January 2008

GOOD FAITH SETTLEMENTS

BY MARK J. LENZ, ESQ.

Bill was at his desk, looking bemused.  I knew I could only make things worse, since he had a Petition for Writ of Mandamus due in three days. 

“Hey, Bill,” I said, jovially.  He scowled.  “How did your hearing go— the one on plaintiff’s motion for a good faith settlement?”

“Judges,” Bill muttered, grinding his teeth.  

“Bill, you shouldn’t grind your teeth like that.  Does your dentist need another boat payment?”  I asked, helpfully.  Bill scowled again.  Then he smiled, if the twisted grimace that came over his face could be called a smile. 

“You can do me a service,” he said.  I started to back out of his office. 

“I’m kind of busy,” I said, sidling toward the door. 

“Too bad,” said Bill.  “I need a memo on good faith settlements, and I need it by Monday.”  There goes the weekend, I thought, biting back a witty retort. 

“Great.  Where do I start?” 

“Start with NRS 17.245, the first part of the Uniform Contribution Among Tortfeasors Act,” Bill said, imperiously.  “It provides an abundantly unclear statement on the effect of a ‘good faith’ settlement on the parties’ rights and liabilities.” 

“Well,” I said.  “If it’s unclear, why doesn’t the Legislature fix it?” I knew Bill had served time in the Legislature. 

“Just go read it,” Bill ordered, “and come back in two hours to talk about it.”  He turned back to his work.

I looked up NRS 17.245.  It said:

1.  When a release or a covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury or the same wrongful death:

(a) It does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide, but it reduces the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater; and

(b) It discharges the tortfeasor to whom it is given from all liability for contribution and for equitable indemnity to any other tortfeasor.

2.  As used in this section, “equitable indemnity” means a right of indemnity that is created by the court rather than expressly provided for in a written agreement.

(Emphasis added). 

Two hours later, I was back in Bill’s office.  “The answer is simple,” I said, with feigned hubris.  “In Doctor’s Company v. Vincent, 120 Nev.Adv.Op. No. 72 (36838) 98 P.3d 681 (2004), the Nevada Supreme Court confirmed that ‘any joint tortfeasor in a multi-defendant tort action may obtain protection from claims of contribution and implied indemnity by settling with the tort claimant in good faith under NRS 17.245.’  The court also said, ‘the district court’s discretion in determining the good or bad faith of a particular settlement is not talismanic, but rather, must be exercised based upon a myriad of considerations.’   That’s on page 1.”

“What are the considerations?” Bill asked.

 “I suppose we could have wished for a list of the “myriad” of considerations,” I retorted, “but, you know the Supremes.”

 “Hmph,” Bill grunted.  “What are the facts in Vincent?”

“Straight out of a bar exam question,” I answered.  “A Mr. Samuel Woods went looking for some short-term medical coverage through an insurance agent named Vincent.  Vincent submitted Woods’ application to The Doctor’s Company’s (“TDC”) affiliate, NMA, along with a premium check.  He claimed he mailed the application just before midnight on February 9, 1998, with a private-meter postmark of that date, requesting coverage on “the date after postmark.”  The U.S. Postal Service, however, did not postmark the application until February 12, 1998.” 

“So,” said Bill, “he had a postmark problem?” 

“Of course,” I answered.  “Mr. Woods was seriously injured in his home on February 11, 1998, incurring about $375,000 in medical expenses.  TDC denied coverage, based on the later postmark, and Woods sued everyone.  Then, get this.  After losing its motion for summary judgment, TDC settled with Woods shortly before trial for $2.75 million.”

“Might have been cheaper to pay the indemnity, I suppose,” mused Bill.  “Was their arithmetic expert out sick that day?”

“I have no idea.  All the parties stipulated that the TDC-Woods settlement was in good faith.” 

“So from whence did the problem arise?” asked Bill. 

“Bill,” I said, “no one says ‘whence’ anymore.”  He ignored me.  I went on.  “The problem was Vincent.  He pops up, and says, ‘me too, me too.’  Vincent also settled with Woods, for $25,000.  TDC apparently got its briefs in a bunch over that.”  Bill raised one eyebrow.  “Well, the court specifically referred to the fact that ‘the briefs… against approval…’ summarized the history of the case.” Bill’s eyebrow remained raised.  I plowed ahead.  “TDC refused to agree that Vincent’s settlement was in good faith.  It wanted to go after its agent Vincent for contribution and/or implied indemnity for the amount it had paid to settle for his screw-up.”

