United States: If You Want Contribution, Get The Third Party Released

Last Updated: March 21 2014
Article by Jeffrey S. Moller

The maritime version of "Murphy's Law" can be a potential trap for participants in maritime tort litigation. The decision of the 11th Circuit Court of Appeals in Murphy v. Florida Keys Electric Co-op Assoc., Inc., 329 F.3rd 1311 (11th Cir. 2003) enunciated the rule that in order to preserve the right to pursue third parties for tort "contribution," a party must negotiate a release of those third parties when settling the underlying claim brought by the tort victim. The law enounced by the Murphy court was based upon the proportionate fault rule existing in the maritime law and the pro rata credit rule established by the U.S. Supreme Court in McDermott, Inc. v. AmClyde, et al., 511 U.S. 202 (1994). The logic of this version of Murphy's Law is that a settling tortfeasor is, per McDermott, deemed to have paid the tort victim only in accordance with the settlor's own proportionate share of fault. The settlement extinguishes the rights (and needs) of non-settling tortfeasors to pursue the settlor because it coincidentally limited the non-settlors' liability—despite the doctrine of "joint and several liability"—to their own proportionate faults. The Murphy case held that unless the release negotiated between the settlor and the tort victim also releases the tort victim's claims against the non-settlors, the settlor is presumed to have paid only for its proportionate share and cannot seek contribution from others. This rule has subsequently been adopted by the Fifth Circuit Court of Appeals in Ondimar Transportes Maritimos v. Beatty Street Properties, Inc., 555 F 3rd 184 (5th Cir. 2009). The Fifth Circuit has also gone so far as to say that a formal assignment of claims from the tort victim to the settlor would not remedy the situation. See also, Lexington Insurance Company v. S.H.R.M. Catering Services, Inc., 2009 US. App. Lexis 9447 (5th Cir. 2009). Recall that the McDermott v. AmClyde case arose from a situation where one of the named defendants to a lawsuit had settled, but the case continued on against remaining named defendants. The question was how much settlement credit should be afforded to the remaining defendants. Given the existence in U.S. maritime law (since the Reliable Transfer case) of a tort system of proportionate fault, the Supreme Court decided in McDermott that the verdict against the remaining defendants would not be reduced simply by the dollar amount paid by the settlor, but would be reduced instead by the proportion of fault eventually attributed to the settlor by the fact finder, be it judge or jury. This rule made it unnecessary for the non-settling defendants to keep alive their cross-claims for contribution against the settlor, thereby assuring that the settling defendant had terminated its involvement in the lawsuit with finality. At the same time, the tort victim would get fair compensation.

The 11th Circuit Court in Murphy recognized that if, under McDermott, the settling defendant is deemed to have only paid his proportionate share or fault, he can have no reason to seek contribution from others. The right to contribution is purely and primarily a creature of the maritime law rule of joint and several liability, under which the plaintiff is free to collect the entirety of its verdict from any one of the tortfeasors who proximately caused his harm. If a tortfeasor is forced by that rule to pay for more than its proportionate share, the right of contribution exists to allow him to collect contribution from the other tortfeasors in accordance with their determined shares. But the McDermott presumption means that the paying entity is not entitled to contribution because it did not pay more than his fair share.

There are various ways in which this rule can hurt the unwary, particularly in situations where, for one reason or another, all potential tortfeasors cannot be joined by the victim in one action. For example, where a cargo owner is bound per the terms of a bill of lading to bring an action against the carrier in a foreign arbitration forum, potential additional tortfeasors such as the loading or discharging stevedores, packaging companies, or truckers could not be brought into the arbitration forum against their will. If the cargo owner and carrier effect a settlement, the carrier may have hopes of bringing suit at a later date to recover some portion of the settlement amount it was required to pay to the cargo owner. Unless the carrier obtains a release of the cargo owner's claims against the prospective contributors, however, the carrier will be presumptively deemed to have paid to the cargo owner only an amount relative to its (the carrier's) own proportionate fault. The carrier could not, therefore, sue a loading stevedore or trucker for contribution, even if the carrier obtained a formal legal assignment of the cargo owner's claims. Another example might be a Jones Act claim brought by a seaman for personal injury suffered during the course of his employment. If such action is brought in a federal district court in which other potential contributors are not subject to jurisdiction, the vessel owner/employer cannot expect to later obtain contribution from any third parties unless the seaman has released his/her claims against them, indicating that the vessel owner paid for not only its own proportionate share of fault, but also additional amounts on behalf of other tortfeasors.

Of course, contribution's fraternal twin cause of action is indemnification. Neither Murphy, Ondimar, nor McDermott serve to forbid the pursuit of indemnification from an unreleased non-settlor, and there would seem to be no logical reason why those rules should be extended. (Of course, the famous words of Justice Oliver Wendell Holmes, Jr. to the effect that "the life of the law has not been logic; it has been experience" might counsel against relying upon logical extension.) The theoretical basis of the right of indemnification differs greatly from that underlying the right of contribution. A settling tortfeasor might be forced to pay the full amount of a claim by virtue of its relationship with the claimant and might have a contractual or quasi-contractual right of full indemnification from a third party. In such a case, the payor would not be limited to a mere contribution claim and would not be deemed or presumed to have paid only in accordance with its own proportionate fault. Maritime law recognizes several types of indemnity, both contractual and quasi-contractual and, in tort, via the socalled active/passive construct. For example, a vessel owner might be liable to a seaman for injuries arising as a result of an unseaworthy condition on the vessel. If that condition was caused to occur by the failure of an expert stevedore or contractor to live up to its warranty of workman-like performance, the vessel owner could seek indemnification from the stevedore or contractor without having secured a release for them from the seaman.

Therefore, if one should find oneself in a situation of wanting to recover monies paid in the settlement from parties that were not able to be drawn into the initial claim process, one could assert claims for indemnification even if the third parties had not been released by the original claimant. Seeking indemnity would, in this instance, be a way to avoid the effect of the maritime law's version of Murphy's Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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