General Motors Corp. v. Lahocki

Smith, J., delivered the opinion of the Court. In this case we shall hold that a trial court erred in its handling of an agreement between certain of the parties to litigation before it and also erred in not permitting one aspect of the case to go to the jury. Hence, we shall reverse the judgment of the Court of Special Appeals in Lahocki v. Contee Sand & Gravel Co., 41 Md. App. 579 , 398 A.2d 490 (1979). This litigation is the result of an accident on University Boulevard in the College Park area of Prince George’s County.

Appellant George E. Lahocki sustained a paralyzing back injury when the vehicle in which he was riding, a van manufactured by General Motors Corporation (GM), collided ⁷¹⁷ with heavy timber barricades placed by a contractor, Contee Sand & Gravel Co., Inc., in connection with work it was then doing on the highway. Lahocki and his wife initially sued the driver of the van, the owner of the van (who was Lahoekfs employer), and Contee. Contee filed a third party claim against GM, alleging that the van was uncrashworthy. Ultimately, the Lahockis made GM a defendant on the basis of an alleged defect in the van said to have enhanced Lahocki*s injuries.

Summary judgment on the basis of the Workmen’s Compensation Act was entered in favor of Lahocki’s employer. An agreement was reached between the Lahockis and the driver of the van as a result of which they received $300,000 and executed a release pursuant to the Uniform Contribution Among Tort-Feasors Act, Maryland Code (1957) Art. 50, §§ 16-28. At trial the parties stipulated that the driver was negligent and that his negligence caused the accident. He was then dismissed from the action.

A mistrial ultimately ensued. A pretrial conference was held in advance of the first trial. There the trial judge directed that any settlements effected between any of the parties were to be disclosed promptly to all counsel. GM made a motion at the outset of the second trial “to compel the disclosure and/or production of any agreement or settlement between the [Lahockis] and the defendant Contee,” stating its counsel had “information that such an agreement either ha[d] been reached or [was] imminent ....” We shall have more to say about those proceedings and the agreement later.

The trial judge granted Contee’s motion for a directed verdict in its favor made at the conclusion of all the evidence. The jury rendered a verdict against GM in favor of Lahocki in the amount of $1,200,000 and against GM in favor of him and his wife in the amount of $800,000. Upon motion of GM, the ultimate judgment was reduced by one-half based upon the existence and terms of the release between the Lahockis and the driver of the vehicle. GM and the Lahockis appealed to the Court of Special Appeals.

It affirmed. ⁷¹⁸ We granted GM’s petition for a writ of certiorari to address the question, “Is GM entitled to a new trial because a pretrial settlement agreement between the plaintiffs and the codefendant was not disclosed to GM promptly and because it was not admitted in evidence at the trial?” The Lahockis also sought a writ of certiorari, which we granted. One of the questions contained in their petition has been settled. The two remaining questions are: (1) “Whether the Court of Special Appeals’ rationale in affirming Contee’s motion for directed verdict is in direct conflict with the principle that a wrongdoer is liable for all the foreseeable consequences of his act,” and (2) “Whether the trial court erred in granting Contee’s motion for directed verdict by misconstruing and misapplying the holding in Stitzel v. Kurz, 18 Md. App. 525 [, 308 A.2d 430 ] (1973).” I The Lahocki-Contee Agreement As we have indicated, when the case was called for trial GM sought to compel disclosure of any agreement between the Lahockis and Contee. GM’s attorneys suggested that they had information that such an agreement had been reached.

The trial judge indicated he presumed that any pro rata type settlement agreement should be made known before trial, but said he was “not sure about any other type of settlement, a high-low settlement agreement, whether or not [GM was] entitled to this.” He asked counsel specifically, “Are there any other settlements that should be disclosed, or settlement agreements?” To this the reply was made, “In the context of Your Honor’s last statement, there isn’t.” Further discussion ensued and he was told, “There are no settlements, Your Honor. You made a statement that distinguished between settlements and high-low agreements.” The judge responded, “Isn’t a settlement a high-low agreement?” Ultimately counsel for GM were excused from the courtroom at their suggestion. It then was disclosed that an agreement had been reached between the Lahockis and Contee. The agreement provided that after trial Contee would pay ⁷¹⁹ the Lahockis $150,000 except in three circumstances: (1) If Contee’s pro rate share of a judgment against it was in excess of $150,000, then Contee would pay this pro rate share to the Lahockis up to $250,000.

