Schadel, Douglas v. IA Interstate RR

In the

United States Court of Appeals

For the Seventh Circuit

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No. 02-2379

DOUGLAS SCHADEL and INEZ SCHADEL,

Plaintiffs-Appellees,

v.

IOWA INTERSTATE RAILROAD, LTD.,

Defendant-Appellant.

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Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 99 C 8435—Nan R. Nolan, Magistrate Judge.

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ARGUED SEPTEMBER 24, 2003—DECIDED AUGUST 25, 2004

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Before BAUER, EASTERBROOK, and DIANE P. WOOD, Circuit

Judges.

DIANE P. WOOD, Circuit Judge. Complex questions relating

to such issues as claim reduction, the availability of con-

tribution and indemnity in a case governed by the Federal

Employers’ Liability Act (FELA), and the rules of joint and

several liability confront us in this case. Specifically, we

must decide whether a non-settling railroad should be held

liable for all damages suffered by its employee, reduced by

an amount attributable to the employee’s comparative ne-

gligence and a settlement with a third party, or alterna-

2 No. 02-2379

tively, if the railroad should be responsible only for its pro-

portionate share of damages, taking into account the com-

parative fault of the employee and that of a settling third-

party defendant. The district court allowed the jury to find

the total damages suffered by the plaintiff, without regard

to the settlement; it then reduced those damages by 50%, the

amount representing the plaintiff’s negligence; and finally,

using an Illinois standard, it applied a set-off against the

balance owed by the railroad. While our reasons are not

identical to those offered by the district court, we conclude

that the result was correct, and we therefore affirm the

judgment.

I

Douglas Schadel was employed as a conductor by the Iowa

Interstate Railroad (IAIS). He was working on the morning

of December 31, 1997, as part of a two-person crew assigned

to relieve an eastbound IAIS crew who were expected to

come through the Joliet, Illinois, area that morning. In keep-

ing with normal IAIS practice, rather than accomplish the

crew exchange at a railroad yard, Schadel’s crew was to meet

the train at an at-grade railroad crossing west of Joliet. The

one they chose was at Bush Road.

Engineer Eddie Brown was the other crew member. With

Brown at the wheel and Schadel in the passenger seat, the

two drove in an IAIS vehicle to the Bush Road crossing just

before 9:00 a.m. that morning. Brown parked the vehicle

approximately 50 feet south of the crossing gates, on the

west shoulder of the road. Brown immediately got out of the

car as the train came to a stop. Schadel initially went with

him, but then Schadel returned to the car to retrieve some

paperwork. By this time, the crossing gates, which were

equipped with bells and flashing lights, had caused the

approaching traffic to come to a halt. Suddenly, however, a

vehicle driven by Brenda Kowalewicz flew toward the gates

No. 02-2379 3

from the north, skidded past the stopped vehicles, crashed

through the wooden gates, and shot on to strike Schadel,

who was then standing behind the car. The impact of the

collision propelled Schadel into a nearby ditch. He was

taken to a local emergency room, and later he underwent

surgery and rehabilitative work on his knees. The accident

left him unable to work as a conductor.

Schadel sued IAIS under the FELA and he sued

Kowalewicz under Illinois state law. For the latter claim

only, his wife joined him and claimed loss of consortium.

IAIS filed cross-claims against Kowalewicz for contribution

and indemnification. Prior to the trial, Schadel settled with

Kowalewicz and her insurance carrier for the full amount

covered by her policy, $100,000, in return for dismissing his

claims against her. Invoking the Illinois Joint Tortfeasor

Contribution Act (“Contribution Act”), 740 ILCS 100/0.01 et

seq., Schadel and Kowalewicz asked the district court to

approve this settlement. As required by the Contribution

Act, the court convened a “good faith” hearing to assess the

validity and reasonableness of the settlement. (This case was

proceeding before the magistrate judge by consent of the

parties. See 28 U.S.C. § 636(c).) IAIS objected to the use of

the Illinois procedure at that juncture, arguing that issues

concerning the settlement should be governed by federal

common law, not by the Illinois statute. The district court

disagreed, approved the settlement, and, in accordance with

the Contribution Act, dismissed Kowalewicz from the case

with prejudice. That order of dismissal also extinguished

IAIS’s claims against her for contribution and indemnity.

