Welsh v. Gerber Products, Inc.

⁵¹² McAULIFFE, Judge. We address a question certified to us by the United States Court of Appeals for the Fourth Circuit pursuant to the Maryland Uniform Certification of Questions of Law Act. 1 The question involves the scope and reach of nonmutual, defensive, collateral estoppel following the entry of a consent judgment, and affects the rights of parties in a joint tort-feasor situation. Because the question fashioned by the certifying court is fact-specific, we first set forth the facts as given to us. I. “On January 26, 1983, a station wagon occupied by [Michael Welsh, a minor, and his parents, Kathleen and Patrick Welsh] was struck by a van driven by James Voigt, II.

All three members of the family were hurt, but Michael suffered head injuries that were of a particularly severe and permanent nature. At the time of the accident, Michael was sitting in a Century 200 car seat manufactured by Gerber [Products Inc.]. For reasons yet unsettled, the seat failed to restrain the child and he was thrown forward by the force of the accident. “On February 9, 1984, the Welshes brought a negligence action in the Circuit Court of Maryland for Montgomery County against Voigt. The parties subsequently agreed on June 18, 1985, to settle the litigation for a payment equal to the policy limits of Voigt’s automobile insurance coverage.

The proposed settlement was announced in open court with plaintiffs’ counsel stating that 'We are accepting the policy limits without prejudice to any rights we have against other individuals, or insurance carriers.’ The court approved the settlement subject to the preparation of an order and directed that a docket entry be made reflecting that the case had been terminated by settlement. No, such entry, however, was ever made. ⁵¹³ “On July 25, 1986, the parties executed a written copy of their agreement which provided for a payment of $290,-423.00 by Voigt’s insurance carrier to Continental Casualty Company (Continental). Continental, as payor of a ‘structured’ payout arrangement, was to make both immediate and deferred payments to Michael Welsh. 2 The Welshes also executed a release in favor of Voigt which purported to retain all claims against other tort-feasors subject to the pro rata reduction provided in the Maryland Uniform Contribution Among Tort-feasors Act, Md.Ann. Code Art. 50 §§ 16-24. “It appears, however, that Voigt was unwilling to terminate the case purely by agreement with Kathleen and Patrick Welsh, thereby risking additional litigation when Michael Welsh reached maturity. Accordingly, Voigt insisted that a judgment be entered that would fully terminate any liability he might have arising from the accident. “On July 26, 1985, the parties filed a joint motion for approval of the negotiated settlement agreement.

The court approved the agreement. Then, with the consent of the parties, the court signed an order entering judgment against James Voigt and in favor of the Welshes. The parties filed a ‘Statement of Satisfaction of Judgment’ reflecting the fact that Voigt’s insurance carrier had made the agreed payment to Continental. Finally, the clerk entered the judgment ‘PAID AND SATISFIED’ on the docket sheet and assessed costs against Voigt. “On January 21, 1986, the Welshes filed [an] action [in the United States District Court for the District of Maryland against Gerber, Century Products Inc., and Sears Roebuck & Company], alleging that the car seat in which Michael was seated at the time of the accident failed to restrain him and thus was the proximate cause of the ⁵¹⁴ injuries sustained. 3 The defendants moved for summary judgment on the ground that the satisfied state judgment against Voigt precluded, as a matter of law, any effort to recover damages on behalf of Michael for the same injury.

The district court agreed and summary judgment was granted.” II. The Welshes presented two lines of argument to the United States Court of Appeals. First, they argued that the judgment entered by the Circuit Court for Montgomery County had not been fully satisfied because payments remained to be made, and the mere entry of a judgment against one tort-feasor did not release other joint tort-feasors. See Art. 50, § 18, Maryland Code (1957, 1986 Repl.

Vol.); Trieschman v. Eaton, 224 Md. 111 , 166 A.2d 892 (1961). The Fourth Circuit rejected this argument, noting that the judgment in favor of the Welshes against Voigt had been satisfied by full payment made by Voigt’s insurer, and the fact that the payment had been made to a third party for purchase of an annuity to effectuate a “structured” settlement did not alter the legal effect of the payment as full satisfaction of the judgment. Welsh v. Gerber Products Inc., 839 F.2d 1035 , 1038 (4th Cir.1988). The Welshes’ second argument was that their settlement with Voigt was not intended to represent an evaluation of the full measure of their injuries, but was simply an acceptance of the amount of Voigt’s insurance coverage in return for the release of Voigt.

