Watco Companies, Inc. v. Campbell , 52 Kan. App. 2d 602 ( 2016 )

No. 113,156
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
WATCO COMPANIES, INC., d/b/a SOUTH KANSAS AND OKLAHOMA RAILROAD,
Appellant,
v.
SHANE CAMPBELL and JERRY STANDLEE,
Appellees.
SYLLABUS BY THE COURT
1.
Documents obtained through a request for production of documents may, in the
court's discretion, be relied upon as authentic for purposes of a summary judgment
motion because the method in which they are obtained lends them credibility.
2.
Where there is no factual dispute, appellate review of an order regarding summary
judgment is de novo.
3.
The district court's reasons for granting or denying summary judgment are
immaterial if the ruling was correct for any reason.
4.
Comparative implied indemnity or, as it is more accurately termed, postsettlement
contribution describes the cause of action initiated by a tortfeasor in a negligence lawsuit
to recover from a joint tortfeasor the share of the damages proportional to the joint
tortfeasor's fault.
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5.
When total damages have not been fixed by judicial proceeding but by
compromise and settlement between the plaintiff and a defendant, the amount the
defendant has paid in full settlement for all damages is the maximum amount subject to
be apportioned among joint tortfeasors.
6.
A carrier against whom suit is brought under the Federal Employers' Liability Act
(FELA) for injuries sustained by an employee within Kansas has a right of contribution
or comparative implied indemnity against a third-party tortfeasor if (1) the third party's
negligence partially caused or contributed to the injury or damages, (2) the carrier had
some causal negligence, and (3) the injured employee's causal negligence is less than
50%.
7.
In order for a tortfeasor to pursue a claim of contribution or comparative implied
indemnity against a joint tortfeasor who was not sued by the plaintiff, the tortfeasor must
join the joint tortfeasor as a third party under K.S.A. 2015 Supp. 60-258a(c) and assert a
timely claim against the joint tortfeasor.
8.
Although the comparison of fault of all wrongdoers should be effected in the
original action, there is an exception when there has been no judicial determination of
comparative fault in the first action.
9.
Comparative implied indemnity, or postsettlement contribution, is an equitable
remedy.
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10.
The clean hands doctrine bars a party from obtaining relief in equity with respect
to a transaction in which the party has been guilty of inequitable conduct.
11.
When a sliding-scale or "Mary Carter" settlement agreement is entered which calls
for the settling defendant to remain in the litigation, the existence and terms of the
agreement must be disclosed to the court and remaining litigants.
Appeal from Crawford District Court; JEFFRY L. JACK, judge. Opinion filed April 1, 2016.
Affirmed.
Kenneth E. Barnes and Kyle S. Belew, of The Barnes Law Firm, of Kansas City, Missouri, and
Daniel F. Church, of Morrow Willnauer Klosterman Church, LLC, of Kansas City, Missouri, for
appellant.
Dana M. Harris and Matthew W. Greenberg, of Harris & Hart, L.L.C., of Leawood, for
appellees.
Before HILL, P.J., MCANANY and ARNOLD-BURGER, JJ.
ARNOLD-BURGER, J.: To quote federal Magistrate Judge James O'Hara, who was
the judge to hear the federal court proceedings regarding this matter, "[t]his is a very
simple personal injury case gone seriously awry." Fox v. Watco. Companies, Inc., Case
No. 09-CV-2078-JPO, filed in United States District Court for the District of Kansas,
Order dated April 25, 2011 (entering consent judgment and dismissing federal case). The
case involves a collision between a truck and a train, where the train conductor was
injured. After Magistrate Judge O'Hara dismissed the federal case and Watco filed an
action in Crawford County for comparative implied indemnity, the district court
subsequently granted summary judgment in favor of the defendants Shane Campbell and
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Jerry Standlee. The district court granted defendants' motion on two separate grounds,
finding that the plaintiff, Watco Companies, Inc. (Watco), came into the litigation with
unclean hands and it was not the real party in interest. Watco appeals. Because we find
that Watco's conduct justifies a finding of unclean hands, we affirm the district court's
dismissal of this action.
FACTUAL AND PROCEDURAL BACKGROUND
Jack Fox was working as a conductor on a train owned and operated by Watco.
Shane Campbell was driving a commercial water delivery truck owned by Jerry Standlee.
