Settling Defendants Do Not (or Do They?) Belong on Federal Verdict Forms
December, 2004
The U.S. Court of Appeals for the Seventh Circuit Court recently decided a case that will negatively impact on defendants who seek to limit their exposure to damages based upon the protections afforded in statutes on joint and several liability and contribution. The decision also increases the chances for an economically viable defendant to be found jointly liable for all damages when plaintiff settles with a defendant who has insufficient insurance coverage and then proceeds to trial against the less culpable defendant. In Schadel v. Iowa Interstate R.R., Ltd., 381 F.3d 671 (7th Cir.), the court ruled that the settling defendant did not belong on the federal jury verdict form and therefore the jury was not permitted to allocate a percentage of fault to the settling defendant.
Facts
In Schadel, the settling defendant (the “driver”) crashed through a railroad crossing that was equipped with gates, bells and flashing lights. The driver’s vehicle struck the plaintiff-railroad employee, causing significant injuries. Plaintiff filed suit under the Federal Employers’ Liability Act (FELA) against his employer, Iowa Interstate Railroad. He also sued the driver for negligence under Illinois state law. Plaintiff settled with the driver for $100,000 and went to trial solely against the railroad. At trial, the jury was permitted to hear evidence of the driver’s negligence, but was not told about the settlement. Over the railroad’s objection, the jury was instructed to assess only the fault of the plaintiff and the railroad, but not the fault of the driver. The jury found total damages of $450,000 and found plaintiff 50% contributorily negligent. After plaintiff’s damages were reduced by plaintiff’s contributory negligence, they were further reduced by the $100,000 settlement from the driver, resulting in a net award to plaintiff of $125,000.
Analysis
Applying Illinois law, the district court followed five steps in allocating fault and applying the various applicable set-offs: (1) ascertain the full amount of damages suffered by plaintiff; (2) ascertain plaintiff’s comparative fault with respect to the non-settling railroad; (3) compute net damages due to plaintiff after reducing the total for his comparative fault; (4) apply a pro tanto reduction to the net sum, representing the amount paid by the settling driver; and (5) assess the balance against the non-settling defendant. On appeal, the railroad argued – as it did below – that the district court should instead have considered the fault of the settling driver by following four different steps: (1) ascertain the full amount of damages suffered by plaintiff; (2) ascertain the comparative fault of all parties involved, both settling and non-settling; (3) compute net damages due from the non-settling railroad by taking its percentage from the total; and (4) assess that amount against the non-settling railroad.
The Seventh Circuit, recognizing that application of the railroad’s analysis would reduce the railroad’s liability to plaintiff, found that the district court’s analysis was the correct approach in FELA actions because FELA specifically provides that railroad common carriers are jointly and severally liable for injury or death resulting in whole or part from their negligence. (45 U.S.C. §51) In other words, the Seventh Circuit reasoned, the statutory text of FELA does not permit the reduction of a damages award for the contribution of non-FELA defendants to the plaintiff’s injuries. Instead, FELA only permits a reduction in damages for the plaintiff-employee’s own negligence (45 U.S.C. §53):
[U]nder the FELA, [the railroad] was responsible for the full amount of [plaintiff]’s injuries, reduced only by the part attributable to [plaintiff]’s own negligence. [Plaintiff] did not even have to include [the driver] as a named defendant, as long as he was able to prove that the railroad was negligent in whole or in part, and his injuries were caused by that negligence.
Learning Point:
The court closed its opinion with some interesting dicta (remarks not essential to its determination of the case and not legally authoritative). Noting that the railroad did not appeal the dismissal of its contribution claim against the driver, the court stated that it:
therefore [had] no occasion to decide whether the FELA requires this type of immunity for a settling defendant, or if a settling defendant must take into account the possibility of a claim for contribution or indemnity. . . .[A] bar on such actions would tend to encourage settlement. . . .[A] fairness hearing like the one held here ought to catch settlements that are grossly disproportionate to the settling defendant’s likely liability, but. . .there are limits to these hearings as well. On the other hand, permitting contribution or indemnity would have the effect of ultimately allocating responsibility accurately. The question is far too complex for us to address in the abstract, even if we appropriately could do so. We therefore leave it for another day.
This comment suggests several things. First, the court recognized that good faith settlement hearings might not necessarily ensure that settlements are proportionate to the settling defendant’s likely liability. The court also recognized that permitting a non-settling defendant to obtain contribution from a settling defendant would “accurately” allocate all parties’ responsibility. The court seems to imply that non-settling defendants may be entitled to more relief than was obtained under the circumstances in Schadel.
Schadel also left unresolved the question of whether, in diversity cases where state substantive law applies, the Seventh Circuit will follow a similar analysis. Although the Seventh Circuit decided in Freisingler v. Emro Propane Co., 99 F.3d 1412 (1996), a diversity case, that a defendant who settled did not belong on the jury verdict form for allocation of total fault, the district courts in the Northern District of Illinois are not following this rule. For example, the courts in Costello v. U.S., 1998 WL 341615 (N.D. Ill. 1998), and Dowe v. National Railroad Passenger Corp., 2004 WL 887410 (N.D. Ill. 2004), both refused to follow Freisingler on this point.
We will continue to monitor this important and changing area of the law and update our readers as new developments occur.
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