(2) If final judgment was entered against GM alone, then Contee would pay nothing to the Lahockis, even if the Lahockis and GM thereafter settled the case. (3) If the Lahockis settled with GM, then the sum to be paid by Contee to the Lahockis was to be but $100,000. It will be perceived upon analysis that the effect of this agreement was that if Contee were to succeed in obtaining a defendant’s verdict at the trial of the Lahockis’ claim against Contee and GM, then Contee would still be obligated to pay the Lahockis $150,000 if the jury also returned a verdict for GM. 1 ⁷²⁰ GM sought an order declaring the agreement void. This was denied.

It then moved the court to permit disclosure of the agreement to the jury. That likewise was denied. GM argues that this is a “Mary Carter Agreement,” a term used by the court in Maule Industries, Inc. v. Rountree, 264 So. 2d 445 (Fla. Dist.

App. 1972), rev’d 284 So. 2d 389 (Fla. 1973), referring to the agreement in Booth v. Mary Carter Paint Company, 202 So. 2d 8 (Fla. Dist. App. 1967). That court said: The term arises from the agreement popularized by the case of Booth v. Mary Carter Paint Co., Fla.

App. 1967, 202 So.2d 8 , and now appears to be used rather generally to apply to any agreement between the plaintiff and some (but less than all) defendants whereby the parties place limitations on the financial responsibility of the agreeing defendants, the amount of which is variable and usually in some inverse ratio to the amount of recovery which the plaintiff is able to make against the nonagreeing defendant or defendants. [Id. at 446, n. 1.] It is probably safe to say that no two pacts dubbed “Mary Carter Agreement” have been alike. However, three basic features seem to be contained in each: (1) The agreeing defendant is to remain a party and is to defend himself in court. However, his liability is limited by the agreement. In some instances this will call for increased liability on the part of other co-defendants.

(2) The agreement is secret. (3) The agreeing defendant guarantees to the plaintiff that he will receive a certain amount, notwithstanding the fact that he may not recover a judgment against the agreeing defendant or that the verdict may be less than that specified in the agreement. See, e.g., Ward v. Ochoa, 284 So. 2d 385, 387 (Fla. 1973); Freedman, The Expected Demise of “Mary Carter": She Never Was Weill m Ins. L.J. 602, 603-04 (October 1975); Note, The Mary Carter Agreement — Solving the Problems of Collusive Settlements in Joint Tort Actions, 47 So.

Cal. L.R. 1393, 1396-97 (1974); Comment, Blending Mary Carter’s ⁷²¹ Colors: A Tainted Covenant; 12 Gonzaga L. Rev. 266, 268-69 (1977); and Annot., 65 A.L.R.3d 602 , 605-06 (1975). On the issue of secrecy, the Florida Supreme Court said in Ward : Secrecy is the essence of such an arrangement, because the court or jury as trier of the facts, if apprised of this, would likely weigh differently the testimony and conduct of the signing defendant as related to the non-signing defendants. By painting a gruesome testimonial picture of the other defendant’s misconduct or, in some cases, by admissions against himself and the other defendants, he could dimmish or eliminate his own liability by use of the secret “Mary Carter Agreement.” [Id. 284 So.2d at 887.] The A.L.R. annotation points out that an injured plaintiff may be motivated to enter into such an agreement because it will assure a minimum recovery without “unequivocally releasing] the agreeing defendant.” Comment is then made: On the other hand, an agreeing defendant who is clearly culpable might enter such an agreement because it defines the outer perimeters of his liability, usually the limits of his insurance coverage, while his insurer will favor the arrangement since it tends to negate the possibility of eventually being held liable for an amount in excess of policy limits on the basis of a bad-faith failure to settle. [Id. at 606.] Further discussion of such agreements is found in Scoby, Loan Receipts and Guaranty Agreements, 10 Forum 1300 (1975); Note, Are Gallagher Covenants Unethical?: An Analysis Under the Code of Professional Responsibility, 19 Ariz.