Campbell was looking at his phone as he approached the intersection with the railroad
tracks and failed to stop and yield to the approaching train, causing a collision. At the
time, Watco employees were involved in pushing freight cars through the intersection as
part of a switching and coupling operation. Fox was riding on a railcar as it approached
the tracks. He was injured in the collision and filed suit against Watco, in federal court,
under the Federal Employers' Liability Act (FELA). The suit alleged that Watco's
negligence in failing to provide proper working radios and flagmen at the crossing
contributed to Fox's damages. Watco then asserted a third-party claim against both
Campbell and Standlee. Watco claimed damages to its train and equipment, including
downtime as a result of Campbell's negligence. In addition, Watco sought judgment
against Campbell and Standlee (Defendants) in the amount of any judgment that Fox may
obtain against Watco, but Fox did not amend his complaint to assert claims against
Defendants and continued to assert claims solely against Watco.
Prior to trial in that case, Fox and Watco reached a settlement. As part of the
agreement, a consent judgment was entered against Watco in the amount of $962,037. In
addition to the consent judgment, Fox and Watco entered into an agreement to stay
execution of the judgment (Agreement). The terms of the Agreement required Watco to
pay Fox $200,000 in exchange for Fox's agreement not to execute on the remaining
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outstanding amount of the consent judgment unless or until Watco was able to recover
from Defendants. The Agreement also established a payment schedule. If Watco was
only able to recover $100,000 or less, all monies recovered would, after expenses were
deducted, go straight to Fox. If Watco was able to recover more than $100,000 but less
than $300,000, Fox would receive the first $100,000 recovered and then Fox and Watco
would split the remainder evenly. If more than $300,000 was recovered, Watco would
keep the first $200,000, then Fox would receive the remainder. Under the Agreement,
there was no situation in which Watco would be required to pay Fox more than the
$200,000 it initially paid.
After the Agreement was entered, the federal district court dismissed the
remaining third-party claim between Watco and Defendants without prejudice. Watco
then filed the present action in state court seeking comparative implied indemnity from
Defendants for the amount of the consent judgment, $962,037, and $1,249.92 for
damages and downtime to its train.
Defendants filed a motion for summary judgment on the basis that Watco had
unclean hands, was barred from recovery by the doctrine of in pari delicto, was not the
real party in interest, and was not entitled to recovery because the Agreement violated
federal law. The district court granted Defendants' motion, finding Watco in violation of
the clean hands doctrine and finding that it was not the real party in interest. Watco now
appeals.
ANALYSIS
Standard of review
Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
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genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The district court is required to resolve all facts and inferences which
may reasonably be drawn from the evidence in favor of the party against whom the ruling
is sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, the same rules apply; summary judgment must be denied if
reasonable minds could differ as to the conclusions drawn from the evidence. Stanley
Bank v. Parish, 298 Kan. 755, 759, 317 P.3d 750 (2014). Where there is no factual
dispute, appellate review of an order regarding summary judgment is de novo. Martin v.
Naik, 297 Kan. 241, 246, 300 P.3d 625 (2013). In addition, the district court's reasons for
its decision on a summary judgment motion are immaterial if the ruling was correct for
any reason. Bomhoff v. Nelnet Loan Services, Inc., 279 Kan. 415, 421, 109 P.3d 1249
(2005) (citing Dickerson v. Kansas Dept. of Revenue, 253 Kan. 843, Syl. ¶ 3, 863 P.2d
364 (1993). There is no dispute regarding any genuine issue as to any material fact in this
case.
Consideration of certain evidence in support of summary judgment
As a preliminary matter, Watco argues that the district court should not have
considered the Agreement in rendering its decision. Specifically, Watco argues that
reliance on the Agreement was erroneous because the document was not properly
authenticated as required by K.S.A. 60-464 and was therefore inadmissible as evidence in
support of summary judgment. After a thorough review of the cases cited by Watco, we
reject its argument.
