Scurlock Oil Co. v. Smithwick

*8 ON MOTION FOR REHEARING

SPEARS, Justice,

concurring.

My previous concurring opinion of June 25, 1986 is withdrawn and the following is substituted. I concur in the majority’s judgment. I agree with the majority’s holding that a trial court judgment is final for purposes of collateral estoppel despite the taking of an appeal. I would suggest as an alternative that we explore the practice of consolidation, when as in this case, our trial courts are faced with multiple suits involving the same issues and claims arising from one occurrence. Instead of numerous causes simultaneously proceeding to trial with the first to judgment precluding the relitigation of issues and claims, consolidation would avoid the evils of preclusion by offering each litigant his day in court.

Consolidation involves the joining of pending actions before one court that have “a common question of law or fact.” Fed. R.Civ.Proc. 42(a). When employed, consolidation is within the court’s discretion and should be invoked to foster convenience and economy in the administration of justice. Feldman v. Hanley, 49 F.R.D. 48 (D.C.N.Y.1969). The procedural aspects of consolidation are well detailed. See Wright & Miller, FED.PRAC. & PROC. § 2381-2393 (1971 & Supp.1986).

New York has successfully used consolidation when two actions are pending in separate counties which involve common questions of law and fact. A motion may be made in either county to consolidate, and generally once the decision to consolidate is made, the consolidated trial is litigated in the county in which jurisdiction was first invoked. Woods v. County of Westchester, 112 A.D.2d 1037 , 492 N.Y.S.2d 829 (N.Y.App.Div.1985); Matter of Schneider, 88 A.D.2d 619 , 450 N.Y.S.2d 40 (N.Y.App.Div.1982); see also N.Y.CIV. PRAC. LAW § 602 (McKinney 1976).

Other states, as well as New York, have enacted consolidation rules similar to F.R. C.P. 42. See, e.g., ARK.R.CIV.P. 42; CAL. CIV.PROC. CODE § 1048 (West 1980); KAN.CIV.PROC. CODE ANN. § 60-242(a) (1983).

In order for consolidation to be available in Texas, amendments to the Texas Rules of Civil Procedure and possibly the venue statute are necessary. I suggest we study consolidation closely, with the idea of implementing the concept into our procedural practice. In addition to examining the practice of consolidation, I suggest that we also closely examine the use of Mary Carter agreements in our practice.

I am ready to hold Mary Carter agreements void as against public policy. This court has never directly upheld the validity of Mary Carter agreements. General Motors Corp. v. Simmons, 558 S.W.2d 855, 858 (Tex.1977); Bristol-Myers Co. v. Gonzales, 561 S.W.2d 801, 804 (Tex.1978). In General Motors Corp. v. Simmons, this court reserved the question of the validity of Mary Carter agreements, specifically pointing out that “[tjhere is no contention in this case that the settlement agreement was void.” 558 S.W.2d at 858 . The court then observed that several jurisdictions have held Mary Carter agreements void and that Mary Carter agreements “ ‘tend to undermine the adversary nature and integrity of the proceedings against the remaining defendant.’ ” Id., quoting Reese v. Chicago B & Q R.R. Co., 55 Ill.2d 356 , 303 N.E.2d 382, 387 (1973).

Mary Carter agreements are a recent phenomenon, not becoming common until the early 1970s. While the majority of jurisdictions have approved Mary Carter agreements, at common law they were prohibited as maintenance and champerty. Lum v. Stinnett, 87 Nev. 402 , 488 P.2d 347, 350 (1971). As at common-law, Mary Carter agreements should be prohibited because they are inimical to the adversary system, and they do not promote settlement — their primary justification.

In reality, a Mary Carter agreement is only a partial settlement between the plaintiff and one of the defendants in a multiparty lawsuit; the plaintiff still has a lawsuit against the non-settling defendants. Because Mary Carter agreements are not a final resolution among all the parties, they do not preclude, or even discourage, fur *9 ther litigation. In fact, a typical Mary Carter agreement requires settling defendants to remain in the case, participate in the trial, and approve settlement offers with remaining defendants.

Indeed, Mary Carter agreements make further litigation more likely. Settling defendants pay plaintiffs more than they would in an ordinary settlement to have a chance to significantly reduce their damages or escape liability completely. Therefore, the remaining defendants must pay enough to cover the plaintiff’s expected recovery and the settling defendant’s expected reduction for providing the plaintiff with an inflated guarantee. Needless to say, non-settling defendants are going to be reluctant to pay more than their fair share of the damages. “A Mary Carter agreement thus will not encourage settlement of the plaintiff’s remaining claim, and litigation is almost inevitable.” Comment, Mary Carter Agreements: Unfair and Unnecessary, 32 Sw.L.J. 779, 786 (1978).

Even today, the majority acknowledges that Mary Carter agreements are so unfair that they may preclude collateral estoppel from being applied in later lawsuits. The majority wisely holds that a trial court judgment is final for collateral estoppel purposes even though the judgment is on appeal. The majority, then, however, immediately backs away from applying this new rule because in trials where a Mary Carter agreement is present, the jury verdict “is one having the potential of being obtained without full and fair litigation.” The absurdity of this situation is obvious. We today adopt a rule designed to promote judicial efficiency and clear the courts of needless relitigation, but we are prevented from reaping the benefits of the rule because of the presence of a Mary Carter agreement.