L. Rev. 863 (1977); Note, Settlement Devices With Joint Tortfeasors, 25 U. Fla. L. Rev. 762 (1973); and Note, “Mary Carter” Limitation on Liability Agreements Between Adversary Parties: A Painted Lady is Exposed, 28 U. Miami L. Rev. 988 (1974). ⁷²² GM insists that such agreements should be declared void as a matter of public policy. The Lahockis counter by saying that this is not a Mary Carter Agreement. We do not find it necessary to determine whether this particular agreement is or is not a Mary Carter Agreement.

We note, however, that each of the three basic features we have said are to be found in all such agreements are found here. The settling defendant stayed in the litigation; the agreement was kept secret; and there was a guarantee to the plaintiff of some recovery. Of the three characteristics found in such agreements, secrecy is the one that has been most frequently condemned. See, e.g., Daniel v. Penrod Drilling Company, 393 F. Supp. 1056 (E.D. La. 1975): Courts are not merely arenas where games of counsel’s skill are played.

Even in football we do not tolerate point shaving. It is perhaps because the trial is adversary that each side is expected to give its best, without secret equivocation. Counsel have no duty to seek ultimate truth in a system where the lawyer’s duty is primarily to represent his client. But even if the lawyer has no duty to disclose the whole truth, he does have a duty not to deceive the trier of fact, an obligation not to hide the real facte behind a facade. [Id. at 1060-61.]; Mustang Equipment, Inc. v. Welch, 115 Ariz. 206 , 564 P.2d 895, 900 (1977); Ward v. Ochoa, supra: The search for the truth, in order to give justice to the litigants, is the primary duty of the courts.

Secret agreements between plaintiffs and one or more of several multiple defendants can tend to mislead judges and juries, and border on collusion. [Id. 284 So. 2d at 387.]; Gatto v. Walgreen Drug Co., 61 Ill. 2d 513, 522 , 337 N.E.2d 23 (1975); Schell v. Albrecht, 65 Ill. App. 3d 989, 994 , 383 N.E.2d 15 (1978); and Freedman, op. cit. at 609. It is sufficient for the purposes of our decision here to inquire as to whether this was a settlement agreement which ⁷²³ by the terms of the pretrial order the parties were bound to disclose, whether it had a prejudicial effect upon GM, and, if it did, what corrective action should be taken. a. Was this a settlement agreement?

When there is a law suit against multiple defendants in which one of the defendants agrees to pay as much as $250,000, but not less than $100,000 to the plaintiffs even if a jury finds in favor of that defendant, except in the circumstance where the jury finds only another defendant liable, it requires no detailed examination or citation of authority or case law for us to conclude that a settlement is involved. Long ago this Court said in St. John’s College v. Purnell, 23 Md. 629 (1865): The essence of compromise, a mode of adjustment always favored by the law, is the waiver of pre-existing claims and remedies in favor of the right or claim ascertained and fixed by the composition; and it is usually resorted to for the very purpose of substituting in place of a right or claim, doubtful from ignorance or upon other grounds, a new and fixed liability. [Id. at 640-41.] In Pentz v. Penn. Fire Ins. Co., 92 Md. 444, 448 , 48 A. 139 (1901), the Court said, “The word settlement, as ordinarily used, may mean a compromise for peace’s sake of a claim, the validity of which is denied or it may signify the payment of a claim to the extent to which it is conceded to be due.” This was a settlement agreement which should have been disclosed pursuant to the pretrial order. b.

Was GM prejudiced? GM argues that prior to the execution of this agreement Contee’s primary interest was to obtain a verdict in its favor and its secondary and contingent interest was to have GM share any liability in the event it and Contee were found liable ⁷²⁴ to the plaintiffs, but that the agreement changed Contee’s position as to GM. It says: Instead of a contingent interest in establishing GM’s responsibility, Contee then had a direct interest in doing so. Instead of a mere third-party claim against GM on which Contee might prevail only if it were, itself, held liable to the plaintiffs, Contee became the holder of a $150,000 stake in the plaintiffs’ claim against GM since it would be relieved of its $150,000 promised payment to the plaintiffs should the jury return verdicts only against GM.