The Welshes point out that in their agreement with Voigt they expressly reserved the right to proceed against others in an attempt to recover the balance of the money they believed was due them. Thus, they submit, the rule that there may be but one full satisfaction for one injury does not apply, because they ⁵¹⁵ made it clear, and Voigt agreed, that their recovery from Voigt was not considered to be, and was not to be treated as, adequate compensation for their injuries. Gerber’s response is that the Welshes’ argument would have been entirely valid had their settlement with Voigt been fully accomplished by the exercise of the joint tort-feasor release. When they went beyond that, says Gerber, and secured the entry of a judgment, they placed on record a judicial determination of the value of the claim, and when that judgment was satisfied, the Welshes were precluded from seeking further compensation from anyone.

The United States Court of Appeals, noting that the language of several of our earlier cases appeared to favor Gerber’s position, 4 but that we had recently expressed a certain dissatisfaction with the mechanical application of the law in joint tort-feasor cases when it conflicted with the unambiguous contrary intent of the parties, 5 certified this question to us: Under Maryland law does the entry of a satisfied judgment order in Welsh v. Voigt in the Circuit Court for Montgomery County, Maryland, preclude as a matter of law, any further claims by the Welshes against Gerber et al. for injuries suffered by Michael Welsh in the January 23, 1983, automobile accident? We answer the question “no.” A consent judgment does not necessarily include an actual adjudication of the issue of damages, and in appropriate circumstances a subsequent ⁵¹⁶ inquiry should be made to determine what the parties intended and whether the consent judgment represents an actual adjudication of a particular issue. We explain. Gerber’s principal argument is that a judgment occupies a very special place in the eyes of the law and carries with it a cloak of conclusiveness and finality that rarely should be lifted.

Without disagreeing with this concept, we point out that the binding consequences of a judgment take several forms. First, and perhaps foremost in terms of the desirability of finality, is the impact that a judgment has upon the claims at issue between the parties to the proceeding. The governing principle there, which is generally referred to as res judicata, or perhaps more precisely as the claim preclusion arm of res judicata, is that: [A] judgment between the same parties and their privies is a final bar to any other suit upon the same cause of action and is conclusive, not only as to all matters that have been decided in the original suit, but as to all matters which with propriety could have been litigated in the first suit____ MPC, Inc. v. Kenny, 279 Md. 29, 32 , 367 A.2d 486 (1977), quoting Alvey v. Alvey, 225 Md. 386, 390 , 171 A.2d 92 (1961) (emphasis in original). See generally, Kent County Bd. of Educ. v. Bilbrough, 309 Md. 487 , 525 A.2d 232 (1987).

A second aspect of the finality of judgments between the parties is the concept of issue preclusion. This principle, known as collateral estoppel, is that in a second suit between the same parties, even if the cause of action is different, any determination of fact that was actually litigated and was essential to a valid and final judgment is conclusive. See Kent County Bd. of Educ., supra, 309 Md. at 490 , 525 A.2d 232 ; MPC, Inc., supra, 279 Md. at 32 , 367 A.2d 486 ; Sterling v. Local 438, etc., 207 Md. 132, 143 , 113 A.2d 389 , cert. denied, 350 U.S. 875 , 76 S.Ct. 119 , 100 L.Ed. 773 (1955); Frontier Van Lines v. Md. B. & Tr. Co., 274 Md. 621, 624 , 336 A.2d 778 (1975); Travelers Insur.

Co. v. Godsey, 260 Md. 669, 676 , 273 A.2d 431 (1971). ⁵¹⁷ The case before us presents no challenge to the sanctity of these rules of finality. Rather, it deals with a developing area of the law that addresses the desirability of granting or imposing the benefit or burden of issue preclusion in situations where there is not a complete identity of parties. This principle, known as nonmutual collateral estoppel, is almost as simple in concept as it is difficult in application. Conceptually, there will be instances in which a party who has had the benefit of a full and fair adjudication of an issue should be bound by that adjudication, even in a subsequent proceeding involving a different party.

The difficulty is, however, that there are many situations where application of the doctrine of nonmutual collateral estoppel would be manifestly unfair. As Professor Gershonwitz points out in his article Issue Preclusion: The Return of the Multiple Claimant Anomaly, 14 U.Balt. L.Rev. 227, 230 n. 20 (1985), the requirement of mutuality for the application of collateral estoppel was not rejected by the United States Supreme Court until 1971. See Blonder-Tongue Laboratories, Inc. v. University of Ill.