K.S.A. 2015 Supp. 60-256(c)(2) instructs that summary judgment is appropriate if
"the pleadings, the discovery and disclosure materials on file, and any affidavits or
declarations show that there is no genuine issue as to any material fact and the movant is
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entitled to judgment as a matter of law." Kansas courts often restate the rule as:
"'"Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law."'" Stanley Bank, 298 Kan. at 759. But we note that the phrase often
recited in Kansas cases does not contain an exclusive list of the evidence a court may
consider when ruling on a summary judgment motion. The statute indicates that in
addition to the evidence cited in Stanley Bank, courts may consider other discovery and
disclosure materials on file as well as "sworn or certified" copies of documents
referenced in affidavits or declarations. K.S.A. 2015 Supp. 60-256(c)(2), (e)(1). Clearly,
the Agreement was part of the discovery materials in the case, provided to Defendants
from Watco. It was attached as an exhibit to the Defendants' Answer, it weighed
prominently in federal Magistrate Judge O'Hara's order dismissing the case filed in
federal court, and Watco admitted in interrogatories filed in this case that it had provided
the Agreement to Defendants and would provide additional copies if needed. Watco has
never challenged the veracity of the multiple copies of the Agreement included in the
record, nor does it question its existence. We can conceive of no reason why the
Agreement would not be appropriate to consider in ruling on a summary judgment
motion.
Not to be deterred, Watco also argues that Kansas Supreme Court Rule 141(d)
(2015 Kan. Ct. R. Annot. 242) limits submissions in support of summary judgment to
material that is admissible in evidence by authorizing objection to material that is not
"presented in a form that would be admissible in evidence." K.S.A. 60-464 governs the
authentication of documents generally. The statute instructs that "[a]uthentication of a
writing is required before it may be received in evidence." K.S.A. 60-464. However, the
proper method for authenticating a document is vague. The statute merely states that
"[a]uthentication may be by evidence sufficient to sustain a finding of its authenticity or
by any other means provided by law." K.S.A. 60-464. Federal Rule of Evidence 901(a)
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contains similar language stating that "[t]o satisfy the requirement of authenticating or
identifying an item of evidence, the proponent must produce evidence sufficient to
support a finding that the item is what the proponent claims it is." Federal courts have
recognized that documents obtained through a request for production of documents may,
in appropriate cases, be relied upon as authentic because the method in which they are
obtained lends them automatic credibility. See Anderson v. Cramlet, 789 F.2d 840, 845
(10th Cir. 1986); In re Greenwood Air Crash, 924 F. Supp. 1511, 1514 (S.D. Ind. 1995)
("Production of a document by a party constitutes an implicit authentication of that
document."). In this case, the district court had no reason to believe the Agreement was
not authentic. Nor do we.
Having established that the Agreement was properly considered by the district
court, we turn to the primary issue on appeal: whether the district court erred in granting
Defendants' motion for summary judgment.
Comparative implied indemnity in general
The current cause of action against the Defendants appears to be solely for
comparative implied indemnity for damages to its train and its employee Fox. So we
must first examine this legal concept and its origin.
Prior to the adoption of its current scheme of comparative fault, Kansas adhered to
the common-law rule of joint and several liability between tortfeasors and, with a few
exceptions, contributory negligence by a plaintiff was a complete bar to recovery when
pleaded and proved by a defendant. If a plaintiff sued and recovered against two
tortfeasors, plaintiff could collect the whole judgment from either. It would then be up to
the paying tortfeasor to bring an action against the nonpaying tortfeasor for contribution
of 50%. Brown v. Keill, 224 Kan. 195, 198, 580 P.2d 867 (1978). In 1974, the Kansas
Legislature adopted K.S.A. 60-258a which abolished contributory negligence as a bar to
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recovery. Instead, the awarding of damages was to be based on the comparative fault of
all parties. The statute allowed a defendant to join any party to the action that the party
believed to have contributed to the injury or damages. Parties were only responsible for
damages related to their proportional share of the negligence. The statute required that the
plaintiff's negligence must be less than the causal negligence of the party or parties
against whom claim for recovery is made and the award of damages to any party must be
diminished in proportion to the amount of negligence attributed to such party. K.S.A.
2015 Supp. 60-258a(a). This is often called the 49% rule, meaning the plaintiff's
negligence must be 49% or less for recovery.
The term comparative implied indemnity was first coined by our Supreme Court in
Kennedy v. City of Sawyer, 228 Kan. 439, 618 P.2d 788 (1980). Kennedy owned pasture
land in the City of Sawyer (City), on which he grazed cattle. The City owned adjoining
property on which it sprayed arsenic-laced herbicide that resulted in the death and injury
of Kennedy's cattle. Kennedy sued the City for negligence. The City filed a third-party
petition against Continental Research Corporation, which sold it the herbicide, alleging
Continental negligently manufactured and distributed the herbicide, breached its implied
warranties to the City including the implied warranties of merchantability and warranty
of fitness for a particular purpose, and was strictly liable for shipping a dangerous and
defective chemical to the City. Continental then filed a third-party petition against Huge
Company, the actual manufacturer of the herbicide, essentially alleging the same
negligence the City alleged against Continental. The district court dismissed Continental
and Huge from the action and denied the City any claim for comparative fault. The City
appealed. During the pendency of the appeal, the City and Kennedy settled for $29,000.
