State ex rel. Vapor Corp. v. Narick, 16119

• Citation: 320 S.E.2d 345,173 W.Va. 770
• Decision Date: 12 July 1984
• Docket Number: No. 16119,16119
• Court: Supreme Court of West Virginia
• Parties: STATE ex rel. VAPOR CORPORATION, etc., et al. v. Steven D. NARICK, Judge, etc.

Page 345

320 S.E.2d 345

173 W.Va. 770

STATE ex rel. VAPOR CORPORATION, etc., et al. v. Steven D. NARICK, Judge, etc.

No. 16119.

Supreme Court of Appeals of West Virginia July 12, 1984.

Syllabus by the Court

1. Most courts in considering the validity of "Mary Carter" and related settlement agreements hold that prompt disclosure is required to both the court and opposing counsel once such a settlement is made.

2. "The law favors and encourages the resolution of controversies by contracts of compromise and settlement rather than

                by litigation;  and it is the policy of the law [173 W.Va. 771] to uphold and enforce such contracts if they are fairly made and are not in contravention of some law or public policy."   Syllabus Point 1,  Sanders v. Roselawn Memorial Garden, Inc., 152 W.Va. 91, 159 S.E.2d 784 (1968)
                

3. Defendants may by an express agreement release and settle inter se their claims for contribution or indemnity prior to a recovery against one or more of them by the plaintiff.

4. "Contracts of indemnity against one's own negligence do not contravene public policy and are valid." Syllabus Point 1, Sellers v. Owens-Illinois Glass Co., 156 W.Va. 87, 191 S.E.2d 166 (1972).

5. A contract of settlement among defendants, which settles their claims for indemnity and contribution inter se and provides that the defendant who receives the settlement proceeds shall indemnify and defend the settling defendants against any monetary recovery by the plaintiff or by the nonsettling defendants, is not, for these features alone, invalid as being contrary to our public policy.

Jolyon W. McCamic, McCamic & McCamic, Wheeling, for appellant.

Grogan, Graffam, McGinley, Solomon & Lucchino, Pittsburgh, Pa., Morris & Ruley, Parkersburg, for Mobay.

Bachmann, Hess, Bachmann & Garden, Wheeling, Egler, Anstandig, Garrett & Riley, Pittsburgh, Pa., for Air.

Mead, Goodwin, Saad & Shanley, Wheeling, Grigsby, Gaca & Davis, Pittsburgh, Pa., for IVS Hydro Inc.

MILLER, Justice:

The petitioners in this original action in prohibition seek to prevent the Circuit Court of Marshall County, West Virginia, from continuing an order, which set aside a settlement agreement among several defendants in a wrongful death action, on the grounds of public policy. After reviewing the terms of this agreement, we conclude that it does not violate the public policy of this State. We also reject the arguments, raised for the first time in this court, that the agreement is "barred by fraud" or prohibited under the law of Pennsylvania. Accordingly, we issue the writ of prohibition. ¹

The petitioners have been collectively styled by the parties as the "vendor defendants," because they supplied another defendant, Air Products & Chemicals, Inc. (hereinafter Air Products), with various items of machinery and equipment which it used in an air separation plant owned by Air Products. This Air Products facility supplied oxygen and nitrogen to an adjoining plant of Mobay Chemical Corporation (hereinafter Mobay).

The accident giving rise to the underlying litigation occurred on January 31, 1978, when a liquid nitrogen tank at the Air Products facility ruptured as a result of overpressurization. Part of the tank's outer shell broke off and struck a pipeline running from a nearby liquid oxygen storage tank. The impact was transmitted up the pipeline toward the tank, causing the outlet nozzle to break off. A substantial quantity of liquid oxygen escaped from the tank and vaporized, forming a cloud that drifted onto a remote portion of the Mobay property. Five persons working at the Mobay facility sustained fatal injuries when they entered the cloud and caught fire. As a further result of the oxygen spill, the Mobay and Air Products facilities were shut down and evacuated, causing property damage and business interruption losses.

The 1978 accident spawned a number of suits in three different states. Mobay was the first party to file a claim, initiating a lawsuit in the Court of Common Pleas of Allegheny County, Pennsylvania, against Air Products for property damage. In that suit, Air Products filed third-party claims for contribution or indemnification against Following the Mobay action, three wrongful death suits were filed in Pennsylvania and Ohio, naming Mobay and Air Products as codefendants. In each of these actions, Air Products impleaded the same group of vendor defendants as in the Mobay action, asserting the same theories of indemnification or contribution.

the vendor defendants apparently on a products liability theory.

Finally, two wrongful death claims, Henry v. Air Products & Chemicals, Inc., Civil Action No. 79-C-418N, and Rodriguez v. Mobay Chemical Corp., Civil Action No. 79-C-490N, were filed in the Circuit Court of Marshall County, West Virginia. Apparently inspired by the Air Products third-party complaints filed in the Ohio and Pennsylvania cases, the plaintiffs in these suits sued not only Mobay and Air Products, but all of the third-party vendor defendants in the earlier actions.

