Tuesday, September 25, 2018

The One Satisfaction Rule and Settlement Credits at Trial

By Stephen Drinnon

This is a summary of the Texas Supreme Court’s opinion adopting and expanding the One Satisfaction Rule in Sky View at Las Palmas, LLC v. Mendez, No. 17-0140, 2018 Tex. LEXIS 515 (June 1, 2018). 

The “One Satisfaction Rule” has been referenced as a common law doctrine in several different, but arguably related, circumstances.  The Sky View case addressed  whether the jury award in favor of the Plaintiff against the non-settling defendants should be reduced by the amount paid by the settling defendants at the time judgment was entered.

Background Facts

This case arose out of a borrower/defendant’s failure to re-pay a real estate loan in the original principal amount of $1.275M to develop property in Hildalgo County, Texas. The jury awarded the Lender $2,665,832 against defendants Sky View, Israely and Gottlieb, personal guarantors, and the law firm of  Walker & Twenhafel, LLP (the Walker law firm).

The Lender alleged the Walker law firm failed to warn him that filing the suit would most likely prompt Texas Bank to foreclose on its superior lien position, and render Martinez’ second lien position worthless. After the jury verdict was announced, but before judgment was entered, the Walker firm settled with the Lender for $550,000.

During the four years of litigation, the Lender also added three additional defendants who settled before trial for the following amounts:

  1. The Kittleman, Thomas & Gonzalez, LLP law firm (Kittleman) - drafted the loan documents - $175,000; and
  2. San Jacinto Title Services of Rio Grande Valley, LLC. (San Jacinto Title) - closed the transaction as title company - $1,275,000; and
  3. Fidelity National Title Insurance Company (Fidelity) - issued the title insurance policy, on the Martinez Note - $300,000.

 

The What, When, How & Why of It

The What of It.

Application of the One Satisfaction Rule:  The One Satisfaction Rule is a doctrine that limits a plaintiff to one recovery for a single injury. Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex. 1991).

The Texas Supreme Court found that the Sky View trial court erred by not applying the One Satisfaction Rule.  Had the trial court applied the One Satisfaction Rule, it would have entitled the defendant to reduce the jury’s award by 83%. The Court reversed and rendered in favor of the defendants’ motion for application of settlement credits and sent the matter back to the trial court to calculate the revised judgment, together with a corresponding reduction in interest payable.

 

The When of It.

The Sky View Court held the One Satisfaction Rule is to be applied when:

  1. The amount of the credit to be applied includes the  settlements paid by the settling defendants; and
  2. There exists a single indivisible injury.

Whether there is a single indivisible injury is a matter of law for the trial court to determine and is subject to de novo review on appeal. The Sky View Court outlined several theoretical guidelines for a trial court to consider in determining whether a single indivisible injury exists:

  1. A finding of a single indivisible injury must be consistent with contract principles that limit damages by returning a damaged party to the same, but not a better, position than they would have been in, if not for the opposing party’s breach.
  2. A single indivisible injury is not determined by:

a. whether the defendants committed the same act or acts; or
b. whether the same or similar causes of action are pled or proven.

 

The How of It.

Upon a finding by the trial court of a single, indivisible injury, the jury award should be reduced by the amount paid by the settling defendants, unless the Plaintiff can shoulder the burden to prove otherwise.

The Lender in Sky View elected to recover under his breach of contract claims, in his motion for judgment.  The defendants’ response included their claim to a credit to reduce the jury award by the combined amount of the settlements paid by the other defendants.  In support of their claim, the defendants produced affidavits regarding the amount of the settlements which the Sky View Court ruled as sufficient, which then shifted the burden to the Plaintiff to prove otherwise.  The Sky View Lender did not counter with any evidence regarding the settlements

 

The Why of It.

The result of the adoption of the One Satisfaction Rule in the Sky View case reduced the monetary risk to the non-settling individual defendants. Their entitlement to the credit was not predicated on the extent of the injury they proportionately caused nor the nature of their wrongdoing whether by simple tort, punitive tort, or  breach of contract. 

The risk of  verdicts in excess of the actual damages alleged appears to be the dominant factor in application of the One Satisfaction Rule. The following quotes contained in the opinion demonstrate the theme as follows:

  1. “There being but one injury, there can, in justice, be but one satisfaction.”;
  2. "The one satisfaction rule applies to prevent a plaintiff from obtaining more than one recovery for the same injury.";
  3. “The plaintiff should not receive a windfall by recovering an amount in court that covers the plaintiff's entire damages, but to which a settling defendant has already partially contributed.”

 

Author’s Conclusion:
The Sky View Court’s decision to apply the One Satisfaction Rule could affect a large number of cases as remains unclear how the rule should be integrated with the Texas proportionate responsibility scheme contained in TEX. CIV. PRAC. & REM. CODE Sec. 33.0 et seq

Serious uncertainty is not a new challenge for litigators whom clients call on regularly to predict the possible scenarios at trial in multiple party matters.  Explaining the application of the Texas proportionate responsibility scheme has been challenging since Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (Tex. 1984).  The source and amount of uncertainty has been the natural struggle between the Texas judicial and legislative branches. 

The legislature’s 2005 direct reversal of changes it made in 2003 regarding the application of settlement dollar-for-dollar credits was certainly a fair example of confusion by statute.  The Sky View Court’s application of the One Satisfaction Rule which was once thought to have been legislatively abolished is the newest proportionate responsibility challenge for the Texas Bar to puzzle through and apply in practice.

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