Chisholm v. UHP Projects, Inc.

205 F.3d 731, 2000 WL 256088

• Court: Court of Appeals for the Fourth Circuit
• Decided: March 8, 2000
• Docket: No. 99-1018
• Status: Published

Opinions

Affirmed by published opinion. Senior Judge CYNTHIA HOLCOMB HALL wrote the majority opinion, in which Chief Judge WILKINSON joined. Judge KING wrote a dissenting opinion

OPINION

CYNTHIA HOLCOMB HALL, Senior Circuit Judge:

Philip Chisholm (“Chisholm”) appeals the district court’s order setting aside damages in the amount of $90,000 awarded against UHP Projects (“UHP”) for breach of the warranty of workmanlike performance. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

I.

UHP is a company that cleans tanks and holds for ocean vessels with ultra high pressure water jets. Sealift, Inc. (“Seal-ift”) owned the ship S.S. ULTRAMAX which on July 1, 1994, was moored at Cargill South Terminal in Chesapeake, Virginia. On this particular day, Sealift had contracted with UHP to remove dust and scale from the ULTRAMAX’s ballast tanks. The pump and hoses used to operate the ballast tank were owned by UHP. Chisholm was aboard the ULTRA-MAX as a first assistant engineer.

Early that morning, as UHP employees were preparing to begin cleaning one of the ballast tanks, Patrick Courville, a UHP supervisor, noticed a leak in a connector between the two end fittings of the ultra high pressure hoses. He readjusted the connector to stop the leak and then directed another UHP employee to begin the blast. Within a few seconds of the jet reaching full power, the hose and/or a fitting failed causing the hose to blow apart from the end-fitting. The loose hose veered and struck Chisholm who was standing approximately 10 to 15 feet away from the ballast tank. Chisholm suffered a compound depressed skull fracture and a lacerated dura. Chisholm fully recovered from this serious injury and returned to work approximately 8 or 9 months later.

Chisholm presented a claim against the ship for maintenance and cure benefits, and for unseaworthiness, to which Sealift responded by tendering $29,025.93 for the maintenance and cure benefits. Sealift demanded that UHP participate in settlement negotiations with Chisholm and pay around $200,000 in indemnity. UHP refused Sealift’s demand so Sealift filed suit against UHP in federal district court alleging causes of action arising under implied contractual indemnity and tort indemnity. Prior to summary judgment, UHP accepted that it had a duty to indemnify Sealift in accord with the admiralty warranty of workmanlike performance and agreed to tender Sealift the amount which Sealift settled with Chisholm. This amount was $200,000 plus the $29,025.93 in maintenance and cure benefits, a total payment by Sealift to Chisholm of $229,025.03. This exact amount was then tendered by UHP to Sealift as indemnity on or about December 11,1996.

Meanwhile, on June 5, 1996, Chisholm filed a complaint against UHP pleading causes of action for negligence and an admiralty law claim for breach of the implied warranty of workmanlike performance. On cross-motions for summary judgment, the district court granted summary judgment for UHP on the negligence claim which left the admiralty claim as the sole surviving cause of action. See Chisholm v. UHP Projects, Inc., 30 F.Supp.2d 928, 929 (E.D.Va.1998). As a result, the district court concluded that Chisholm did not have a right to a jury trial but impaneled a jury anyway to function as an advisory body.¹ See id. at 929-30. The admiralty claim proceeded to a two day trial in which the jury found liability and imposed $90,000 of damages against UHP. See id. at 930. The district court adopted the jury’s verdict as its own and after post-trial briefing held that the prior settlement between Chisholm and Sealift, which exceeded the jury’s award, operated to negate the award against UHP. See id. at 938-39. Consequently, the district court ordered this case dismissed on the merits and judgment entered in favor of UHP. See id. at 939. Chisholm appeals this ruling.

II.

Because this appeal is purely on a question of law, the standard of review is de novo. See United States v. Han, 74 F.3d 537, 540 (4th Cir.1996). Chisholm's claim against Sealift arose under the doctrine of seaworthiness while his claim against UHF arose under the cause of action for breach of the implied warranty of workmanlike performance. The doctrine of seaworthiness arises by operation of law and states that a ship owner owes the seaman an absolute, non-delegable duty to provide a seaworthy vessel. See Mitchell v. Trawler Racer, Inc., 362 U.S. 539, 549-50, 80 S.Ct. 926, 4 L.Ed.2d 941 (1960) (seaworthiness is defined as a vessel that has a hull and equipment that are reasonably adequate in design and maintenance, and a crew that is of sufficient character to perform its intended function in the operation of the vessel). Liability for violation of the doctrine of seaworthiness is without fault See id.