Under third-party practice, Contee was to have a full opportunity to prosecute its claim for contribution when the time came to put on its case — whether or not the plaintiffs prevailed against GM. But after the Agreement, Contee could not risk waiting to prosecute its case against GM until after the plaintiffs had concluded their case against both Contee and GM. The Agreement gave Contee a compelling financial incentive to bolster the plaintiffs’ case by filling in areas not covered,2 by reiterating testimony harmful to GM,3 and by “cross-examining” witnesses who were not adverse.4 In short, Contee did all in its power to see that the plaintiffs obtained a verdict against GM. (The footnotes refer to pages in the record extract which do in fact support the allegations of GM.) The apparent trial atmosphere of this case is illustrated by the comments of the trial judge who did know of the Lahocki-Contee agreement.

The Lahockis produced an expert in support of their claim against GM. When this expert was being cross-examined by Contee’s attorney the statements by the judge in ruling on objections included: Are you proffering that you are cross-examining him, testing his credibility, or are you trying to inject additional evidence? ⁷²⁵ In effect you are making him your own witness, are you not? * * * The difficulty with the last question is you are asking him something that wasn’t testified to on direct, his review of a specific interrogatory which would in effect have the net result of injecting into the testimony something out of that interrogatory — is that already in evidence or is that something — * * * Your approach is you are going back over the same evidence that has come out initially. * * * But to go back all over the testimony and try to cure a couple of defects to establish a claim, I don’t think cross-examination is the time to do that. * * * My thinking is that what you are doing at this time is endeavoring to improve your third-party claim. * * * If you are just going over it, reemphasizing it, it is repetitious, isn’t it? And it would be objectionable for that reason. * * * You are just going over the whole testimony. You are presenting in effect his direct.

The record at another point is illuminating: THE COURT: You are going back over the case, in effect, that he’s already testified to. MR. MACKALL [, Counsel for Contee]: Well, you might as well foreclose my cross-examination. ⁷²⁶ THE COURT: You are not cross-examining. You are just having him reemphasize what he’s already testified to.

If you have some area that he didn’t bring out — MR. MACKALL: Well, I will try. At another point: THE COURT: I haven’t heard anything new in this testimony yet. You have been 30 minutes and you are just going back over everything that he’s testified before.

I haven’t heard anything new. Thus, GM’s assertion that the agreement effected a change in its relationship as a co-defendant with Contee is adequately borne out by the record. As Judge Hammond observed for this Court in Chertkof v. Harry C. Weiskittel Co., 251 Md. 544, 550 , 248 A.2d 373 (1968), cert. denied, 394 U.S. 974 (1969), “Courts look with favor upon the compromise or settlement of law suits in the interest of efficient and economical administration of justice and the lessening of friction and acrimony.” To like effect see Sisson v. Baltimore, 51 Md. 83, 95-96 (1879). The agreement here collided with that policy in two regards.

(1) Because GM did not know that a settlement had been effected between the Lahockis and Contee it could not bargain on the same basis as it might have bargained had it known of this settlement. (2) There was an inducement to the Lahockis not to settle with GM, since in that event the sum which they were to receive from Contee was to be reduced by $50,000. Moreover, the policy of this State is for the trier of fact to have knowledge of the real party in interest as demonstrated by the fact that Maryland Rule 203 a provides, with exceptions not relevant here, “An action shall be prosecuted in the name of the real party in interest____” Rule 203 d says, “Where it appears that the action has not originally been filed in the name of the real party in interest under section a, the court may, upon petition of a defendant, order the real party in interest to be made a party plaintiff.” Accord Rule 243 pertaining to subrogation. ⁷²⁷ Embedded in our procedure is the doctrine that a party calling a witness vouches for his credibility. Patterson v. State, 275 Md. 563, 570 , 342 A.2d 660 (1975); Rinard v. Nationwide Mut.

Ins., 269 Md. 1, 6 , 304 A.2d 252 (1973); and Proctor Elec. Co. v. Zink, 217 Md. 22, 32 , 141 A.2d 721 (1958), citing Murphy v. State, 120 Md. 229 , 87 A. 811 (1913), and 3 Jones, Evidence Civil Cases §§ 853 and 854 (4th ed. 1938). There is an indication here that the expert on the issue of the design defect in the manufacture by GM of the van was paid jointly by Lahocki and Contee. Even if the jury were aware of this fact it might well have viewed this testimony in a somewhat different manner had it been aware of the extent of collaboration between the Lahockis and Contee.