“And did they do so?” asked Bill. 

“Well, they tried,” I answered.  “Vincent was apparently reluctant to pony up 100 times what he had already paid, so he argued that TDC’s settlement had extinguished its right to contribution, and that his settlement had extinguished TDC’s right to implied indemnity.”

“That seems right,” Bill said.  “What was the problem?”

“The problem was perfection,” I answered.

“Explain,” Bill ordered.

“Well, here’s what the court did:  First, it agreed that TDC’s settlement with Woods extinguished its right to contribution from Vincent, because TDC failed to perfect its rights; and second, it remanded to the District Court for a determination of the “good faith” factors relating to TDC’s implied indemnity claim against Vincent.”

“Why two conclusions?” Bill asked. 

“How should I know?” I said.  “Maybe the Supreme Court needed an arithmetic expert, too.  Anyway, they outlined two purportedly separate conclusions, one for each of the issues.  With respect to contribution, the court held that if you want to claim contribution against another tortfeasor, you have to settle your claim for more than just your fair share of the liability, and you must explicitly extinguish the liability of your target.” 

“That’s simple enough,” lectured Bill.  “The concept of ‘contribution’ means you actually have to ‘contribute’ to your co-defendant’s liability.” 

“You mean, like, ‘XYZ’s payment of settlement funds in this matter includes payment on behalf of Zeke Freenbeen, and extinguishes Mr. Freenbeen’s liability to the extent of $3.28?’” I asked, ingenuously. 

“One ought not to use ‘like’ in that manner,” Bill said, reprovingly.  “But yes, as you stated.  What else did the court say?”

“It said that if you’re only looking to perfect contribution as part of a settlement, you do not need a formal “good faith” ruling.  However, if you want any protection against claims of contribution by nonsettling tortfeasors, you should obtain a formal ruling of good faith settlement under NRS 17.245.”

“No problem there,” said Bill.  “What did they say about implied indemnity?”

“Basically, the same thing.  If you are looking to perfect an “implied indemnity” claim by settlement, you do not have to extinguish the liability of the indemnity defendant, but if you don’t, you leave your claim in jeopardy because the court could approve a separate, subsequent settlement between the claimant and the potential indemnity defendant.  And the only protection against that is to obtain a “good faith” ruling from the court, under NRS 17.245,” I said, rather proud of myself for remembering what they had said. 

Bill was reading the case, instead of listening to me, however.  “What does this mean?” he asked, pushing the paper my way.  I read:

Accordingly, a settlement that extinguishes the liability of the indemnity plaintiff and the indemnity defendant preempts the statutory protection provided under NRS 17.245 for an indemnity defendant who attempts to settle with the underlying plaintiff at a later time.

“Huh?” I asked, brilliantly. 

“Well,” said Bill.  “Using your fanciful parties, let’s say XYZ, Inc. is the underlying defendant, i.e, the “indemnity plaintiff,” and Freenbeen is the indemnity defendant, i.e, the real culprit whose boneheaded actions as XYZ’s agent messed up the deal with ABC, the underlying plaintiff.  If XYZ settles with ABC for $1 million, and extinguishes its own liability, and that of Freenbeen, and then later Freenbeen settles with ABC for $12.50 without a ruling that its settlement was in good faith, then is Freenbeen still subject to XYZ’s claim of implied indemnity?”

“Uh, I guess so,” I muttered. 

“So,” Bill went on, “a determination of ‘good faith’ is apparently necessary in any event where your liability was either covered explicitly, or impliedly, by someone who could come after you for the money.   Now, what are the factors to be used in determining good faith?” 

