What is a Mary Carter Agreement?
Generally defined, a Mary Carter Agreement is a type of "settlement agreement" made during personal injury litigation in which one defendant enters into an agreement with the plaintiff that resolves the plaintiff’s claim against that defendant, but preserves the plaintiff’s claim against all of the remaining defendants. When the plaintiff and the defendant subject to the agreement file their dismissal papers, the remaining defendants are left holding the liability bag because: (1) the plaintiff is relieved from his or her obligation to prove liability against the co-defendant who is relieved from liability; and (2) the plaintiff’s settlement with the non-defendant gives the non-settling defendants a credit in a subsequent verdict or settlement in the amount of the plaintiff’s settlement with the settling defendant .
Mary Carter Agreements are named after the case of Whatley v. Lilja Corp., 329 So. 2d 755 (Fla. 3d DCA 1976), where such an agreement was made between Mary Carter, the plaintiff, and the Lillja Corporation, the settling defendant. The Agreement provided that:
- Carter would be paid $875,000 for her damages;
- Lilja Corp. would pay $100,000 of that amount and, in exchange, would receive a set off in any judgment entered against Lillja Corp.; and
- Lillja would remain in the case as a defendant and would be liable, along with other defendants, for the balance of any damages awarded to Carter by the jury, above the $100,000 already tendered.
Defining Characteristics of Mary Carter Agreements
A typical Mary Carter Agreement will have both express and implied terms differentiating it from other forms of joint tortfeasor agreements. Among these distinct features are confidentiality clauses, both as to the fact of the agreement, as well as the terms of the agreement itself. Generally, the defendants are also prohibited from disclosing information the withdrawing defendant is expected to reveal in deposition or at trial and may agree to defer their cross-examination of the withdrawing party until after the party has presented its evidence that is expected to be subject to vendor’s examination.
Buy-off provision will require that the settling defendant be dismissed with prejudice and agrees to provide a certain amount of anticipated trial testimony to plaintiff and defendants as well. The withdrawing defendant will usually agree to be exempt from cross-examination on matters relating to the settling parties’ fault for the underlying claims. Usually, the settling defendant is required to stipulate to liability and damages in the parties’ settlement agreement. A Mary Carter agreement is likewise generally not supported by a valuable consideration. To that point, a settlement with one defendant less than that offered by the plaintiff to other parties is usually found to have no value whatsoever. Indeed, that portion of the agreement that requires the "settling defendants" to contribute to the settlement fund, while being both functionally and substantively meaningless.
Legal Consequences and Controversies
It is important to note that the legal implications and risks of Mary Carter Agreements can go both ways, and each case will turn on its own unique facts and circumstances. The analysis is different whether the plaintiff or the defendant is the settling party with a non-settling party.
Arguments frequently arise that Mary Carter Agreements and other settlements are not fair to defendants. In a 2009 case before the California Supreme Court, the defendant in a personal injury matter argued that a Mary Carter Agreement between his co-defendant and the plaintiff was unenforceable because it deprived him of his defense on the theory of comparative negligence. The court ruled against the defendant and held that the agreement should be enforced. The court explained that the plaintiff’s abandonment of his claim that his co-defendant was 100 percent at fault could only benefit the defendant and would not harm him. Mary Carter Agreements place little risk on the settling party because, absent limited types of agreements of partial immunity (discussed below), the settling party still remains exposed for the full amount of the plaintiff’s claim.
However, when the settling party is not the plaintiff in the underlying lawsuit, issues may arise regarding the fairness of the agreement to the plaintiff. In Marmo v. Tyson Fresh Meats, Inc. (2013) 216 Cal.App.4th 674, a plaintiff brought an age discrimination class action against Tyson Foods, Inc. and Tyson Fresh Meats, Inc. The named plaintiffs entered into a settlement agreement with Tyson Foods but did not disclose the terms of that agreement to the members of the settlement class. Based upon that undisclosed settlement, certain class members ("Holdouts") opted out of the class action and pursued their claims against both Tyson Foods and Tyson Fresh Meats in arbitration, naming the named plaintiffs as co-claimsants. The Holdouts alleged that the named plaintiffs colluded with Tyson Foods in negotiating a favorable settlement for themselves, with the result that substantial funds were available as consideration for a settlement with the Holdouts, but no such funds were made available to the class members who were not Holdouts. Following a successful arbitration, the Holdouts filed a petition to confirm an arbitration award in their favor for $38 million. The trial court granted the Holdouts’ petition.
