Swigert Settlement Does Not Extinguish Non-Settling Party's Claim for Contribution, Even In Absence Of A Cross-Claim

In the consolidated appeals of Wycinna L. Spence v. Emerson R. Julian, Jr., et al., No. 2764 Sept. Term 2009 and Emerson R. Julian, Jr., et al. v. Mercy Medical Center, Inc., et al., No. 1511, Sept. Term 2010 (Oct. 26, 2011), the Court of Special Appeals addressed whether a non-settling defendant has a right to pursue a claim for contribution in a separate proceeding filed after the conclusion of the underlying case when a plaintiff enters into a settlement agreement with one defendant, pursuant to a release that provides that no other person is entitled to a reduction of damages by reason of the settlement unless the settling defendant is adjudicated a joint tortfeasor.

Wycinna and Christopher Spence filed a medical malpractice action for negligence, wrongful death and lack of informed consent against Emerson R. Julian, Jr., M.D., Emerson R. Julian, Jr., M.D., P.A., Harbor City OB/GYN and Mercy Medical Center ("Mercy") for injuries sustained by their son, Caleb Spence, prior to and during his birth which ultimately led to his death less than one year later. Before trial, the Spences settled their claim against Mercy and entered into a Release Agreement ("Agreement"). The Agreement addressed the effect of settlement on any award of damages the Spences might recover against Dr. Julian by stating in part, that:

. . . Any person or entity, other than the Released Parties . . . shall not be entitled to any reduction of the damages the [Spences] are claiming against them by reason of the payment herein, unless and until the Released Parties have been adjudicated to be Joint Tortfeasors with said other person or entity. In the event the Released Parties are adjudicated to be Joint Tortfeasors liable to the [Spences] for damages, the [Spences] agree that their damages recoverable against all other tort-feasors, including by not limited to [Dr. Julian], will be reduced to the extent of the pro rata share of the Released Parties pursuant to to the Maryland Uniform Contribution Among Joint Tort-Feasors Act []. . .

The release also contained an indemnity and hold harmless clause which provided that the Spences would indemnify Mercy for any claims against it arising out of the allegations in the Complaint. Following the execution of the Agreement, the Spences filed a Stipulation of Voluntary Dismissal dismissing the "Complaint, and each and every Count therein, asserted against Defendant [Mercy], only" with prejudice.

At trial, the Spences proceeded solely against Dr. Julian and obtained a judgment against him in excess of $8,000,000 which was reduced to $2,186,342.50. Dr. Julian's insurer paid the full amount of the judgment. Dr. Julian then filed a claim for Contribution against Mercy, and the Spences, pursuant to the Agreement, filed a separate Declaratory Action against Dr. Julian to have the contribution claim dismissed. The issue in both cases was whether, when a release provides for a reduction in damages awarded against a nonsettling defendant, but only if the settling defendant is adjudicated to be a joint tortfeasor, is the nonsettling defendant's joint tortfeasor status established in the underlying action, or does he have the option to litigate that issue in a separate contribution action. The judges in the Circuit Court for Baltimore City reached opposite conclusions on this issue which resulted in this appeal.

First, the Court of Special Appeals addressed generally the right to contribution in Maryland. The UCATA abrogates the common law rule, and specifically provides that a joint tortfeasor has a statutory right to seek contribution against another joint tortfeasor, but only after one joint tortfeasor has paid more than his or her share of the common liability.

The UCATA has additional provisions addressing the effects of a plaintiff's settlement with some, but not all, defendants. Section 3-1404 provides that "a release by [a plaintiff] of one joint tortfeasor, whether before or after judgment, does not discharge the other tortfeasor unless the release so provides, but it reduces the claim against the other tortfeasors in the amount of the consideration paid for the release of in any amount or proportion by which the release provides that the total claim shall be reduced, if greater than the consideration paid."