Found., 402 U.S. 313 , 91 S.Ct. 1434 , 28 L.Ed.2d 788 (1971). We discussed the requirement of mutuality in Pat Perusse Realty v. Lingo, 249 Md. 33 , 238 A.2d 100 (1968), and there upheld the use of defensive nonmutual collateral estoppel. The United States District Court for the District of Maryland (Northrop, J.) had reached the same conclusion one year earlier. State of Maryland v. Capital Airlines, Inc., 267 F.Supp. 298, 303-04 (D.Md.1967).

In the relatively short time that the doctrine of nonmutual collateral estoppel has been developing, some significant determinations have been made. In Parklane Hosiery Co. Inc. v. Shore, 439 U.S. 322 , 99 S.Ct. 645 , 58 L.Ed.2d 552 (1979), the Supreme Court noted the different problems that may be presented depending upon whether the use of nonmutual collateral estoppel is offensive or defensive, 6 and ⁵¹⁸ conditionally approved the offensive use of nonmutual collateral estoppel. In Standefer v. United States, 447 U.S. 10 , 100 S.Ct. 1999 , 64 L.Ed.2d 689 (1980), the Supreme.Court held that nonmutual collateral estoppel may not be applied against the government in criminal cases. See also, Carbaugh v. State, 294 Md. 323, 330 , 449 A.2d 1153 (1982) (nonmutual defensive collateral estoppel not available to the defendant in a criminal proceeding).

In United States v. Mendoza, 464 U.S. 154 , 104 S.Ct. 568 , 78 L.Ed.2d 379 (1984), the Supreme Court held that nonmutual offensive collateral estoppel could not be applied against the government in a civil case. The American Law Institute has stated its views on the use of nonmutual collateral estoppel at § 29 of the Restatement (Second) of Judgments (1982). We are concerned here with Gerber’s attempt to use defensively the doctrine of nonmutual collateral estoppel. Gerber points to the judgment rendered in the earlier proceeding brought by the Welshes against Voigt, and argues that the Welshes should be bound by the issues litigated in that case.

Gerber is correct as far as it goes, but it does not go far enough. The Welshes may be bound by the issues actually and necessarily litigated in that proceeding. The foundation of the rule of nonmutual collateral estoppel is that the party to be bound must have had a full and fair opportunity to litigate the issues in question. When an issue was not required to be litigated and was not in fact litigated, the judgment ordinarily will not preclude its subsequent litigation.

As a factual matter, a consent judgment may, or may not, involve a determination of the amount that represents the complete equivalent of the plaintiff’s damages. Where, as ⁵¹⁹ apparently is the case here, the parties make no attempt to agree upon or litigate the fair value of the claim, but agree instead to accept the available insurance coverage while specifically reserving the right of the plaintiff to proceed against others for full compensation, a consent judgment entered to give effect to the agreement does not in fact represent the result of litigation of the issue of damages. On the other hand, the parties to a proceeding are not precluded from reaching an agreement concerning the full measure of damages, and where a judgment is entered in confirmation of that type of agreement, it will represent the judicial determination, albeit by consent, of that issue. At an earlier time, the differing factual bases for the entry of consent judgments were not given a great deal of attention by the courts and commentators, and generally no distinction was made between consent judgments and trial judgments for purposes of determining their subsequent preclusive effect.

Moreover, in Maryland an entry on the docket of “paid, settled and satisfied” made at the direction of the plaintiff was afforded the preclusive effect of a consent judgment. Missler v. Anne Arundel County, 271 Md. 70, 78 , 314 A.2d 451 (1974). See also, Cox v. Md. Elec. Rwys.

Co., 126 Md. 300, 304 , 95 A. 43 (1915) (the entry of the suit “settled” was done under the eye and with the sanction of the Court and should be considered as a judicial act not open to question or controversy in any collateral proceeding). In Travelers Insur. Co v. Godsey, supra, 260 Md. at 676 , 273 A.2d 431 , Chief Judge Hammond, while stating the usual rule, noted that the question was being reexamined: The old and still generally prevailing rule is that a judgment by consent is as sound a base on which to ground collateral estoppel as a judgment after an adversary trial. Some more recent cases hold, and the law professors urge, that a consent