Under the doctrine of strict liability, the liability of a manufacturer (Huge) and
those in the chain of distribution (Continental) extends to those individuals to whom
injury from a defective product may reasonably be foreseen. The court believed the
joinder of Continental and Huge certainly raised an issue of strict liability, but when
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Kennedy dismissed the only claim he had, the one against the City, the court was
perplexed about how to treat the remaining third party and the strict liability and
indemnity claims. See Kennedy, 228 Kan. at 446. The court posed the question of
whether comparative negligence principles should be applied to strict liability actions and
whether indemnity might be recovered.
The court noted that with the settlement of Kennedy's claim, the comparative
negligence questions became secondary to the indemnity issue. 228 Kan. at 448. The City
sought indemnity from Continental, and Continental sought indemnity from Huge. They
were each seeking to be reimbursed for 100% of the damages. "Traditional implied
indemnity, such as that sought by the city in this case, implies a shifting of 100% of a loss
from the indemnitee to the indemnitor." 228 Kan. at 454. The court distinguished
indemnity from the theory of contribution. Contribution shifts only a part of the loss to
another. 228 Kan. at 454. Again, the court struggled with how to apply these traditional
indemnity concepts to a comparative fault scheme.
The court noted two types of indemnity, express and implied. Express indemnity is
when an express contract of indemnity, like a hold harmless agreement, exists. Implied or
constructive indemnity implies a contract of indemnity "when one is compelled to pay
what another party ought to pay." 228 Kan. at 454-55. The court used the example of the
liability of a principal for actions of an employee. But it also classified the case before it
as implied indemnity, i.e., "when the fault of one defendant may be classified as 'active'
and that of the other as 'passive.'" 228 Kan. at 455. The court noted that the City
classified itself as the passive or secondary negligent party, whereas Continental was the
active or primary negligent party. 228 Kan. at 455. But, the court opined, it is difficult to
determine the active/passive, primary/secondary dichotomy in any given case, and the
theory still distributes loss on an all or nothing basis. The court concluded that this
dichotomy no longer served any purpose in a comparative liability context. It was time to
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adopt what it called comparative implied indemnity between joint tortfeasors and
described it as follows:
"When as here a settlement for plaintiffs' entire injuries or damages has been made by
one tortfeasor during the pendency of a comparative negligence action and a release of all
liability has been given by plaintiffs to all who may have contributed to said damages,
apportionment of responsibility can then be pursued in the action among tortfeasors." 228
Kan. at 460.
The court went on to outline how an action for comparative implied indemnity needed to
proceed. The same rules hold true today, with a few noted modifications.
 The One-Action Rule—The comparison of fault of all wrongdoers should be
effected in the original action. 228 Kan. at 460; see also Gaulden v. Burlington
Northern, Inc., 232 Kan. 205, 214, 654 P.2d 383 (1982) (percentage of fault
should be submitted to the jury and determined in one lawsuit). But if settlement
occurs before a timely comparative negligence action has been filed, "the settling
tortfeasor may then and in that event file an action in court to have the degrees of
responsibility among joint tortfeasors determined, damages assessed and
apportionment decreed among them." Kennedy, 228 Kan. at 461; see also Mick v.
Mani, 244 Kan. 81, 93, 766 P.2d 147 (1988) (Although the determination of
contribution should be made in original action, plaintiff may pursue separate
actions against joined tortfeasors where there has been no judicial determination of
comparative fault. It is more accurately described as one-trial rule, instead of one-
action rule.).
 Timely Claim Against Joined Party—The maintenance of a claim by the plaintiff
against a joined party "is not a prerequisite to securing comparison." Kennedy, 228
Kan. at 460. But the defendants have the responsibility "to bring into the action all
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tortfeasors against whom comparative liability through indemnity is sought." 228
Kan. at 460-61. Once a third party is joined under K.S.A. 2015 Supp. 60-258a(c),
the defendant must assert a claim for contribution or comparative implied
indemnity against the third party before the running of the statute of limitations.