The named plaintiffs appealed and argued that the trial court erred in confirming the arbitration award because it conflicted with the terms of a settlement agreement and release that the named plaintiffs had entered into with Tyson Foods prior to the arbitration. The First District Court of Appeal ruled in favor of the Holdouts and affirmed the trial court’s confirmation of the arbitration award. The Court held that the judgment was not an impermissible simultaneous enforcement of the conflicting and inconsistent judgment against Tyson Foods obtained in the arbitration, because the doctrine of collateral estoppel or res judicata was not asserted as a basis for enforcing the judgment against Tyson Foods. The Court also determined that the trial court did not err in admitting extrinsic evidence regarding the settlement agreement at issue.
The Court concluded that the weight of the extrinsic evidence submitted in this case supported a conclusion that the settlement agreement between Tyson Foods and the named plaintiffs did not authorize interpretations that required the Holdouts be paid from the settlement agreement.
In another example, the California Court of Appeal addressed a claim of unfairness in a 2005 case, Harris v. Ford Motor Co. (2005) 36 Cal.Rptr.3d 94. In that case, a jury had found Ford liable for punitive damages against a car company and two individual defendants. The plaintiffs settled with the individual defendants, and then sued the car company, claiming that it had acted in concert with the individual defendants in committing fraud. The car company asserted that the settlement with the individual defendants put the car company outside the ambit of the "unity of interest" test for imposing punitive damages on multiple defendants. The plaintiffs asserted that the trial court should only consider the settlement in determining whether the car company had acted in concert with the settling party. The Court of Appeal agreed with the plaintiffs, held that the plaintiffs could rely on the jury’s initial findings against the settling party (and, importantly, surmised that the defendant was likely to be the one to use the settlement to the plaintiffs’ detriment if they relied on the judgment alone), and affirmed the verdict against the car company.
California Civil Code section 877(a) provides, in part, that a release given in good faith by, or made pursuant to a reasonable agreement with one or more tortfeasors bars all claims for contribution or equitable comparative contribution against other parties. Section 877(b) provides that the nonsettling defendant cannot introduce evidence of the settlement into evidence. Section 877(g) provides that a settlement entered by a plaintiff that abrogates the rights of the settling parties to contribution and comparative contribution under sections 877 and 877.6 is a separate release, covenant not to sue, or other agreement that will proportionally reduce the recovery from the remaining parties. Section 877(a) permits, but does not require, the settling defendants to introduce the settlement into evidence. Section 877(a) does not provide that the settling defendant has an affirmative obligation to disclose each provision of the settlement.
Relevant Case Law and Precedents
A few notable case laws that have addressed the issues inherent in Mary Carter agreements are discussed below.
In the 1983 case of McDaniel v. General Adjustment Bureau, Inc. (295 Ark. 210, 748 S.W.2d 665, 1983), the issue at hand was whether a Mary Carter agreement had been formed between the plaintiff and one of the defendants over issues of discovery and pretrial matters. The Court denied plaintiff’s argument that no Mary Carter agreement was in place, despite plaintiff’s assertion that delimiting a cause of action against a particular defendant to only those facts or theories knowing specifically for which that defendant is solely liable is axiomatic to Mary Carter.
Mary Carter agreements have been upheld where plaintiff accepts lesser consideration than the amount of her damages without being aware that a settlement has been provided to the other defendant in recognition of his greater liability (see National Tea Co., 203 So.2d 169 (Fla.App. 1967); Smith v. Bartsch, 163 N.E. 818 (Ind. 1928); Rollins, Burdick & McCloy v. Kerr 1973, 7 Ariz.App. 174, 437 P.2d 414).
In Moser v. Thompson (206 Cal.App.4th 341 (2012), the Fourth District Court of Appeal upholds the enforceability of Mary Carter agreements but recognizes a distinction between unconscionable terms that give rise to a void agreement versus a disproportional general release that may be a factor in finding one of the parties’ liability to be lessened. "The fact that the release procured by the defendants was ‘grossly disproportionate to the settlement the plaintiff [received] from them’ does not necessarily aid plaintiffs, because ‘nonconscionable release arrangements do not per se invalidate the entire settlement.’"
The Court of Appeals of Louisiana, in Walker v. Nola Insur. Co., 703 So.2d 635 (La. Ct. App. 1997), stated that the question in determining the enforceability of a Mary Carter agreement is "whether the settlement agreement impermissibly distorts the normal process of the trial." The court did not find that the settlement agreement impermissibly distorted the normal process of trial, stating that plaintiff could argue to the jury that he was unable to recover as much from defendant insureds as he could from third-party defendants. The court also noted that the Mary Carter agreement at issue did not offend public policy given "the complex settings in which Mary Carter agreements are sometimes used," and that the insured were not attempting to escape payment of the judgment but "simply sought to limit their exposure so as to promote settlement."