Mary Carter agreements also threaten the non-settling defendant’s due process right to a fair trial. First, settling defendants have an incentive to perjure themselves, since they have a financial interest in the plaintiff’s recovery. Pellet v. Sonotone Corp., 26 Cal.2d 705 , 160 P.2d 783, 789 (1945) (Traynor, J., dissenting). Second, Mary Carter agreements skew the presentation of the case to the jury. Jurors, unfamiliar with court proceedings, come to court expecting to see a contest between the plaintiff and the defendants, but instead see one of the defendants cooperating with the plaintiff or standing mute. Such cooperation is certainly detrimental to the non-settling defendant. Third, Mary Carter agreements give plaintiffs and settling defendants procedural advantages, the most egregious example being that plaintiffs can lead friendly settling defendants on cross-examination, and visa versa.

Mary Carter agreements also distort the deterrent effects of the tort system. Culpable defendants who make a “good deal” can end up paying little or nothing in damages.

While I strongly advocate eliminating Mary Carter agreements for the reasons detailed above, until that occurs they should be fully disclosed to the court and the jury to lessen their inequity. And before Mary Carter agreements can be disclosed, they must be discovered by the non-agreeing parties.

This court has never expressly held Mary Carter agreements discoverable. Clearly, though, they are. In Simmons , we held Mary Carter agreements admissible and relevant to show bias and interest of the parties. 558 S.W.2d at 858-59 . Unprivileged relevant evidence is discoverable. Tex.R.Civ.P. 166b. Moreover, a Mary Carter agreement entered into after a discovery request should be disclosed pursuant to the duty to supplement discovery under Rule 166b(5)(a)(2). 1

Mary Carter agreements should be disclosed to the trial court before trial or immediately after the agreement is formed. The trial court must know of Mary Carter *10 agreements to fairly align the parties and equalize jury strikes. Greiner v. Zinker, 573 S.W.2d 884 (Tex.Civ.App.—Beaumont 1978, no writ); see also City of Houston v. Sam P. Wallace & Co., 585 S.W.2d 669, 673-74 (Tex.1979). The court should also consider the Mary Carter alignments in determining whether to let a settling defendant lead the plaintiffs so-called adverse witnesses on cross-examination and visa versa. See Comment, Mary Carter Agreements: Unfair and Unnecessary, 32 Sw.L.J. 779, 792 (1978).

In addition to the trial court, the jury should also know at the start of trial or immediately upon formation the fact and nature of any Mary Carter agreements. Knowing the settling defendant’s financial interest will help the jury to understand the strange alignment of parties and to weigh the plaintiff’s and settling defendant’s evidence. City of Houston v. Wallace, 585 S.W.2d 669 .

Moreover, the agreements should not be kept from the jury until the settling defendant begins to help the plaintiff against the non-settling defendant. Clayton v. Volkswagonwerk, 606 S.W.2d 15 (Tex.Civ.App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.). While this court has limited introduction of Mary Carter agreements only to show the true interest and alignment of parties, it has never held the agreements admissible only to impeach after the settling defendant helps the plaintiff’s case. See City of Houston v. Wallace, 585 S.W.2d 669 ; Bristol Meyers, 561 S.W.2d 801 ; Simmons, 558 S.W.2d 855 .

Further, Tex.R.Evid. 408’s bias or interest exception to the inadmissibility of settlement agreements is not so limited. Rule 408 allows evidence of settlement agreements to show “bias or prejudice or interest of a witness or a party,” without limiting the exception only to impeachment. Unlike its federal counterpart, the Texas rule includes “interest” and “party,” and not just “bias,” “prejudice,” and “witness.”

The purpose of this additional language in the Texas rule is to continue the strong judicial policy in Texas favoring the disclosure of Mary Carter agreements. ... Because of the possibility of deception arising from such situations, Texas courts allow evidence of such agreements not only to impeach the settling party for bias or prejudice, but also to show directly and substantively the true interests and alignment of the parties.

BLAKELY, Commentary to Article IV, 20 HOUS.L.REV. 1 & 2, Texas Rules of Evidence Handbook 242 (1983). The language of Rule 408 indicates an intent to admit Mary Carter agreements before the settling defendant helps the plaintiff’s case. Further, we stated in General Motors v. Simmons that “[t]he financial interest of the parties and witnesses in the success of a party is a proper subject of disclosure by direct evidence or by cross-examination.” 558 S.W.2d at 857 (emphasis added). We did not limit disclosure until after the settling defendant helps the plaintiff’s case. Under Rule 408 and supreme court cases, evidence of Mary Carter agreements is admissible to show interest of the parties, not just to impeach evidence or arguments already given.