This requirement insures that the third party is aware that he or she may be
subjected to monetary liability and can appear and defend against the claim. Mere
joinder is not enough. In addition a timely claim must be asserted against the third
party. Gaulden, 232 Kan. at 214; see also Dodge City Implement, Inc. v. Board of
Barber County Comm'rs, 288 Kan. 619, 637, 205 P.3d 1265 (2009) (standard was
not whether the plaintiff could have brought an action against the joint tortfeasor
in the initial suit, but whether it had done so); Teepak, Inc. v. Learned, 237 Kan.
320, 325-26, 699 P.2d 35 (1985) (cannot make a claim for comparative implied
indemnity when person against whom defendant seeks contribution was not joined
as a party).
 Settlement—The court must first determine the fault of the plaintiff to determine if
it is less than 50%. See K.S.A. 2015 Supp. 60-258a(a). If the plaintiff's causal
negligence is 50% or more, there is no right to recover against any of the joined
defendants because of a failure to establish actual legal liability. Kennedy, 228
Kan. at 461. If the total damages are less than the settlement amount, the judge
will determine the contribution. 228 Kan. at 461. If the "reasonable amount of
damages" are more than the settlement amount, "all tortfeasors will receive the
benefit of the bargain struck by the settling defendant." 228 Kan. at 461. The
amount the defendant has paid in full settlement is the maximum amount subject
to be apportioned. The settling tortfeasor is required to establish the
reasonableness of the amount of the settlement and that it represents "an actual
legal liability he or she could not be expected to successfully resist." 228 Kan. at
461. The settling tortfeasor may be required to establish his or her case against the
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joint tortfeasors in the same way the plaintiff would have been obligated to do.
228 Kan. at 461. A settling defendant cannot create liability where this is none.
"One defendant in a comparative negligence action cannot settle a claim on
behalf of a party against whom the plaintiff could not recover and then seek
contribution from that party in proportion to the percentage of causal negligence
attributable to that party. The plaintiff may choose to forego any recovery from
other tortfeasors. In that event, a settling defendant has no claim to settle but his
own." Ellis v. Union Pacific R.R. Co., 231 Kan. 182, 192, 643 P.2d 158, aff'd on
rehearing 232 Kan. 194, 653 P.2d 816 (1982).
Over the next 25 years, additional clarifications were adopted by various Kansas
courts.
 Postsettlement Contribution More Accurate Term—The term comparative implied
indemnity is not appropriate when the action is one for postsettlement
contribution, not indemnity. The term indemnity contemplates shifting 100% of
the loss from one tortfeasor to another, whereas contribution contemplates shifting
only a portion of the loss for one tortfeasor to another. The more accurate term is
postsettlement contribution. Ellis, 231 Kan. at 184-85; see also Dodge City
Implement, Inc., 288 Kan. at 632 ("comparative implied indemnity, or, as it is
more accurately termed, postsettlement contribution").
 Right to Contribution in a FELA Case—A railroad's right to recover indemnity or
contribution from a third party for liability incurred under FELA depends entirely
on state law, and Kansas provides such a right to recovery. Gaulden, 232 Kan. at
211-12.
 Procedure at Trial—Similar to the procedure set out in Kennedy for determination
of contribution when there is a settlement, in pursuing a claim for contribution the
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defendant must establish (1) that the third party's negligence partially caused or
contributed to the injury and damages, (2) that the defendant has some causal
negligence, and (3) that the plaintiff's causal negligence is less than 50% of the
total causal negligence. See Gaulden, 232 Kan. at 214.
 Statute of Limitations—A comparative implied indemnity claim must be made
within the 2-year statute of limitations set out in K.S.A. 60-513(a)(4). The time to
bring a claim begins running when the underlying fault cause of action accrues.
Reeve v. Union Pacific R. Co., 790 F. Supp. 1074, 1079 (D. Kan. 1992); see also
Med James, Inc. v. Barnes, 31 Kan. App. 2d 89, 99, 61 P.3d 86 (2-year statute of
limitations for comparative implied indemnity), rev. denied 275 Kan. 965 (2003).
 Equitable Remedy—Comparative implied indemnity, or postsettlement
contribution, is an equitable remedy. Schaefer v. Horizon Bldg. Corp., 26 Kan.
App. 2d 401, 403, 985 P.2d 723 (1999).
We apply the principles of comparative implied indemnity, or postsettlement contribution,
to the facts of this case.