At the jury trial on Schadel’s FELA claims against IAIS,

the district court precluded IAIS from introducing any evi-

dence or argument about the Kowalewicz settlement. The

jury did hear expert testimony, however, about Kowalewicz’s

driving at the time of the accident. In its instructions and

special verdict form, the court allowed the jury to assign

fault only to Schadel or IAIS; it was not permitted to consider

4 No. 02-2379

Kowalewicz’s role. The jury found Schadel’s overall damages

to be $450,000. It found that he was 50% contributorily neg-

ligent, which reduced his recoverable damages to $225,000.

The court then reduced that number to $125,000, to account

for the settlement, and then added another $5,000 by agree-

ment of the parties to account for Mrs. Schadel’s loss of

consortium claim, for a final total of $130,000 due from

IAIS.

IAIS filed post-trial motions requesting a new trial on the

ground that the district court applied the wrong methodolo-

gies to the allocation of damages. Instead of using a pro

tanto approach (that is, accounting for the settlement with

a dollar-for-dollar reduction in the damages IAIS owed), IAIS

argued that the court should have used a proportionate

share approach. Under the latter rule, the jury would have

allocated responsibility among all three parties and im-

posed damages on IAIS only to the extent of its share of the

liability. The district court denied the motions and entered

the $130,000 judgment against IAIS.

II

The district court had federal question jurisdiction over

Schadel’s claim against IAIS, because it arose under the

FELA, see 28 U.S.C. § 1331, 45 U.S.C. §§ 51-60; it had

supplemental jurisdiction over Schadel’s claim against

Kowalewicz and IAIS’s contribution and indemnification

claims against her, see 28 U.S.C. § 1367(a). The more dif-

ficult question is what law governs the allocation of respon-

sibilities among these parties: federal law (including federal

common law), or state law (Illinois law in this case). Moreover,

even if federal common law governs, the further question is

whether courts are to develop that law independently, or if

this is one of those areas in which federal common law

borrows the state law rule. See United States v. Kimbell

Foods, Inc., 440 U.S. 715, 718 (1979). If state law applies

No. 02-2379 5

directly, or if federal common law adopts state law here, then

we would come full circle back to the question whether the

district court correctly applied the Illinois rule.

The reason this case is in federal court at all is because it

is one brought by a railroad employee against the railroad,

and thus it falls within the scope of the FELA. We begin,

therefore, with an examination of that statute. The FELA

makes railroad common carriers “liable in damages to any

person suffering injury while he is employed by such

carrier . . . for such injury or death resulting in whole or in

part from the negligence” of the railroad or its employees.

45 U.S.C. § 51. In Norfolk & Western Ry. Co. v. Ayers, 538

U.S. 135 (2003), the Supreme Court noted the long-standing

rule that “joint and several liability is the traditional

[FELA] rule.” Id. at 163. Relying on the language in the

statute making the railroad employer liable if the injury

results “in whole or in part” from its negligence, the Court

held that a jury is not permitted to make a deduction from

a damages award for the contribution of other defendants

to the employee’s injuries:

Nothing in the statutory text [of the FELA] instructs

that the amount of damages payable by a liable em-

ployer bears reduction when the negligence of a third

party also contributed in part to the injury-in-suit.

Id. at 160. This is so notwithstanding the fact, recognized

by the Court in Ayers, that the FELA specifies a rule of

comparative negligence. That rule is found in § 53, which

says that “the fact that the employee may have been guilty

of contributory negligence shall not bar a recovery, but the

damages shall be diminished by the jury in proportion to

the amount of negligence attributable to such employee.” 45

U.S.C. § 53.

