DAVE KRAMER –NON SETTLING DEFENDANTS SHOULD BEWARE MARY CARTER AGREEMENTS AND SHAM HIGH/LOW AGREEMENTS

By David Kramer | dkramer@dbllaw.com

 

In Goodin v. White, 342 S.W.3d 282 (Ky. App. 2011), the Kentucky Court of Appeals upheld a trial court’s refusal to admit into evidence a settlement agreement between the plaintiff and a third-party defendant who remained in the case for trial. The jury exonerated the settling third-party defendant but imposed a significant verdict against the nonsettling defendant. The opinion states that the jury was informed of the fact that the plaintiff and third-party had settled, but the terms were not disclosed, nor was a copy of the agreement admitted. The Court of Appeals also upheld the trial court’s refusal to make the plaintiff and settling third-party defendant share their peremptory jury challenges, rejecting the nonsettling defendant’s argument that the plaintiff and the third-party were not antagonistic in light of their settlement.

 

Goodin v. White is the first reported Kentucky appellate decision discussing so-called Mary Carter settlement agreements. The nickname of those agreements derives from the case of Booth v. Mary Carter Paint Co., 202 So. 238 (Fla. App. 1967). Goodin defined a Mary Carter agreement as having the following characteristics: (1) it limits the liability of the settling defendant, who remains a party to a pending action; (2) it is kept secret from the nonsettling parties and/or judge and jury; and (3) it guarantees to the plaintiff a minimum recovery, notwithstanding the fact that the plaintiff may not collect on the judgment against the settling defendant or that the verdict may be less than that specified in the agreement. The classic Mary Carter agreement would add a fourth characteristic: that the settling defendant’s liability is decreased in direct proportion to the increase in the nonsettling defendants’ liability. See, e.g., Cox v. Kelsey-Hayes Co., 594 P.2d 354 (Okl. 1978).

 

Whether the agreement is a classic Mary Carter or a variant that has some elements of a Mary Carter, the point of such agreements is that they tactically help the plaintiff divide and conquer the defendants by reducing the incentive of the settling defendant to vigorously defend the claim, while not giving the nonsettling defendant an “empty chair” to blame at trial. In such cases, the nonsettling defendant may want the jury to consider the extent to which the motivations of the other parties have been affected by a settlement agreement that may have changed the normal and expected adversarial interests — and consequently the trial positions — of the parties.

 

My review of the Goodin v. White opinion leads to a number of observations:

- Though the opinion does not address the point, the duty to disclose a settlement with one but not all defendants to the court and to all other parties certainly exists under Kentucky civil procedure and legal ethics rules (specifically, the duty of candor to the tribunal and the duty of fairness to opposing party and counsel) if such information is requested in a valid discovery request, and may exist even without such a formal request. In this regard, I always ask in discovery to be informed of the existence of any settlement agreement with any other person or party.

 

- The agreement in Goodin v. White was not a classic Mary Carter agreement in that it did not reward the settling third-party defendant by reducing its liability by the amount awarded against the nonsettling defendant, and it was disclosed to the court and opposing parties, but it did have other characteristics of a Mary Carter. It is important to note the Court of Appeals held that a settlement that creates bias on the part of a witness or impeaches sworn testimony can be admissible on those bases. The Court did not find any evidence of witness bias or prior inconsistent testimony, notwithstanding the defendant’s argument that once the settlement was reached the plaintiff’s counsel adjusted their litigation strategy by pulling punches on the third-party defendant at trial compared to plaintiff’s more adversarial approach to the third-party during discovery. Also, the opinion notes that the agreement was disclosed to the court at the beginning of the trial, and the jury was later advised that there was a settlement between the plaintiff and the third-party defendant.

 

- The party the plaintiff settled with was a third-party defendant who was brought into the case by the defendant, not a defendant who was kept in the case for trial by the plaintiff. Thus, this doesn’t appear to have been a sham high/low between a plaintiff and a defendant with limited resources intended to increase the potential return from a defendant with deeper pockets; rather, it was probably a tactic designed to reduce the antagonism the plaintiff would face at trial and avoid an empty chair situation. On the other hand, the high and low numbers of the agreement were not mentioned in the opinion, so it’s unknown how narrow the settlement spread was. The lower the numbers and the narrower the spread between the high and the low, the more likely the agreement might be a sham, and the more the agreement resembles a Mary Carter.

 

- There was no indication in the opinion that the plaintiff and the third-party defendant colluded with each other during jury selection, or that the nonsettling third-party defendant used its peremptories to benefit the plaintiff. If either of those circumstances had occurred, the defendant could probably have made a persuasive motion for mistrial on that basis.

 

In conclusion, a Mary Carter agreement or its variant, the sham high/low agreement, i.e., one with comparatively low numbers and in which there is an artificially narrow spread between the high and the low, can distort the adversarial process, cause a misalignment of the parties and raise both questions of fairness and potential ethical implications. This is particularly true when the agreement is not disclosed to the court and counsel, or when there is collusion between ostensibly opposing parties during jury selection, or when the settling defendant “takes a dive” by not mounting a vigorous defense or changes tactics and blames a nonsettling defendant at trial when that was not previously the settling party’s position. Defense counsel should be on guard for such tactics and raise them with the trial court when they occur. Options may include seeking relief by way of a mistrial or requesting leave to admit into evidence the terms of the settlement or to use them for purposes of showing bias or impeaching inconsistent testimony.

 

David Kramer is a Northern Kentucky attorney practicing at Dressman Benzinger LaVelle psc.

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