Watco sued Defendants in state court for the following: physical damage to
Watco's train and equipment, including downtime, and the amount of the consent
judgment entered in the United States District Court which it listed as $962,037, in
addition to interest and fees. Defendants were never sued by Fox; and in fact, at the time
of settlement any claim against them would have been barred by the statute of limitations.
The consent judgement entered in the United States District Court case only involved
Watco and Fox. The Agreement did not involve anyone except Watco and Fox. It did not
release anyone but Watco from liability if the terms of the Agreement were fulfilled.
Defendants did not challenge the Agreement in federal court, apparently because as a
nonparty to the Agreement they originally believed they had no standing to do so. The
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Agreement specifically referred to the action of Watco v. Shane Campbell v. Jerry
Standlee, a case which only existed at the time of the settlement (March 7, 2011) in
federal district court.
In his order dismissing the federal action, Judge O'Hara noted that he could retain
supplemental jurisdiction over Defendants even though the federal claims were satisfied.
He noted that Defendants had requested he do so, but they subsequently asked that he
dismiss all claims against them based on the invalidity of the Agreement under FELA,
even though they had made no motion to set aside the Agreement. Watco and Fox, on the
other hand, argued that the federal court should retain supplemental jurisdiction. In April
2011, Judge O'Hara dismissed Watco's third-party action against Defendants. The
decision to exercise supplemental jurisdiction is a matter of the court's discretion. See
Nielander v Board of County Com'rs, 582 F.3d 1155, 1172 (10th Cir. 2009). There is no
indication that Watco or Fox appealed that decision.
We begin by determining the appropriateness of this action based on the legally
established rules regarding comparative implied indemnity set out in Kennedy and its
progeny.
Watco properly preserved its claim for comparative implied indemnity.
Kansas recognizes Watco's right to pursue contribution for suits brought under
FELA. See Gaulden, 232 Kan. at 211. Watco made a timely claim in federal court that
the negligence of Defendants partially contributed to the injury or damages. Watco's
claim for comparative implied indemnity was properly preserved.
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Because there was no comparison of fault in the federal action, an action in state
court was proper.
Although judicial efficiency would have been better served by pursuing the issue
of comparative fault and contribution in the federal case, there is nothing untoward about
the way this matter landed in state court. Although our Supreme Court has held that the
comparison of fault of all wrongdoers should be effected in the original action, there is an
exception when there was no judicial determination of comparative fault in the first
action. Mick, 244 Kan. at 93. Because there was no comparison of fault in the federal
action, Watco was able to file this action in state court. Accordingly, Watco was the real
party in interest in the case.
This case was timely filed.
Although this action was not filed until July 1, 2011, well after the 2-year statute
of limitations for property damage, negligence, and comparative implied indemnity
contained at K.S.A. 60-513, K.S.A. 60-518 allows that "[i]f any action be commenced
within due time, and the plaintiff fail[s] in such action otherwise than upon the merits,
and the time limited for the same shall have expired, the plaintiff . . . may commence a
new action within six (6) months after such failure." The savings statute applies even if
the first action was not filed in a Kansas state court. Seabord Corporation v. Marsh Inc.,
295 Kan. 384, Syl. ¶ 2, 284 P.3d 314 (2012). The action was dismissed against
Defendants otherwise than on the merits and was dismissed without prejudice.
Accordingly, Watco's claims are timely, having been timely filed in the federal court and
then filed in the state court within 6 months of dismissal.
So that leaves us with the question of whether Defendants are entitled to summary
judgment in state court on Watco's claim of postsettlement contribution for any reason.
We believe they are.
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The doctrine of clean hands bars any recovery by Watco.
Comparative implied indemnity, or postsettlement contribution, is an equitable
remedy. Schaefer, 26 Kan. App. 2d at 403. The clean hands doctrine bars a party from
obtaining "relief in equity with respect to a transaction in which he [or she] has, himself
[or herself], been guilty of inequitable conduct." Green v. Higgins, 217 Kan. 217, 220,
535 P.2d 446 (1975). The doctrine is not a binding rule, but it may be applied by the
district court at its discretion. 217 Kan. at 220. The clean hands doctrine should only be
applied to bar relief where a party has acted fraudulently, illegally, or unconscionably.
Additionally, application of the doctrine is only appropriate when the misconduct
"bear[s] an immediate relation to the subject-matter of the suit and in some measure
affect[s] the equitable relations subsisting between the parties to the litigation and arising
out of the transaction." 217 Kan. at 221.