The implied warranty of workmanlike performance ensures that the stevedore will warrant the quality of his services while on board the vessel. See Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 350 U.S. 124, 132-33, 76 S.Ct. 232, 100 L.Ed. 133 (1956) (overruled by Congress on different grounds, see Ducre-pont v. Baton Rouge Marine Enterprises, Inc., 666 F.Supp. 882, 884-85 (1987) (stating that the congressional enactments sought to overrule only the damages aspect of the Ryan holding)). The warranty arises under operation of contract but extends to all foreseeable parties, including the employees of the shipowner. See Sanderlin v. Old Dominion Stevedoring Corp., 385 F.2d 79, 81-82 (4th Cir.1967). Liability for the breach of the warranty of workmanlike performance arises without fault and appears to approach strict liability. See Salter Marine, Inc. v. Conti Carriers and Terminals, Inc., 677 F.2d 388, 390 (4th Cir.1982).

The issue of whether, under admiralty law, a nonsettling defendant is entitled to an offset of damages it owes because of the prior settlement between the plaintiff and a third party has been recently addressed by the Supreme Court. See McDermott, Inc. v. AmClyde, 511 U.S. 202, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994). McDermott involved several joint tortfeasors who were found to be proportionately negligent in causing damage to a crane and oil and gas production platform owned by plaintiff. See id. at 204, 114 S.Ct. 1461. Plaintiff settled with three out of the five defendants for $1 million and proceeded to trial against the remaining two nonsettling defendants. See id. A jury assessed plaintiffs damages in the amount of $2.1 million and allocated fault in the proportionate amounts of 32% and 38% respectively to the remaining defendants. See id. The question presented to the Supreme Court was whether the damages should be calculated with reference to the jury’s allocation of proportionate responsibility, “or by giving the nonsettling defendants a credit for the dollar amount of the settlement.” Id. The Supreme Court opted for the proportionate approach.

The Supreme Court first stated that fashioning such remedies in the ambit of admiralty law was not unusual because traditionally the judiciary has taken the lead in such matters. See id. at 207, 114 S.Ct. 1461 (citing United States v. Reliable Transfer Co., Inc., 421 U.S. 397, 95 S.Ct. 1708, 44 L.Ed.2d 251 (1975)). The Supreme Court’s analysis began from the premise that “when a plaintiff settles with one of several joint tortfeasors, the nonset-tling defendants are entitled to a credit for that settlement.” Id. at 208, 114 S.Ct. 1461. In choosing the proportionate approach, the Supreme Court balanced three policy considerations: consistency with its precedent that dictated a proportionate fault approach in terms of joint tortfeasor’s liability, promotion of settlement, and judicial economy. See id. at 211, 114 S.Ct. 1461.

With respect to the promotion of settlement and judicial economy criteria, the Supreme Court concluded that both the proportionate fault and dollar-for-dollar offset approaches produced the same results. See id. at 214-217, 114 S.Ct. 1461. Hence, the clinching factor was compliance with its precedent that dictated a proportionate fault approach in terms of joint tortfeasor’s liability. The Supreme Court stated that the dollar-for-dollar approach would produce frequent deviations from the equitable apportionment of damages, see id. at 212-13, 114 S.Ct. 1461, and consequently adopted the proportionate rule on fairness grounds. See id. at 217, 114 S.Ct. 1461.

In so doing, the Supreme Court explicitly rejected the “one satisfaction rule.” The “one satisfaction rule” operates to “reduce a plaintiffs recovery against a non-settling defendant in order to ensure that the plaintiff does not secure more than necessary to compensate him for his loss.” Id. at 218, 114 S.Ct. 1461. The Supreme Court first noted that the “one satisfaction rule” only comes into play in those instances where the plaintiff would be overcompensated (a fact not present in McDer-mott ). See id. at 218-19, 114 S.Ct. 1461. Regardless of that factual scenario, the Supreme Court then added that it would still apply the proportionate approach even if it would result in overcompensation because “[t]he law contains no rigid rule against overcompensation.” Id. at 219, 114 S.Ct. 1461. It stated that this was a policy consideration that valued imposing payments on tortfeasors who cause damage more than avoiding overcompensating plaintiffs. See id. The Supreme Court recognized that settlements “frequently result in the plaintiffs getting more than he would have been entitled to at trial” but refused to penalize such plaintiff by opining that “a plaintiffs good fortune in striking a favorable bargain with one defendant gives other defendants no claim to pay less than their proportionate share of the total loss.” Id. at 219-20, 114 S.Ct. 1461.

