Yates v. New South Pizza, Ltd.

412 S.E.2d 666, 330 N.C. 790, 1992 N.C. LEXIS 64

• Court: Supreme Court of North Carolina
• Decided: January 31, 1992
• Docket: 176PA91
• Status: Published

Opinions

FRYE, Justice.

On 5 September 1985, plaintiff was .a passenger in an automobile owned by Franklin Hobert Simmons and operated by Lisa Dawn Simmons. Donald Lee Powell, a delivery person for defendant, New South Pizza, Ltd., d/b/a Domino’s Pizza, ran a stop sign and collided with the Simmons car. As a result of the collision, plaintiff suffered injuries to his head and right wrist, and permanent damage to his left hip. On 26 August 1987, plaintiff executed a covenant not to sue Powell or his insurer in exchange for $25,000 consideration, the amount of coverage under Powell’s insurance policy. The covenant expressly reserved all rights to proceed against defendant, Powell’s employer, and reads in relevant part:

It is understood that [plaintiff] contends there are joint tortfeasors in this matter; to wit, Donald Lee Powell and Domino’s Pizza, Inc., said joint tortfeasor relationship arising out of the servant-master relationships and [plaintiff] expressly reserves and maintains his right to pursue any and all claims against Domino’s Pizza, Inc. arising out of the incident and that [plaintiff] agrees only not to sue Donald Lee Powell and INA/Action, his vehicular insurance carrier.

The issue before this Court is whether an injured plaintiff is entitled to proceed against an employer on the theory of respondeat superior after having executed, for valuable consideration, a covenant not to sue the negligent employee or his insurer. We hold that such a plaintiff may proceed.

At trial, the employer (defendant) admitted that the employee (Powell) was acting within the scope of his employment when the collision occurred but denied that Powell was negligent in causing the collision. Defendant also moved for summary judgment, arguing that the settlement between plaintiff and Powell operated to release defendant from liability as a matter of law. The trial court granted the motion. The Court of Appeals affirmed the trial court, con-eluding that the covenant not to sue released any claim against defendant under the doctrine of respondeat superior. The court further held that when there is a right of indemnity from another tort-feasor, the Uniform Contribution Among Tort-feasors Act, N.C.G.S. § IB-1, et seq. (the Act),¹ does not apply. Plaintiff’s petition for discretionary review of the unanimous decision of the Court of Appeals was allowed by this Court on 12 June 1991. Yates v. New South Pizza, Ltd., 329 N.C. 276, 407 S.E.2d 855 (1991). We now reverse.

Plaintiff contends that the Court of Appeals erred in holding that the Act does not apply to the present case. Plaintiff argues that the plain language of the Act includes employer-employee liability, and thus a covenant not to sue the employee does not release the employer pursuant to section IB-4 of the Act. Defendant contends that the Act is irrelevant to the disposition of this case because, inter alia, an employer is not a tort-feasor within the meaning of the Act.

We agree with plaintiff that section IB-4 of the Act controls the disposition of this case. Section IB-4 of the Act provides:

When a release or a covenant not to sue or not to enforce judgment is given.in good faith to one or more persons liable in tort for the same injury or the same wrongful death:

(1) It does not discharge any of the other tort-feasors from liability for the injury or wrongful death unless its terms so provide; but it reduces the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater; and,

(2) It discharges the tort-feasor to whom it is given from all liability for contribution to any other tort-feasor.

N.C.G.S. § IB-4 (1983). The question of whether this provision applies to vicarious liability in the master-servant context is one of first impression for this Court. Other courts, as noted by the Court of Appeals, have not been uniform in interpreting this provision of the Uniform Act. We agree with those courts which have held that this provision does apply to liability that has been vicariously derived. See, e.g., Alaska Airlines v. Sweat, 568 P.2d 916, 929 (Alaska 1977) (release of independent contractor negligently performing licensed common carrier’s non-delegable duty does not release carrier); Brady v. Prairie Material Sales, Inc., 190 Ill. App. 3d 571, 583, 546 N.E.2d 802, 810 (2d Dist. 1989), appeal denied, 129 Ill. 2d 561, 550 N.E.2d 553 (1990) (“Since the servant who acts negligently is obviously a person liable in tort, it is reasonable to conclude that the liability of the master, although derivative, is still a form of liability in tort as that term is used in the Contribution Act, and an employer is also a “tortfeasor” as that term is used in the Contribution Act.”); Van Cleave v. Gamboni Constr. Co., 101 Nev. 524, 528, 706 P.2d 845, 848 (1985) (“We . . . hold that because the employer Gamboni, and its employee, Alimisis are both allegedly liable for Van Cleave’s injury, the Uniform Act applies.”). Accord Harris v. Aluminum Co. of America, 550 F.Supp. 1024 (W.D.Va. 1982); Blackshear v. Clark, 391 A.2d 747 (Del. 1978) (interpreting the 1939 version of the Act); Smith v. Raparot, 101 R.I. 565, 225 A.2d 666 (1967) (interpreting the 1939 version of the Act); Thurston Metals & Supply Co. v. Taylor, 230 Va. 475, 339 S.E.2d 538 (1986); Krukiewicz v. Draper, 725 P.2d 1349 (Utah 1986) (interpreting the 1939 version of the Act); contra, e.g., Mamalis v. Atlas Van Lines, Inc., 364 Pa. Super. 360, 528 A.2d 1987, aff’d, 522 Pa. 214, 560 A.2d 1380 (1989) (interpreting the 1939 version of the Act); Craven v. Lawson, 534 S.W.2d 653 (Tenn. 1976). We hold, therefore, that section IB-4 applies to master-servant vicarious liability, and that on the facts of this case, the covenant not to sue the employee does not release defendant-employer from liability.