“Oh, those,” I said.  “Well, in In re MGM Grand Hotel Fire Litigation, that’s 570 F.Supp. 913, 927 (D. Nev. 1983), the court listed five factors:”

            1.         The amount paid in settlement;

            2.         The allocation of the settlement proceeds among plaintiffs;

            3.         The insurance policy limits of settling defendants;

            4.         The financial condition of settling defendants;

            5.         The existence of collusion, fraud or tortious conduct aimed to injure the interests of non-settling defendants;

“But that’s not all,” I went on.  “In Velsicol Chemical v. Davidson, 107 Nev. 356, 811 P.2d 561 (1991), the court, in effect, rejected the ‘five-factor’ approach of MGM, and stated, ‘We hold that determination of good faith should be left to the discretion of the trial court based upon all relevant facts available ….’  And then, along comes Vincent, and the court says do a ‘complete analysis, taking into consideration the MGM factors,’ that it previously rejected, the extent to which the settlement may not have reflected liability for compensatory and punitive damages arising from the claims of active fault against TDC, and whether the Vincent settlement was otherwise fair in relation to TDC’s chances of success on the substantive implied indemnity claim.”  I was out of breath by this time.

“So,” mused Bill.  “Given the legal profession’s propensity for making lists of things, we will be tempted by the Vincent case to make a new list of factors.”

“Well,” I said.  “The Vincent ruling requires the District Court to do eight things: (1) make an assessment of the indemnity plaintiff’s “chances” of success on its claim; (2) decide whether the proposed “good faith” settlement is “fair” in relation to those chances; (3) decide what “fair” means in those circumstances; (4) decide whether the indemnity plaintiff may or may not be subject to compensatory and/or punitive damages arising out of its “active fault;” (5) decide whether the indemnity plaintiff’s “fault” was active or passive…”

“You mean, as in Black & Decker v. Essex Group, 105 Nev. 344, 775 P.2d 698 (1989)?” Bill interrupted.

“Sure,” I said, and went on: “(6) determine what the indemnity plaintiff’s damages would be; (7) compare those damages to the proposed settlement; and (8), “consider” the five factors listed in MGM.”  I was out of breath again.

“Unfortunately for you,” Bill said, maliciously, “that doesn’t really answer my most pressing question.”  I waited for his most pressing question.  “That,” said Bill, “in a situation involving a principal and agent, where the principal’s liability is solely based on the acts or omissions of the agent, or worse yet, a mere ostensible agent, does release of the culpable agent release the principal or not?  Go find out.”

I came back three hours later.  Bill looked up from his desk, expectantly.  “No answer,” I said.  Bill scowled. 

“What’s the problem?”

“Three Nevada cases and two statutes,” I answered.  “First, in Van Cleave v. Gamboni Construction …

“One or two?” asked Bill.

“Two, I guess,” I responded.  “The cite is 101 Nev. 524, 706 P.2d 845 (1985).  Anyway, in Van Cleave, the court held that release of an employee did NOT release the employer, and applied to vicarious liability situations, vaguely including principal and agent.  Then in Medallion Development v. Converse Consultants, the court held that release of one tortfeasor did not preclude an action for implied indemnity by the release against the other tortfeasors.” 

“That sounds good,” said Bill.  “What’s the cite?”

“113 Nev. 27, 930 P.2d 115 (1997).  But the legislature dipped its fingers in the pot, and in 1997 amended NRS 17.245, after Medallion, to provide subsection two, which says, ‘As used in this section, “equitable indemnity” means a right of indemnity that is created by the court rather than expressly provided for in a written agreement.’  That seems to overrule Medallion and make NRS 17.246, the second part of the UCATA, meaningless,” I concluded.

“How so?” queried Bill.

“Well, NRS 17.246 provides that ‘xcept as otherwise provided in NRS 17.245,’a party’s rights of indemnity are not impaired.  Subsection two of NRS 17.245 seems to suggest that they are impaired, unless they’re written in stone.”

“Depends,” said Bill, “on what the lawmakers meant by “created by the court.’  What’s the third case?” 

“Oh,” I said.  Vincent refers to Medallion and what the legislature did to it.”  Bill turned back to his desk.

“So, you still need that memo on Monday?” I asked, hopefully.

“No,” said Bill, and I started a sigh of relief.  “I need it tomorrow.”

Mark J. Lenz is a native of Reno, Nevada.  He received a B.A. in Applied Music from UNR in 1973 and a Master of Music in Trombone Performance from New England Conservatory of Music in 1975.  He received his J.D. from Cornell Law School in 1991.  He is now employed at Piscevich & Fenner, doing medical malpractice defense, insurance defense, and some business litigation.