"[I]n applying the clean hands maxim, courts are concerned primarily with their own
integrity. The doctrine of unclean hands is derived from the unwillingness of a court to
give its peculiar relief to a suitor who in the very controversy has so conducted himself as
to shock the moral sensibilities of the judge. It has nothing to do with the rights or
liabilities of the parties. In applying the unclean hands doctrine, courts act for their own
protection, and not as a matter of 'defense' to the defendant. [Citation omitted.]" 217 Kan.
at 221.
There can be no dispute in this case, no matter how hard Watco tries to create one,
that based on the Agreement the most Watco will ever have to pay to Fox for damages is
$200,000. And based on the amount of recovery Watco may not have to pay anything. As
we noted, the Agreement referred to a case that only existed in federal court, so the
application of the Agreement to this case is questionable, at best. But assuming it does
apply to recovery in this state court action, we know from Kennedy that the amount the
defendant has paid in full settlement for the claims against it is the maximum amount
subject to be apportioned. 228 Kan. at 461. This makes sense. The purpose of
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comparative fault legislation is to equate recovery and duty to pay to degree of fault.
Brown, 224 Kan. at 203. In this case, Watco forcefully submits that the reasonable
amount of damages is $962,037. But to allow Watco to collect more from Defendants
than it would ever be required to pay itself runs afoul of the whole concept of
contribution.
We pause to note that there was nothing illegal about the settlement agreement
itself in this case. It can best be described as a sliding-scale, or "Mary Carter," agreement,
so named after the case Booth v. Mary Carter Paint Co., 202 So. 2d 8 (Fla. Dist. App.
1967). This type of agreement has the effect of guaranteeing the plaintiff a minimum
recovery while limiting and potentially eliminating the settling defendant's liability. In re
Methyl Tertiary Butyl Ether Products, 578 F. Supp. 2d 519, 532 (S.D.N.Y. 2008). The
Tenth Circuit Court of Appeals outlined such agreements as follows:
"'A typical Mary Carter agreement usually has the following features:
A. secrecy
B. contracting defendant remains in the lawsuit
C. contracting defendant guarantees plaintiff a certain monetary recovery
D. contracting defendant's liability is decreased in direct proportion to the
increase in the non-agreeing defendants' liability.
"'It is the last element that is unique to the "Mary Carter" agreement and creates
the most unfair prejudice to the non-agreeing defendant and his right to a fair trial.
Plaintiff is guaranteed a certain amount from one defendant regardless of the outcome of
the verdict. In return that defendant receives the right to benefit from any joint verdict, or
a verdict solely against the non-agreeing defendants. The agreeing defendant therefore
partakes of direct interest in the outcome of the litigation. The normal adversary
relationship between plaintiff and defendant becomes distorted, if not destroyed.'" Hoops
v. Watermelon City Trucking, Inc., 846 F.2d 637, 640 (10th Cir. 1988) (quoting Cox v.
Kelsey–Hayes Co., 594 P.2d 354, 357-58 [Okla. 1978]).
18
As the Fifth Circuit Court of Appeals noted however, "[t]he variety amongst
different Mary Carter agreements is limited only by the creativity of defense lawyers."
Wilkins v. P.M.B. Systems Engineering, Inc., 741 F.2d 795, 798 n.2 (5th Cir. 1984).
In Ratterree v. Bartlett, 238 Kan. 11, 707 P.2d 1063 (1985), the only Kansas case
examining these types of agreements, our Supreme Court approved the use of a Mary
Carter agreement similar to the one at issue here. There, Ratterree sued multiple
defendants for injuries she sustained in a car accident. Prior to trial, Ratterree entered into
a settlement agreement with one of the defendants. Although the terms of the settlement
agreement were not disclosed prior to trial, on appeal the appellants contended that the
terms of the agreement were that the settling defendant would pay the plaintiff $50,000;
however, if Ratterree were able to recover more than $150,000 from the remaining
defendants at trial, the settling defendant's obligation to Ratterree would be reduced
"dollar for dollar regardless of the actual verdict returned" against the defendant. 238
Kan. at 24. Additionally, the defendant agreed to remain in the litigation and appear as a
defendant at trial.