We recognize that at common law this Court held that the release of or covenant not to sue the servant also served to release the master. Smith v. R.R., 151 N.C. 479, 66 S.E. 435 (1909). Since the decision in Smith, our legislature has adopted the Uniform Contribution Among Tort-feasors Act. 1967 N.C. Sess. Laws. ch. 847, § 1. The question becomes, therefore, whether the Act changes this holding in Smith. Defendant argues that the Act is not applicable to the present situation because a vicariously liable master is not a wrongdoer and therefore not a “tort-feasor.” Although defendant’s argument finds support in our case law prior to the adoption of the Uniform Act, see Smith, 151 N.C. at 481-82, 66 S.E. at 436, we believe the Act broadens the definition of “tortfeasor” to encompass a vicariously liable master. Stated differently, for purposes of this Act, a “tort-feasor” is one who is liable in tort.

An analysis of the 1939 Act and its 1955 revision supports our conclusion. The 1939 Act defined “joint tort-feasors” broadly:

For the purposes of this chapter[,] the term 1joint tortfeasors’ means two or more persons jointly'or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them.

Raparot, 101 R.I. at 567, 225 A.2d at 667 (quoting section 1 of the 1939 version of the Act) (our emphasis). This language clearly includes master-servant vicarious liability. See id. (“That [definition] is plain and unambiguous. It declares its own sensible meaning and leaves no room for judicial construction.”). Although this definition was omitted from the 1955 Act,² we believe the 1955 Act is consistent with this broad definition. For example, section 1B-I(a) provides as follows:

Except as otherwise provided in this Article, where two or more persons become jointly or severally liable in tort for the same injury to person or property or for the same wrongful deáth, there is a right of contribution among them even though judgment has not been recovered against any or all of them.

N.C.G.S. § 1B-I(a) (emphasis added). More importantly, as we have noted, section IB-4 provides that when a release or covenant not to sue is given in good faith “to one of two or more persons liable in tort for the same injury or the same wrongful death,” it does not discharge “any of the other tort-feasors from liability.” Clearly, both the master and the servant are “persons liable in tort for the same injury,” and “tort-feasors” as used in this provision refers to those persons liable in tort. We agree with the Alaska Supreme Court that such language “is intended to include those vicariously liable.” Sweat, 568 P.2d at 930; accord Krukiewicz, 725 P.2d at 1352. We therefore hold that the provisions of N.C.G.S. § IB-4 apply to situations involving master-servant vicarious liability, such as in the instant case.

Defendant also suggests that section 1B-I(f) of the Act excludes indemnity actions. We disagree. Section 1B-I(f) reads:

This Article does not impair any right of indemnity under existing law. Where one tort-feasor is entitled to indemnity from another, the right of the indemnity obligee is for indemnity and not contribution, and the indemnity obligor is not entitled to contribution from the obligee for any portion of his indemnity obligation.

N.C.G.S. § 1B-I(f) (1983). We agree with the Supreme Court of Nevada that nothing in this provision precludes application of the Act to situations involving vicarious liability. Van Cleave, 101 Nev. at 529, 706 P.2d at 848. The provision “simply states that the vicariously liable employer would have a right to indemnity, rather than contribution. This provision merely provides that no contribution exists where indemnity exists.” Id.; see also 12 U.L.A. cmt. 66 (1975) (second sentence of this provision added by drafters in 1955 revision to make clear that in cases of vicarious liability there should be indemnity and not contribution); Sweat, 568 P.2d at 930 n.19 (“Alaska’s act is expressly intended to cover situations covering vicarious liability which is one reason for inclusion of subsection (f).”).

In its opinion, the Court of Appeals noted that because a right of indemnity remains against a servant who has settled with the injured party, the servant effectively gains nothing. Yates, 102 N.C. App. at 71, 401 S.E.2d at 383. Thus, the underlying policy of the statute to encourage settlements is undermined. Id. We do not agree. Although the Court of Appeals is correct that the servant remains liable to the master, in practice, the master may elect not to seek indemnification. This is especially true in cases such as this one where the servant’s settlement was for the entire amount of his insurance coverage. Given that the master may choose not to seek indemnity from his servant, who in many cases may be judgment proof, the servant’s settlement with the injured party fulfills the underlying policy of the Act.

Having determined that “tort-feasor” under the Act includes vicariously liable employers, we turn to the simple facts of this case. Plaintiff, in good faith, executed a covenant not to sue the employee or the employee’s insurer, expressly reserving the right to sue defendant. Therefore, pursuant to N.C.G.S. § 1B-4(1), defendant was not discharged from liability. Accordingly, the decision of the Court of Appeals is reversed and the cause remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.

1 . The Uniform Contribution Among Tort-feasors Act was originally promulgated in 1939 by the National Conference of Commissioners of Uniform State Laws. It was revised in 1955. North Carolina adopted the 1955 version in 1967. 1967 N.C. Sess. Laws ch. 847, § 1.

2 . The term “joint tort-feasor” and its definition were not included in the 1955 version of the Act because the term “joint tort-feasor” in the 1939 Act led to confusion:

The term ‘joint tort-feasors’ was not used in the Uniform Act in order to avoid confusion in those jurisdictions where persons who act independently, and not in concert, cannot always be joined as defendants.

T. Merritt Bumpass, Jr., Comment, North Carolina Legislation: An Act Providing for Contribution Among Joint Tort-Feasors and Joint Obligors, 5 Wake Forest Intra. L. Rev. 160 (citing Uniform Act, section 1, Commissioner’s Note Subsection (a)). The term “joint tort-feasor” was replaced with “tort-feasor.” Neither1 the 1955 Uniform Act nor the North Carolina statute defines. “tort-feasor.”