Advantages and Disadvantages: A Strategic Overview
Practically speaking, a plaintiff or a defendant may have an advantage when entering into a Mary Carter Agreement. One of the main advantages is that they can provide a settlement opportunity for a plaintiff who has been unable to settle a case otherwise. For a plaintiff with disparate claims against multiple defendants which they suspect would probably not go to trial, or if so, unlikely in a satisfying way such that plaintiff obtains a favorable verdict or settlement, a Mary Carter Agreement may be an ideal way to move a case toward at least part of the plaintiff’s goal.
For a defendant to enter into a Mary Carter Agreement, the defendant must believe that the plaintiff’s other claims are in fact meritorious and that the defendant’s co-defendant is the best option for so-called "deep pockets" damages . In addition to the analysis of whether the other claims are meritorious, the co-defendant must also have a financial risk tolerance that is greater than that of the defendant who is entering into the Mary Carter Agreement. But all of these factors can become obvious only over time, thus making this an especially perilous tactic if used inappropriately.
From a legal standpoint, few, if any, jurisdictions outside of the California courts have accepted Mary Carter Agreements and most courts that have faced the question have rejected them. Thus, a defendant agreeing to enter into one of these agreements runs the risk of having the agreement voided so that it is available for consideration by the jury and having to stand by as the jury considers the full scope of the damages allegedly sustained by the plaintiff.
Mary Carter Agreements Michael J. Mullen LLP typically will agree to enter into these agreements only in those rare occasions where the benefits far outweigh the dangers.
Crafting a Mary Carter Agreement
The terms of a Mary Carter Agreement are not the same as a standard settlement agreement. For instance, with a Mary Carter Agreement, liability is not actually extinguished, which means that the defendants remain in the case even after the settlement agreements have been reached. The case will generally still proceed against each party in order to settle the remaining issues and see how much liability each party will have.
In drafting a Mary Carter Agreement, the parties will obviously need to negotiate the terms of the agreement, including:
• The amount of the settlement amount
• The percentage of the settlement amount each party will receive
• The allocation of costs and attorney fees
In addition to the standard contractual elements found in other contracts that parties would enter into, such as consideration given, validity, and offer and acceptance, a Mary Carter Agreement can be difficult to draft. These agreements will need to include language that will prevent the defendant from avoiding liability by not fully participating in a trial. These agreements are generally anything but "settlements" since it does not conclude the litigation between the plaintiff and the defendant.
Ideally, these agreements should conclude with the defendant’s joint liability and joint and several liability, or should be calculated in a way that will gradually give the remaining parties a larger share of the verdict.
Effects on Settlement Discussions
From the outset of litigation, the ultimate resolution of each lawsuit involves some method of compromise, the respective parties trading value for value through negotiations that may culminate in settlement. Pursuant to generally common practice, however, it is the defendant who is typically in a stronger position with respect to settlement authority, given that the majority of civil claims are defensive in nature. Moreover, the defendant’s ability and willingness to pay a direct settlement, especially in the face of an expected jury veredict, carries tremendous weight in influencing the behavior of the plaintiff’s attorney at the negotiating table. Such leverage, however, is often undermined by a co-defendant’s willingness to pay a disproportionate amount of the ostensible settlement figure. "In an effort to avoid the practice’s inherent coercive nature, black letter law requires that joint tortfeasors settle on the same basis." As outlined by the United States District Court for the Southern District of New York, in the Blackmun opinion, "[w]ithout such an equalizing settlement component . . . a settling defendant’s relative ability to pay . . . would allow it to gain a greater share of negotiated settlement proceeds than that defendant paid in settlement of its own liability." Notably , trade-offs that reduce the settling defendant’s exposure also may diminish the incentives for the remaining defendants to settle, or to do so on desirable terms. As such, plaintiffs’ attorneys may be required to engage in incentive offerings or other bargaining techniques to get the necessary buy-in from all co-defendants. Such consideration has been highlighted through judicial decision regarding the award of settlements in cases involving Mary Carter Agreements. Although such agreements serve a useful purpose, one potential effect is that they prolong resolution of a claim. For example, if one defendant settles on terms that affect the litigation fee, the remaining defendants may need to negotiate a more generous settlement on the damages portion of the case, in order to facilitate the ultimate buyout of the settling defendant. Since a Mary Carter Agreement obligates the settling defendant to provide further assistance for the plaintiff – beyond the original settlement payment – the approach can be used by the plaintiff to drag out settlement without providing any real benefit to the non-settling defendants. For this reason, courts have repeatedly stressed the need for close scrutiny of the impact of such agreements upon a lawsuit, prior to approving their use. Some courts even have claimed the discretion to reject private agreements that violate general rules regarding joinder in favor of public interest considerations.