Toxics Defense

The Law of Unintended Consequences: or, “What do you mean you can’t tell me what the credits from prior settlements will be?” (Part 3)

In the last two posts, I talked about what Proposition 51 was, why it came to be, some of the unanticipated consequences, and how judgments are calculated, including the mechanics of allocation of pre-trial settlements to post-trial credits for the defense.  In this post, I’ll discuss some ways that defense counsel can improve the judgment that is entered on the verdict.

 

First of all, of course, one would think that keeping the economic damages low is a good idea, because they are joint and several.  Plaintiff’s counsel certainly think of that, and we have seen increasing values for “loss of household services.”  But low economic damages aren’t always a good thing.  For example, if the non-economic damages are $2 million, and economic damages are only $100,000, the ratio between the two is such that the remaining defendant at trial would be entitled to only 4.76% of any prior settlements as a credit against the economic damage portion of the judgment.  What is important is keeping the economic and non-economic damages in a reasonable ratio (although I would not suggest increasing the economic damages for the plaintiff!).

 

Another strategy is to bring every possible variable before the Judge for a ruling.  One case where that went very well for the defense was the case of Jones v. John Crane.  Mr. and Mrs. Jones sued John Crane (and many other defendants, who settled before trial) for his injuries, which were going to result in his death, and for his wife’s loss of consortium.  At trial, the jury awarded roughly $1 million in damages to Mr. Jones for his economic damages, $3.5 million for his non-economic damages, and awarded Mrs. Jones $500,000 for her (non-economic) loss of consortium damages.

 

At the post-verdict stage, when credits for settlement were being calculated counsel for plaintiff announced that they had allocated the just-over $1.5 million in settlement 60% to the personal injury case, 20% to loss of consortium, and 20% to the potential future wrongful death damages.  That meant, given the ratio of economic to non-economic damages, defendants were entitled to $208,736 in credits against the economic portion of the verdict.

 

The defense managed to persuade the trial Judge to take an alternative approach – using logic similar to that in Greathouse v. Amcord (discussed in an earlier post), the trial Judge here agreed that there was no reason to use Plaintiffs’ counsel’s allocation of settlements to the loss of consortium claim, because the jury had already done so.  And sine the jury’s allocation of damages for loss of consortium  was 9.9% of the total verdict, that was the amount of the settlement that plaintiff’s could shield from being used as a settlement credit.  The trial Judge also held that he had seen no evidence of the value of the potential future wrongful death case, and refused any allocation of settlement proceeds to that cause of action.  Result?  The credit for prior settlements applied to the economic damages came up to $347,894!

 

In wrongful death cases, we similarly face a situation in which Plaintiffs’ counsel  have allocated a portion of the settlement monies to the personal injury case.  As in Jones, the settlement apportionment should be limited to the jury’s actual verdict, not an arbitrary percentage.  (This is especially true when no defendants settled before the death of the decedent.)

 

Another case to be aware of is Torres v. Xomox.  In that case, a defendant settled out of a case after the jury’s verdict.  The Court held that settlement would not be treated as a pre-verdict settlement.  Instead, the share of the settlement that represented that defendant’s share of non-economic damages would come off the top, and the entire rest of the settlement would be applied as a credit against the economic damages.  In addition, the Court held that workers’ compensation benefits count as settlements, and are apportioned like any other pre-trial settlement.

 

Proposition 51 certainly complicated post-trial procedures.  Because of the limited wording of the Proposition, however, there has been a need for quite a bit of judicial interpretation.  The good part of that is that, if you can find a new angle, you have the chance to get the Court to look at issues concerning Proposition 51. 

 

 

The Law of Unintended Consequences, or "What do you mean you can't tell me what the credits from prior settlements will be?" (Part 2)

            As the prior post indicated, Proposition 51 (California Civil Code Section 1431.2) attempted to reduce lawsuits against defendant that represented “deep pockets” by making liability for non-economic damages several, instead of joint, as had previously been the case.  As a result, defendants found liable at trial could no longer receive credits for the full amount of relevant settlements made by other defendants.  Instead, Appellate Court decisions held that the only sum that could be received as a credit was that portion of the settlements made by other defendants that was reflective of the jury’s award of non-economic damages. This post is going to explain just how final judgments are derived.

 

            The starting place is the verdict form.  The jury will have been asked to determine the share of fault of each defendant at trial for having caused the plaintiff’s injuries.  There may also be a line for the share of the plaintiff’s own comparative fault.  There will also, at a minimum, be a line for the fault of “all others.”  The “all others” can include entities that can’t actually be sued, including employers, according to the California Supreme Court, or the Navy, as was recently held in Collins v. Plant Insulation.  The jury will probably have also found non-economic damages.  The defendant’s  percentage of fault is multiplied by the non-economic damages (pain and suffering, mental distress) and that is the judgment against that defendant for non-economic damages.

 

            Then the Judge takes the ratio of the economic damages to the total verdict,  multiplies that percentage by the amount of settlement monies that are attributable to the causes of action at trial (except for loss of consortium – more on that later) and the sum thus derived is deducted from  the economic damages, to result in the portion of the judgment that is the economic damages (and recoverable against any remaining defendant.)

 

            For example, assume that there is a single defendant at trial, and a single plaintiff.  Further assume that the verdict is the verdict is for $1 million in non-economic damages, $500,000 in economic damages, and the defendant is found to have been 10% at fault.  First of all, the judgment will be $100,000 for  the non-economic damages.  Even if the plaintiff had $2 million from prior settlements, the plaintiff will be receiving $100,000 more.