Judge Lowe cogently observed for the Court of Special Appeals, “If it is not comparable, it is not unlike a codefendant in a criminal case who has exchanged by plea bargain an advantage to himself in return for his testimony. We have held constitutionally that the government must disclose the bargain to the jury to be weighed against his credibility.” 41 Md. App. at 609 . Given the above circumstances, we regard it as likely that the non-disclosure of this agreement to the jury had a prejudicial effect upon GM. c. The corrective measures to be taken.

We do not go so far as to proclaim such an agreement void as against public policy. The public policy is to encourage settlements. We do not believe the agreement here amounts to champerty, one of the factors that led the court in Lum v. Stinnett, 87 Nev. 402 488 P.2d 347 (1971), to declare the agreement there void. See Wheeler v. Harrison, 94 Md. 147, 158 , 50 A. 523 (1901).

We do agree with the Nevada court that use by the parties of the “inherent advantages [of the agreement are] inimical to true adversary process.” Lum, 488 P.2d at 352 . Nearly every court which has considered the matter has recognized that agreements such as that in the case at bar have a potential for skewing the posture of the trial, but they have dealt with the problem in a variety of ways. Such ⁷²⁸ agreements have been .voided entirely on broad policy grounds as in Lum ; for their untoward effect upon settlement as in Mustang Equipment; or on the basis of the peculiar facts and circumstances of those cases in Alder v. Garcia, 324 F.2d 483 (10th Cir. 1963); Bolton v. Ziegler, 111 F. Supp. 516 (N.D. Iowa 1953); Cullen v. Atchison, T & S. F. Ry., 211 Kan. 368 , 507 P.2d 353 (1973); and Trampe v. Wisconsin Telephone Co., 214 Wis. 210 , 252 N.W. 675 (1934). The majority view as embodied in cases such as Maule Industries v. Rountree, supra; Ward v. Ochoa, supra; Reese v. Chicago, B. & Q. R.R., 55 Ill. 2d 356 , 303 N.E.2d 382 (1973); Bristol-Myers Co. v. Gonzales, 561 S.W.2d 801 (Tex. 1978); and General Motors Corp. v. Simmons, 558 S.W.2d 855 (Tex. 1977), is that such agreements are not bad generally, but prejudice is shown warranting a new trial if they have not been disclosed upon proper motion and admitted into evidence.

The reason for this is that in judging the credibility of a witness the jury is entitled to know of his interest in the outcome. Contra: Wyller v. Fairchild Hiller Corporation, 503 F.2d 506 (9th Cir. 1974); and Tucson v. Gallagher, 108 Ariz. 140 , 493 P.2d 1197 (1972). There has been a suggestion that in some circumstances it might be wise not to admit into evidence a full, unedited agreement because the parties might insert a number of self-serving declarations into the contract. See, e.g., Note, The Mary Carter Agreement — Solving the Problems of Collusive Settlements in Joint Tort Actions, supra, at 1412, and Comment, Mary Carter Agreements: Unfair and Unnecessary, 32 S.W.L.J. 779, 795-96 (1978).

In this instance, however, there are no self-serving declarations. The situation in the case at bar is materially different from that represented by Brooks v. Daley, 242 Md. 185 , 218 A.2d 184 (1966), discussed by the Court of Special Appeals and relied upon by the Lahockis. There in a chain-type automobile accident Daley’s vehicle was struck from behind by one operated by Mrs. Schaaf. It in turn was struck from behind by a vehicle operated by Brooks, causing the Schaaf vehicle to strike the Daley car a second time.

Daley filed two separate actions, one against Schaaf and one against Brooks. The cases were consolidated for trialf On the morning of trial, ⁷²⁹ settlement was effected between Schaaf and Daley, an order of satisfaction was filed, and the cause was dismissed. In the other case Mrs. Schaaf had been impleaded as a third-party defendant. The trial court refused to allow any evidence of the settlement between Daley and Schaaf to be presented to the jury.

The court pointed out that the release was governed by the Uniform Contribution Among Tort-Feasors Act, that if the jury had found Mrs. Schaaf jointly liable with Brooks, then Brooks would have been entitled to a reduction in the amount of the judgment owed Daley equal to the amount of the consideration paid by Schaaf to purchase her release, but if