Although there were some questions about the use of Mary Carter agreements in
comparative fault situations as opposed to their more typical application in joint and
several liability cases, the court approved the use of the sliding-scale agreement generally
but was concerned about the potential for collusion and jury confusion when a defendant
enters into such an agreement and remains in the case as a defendant at trial. In such a
case the defendant's interests are more aligned with that of the plaintiff than with his or
her codefendants. See 238 Kan. at 26-29. In order to reduce the risk of injustice, the court
adopted the rule that when a sliding-scale settlement agreement is entered which calls for
the settling defendant to remain in the litigation, the existence and terms of the agreement
must be disclosed to the court and remaining litigants. 238 Kan. at 29. If the court feels it
is necessary to prevent prejudice, it may then disclose the existence of the agreement to
the jury. 238 Kan. at 29. The agreement would show bias both on the part of the injured
19
party and the settling defendant. They have a financial incentive to assist each other in
pushing off as much liability as possible on the nonsettling defendants. Because there was
no such disclosure in Ratterree, the court reversed the jury verdict and remanded the case
for a new trial. 238 Kan. at 30. There have been no other Kansas cases dealing with such
agreements.
In this case, the issue of damages has not yet gone to trial. There has not been a
jury determination of damages or fault. Instead, Watco—without revealing the existence
of the Agreement in its pleading—sought to recover contribution for damages that it
knew it would never have to pay. The Agreement, by its terms, was secret. Watco agreed
to a judgment against it for the full amount requested by Fox, even though the last joint
settlement offer prior to entry of the consent judgment, as revealed in documents
produced by Watco, was $175,000 and Fox had offered to settle for $425,000. Although
Fox did not assign his rights to Watco (because he had no cause of action against
Defendants to assign, the statute of limitations had run), the agreement provided that
Fox's attorney would step in and represent Watco in the case, with the benefits of any
excess judgement going to Fox. As Judge O'Hara noted in his order dismissing the case,
this arrangement "raises a host of practical and ethical issues that Fox, Watco and,
perhaps most importantly, their experienced trial lawyers, do not appear to have fully and
carefully evaluated."
Moreover, rather than revealing the existence of the Agreement to the court from
the outset as it was required to do under Ratterree, Watco fought its disclosure to the
state court, including arguing in this appeal that it should not have been considered in
ruling on the summary judgment motion. It filed a lawsuit seeking contribution for
damages it would never be required to pay, as well as contribution for damages it may
not have to pay at all. Although it was eventually, and understandably, brought to the
court's attention by the defense, that does not cure Watco's misdeeds in this case.
20
After interpreting and analyzing the terms of the Agreement the district court held:
"7. The language of the Agreement between Watco and Fox undermines the
public policy of Kansas as set forth in the comparative negligence statute, which is
intended to allocate payment of damages in proportion to a Defendant's proportionate
share of liability. Watco's agreement with Fox, through which it seeks comparative
implied indemnity from Defendant, is the product of inequitable, unfair, and deceitful
conduct, as it is designed to minimize and potentially eliminate Watco's liability under
Kansas tort law by manufacturing an artificial stipulation of damages. Under the
inequitable agreement, Watco would never be liable for anything more than $200,000 to
Fox, and would potentially pay Fox nothing.
"8. Such an agreement wherein a party settles with the injured party
essentially for $200,000, and yet seeks $962,037.00 from another party through
comparative implied indemnity, is against public policy such that the application of the
[clean] hands doctrine bars Plaintiff from recovery."
We agree that Watco's actions in this case are inequitable and unconscionable.
Since the $175,000 settlement offer was a joint offer among all defendants in the federal
case, it is hard to imagine there would have been a challenge by Defendants to the
reasonableness of the $200,000 settlement payment, nor much of a dispute over
contribution. But by seeking a clearly inflated amount of damages Watco has forced
Defendants to litigate this case based on damages that are four times what Watco will
ever have to pay and double what Fox offered to accept in settlement of his claims. It is
clear that the sole purpose of these shenanigans was to erase its own liability rather than
properly apportioning liability against joint tortfeasors and, through collusion with Fox's
attorney, to assist Fox in getting a recovery for which he would otherwise not be entitled.
If this were not enough, Watco's action of failing to advise the court of the agreement
from the outset while continuing to seek the full $962,037 is the type of behavior that the
clean hands doctrine was meant to address. Accordingly, the decision of the district court
21
dismissing the comparative implied indemnity (or postsettlement contribution) claim is
affirmed.
Affirmed.
22