 

            But let’s assume that there was $1 million in settlements, and the plaintiff says that 60% of that was for personal injury, and 40% for the potential future wrongful death claim that was released when the other defendants settled.  The Judge would take the $500,000 of economic damages and multiply that by the $1,500,000 that represents the whole verdict, and come up with 33 1/3 percent.  The $600,000 in available settlements money is multiplied by 33 1/3 percent,  and there is $200,000 of a credit to subtract from the economic damages.  Total verdict? $100,000 for non-economic damages and $200,000 for economic damages, and there’s $300,000 as a total judgment (plus costs, of course.)

 

            What happens if there are two or more defendants remaining at verdict?

 

            The non-economic damages are, of course, calculated  the same as when there is one defendant, and the credits from prior settlements are also calculated the same way.  As for the Judgment, each defendant will have its own portion of non-economic damages assessed, and then the economic damages will be assessed jointly against both defendants, as the plaintiff has the option of recovering those damages, in whole, from either defendant.  If the Plaintiff does recover the whole of economic damages from less than all of the defendants found to be “at fault” at trial, principles of equitable indemnity permit that defendant to recover the amount that it over-paid  from the other defendants. In other words, if one defendant is found 25% at fault, and another defendant is found to be 50% at fault, ultimately the first defendant is liable for 1/3 of the economic damages (after credits) and the other is liable for 2/3 of the economic damages.

 

            Plaintiffs themselves can have a percentage of fault attributed to them on verdict forms.  When that happens, their share of fault is deducted from the economic damages, although the ratio of economic to non-economic damages for purposes of establishing the credit from prior settlements is calculated on the total verdict.

 

            In the next post, I’ll describe some ways that defense counsel can improve the odds of a better post-verdict settlement credit.

The Law of Unintended Consequences: or, “What do you mean you can’t tell me what the credits from prior settlements will be?” (Part 1)

In 1986, the People of the state of California were fed up, as is often the case.  At that time, they were fed up with trial attorneys who sued big companies in personal injury actions just because they had “deep pockets”, regardless of whether those companies had much to do with causing the injury that was the subject of the law suit. The response to that outrage was Proposition 51, which passed in June of 1986, and is now codified as Civil Code Section 1431.2.   One of the problems with Proposition 51 is that it ultimately did little to solve the issue it was created to solve.  Another problem with the Proposition is that it gave no guidance on how to derive credits from the settlements reached with other defendants when entering a judgment after trial.  

 

In this three-part series, I am going to describe in general terms what Proposition 51 is, how it has affected litigation in California, why is has made calculations of credits from prior settlements so difficult, how credits are calculated, and what defense counsel can do to improve the credits in any given case.

 

Before the passage of Proposition 51, liability was “joint”, with each defendant found liable responsible for paying all damages.  If there was more than one defendant remaining and held liable at trial, it was between them to decide (or litigate) the allocation – the plaintiff could collect the whole amount of the judgment from either defendant.  Because liability was joint,  after trial defendants could receive credit against the total liability from the settlements of other defendants.

 

The way that credits from any prior settlements were calculated was straightforward:  the relevant portions of the settlement were subtracted from the total verdict, and judgment was entered on the remainder.  I say “relevant portion” because by 1986 plaintiffs’ counsel, especially those in asbestos litigation, had figured out that settlements that resulted in a full release of present as well as potential future claims should not be fully deductible from the judgment entered after the trial of only some of the causes of actions that had been released.   Part of any settlement resolved the loss of consortium claim (if that potentially existed), and part of any settlement resolved the potential future wrongful death claim.  Similarly, in a wrongful death action, some portion of the settlement served to resolve the surviving portion of the personal injury case.  Judges were sometimes asked post-trial to intervene and adjust the allocation that the plaintiff had made, but, again, once that was done, the relevant part of the settlement was deducted from the verdict total, and a judgment was entered. 

 

While they wanted to eliminate the motivation to sue defendants who were only marginally liable, the backers of Proposition 51 knew that voters would want to be sure that people who were injured received  full compensation for their “actual damages,”  such as wage loss and medical bills.  The solution was to write a Proposition that continued to hold economic damages “joint”, so that any defendant who was found liable at trial would be responsible for the total of the economic damages, regardless of the extent to which that defendant was a cause of the injury.  Non-economic damages, such as those awarded for pain and suffering, was where the real abuse of the system was perceived.  Liability for that type of damage was henceforth to be several,  with any defendant found liable at trial to have judgment entered only for its share of “fault” as determined by the jury.  And thus the can of worms was opened wide…

 

Once the Proposition was passed, and the statute was in place, it was up to the trial court, at first, to figure out how to apply the new rules.  Judges got together to discuss how to apply Civil Code Section 1431.2 to the question of the allocation of prior settlements, and concluded that whatever was done, no plaintiff would ever recover more than the sum total of the jury’s verdict.  Those Judges were wrong.

 

In 1992, in the Espinoza v. Machonga case, the California Court of Appeals held that since liability for non-economic damages was several, and not joint, no defendant found liable at trial could get a credit from the settlements of other defendants that would apply to the non-economic damage portion of the verdict.  Thereafter, prior settlements could be applied as credits only to the economic damages awarded by the jury.

 

As you might imagine, plaintiffs’ counsel were delighted.  They were already allocating portions of settlements to potential future causes of action, reducing the amount available to apply as a credit after trial.  Now they could allocate between economic and non-economic damages, and further reduce the available credits!  After all, it’s only right to apply more money to non-economic damages, because those are always larger than the economic damages, right?