Even though both parties and the district court below recognize that Sealift and UHP are not joint tortfeasors because their duties towards Chisholm arose from independent sources, the parties still urge us to look to McDermott in resolving this case. Similarly, the dissent would refer to McDermott “for guidance.” Such reliance is inapposite for one overriding reason. As illustrated above, even though the Supreme Court considered three factors in deciding whether to adopt the proportionate approach versus the dollar-for-dollar approach, the only dispositive factor was based on the equitable considerations on the apportionment of degrees of fault. See id. at 212-14, 114 S.Ct. 1461; see also Gravatt v. City of New York, 73 F.Supp.2d 438, 440 (S.D.N.Y.1999) (stating that the promotion of settlement and judicial economy factors were a wash as between the proportionate share and dollar-for-dollar approaches). In this case, both Sealift and UHP owed Chisholm duties which impose liability without fault. Consequently, there can be no allocation of proportion of fault as a matter of fact and law.

Precedent since McDermott offers little guidance on the issue at hand when the settling and nonsettling defendants are not joint tortfeasors. Boykin v. China Steel Corp., 73 F.3d 539 (4th Cir.1996), an admiralty case relied on heavily by Chisholm, is not particularly instructive. In Boykin, the plaintiffs decedent was killed as the result of the negligence of the nonsettling defendants. See Boykin, 73 F.3d at 541. After the settlement between the settling defendant and the plaintiff, the settling defendant filed a lawsuit seeking indemnity from the nonsettling defendants. The settling defendant, a ship owner, was found to be “zero percent at fault” at trial but was nevertheless found liable by virtue of the no-fault doctrine of seaworthiness. See id. at 544. The settling defendant was therefore not a joint tortfeasor for two distinct reasons: (1) he had 0% of fault in the negligence action; and (2) his liability was premised on a no-fault doctrine. See id. at 544 n. 4. Because the settling defendant was not a joint tortfeasor, McDermott was deemed inapplicable and the settling defendant was entitled to full indemnity from the nonsettling defendants. See id. at 544-45.

The only element truly instructive about Boykin is the statement that the McDer-mott proportionate allocation scheme would be inapplicable in cases not involving joint tortfeasors. Otherwise, the rest of the case is so factually different from the one at hand that no general rule can be articulated. The two key differences that render Boykin inapposite are: (1) at least some of the defendants, be it settling or nonsettling, were deemed to be at fault; and, (2) the case involved an indemnity claim between defendants. Boykin therefore stands for the proposition that a settling defendant without fault can secure full indemnity from other defendants at fault regardless of the those other defendants’ degree of culpability. See also Bertram v. Freeport McMoran, Inc., 35 F.3d 1008, 1013 (5th Cir.1994).

Westinghouse Credit Corp. v. M/V New Orleans, 39 F.3d 553 (5th Cir.1994), similarly states that McDermott “applies only to cases in which there has been a settlement by a joint tortfeasor.” Id. at 555. In Westinghouse, two nonsettling defendants were seeking to offset the damages award against them with the award received by the plaintiff from a settling defendant. In ruling that damages had been incurred in two separate and independent instances, the court stated that “[b]ecause the essential relationship of joint tortfea-sors does not exist between [the nonset-tling defendant] on the one hand and the settling defendants on the other, [the non-settling defendant] is not entitled to any settlement credit.” Id. at 555-56.

Chisholm h'as seized on the seemingly sweeping nature of this last sentence to state that the only circumstance in which credit is due to nonsettling defendants following a prior settlement is that scenario in which there is a joint tortfeasor relationship between all defendants involved. This reads Westinghouse out of context. The above sentence is found immediately following the passage below:

The photos taken by Webster in November 1985 and September 1986, along with his reports and the corroborating testimony, confirm that what we have here is two separate torts resulting in two different harms — one occurring over a period of two days as a result of a negligent towage of the vessel and one occurring over a subsequent period of one year as a result of negligence in the care and custody of the vessel during storage.

Id. Thus, when using the term “joint tortfeasor” following the above passage, the Westinghouse court was referring to the two independent sources of the damage suffered by the plaintiff and not to a definition of the term “joint tortfeasor” that limits the term’s application to situations in which two defendants are liable to a plaintiff under the same cause of action. I.E. the Westinghouse court focused on the harm suffered by the plaintiff and declared that the defendants in Westinghouse were not “joint tortfeasors” because the damage that they caused the plaintiff could be traced to two separate and independent events. Westinghouse, therefore, stands for the proposition that a nonset-tling defendant cannot receive credit from a prior settling defendant when the defendants each independently caused the plaintiffs divisible injury.