The jury should know of Mary Carters from the beginning of trial for several reasons. The jury can more fairly weigh the agreeing parties’ self-serving evidence if it knows in advance of their financial alignment. Perhaps more importantly, early disclosure will enhance the jury’s awareness of subtle and covert cooperation. Because agreeing parties are supposedly adverse, they can lead each other’s witnesses on cross-examination. By leading questions, the plaintiff can easily elicit testimony from the settling defendant’s witness favorable to the plaintiff and settling defendants and harmful to non-agreeing defendants. Could this be called the settling defendant helping the plaintiff’s case? In addition, the infinite intangibles now known to greatly influence jurors such as the way attorneys treat witnesses and parties can be altered by the agreeing parties to sway the jury in their favor. Only if the jury knows of the parties’ alignment from the beginning can it fairly understand the agreeing parties’ altered behavior. Disclosure only after one party overtly helps the *11 other may not overcome the cumulative prejudicial impression of these collusive actions. Even without any cooperation at trial, the jury is entitled to know the parties’ true alignment and interest and should not be masked from the reality of a trial skewing conspiracy under the guise of promoting settlement.

Having stated that Mary Carter agreements should be disclosed to the court and jury ab initio, the next question is what parts, if not all, of the agreement should be admitted. The jury should know, clearly and explicitly, the agreement’s essentials: (1) that the settling defendant will receive credits from the amount he paid or other financial benefits depending on the size of the verdict; (2) the formula by which such financial benefits are calculated; and (3) that the settling defendant is required to participate in trial (if applicable). Beyond these essentials, whether to admit the remainder of the agreement should be left to the judge’s discretion under Tex.R.Evid. 403. Rule 403 provides that “if relevant, evidence may be excluded if its probative valve is substantially outweighed by the dangers of unfair prejudice, ... or misleading the jury....” Specifically, the trial judge should exclude the self-serving statements and attacks on non-agreeing parties so prevalent in Mary Carter agreements.

The difficult admissibility question is what to do with the settlement amount. The amount is probative to show the extent of the parties’ interest. See General Motors v. Simmons, 558 S.W.2d at 857 . Disclosing the amount, however, may mislead the jury into thinking the plaintiff is already satisfied or that the settling defendants admitted their liability. The court should apply Rule 403 to the particular facts to determine whether the need to know the full extent of the settling defendant’s interest is substantially outweighed by the danger of the prejudice.

Although fully disclosing Mary Carter agreements to juries will ameliorate the unfairness to the non-settling defendants, it is not sufficient. First, it is difficult for jurors, who are not knowledgeable and sophisticated about trial procedure and tactics, to fully grasp the relationship between plaintiffs and settling defendants created by Mary Carter agreements. This is evidenced by the different jury findings obtained in this case and in Missouri Pacific v. Huebner, 704 S.W.2d 353 (Tex.App.—Corpus Christi 1985, writ ref’d n.r.e.). Even though these two cases arise from the same accident and their facts are identical, the jury here found Mo-Pac (the Mary Carter defendant) 0% negligent and Scur-lock 100% negligent. In Huebner , the jury found Mo-Pac (there the non-settling defendant) 90% negligent and Scurlock 10% negligent. Only the Mary Carter agreement can account for these variations in the juries’ findings.

Furthermore, even if juries fully understand the relationships created by Mary Carter agreements, they will be prejudiced by both the plaintiff and settling defendant constantly pointing their fingers at the remaining defendant. Disclosing Mary Carter agreements also does not take away the settling defendants’ incentive to peq'ure themselves.

Lastly, the disclosure of Mary Carter agreements by itself may prejudice the jury. Lum v. Stinnett, 488 P.2d at 353 . It is argued that disclosure harms non-settling defendants because they look unreasonable to the jury for not settling as the other defendant has done. Comment, Mary Carter in Arkansas: Settlements, Secret Agreements, and Some Serious Problems, 36 ARK.L.REV. 570, 582 (1983). It is conversely argued though that disclosure hurts the plaintiff because the jury thinks that the plaintiff has received full satisfaction from the Mary Carter agreement for his injuries, or that the responsible party has already come forward. Comment, Mary Carter Agreements: Unfair and Unnecessary, supra, at 796. Whomever is prejudiced, the non-settling defendant and society are entitled to a fair trial “without hazarding the prospect that such considerations might affect the jury’s verdict.” Lum v. Stinnett, 488 P.2d at 353 .

In conclusion, Mary Carter agreements are a threat to the integrity of our adver *12 sarial system and do not promote settlements. Mary Carter agreements do provide attorneys with a skilled litigation tool for tactical gamesmanship, but the judicial system is not a game. It is society’s way of fairly resolving disputes.

GONZALEZ, J., joins in this concurring opinion.

. Illinois has gone as far as to require parties to a Mary Carter agreement to expose the agreement to the remaining parties and the court, even without a discovery request. Gatto v. Walgreen Drug Co., 61 Ill.2d 513, 337 N.E.2d 23 (1973). Oregon, by statute, requires the claimant who enters into a covenant not to sue or not to enforce judgment with one joint tortfeasor to give notice of the terms to all remaining parties. Ore.Rev.Stat. § 18.455 (1977).