Put in its simplest terms, we must decide between two

alternatives. Under the one used by the district court, the

sequence of decisions is as follows: (1) ascertain the full

6 No. 02-2379

amount of damages suffered by the plaintiff; (2) ascertain

the plaintiff’s comparative fault with respect to the non-

settling defendant(s); (3) compute net damages due to the

plaintiff after reducing the total for that fault; (4) apply a

pro tanto reduction to the net sum, representing the amount

paid by the settling defendant(s); and (5) assess the balance

against the non-settling railroad. Applying that rule, we

have $450,000 in total damages, less 50% comparative fault,

for a net recoverable amount of $225,000, less $100,000 from

the Kowalewicz settlement, giving a final amount due of

$125,000 (plus the uncontested $5,000, which is unimpor-

tant to the issue before us and which we disregard from

now on).

The approach IAIS urges requires the following steps: (1)

ascertain the full amount of damages suffered by the plaintiff;

(2) ascertain the comparative fault of all parties involved,

both settling and non-settling; (3) compute net damages due

from the non-settling defendant by taking that percentage

from the total; and (4) assess that amount against the non-

settling defendant. (Whether the non-settling defendant has

a right of contribution against the settling defendants, if the

settling defendants have paid “too little” under this ap-

proach is a question we need not reach here, although we

note that the Supreme Court was critical of such a rule in

McDermott, Inc. v. AmClyde and River Don Castings, Ltd.,

511 U.S. 202, 221 (1994).) IAIS clearly thinks that this rule

would be highly favorable to it here. Suppose, for example,

that the jury would have found that Kowalewicz’s reckless

driving was responsible for 80% of the damages, that IAIS

was responsible for 10%, and that Schadel was 10% negli-

gent. Applying those proportions to the overall figure of

$450,000, that would mean that Kowalewicz should have

paid $360,000; that IAIS would pay $45,000, and that

Schadel would have absorbed $45,000 of the loss before tak-

ing the settlement into account. In fact, Schadel would wind

up substantially under-compensated under this regime,

No. 02-2379 7

because he would also be left with $260,000 of Kowalewicz’s

liability. This strikes us as, at best, in serious tension with

the rule of joint and several liability that applies to FELA

cases.

Before choosing the proper rule, we must first decide what

law governs: Illinois law, as the district court thought, or

federal common law. The Supreme Court has long empha-

sized the importance of giving the FELA a “uniform appli-

cation throughout the country,” which the Court sees as

“essential to effectuate its purposes.” Dice v. Akron, Canton &

Youngstown R.R. Co., 342 U.S. 359, 361 (1952). In fulfilling

this mandate, the Court has said that federal law must set

the terms of a railroad employee’s right to recover against her

employer for negligence, and accordingly “[s]tate laws are

not controlling in determining what the incidents of this

federal right shall be.” Id. Since the time of the FELA’s

enactment in 1908, the Court has “develop[ed] a federal

common law of negligence under the FELA, informed by

reference to the evolving common law.” Consol. Rail Corp.

v. Gottshall, 512 U.S. 532, 558 (1994) (Souter, J., concurring).

See also Dice, 342 U.S. at 361 (“[V]alidity of releases under

the [FELA] raises a federal question.”); N.Y. Cent. R.R. Co.

v. Winfield, 244 U.S. 147, 153 (1917) (states may not require

carriers to compensate their employees for injuries in the

absence of negligence because of conflict with the FELA).

In establishing the scope of recovery under the FELA, the

Court has defined not only the nature and cause of the

injuries that may be redressed under the statute, but also

the type and extent of damages available. See Monessen

S.W. Ry. Co. v. Morgan, 486 U.S. 330, 335 (1988). Ayers, as

we have already noted, addressed a question very close to

the one before us, insofar as it dealt with the way that lia-

bility could be apportioned under the statute. The fact that

the Court rejected a rule under which the railroad’s liability

would be reduced by the negligence of third-party tortfea-

sors is of no small interest to us here, since that is exactly

8 No. 02-2379

what IAIS wants—a reduction in its liability directly tied to

Kowalewicz’s negligence. The Court was clear that this did

not preclude railroads from seeking contribution or indemnity

from those other tortfeasors, “under otherwise applicable

state or federal law,” 538 U.S. at 162, but the railroad’s own

responsibility was affected only by the plaintiff’s compara-

tive negligence.