The dissent would begin the analysis in this case by applying the “collateral source rule.” The “collateral source rule” prevents the defendant from claiming an offset from compensation already received by the plaintiff from a different source when this source is collateral to the defendant. See United States v. Price, 288 F.2d 448, 449 (4th Cir.1961). The two policies underlying this rule are “(1) to punish the tortfeasor, or (2) to ensure that the injured party receives benefits for which he or she has contracted.” Clausen v. Sea-3, Inc., 21 F.3d 1181, 1193 n. 18 (1st Cir.1994). Because UHP is liable under a strict liability doctrine, and consequently liable without fault, UHP does not fall within the scope of the first policy rationale. The dissent sees the jury verdict finding UHP liable for breach of the warranty of workmanlike performance as a vindication of its assertion that “UHP’s liability before the jury depended upon a demonstration of fault.” Nothing in the record can be construed to support this assertion. The district court dispensed with Chisholm’s demand for a jury because no negligence claim, i.e. no fault-based claim, remained in the case. Likewise, the doctrine of workmanlike performance is not premised on any showing of fault. The second policy rationale is inapplicable because Chisholm is not claiming benefits for which he contracted. Therefore, neither of these policies are at play here and rebanee on the “collateral source rule” in this case is inapposite.

The “one satisfaction rule” offers us the best starting point for resolving the issue at hand. Even though this rule is traditionally employed in cases involving joint tortfeasors, its equitable considerations operate equally well in the strict liabihty arena. As noted, this equitable doctrine operates to reduce a plaintiffs recovery from the nonsettling defendant to prevent the plaintiff from recovering twice from the same assessment of liability. See Krieser v. Hobbs, 166 F.3d 736, 743 (5th Cir.1999); see also Marcus, Stowell & Beye Government Securities, Inc. v. Jefferson Investment Corp., 797 F.2d 227, 233 (5th Cir.1986) (“[t]he one satisfaction rule is based on the notion that allowing a double recovery is ordinarily against legal policy”); Restatement (Second) of Torts § 885(3) (1979). The essential requirement for the “one satisfaction rule” is that the amounts recovered by settlement and the judgment must represent common damages arising from a single, indivisible harm.² See Howard v. General Cable Corp., 674 F.2d 351, 358 (5th Cir.1982); see also Harris v. Union Elec. Co., 846 F.2d 482, 485 (8th Cir.1988) (characterizing the “one judgment rule” as entitling the plaintiff to one satisfaction for each injury).

The above inquiry into the origin of the harm could yield two possible answers: (1) the harm is separate and clearly delineated for each defendant; or (2) the harm is single and indivisible. If the factual inquiry yields the former answer, then the analysis terminates because the non-settling defendant cannot claim credit for a settlement on a cause of action in which he took no part. See Westinghouse, 39 F.3d at 555-56. However, if the defendants caused a single and indivisible harm then the analysis must proceed to a determination of whether the plaintiff has been overcompensated.

The determination into whether or not the plaintiff has been overcompensated will necessarily begin with the presentation of two sets of figures: (1) the amount received from the settling defendant; and (2) the amount awarded after trial against the nonsettling defendant. If the former amount is larger than the latter amount, then the plaintiff has been overcompensated in the settlement. If the latter amount is larger than the former amount, then the plaintiff has been under-compensated in the settlement. No apportionment of culpability between the defendants is possible because the whole premise of this scenario is that both defendants, settling and nonsettling, are liable for a no-fault, single, indivisible harm and therefore the amount imposed at trial against the nonsettling defendant will necessarily be the full amount of damages.

in cases where the trial award results in an overcompensation in the settlement to the plaintiff, the district court should negate the jury award. See Singer v. Olympia Brewing Co., 878 F.2d 596, 600-01 (2d Cir.1989) (stating that a court will not help a plaintiff achieve a total recovery that exceeds the amount received in the litigated case and that the reduction will be assessed against the court judgment). However, in those cases where the trial’s verdict fixing the total harm to the plaintiff indicates an undercompensation in the settlement, the amount should be reduced, but only to the extent that the plaintiff still comes away with the full recovery as deemed by the fact-finder. See Strachan Shipping Co. v. Nash, 782 F.2d 513, 520 (5th Cir.1986).

The following two examples illustrate the above concept: In an action where both defendants breach no-fault duties, plaintiff settles with defendant 1 for $200,-000. Defendant 2 proceeds to trial, loses and has $100,000 of damages awarded against him. The $100,000 award is offset resulting in a judgment for the defendant. Plaintiff still receives $100,000 more than the total amount of damages as determined by the fact-finder but does not further benefit from a second windfall. The dissent seems to ignore the fact that plaintiff has already benefitted from a $100,000 windfall and it is a second windfall that the application of the “one satisfaction rule” is designed to prevent in this circumstance.

