphia, Pa., for Jerry N. Slaughter, etc., et al.

Before HUNTER and WEIS, Circuit Judges and FISHER, ^* District judge.

OPINION OF THE COURT

WEIS, Circuit Judge.

Because it had insufficient insurance coverage to pay the plaintiff a reasonable settlement, the target defendant in this diversity personal injury suit "borrowed" money from one of several alleged joint tortfeasors. Repayment was conditioned upon the defendant's recovery of contribution from other tortfeasors. Rejecting a contention that the "loan" was in fact a settlement payment, the district court allowed recoupment. In addition, the court held that a recently enacted comparative negligence statute was not applicable in a contribution suit where the underlying tort occurred before the statute's effective date. We agree with both rulings and affirm.

Plaintiff Jerry Slaughter was struck and severely injured by a truck. He brought suit against its owner, Pennsylvania X-Ray Corp., and driver, John Geiger, X-Ray's employee. X-Ray then joined a number of entities as third-party defendants on allegations that their conduct contributed to the accident. The plaintiff's claim was settled in full by payment to him of $1,500,000 by X-Ray. International Harvester, one of the third-party defendants, advanced $400,000 to X-Ray under an arrangement the parties termed a "loan receipt." The case proceeded to trial on X-Ray's third-party complaint for contribution and various cross-claims filed by the third-party defendants. X-Ray admitted its negligence, and the jury determined that only one of the third-party defendants, Delco General Truck Sales Co., was also liable. Judgment was then entered in favor of X-Ray against Delco for $750,000, one-half the total amount paid to settle the plaintiff's claim. After its posttrial motions were denied, Delco took this appeal.

The plaintiff received extensive injuries when struck by X-Ray's truck as it went out of control after a hydraulic brake line ruptured. X-Ray's investigation revealed that highly corrosive chemicals carried in the vehicle on a regular basis leaked through the truck bed and onto the brake line causing it to corrode. International Harvester had sold the used truck to X-Ray, and Delco had performed a required state safety inspection four months before the accident. X-Ray alleged that both of these companies, and others absolved by the jury, had a part in the brake failure.

In the course of pretrial proceedings, it became obvious that the plaintiff, an innocent victim, was undoubtedly entitled to a large award. All of the parties agreed that one and one half million dollars was a reasonable settlement, but the defendants were unable to allocate responsibility for payment among themselves. X-Ray then agreed to settle the claim in full, taking a release that absolved all defendants of liability to the plaintiff but preserved X-Ray's contribution claims against them.

Because its liability insurance limits were $400,000 short of the settlement amount, X-Ray "borrowed" that sum from International Harvester without interest. X-Ray agreed to reimburse International Harvester by sharing any awards on the contribution claims to a maximum of $400,000. If totally unsuccessful, X-Ray would not have been required to repay the loan, and if recovery was inadequate to fully satisfy the debt, International Harvester agreed to forgive the remainder. Each party waived all other claims against the other.

At trial, testimony divulged the terms of the settlement with the plaintiff and the arrangement between International Harvester and X-Ray. In answers to special interrogatories, the jury found that Delco had been negligent but that the other third-party defendants, including International Harvester, were not responsible for Slaughter's injuries.

Relying on Pennsylvania's recently enacted comparative negligence statute, Delco argued that its liability for contribution should be limited to the percentage of causal negligence the jury assessed against it 12.5%. The district court ruled that since the accident occurred one year before the comparative negligence statute became effective, it did not apply. Consequently, the court entered judgment against Delco for $750,000, one-half the total settlement.

On appeal, Delco argues that it should benefit from the $400,000 loan because it was, in effect, a settlement payment by International Harvester. Delco also renews its contention that comparative negligence principles should govern a contribution claim arising out of a settlement made after that statute's effective date. In addition, Delco argues that the admission of evidence bearing on the loan agreement was unduly limited, that the proof of negligence against it was insufficient, and that a new trial should be granted on its cross-claim against International Harvester.

I

In 1951 Pennsylvania adopted the Uniform Contribution Among Tortfeasors Act, 42 Pa.Cons.Stat.Ann. §§ 8321-8327 (Purdon 1980 Pamphlet), an act designed "to establish generally the existence of the right of contribution among joint tortfeasors and to provide the procedure whereby that right might be made effective in practice." Swartz v. Sunderland, 403 Pa. 222, 225, 169 A.2d 289, 291 (1961). ¹ Under the Act, a settling joint tortfeasor who extinguishes the liability of another joint tortfeasor to the injured person is entitled to seek contribution. 42 Pa.Cons.Stat.Ann. § 8324(c); Swartz v. Sunderland, supra.

In order to recover, a settling party must:

(1) be a tortfeasor;

(2) establish joint liability with another; and

(3) have extinguished the liability of the other joint tortfeasor to the injured party.

42 Pa.Cons.Stat.Ann. §§ 8322, 8324(c). In other words, the fact that a person paid money to settle the claim of an injured party is not a sufficient basis for recovery; the joint tortfeasor relationship must also be established. Thus, if the payor is not a tortfeasor, his payment would be that of a volunteer and would not support a claim for contribution. In this case, therefore, as a prerequisite to recovery, it was necessary for Pennsylvania X-Ray to concede its own negligence, which it did in counsel's opening to the jury.

Since the pretrial investigation apparently developed sufficient information to convince X-Ray that it would be found liable in any event, it was the logical party to lead the settlement negotiations. The problem, however, was that although all parties agreed on the total settlement figure, X-Ray needed $400,000 to supplement its insurance coverage.

International Harvester insisted (correctly as it turned out) that it was not liable. Nevertheless, in view of the plaintiff's extremely serious injuries, it recognized the risk that the jurors might hold it and other third party defendants liable. If it paid directly into the settlement fund, any contribution claim would have to be based on the theory that although negligent, International Harvester had paid more than its pro rata share. Direct participation carried with it an admission of liability insofar as a contribution claim was concerned. Exculpation by the jury would not produce a refund, since the verdict would merely establish that International Harvester was a volunteer, not a joint tortfeasor. Thus, there was no way that International Harvester could participate directly in a settlement and recoup its money if the jury found no liability.

These were the reasons underlying International Harvester's and X-Ray's decision to employ a loan transaction. The parties have termed it a "loan receipt," an arrangement used in some states where contribution among joint tortfeasors is not permitted. The label is not determinative, and it is the substance of the transaction that must be analyzed. ²

Delco argues that the loan arrangement was merely an attempt to circumvent the Uniform Contribution Among Tortfeasors Act and, in that context, should not be considered as anything other than a payment toward settlement. Delco asserts that there is no case law in Pennsylvania or other states that casts light on the validity of such agreements among tortfeasors. Our task, therefore, in this Erie setting, ³ is to predict what course the Pennsylvania Supreme Court would follow if it were presented with this issue.

We start with the fact that without the loan arrangement the settlement would not have occurred. Thus, the plaintiff, an innocent victim, would have been compelled to wait years to receive compensation because of the defendants' inability to prophesy how a jury would allocate responsibility for the injury. Even the most astute and experienced defense lawyers will admit that it is often impossible to make such a prediction. In hindsight, it can be said that there was some basis for Delco's optimism because its...