If this case were solely about Schadel’s right to recover

the full amount of damages against the railroad, regardless

of the responsibility of any other tortfeasor (settling or

otherwise), then Ayers indicates that federal common law

governs, and that the railroad is jointly and severally liable

for the full amount. If instead we characterize the case as

one that is really about IAIS’s ability to obtain contribution

or indemnity from a joint tortfeasor, then the cases cited in

Ayers indicate that state law governs. See, e.g., Shields v.

Consol. Rail Corp., 810 F.2d 397, 399 (3d Cir. 1987) (“Our

analysis of the merits begins by recognizing that third-party

actions for contribution arising out of FELA claims are

governed by state law.”); Ala. Great S. R.R. Co. v. Chi. &

N.W. Ry. Co., 493 F.2d 979, 983 (8th Cir. 1974); Bean v. Mo.

Pac. R.R. Co., 525 N.E.2d 1231, 1234 (Ill. App. Ct. 1988).

While the question is close, in our view the former charac-

terization comes closer to the mark. At stake is the question

of what effect, if any, Schadel’s decision to settle with

Kowalewicz will have on his ultimate FELA recovery. The

rationale of Ayers leads us to conclude that a federal rule

should apply here, just as it did there.

Next, we must decide what the content of that federal

rule is. It is well-established that federal common law may

either create a single rule of law that is applicable to all

cases in a particular area, or it may adopt as federal law

the rule of the state in which the case arises. See Richard

H. Fallon, Jr., Daniel J. Meltzer & David L. Shapiro, The

Federal Courts and the Federal System 701 (5th ed. 2003)

(noting that “the Court’s current approach to federal com-

No. 02-2379 9

mon lawmaking” reflects “a preference for incorporation of

state law absent a demonstrated need for a federal rule of

decision”). Kimbell Foods offered only general guidance on

this choice. There, the Court said that “[w]hether to adopt

state law or to fashion a nationwide federal rule is a matter of

judicial policy dependent upon a variety of considerations

always relevant to the nature of the specific governmental

interests and to the effects upon them of applying state

law.” 440 U.S. at 728 (internal quotation marks omitted).

In the case of the FELA, the emphasis has always been on

uniformity of result. State laws vary considerably in the

way they treat issues such as claim reduction, contribution,

indemnity, comparative fault, and the like. A single railroad

typically operates in more than one state. If we were to

choose the incorporation of state law for this issue, results

would vary depending on where the particular employee

happened to be injured. In our view, this is therefore an

instance of a case in which “application of state law would

frustrate specific objectives of the federal program[ ].”

Kimbell Foods, 440 U.S. at 728. See also Winfield, 244 U.S.

at 149 (“[T]here are weighty considerations why the

controlling law should be uniform and not change at every

state line.”). Only a uniform federal rule would be consis-

tent with nearly a century’s worth of FELA decisions from

the Supreme Court.

What, then, is the correct rule? This court has identified

four possible approaches to allocating damages in an action

involving multiple tortfeasors, some of whom settle with the

plaintiff prior to trial: no contribution, contribution,

contribution plus settlement bar, and claim reduction. In re

Oil Spill by Amoco Cadiz, 954 F.2d 1279, 1315 (7th Cir.