The second example occurs in an action where two defendants both breach no-fault duties and defendant 1 settles with plaintiff for $100,000. Defendant 2 proceeds to trial, loses and has a $500,000 award assessed against him. This time the trial award is reduced by the $100,000 amount that plaintiff received through his settlement with defendant 1, thus resulting in a net award of $400,000 against defendant 2. The “one satisfaction rule” now operates to level plaintiffs recovery to the full amount of his damages.

Because the no-fault breaches apply to both defendants, the focus in the above examples is not on whether one defendant pays more than the others or whether a particular defendant receives a windfall. Rather, the focus is exclusively on the amount the plaintiff is entitled to receive.³ The dissent, in applying the collateral source rule, states that the majority is giving UHP an incentive not to settle the first suit which Chisholm brought against Sealift. That is, the dissent seems to premise its reasoning on the assumption that a prior settlement will always be larger than a subsequent damages award at trial. It is hard to see why this is so. If the jury had assessed a $1,000,000 damages award in Chisholm’s favor in the second suit (i.e. the suit brought by Chisholm against UHP), under the “one satisfaction rule” UHP would have been saddled with another payment of approximately $800,-000. Now UHP’s incentive to settle the first suit is readily apparent because a prior settlement in which UHP was a participant would have precluded Chisholm’s second suit. Thus, each defendant and plaintiff will, on a case-by-case basis, assess the advantages and risks of settling versus going to trial. The test formulated above does not alter the traditional risk-weighing that parties continuously have to make in developing litigation strategy. It provides a structure that contains trial damage awards in cases where both defendants breach a no-fault duty towards the same plaintiff.

The following three-part test summarizes the considerations that courts must make in situations where a plaintiff receives an award of damages in cases where there are multiple defendants, some of whom have settled with the plaintiff prior to the trial proceedings: (1) Are the settling and nonsettling defendants both solely liable for breaches of no-fault duties? (2) Did both defendants’ breaches result in a single indivisible harm to the plaintiff? (3) Did the jury award result in the prior settlement being an overcompensation or an undercompensation? If the first two questions are answered in the affirmative, the inquiry proceeds to the final question.

If the first question is answered in the negative, then the inquiry might shift either to a McDermott scenario where both defendants breach fault-based duties or to a Boykin-type situation where only one defendant is culpable. If the second question is answered in the negative, then the nonsettling defendant is not entitled to a credit from the prior settlement. See Westinghouse, 39 F.3d at 555-56.

III.

Applying the three-part test to the facts of this case it appears that both Sealift and UHP solely breached no-fault duties: Sealift was liable under the doctrine of seaworthiness while UHP breached the implied warranty of workmanlike performance. Neither of these parties are liable for any fault-based breaches. The harm to Chisholm was single and indivisible being the injury he sustained from being struck by the wild hose. Chisholm received approximately $230,000 from Sealift and was awarded $90,000 by the trial court against UHP. Hence, the settlement was an overcompensation. Therefore, the $90,000 is reduced to zero as an offset to the amount received by Chisholm in the prior settlement.

AFFIRMED.

1 . The fact that the district court ruled that Chisholm did not have a right to a jury because he presented no viable negligence claim rebuts the dissent’s assertion that UHP’s liability was "not without fault." The dissent goes to great lengths to breath a negligence cause of action into Chisholm's claim against UHP for breach of the warranty of workmanlike performance. However, if negligence were a part of this claim, then Chisholm would have had a right to a jury.

2 . Chisholm argues that the terms "common damages” and "single, indivisible harm” are terms of art that apply exclusively to joint tortfeasors. This argument is not borne out by the relevant caselaw. Courts use these terms in their plain meaning to refer to the same injury caused by different parties. See e.g. Howard, 674 F.2d at 358; Ratner v. Sioux Natural Gas Corp., 719 F.2d 801, 803 (5th Cir.1983).

3 . The district court, in its opinion, implied that it was using the "one judgment rule” to prevent UHP from being unduly penalized in light of the fact that it had already indemnified Sealift for over double the amount the jury said UHP was liable for. See Chisholm, 30 F.Supp.2d at 937-38. From the opposite angle, the dissent also asserts that we should be wary of giving UHP a windfall. Even though we do not believe that UHP is getting a windfall, for the purposes of the "one satisfaction rule,” the amounts that each defendant will have to pay are immaterial because the "one judgment rule" concerns itself with preventing overcompensation to the plaintiff regardless of the source of that overcompensation.