Section 3-1405 provides the mechanism for a settling defendant to protect against a claim for contribution. Section 3-1405 extinguishes a nonsettling party's claim for contribution if two conditions are met. First, the release must be given before the non-released tortfeasor has accrued a right of contribution, i.e. before he has paid more than his or her pro rata share. Second, the release must provide for a reduction of damages, to the extent of the pro rata share of a joint tortfeasor.

Consequently, for the nonsettling to defendant to get the benefit of the reduction solely by the operation of statutory law, the settling defendant and nonsettling defendant must be joint tortfeasors. See Allgood v. Mueller, 307 Md. 350, 255 (1986). If there is no finding that the settling defendants are joint tortfeasors then the nonsettling defendant is not entitled to a reduction in the jury verdict against him.

There are several ways a party may be deemed to be a joint tortfeasor (contractual, judicial determination, etc) which would trigger a statutory reduction; however, there mere act of settling a claim is not sufficient because a party is not considered a joint tortfeasor merely because he enters into a settlement agreement and pays money. Scapa Dryer Fabrics v. Saville, 418 Md. 496, 529 (2011)(quoting Porter Hayden Co. v. Bullinger, 350 Md. 452, 473 (1998)).

Here, there was no admission in the Agreement that Mercy was a joint tortfeasor, in fact, Mercy expressly denied liability as a joint tortfeasor, and the Agreement specifically stated that Mercy was not be "deemed joint tortfeasors for purposes of this Release." The Agreement also specified that Dr. Julian was not entitled to a reduction in damages "unless and until" Mercy was adjudicated a joint tortfeasor and only provided for Dr. Julian to receive a reduction of the damage award solely "in the event" that Mercy was adjudicated a joint tortfeasor. Consequently, pursuant to the Agreement, any statutory reduction of the verdict against Dr. Julian was conditional, not automatic.

Another question was whether the adjudication regarding joint tortfeasor status was required to take place in the underlying action. While it is the right of the nonsettling defendant to insist that that joint tortfeasor status be determined in the underlying action, Swigert v. Welk, 213 Md. 613 (1956), a defendant is not required to raise a claim for contribution as a cross-claim in that litigation. In fact, a cross-claim is not a prerequisite to a contribution action. Lerman v. Heeman, 347 Md. 439, 445-46 (1997). Instead, Maryland Rule 2-614 permits a motion for contribution as an alternative to a cross-claim or allows a motion in the original action to avoid a separate lawsuit for contribution. Cross-claims are not mandatory but are allowed to be appended to the primary case for the sake of efficiency, but they can just as easily be pursued in a second trial. They are tied to the primary case, but retain an independent claim status. Consequently, where a release conditions a reduction of damages on an adjudication of joint tortfeasor status of the settling defendant, and there is no such adjudication in the underlying litigation, the release does not provide for a reduction under the UCATA. Accordingly, Dr. Julian's failure to assert a cross-claim or third-party claim against Mercy did not bar an independent claim for contribution, though under Swigert, Dr. Julian could have insisted on keeping Mercy in the primary action, but he was not required to do so.

As to the settlement agreement itself, parties entering into one have various options in structuring a release agreement. They may specifically provide that the settling defendant is a joint tortfeasor and that any damages assessed against the nonsettling defendants will be reduced to the extent of the pro rata share of the released tortfeasor. By providing for a reduction, it protects the settling defendant from a claim for contribution and eliminates the need for the settling defendant to remain in the case as a party. However, if the parties do not state in the settlement agreement that the settling defendant is a joint tortfeasor, and instead, require an adjudication of joint tortfeasor status, section 3-1405 is not implicated in the absence of such an adjudication. Consequently, if the settling defendant is adjudicated to be a joint tortfeasor in the primary action, then the damages awarded will be reduced as provided in the settlement agreement and release and the nonsettling defendant has no right to contribution. However, if the settling defendant does not remain in the primary action, and a judgment is rendered against the nonsettling defendant, the nonsettling defendant retains the right to pursue an independent contribution claim.