1992). Briefly, the “no contribution” rule holds defendants

jointly and severally liable for full damages without the

option of contribution; the “contribution” rule holds the

defendants jointly and severally liable for full damages with

the option of contribution from both settling and non-set-

10 No. 02-2379

tling defendants; the “contribution plus settlement bar” rule

is the same as the contribution rule, except that settling

defendants are exempt from contribution; and finally the

“claim reduction” rule holds defendants jointly and sever-

ally liable, unless one or more settles, in which case the

“plaintiff forgoes the ability to collect from the remaining

defendants any damages attributable to the settling party’s

share of fault . . . [and] the remaining defendants are not

entitled to contribution from the settling party—because

after claim reduction there is no ‘excess’ payment for which

contribution would be appropriate.” Id. In Amoco Cadiz, we

observed that “none of the four approaches is without its

problems, and that claim reduction in particular is no

panacea [because it] creates a substantial possibility of

extended collateral litigation.” Id. at 1318. See also Akzo

Nobel Coatings, Inc. v. Aigner Corp., 197 F.3d 302, 308 (7th

Cir. 1999) (“[T]he choice between the pro tanto approach and

claim reduction is a tossup.”). In the face of such a tossup,

we concluded in Akzo that “it is best to match the handling

of settlements with the way intersecting principles of law

work.” Id.

IAIS urges us to look to the Supreme Court’s decision in

McDermott, supra, for the relevant legal principles. In

McDermott, the Court adopted a proportionate share approach

and held that the liability of non-settling defendants in an

admiralty case should be calculated with reference to the

jury’s allocation of proportionate responsibility of all parties,

rather than by giving non-settling defendants credit for the

dollar amount of the settlement (the pro tanto approach).

But there is an important, and we think dispositive, dif-

ference between McDermott and this FELA case. Under the

admiralty rule adopted by the Court in McDermott, each

defendant is responsible for only its proportionate share of the

liability (when such an allocation can reasonably be made).

511 U.S. at 208. The Court distinguished the result in

Edmonds v. Compagnie Generale Transatlantique, 443 U.S.

No. 02-2379 11

256 (1979), in which it had refused to reduce the judgment

against a shipowner by the proportionate fault attributed to

a stevedore whose liability was limited by the Longshore-

men’s and Harbor Worker’s Compensation Act (LHWCA).

Instead, the plaintiff was permitted to collect from the

shipowner the entirety of his damages, after adjusting for

the plaintiff’s own negligence. Edmonds, the Court stated

“merely reaffirm[ed] the well-established principle of joint

and several liability.” 511 U.S. at 220.

These final comments about Edmonds, coupled with the

approach in Ayers, persuade us that the pro tanto approach

effectively used by the district court is the correct one for a

FELA case. The principle of joint and several liability is

common to the LHWCA and the FELA. In other areas of

federal law, the Court has refused to fashion a federal

common-law right of contribution where liability was joint

and several. See Texas Industries, Inc. v. Radcliff Materials,

Inc., 451 U.S. 630, 646 (1981) (no federal common-law right to

contribution in antitrust cases); Northwest Airlines, Inc. v.

Transport Workers, 451 U.S. 77, 88-91, 97 (1981) (rejecting

federal common-law right of contribution in Equal Pay Act

case, and distinguishing admiralty precedents). As an ini-

tial matter, under the FELA, IAIS was responsible for the

full amount of Schadel’s injuries, reduced only by the part

attributable to Schadel’s own negligence. Schadel did not

even have to include Kowalewicz 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. The purpose of the FELA, to reiterate, is to

facilitate the injured railroad employee’s recovery. We

therefore conclude that, as a matter of federal law, Schadel

was entitled to the full $130,000 from IAIS.

Before concluding, we note that IAIS did not include in its

appeal any complaint about the district court’s decision to

dismiss its claims for contribution and indemnity against

Kowalewicz. We therefore have no occasion to decide whether

12 No. 02-2379

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. The

Supreme Court’s discussion in Ayers notes that a bar on

such actions would tend to encourage settlement. It also

observes that a fairness hearing like the one held here

ought to catch settlements that are grossly disproportionate to

the settling defendant’s likely liability, but that there are

limits to these hearings as well. On the other hand, permitting

contribution or indemnity would have the effect of ulti-

mately 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.

III

The judgment of the district court is AFFIRMED.

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—8-25-04