After extensive pretrial discovery conducted simultaneously in all of the cases, Air Products entered into a comprehensive settlement agreement with all of the vendor defendants except I.V.S. Hydro, Inc., (hereinafter I.V.S.). The agreement provided for the mutual settlement and release of all cross-claims for contribution or indemnity that might arise among the settling parties. In addition, Air Products agreed to indemnify, defend, and hold harmless the vendor defendants against any judgment rendered against them in favor of the plaintiffs or any of the nonsettling defendants.

Mobay and I.V.S. filed motions to set aside this agreement. After conducting a hearing on the motions and examining the agreement, the Circuit Court of Marshall County on December 16, 1983, entered an order granting these motions in the Henry and Rodriguez cases, ² stating that the agreement tends "to undermine the adversarial matter [sic] of judicial proceedings, ... is disruptive of the orderly process of discovery and litigation; and is in violation of the public policy of this state." No explicit reasons were given in support of these conclusions.

The respondents assert several grounds for sustaining the circuit court's action. One of the major claims is that the agreement chills the adversarial process by placing Air Products in charge of representing the vendor defendants, thus giving it the opportunity to manipulate the defense for the vendor defendants to its advantage. Intertwined in this argument are ethical considerations and an overall appeal that such an agreement violates public policy. In support of this position, we are cited cases which involve what have become known as "Mary Carter agreements," a name taken from Booth v. Mary Carter, 202 So.2d 8 (Fla.Dist.Ct.App.1967), overruled, 284 So.2d 385, 388 (Fla.1973). This term of art was defined in Vermont Union High School Dist. No. 21 v. H.P. Cummings Constr. Co., 143 Vt. 416, 469 A.2d 742, 748 (1983), as follows:

"In essence, a Mary Carter agreement is a contract by which one or more defendants in a multi-party case secretly align themselves with the plaintiff and agree to continue as active defendants in the suit while working to aid in the plaintiff's case; in exchange, their own maximum liability will be diminished proportionately by increasing the liability of the nonagreeing defendant or defendants.... The agreements themselves take a variety of forms; however, four features are commonly considered to be essential:

1. The agreeing defendants must remain in the action in the posture of defendants.

2. The agreement must be kept secret.

3. The agreeing defendants guarantee to the plaintiff a certain monetary recovery regardless of the outcome of the lawsuit.

4. The agreeing defendants' liability is decreased in direct proportion to See also Frier's, Inc. v. Seaboard Coastline R.R. Co., 355 So.2d 208, 210 (Fla.Dist.Ct.App.1978); General Motors Corp. v. LaHocki, 286 Md. 714, 720, 410 A.2d 1039, 1042 (1980); Cox v. Kelsey-Hayes Co., 594 P.2d 354, 357 (Okla.1978); Grillo v. Burke's Paint Co., 275 Or. 421, 425, 551 P.2d 449, 452 (1976). Although the validity of such agreements is a matter of some controversy among courts and commentators alike, ³ a number of jurisdictions have upheld Mary Carter agreements where certain procedural safeguards have been employed.

the increase in the nonagreeing defendants' liability."

While recognizing that the agreement in the present case differs from the usual Mary Carter arrangement, we establish as a beginning point that this type of settlement agreement must be promptly disclosed to the court and opposing counsel. ⁴ The parties do not discuss this point, but most courts in considering the validity of Mary Carter and related settlement agreements hold that prompt disclosure is required to both the court and opposing counsel once such a settlement is made. ⁵ See Mustang Equip., Inc. v. Welch, 115 Ariz. 206, 211, 564 P.2d 895, 900 (1977); Gatto v. Walgreen Drug Co., 61 Ill.2d 513, 523, 337 N.E.2d 23, 29 (1975), cert. denied, 425 U.S. 936, 96 S.Ct. 1669, 48 L.Ed.2d 178 (1976); Johnson v. Moberg, 334 N.W.2d 411, 415 (Minn.1983); Cox v. Kelsey-Hayes Co., 594 P.2d 354, 359-60 (Okla.1979).

Disclosure is required because such settlements frequently tend to realign the loyalties of the parties and change their trial tactics from what normally would be expected. It is critical to the fair conduct of the trial to disclose the settlement terms so that the court, with the assistance of counsel, may decide whether the agreement is valid, and if so, what measures should be taken to ensure that the nonsettling party or parties will not be prejudiced.

Furthermore, we agree with the respondents' assertion that while the law favors settlement, such agreements are subject to judicial scrutiny under Syllabus Point 1 of Sanders v. Roselawn Memorial Garden, Inc., 152 W.Va. 91, 159 S.E.2d 784 ...