Lesser v. Burry

This appeal raises the issue whether in this derivative action a non-settling defendant, appellant Kenneth Seminatore, has standing to object to the partial settlement entered into between the plaintiff policyholders of Blue Cross/Blue Shield now known as Medical Mutual of Ohio ("Blue Cross") and fourteen other defendants¹ affiliated with Blue Cross. Plaintiffs sued the named defendants for alleged improprieties occurring during the pursuit of a merger between Blue Cross and Columbia/HCA Healthcare, Inc. ("Columbia").

The settlement provided for the dismissal of all of the plaintiffs' claims against all the defendants except claims for legal malpractice and breach of fiduciary duty against Seminatore. Seminatore objected to the proposed settlement, claiming that the settlement could affect his possible contribution claims against the settling defendants. However, the trial court ruled that he lacked standing to object to the settlement because the court had no plans to enter an order limiting his right to seek contribution. After a hearing, the trial court approved the settlement. This appeal followed.

Seminatore assigns the following errors for our review:

I. THE TRIAL COURT ERRED IN FINDING THAT DEFENDANT KENNETH F. SEMINATORE LACKED STANDING TO OBJECT, BECAUSE DEFENDANT SEMINATORE SUFFERED "FORMAL LEGAL PREJUDICE" WHEN THE TRIAL COURT APPROVED THE SETTLEMENT AGREEMENT.

II. THE TRIAL COURT DID NOT ADEQUATELY REVIEW THE SETTLEMENT AGREEMENT TO DETERMINE WHETHER IT WAS "FAIR, REASONABLE AND IN THE BEST EFFORTS OF ALL PARTIES AFFECTED BY IT.

III. THE TRIAL COURT ABUSED ITS DISCRETION IN RULING THAT THE SETTLING DEFENDANTS AND MEDICAL MUTUAL/BLUE CROSS ENTERED INTO THE SETTLEMENT AGREEMENT IN "GOOD FAITH" WITHIN THE MEANING OF R.C. 2307.33, BECAUSE THAT ISSUE WAS NOT BEFORE THE TRIAL COURT.

IV. THE FINDING THAT THE SETTLEMENT WAS ENTERED IN GOOD FAITH IS NOT SUPPORTED BY THE EVIDENCE.

Having reviewed the record and the legal arguments of the parties, we affirm the decision of the trial court. The apposite facts follow.

On March 28, 1997, Raymond Lesser, Seven Oaks Financial Corporation, and Norwalk Raceway Park Inc. filed a derivative action against fifteen defendants. All of the plaintiffs had policies of insurance with Blue Cross. The defendants were Blue Cross executives, advisors, and legal representatives. The complaint sought to recover twenty-five million dollars ($25,000,000) expended by the defendants in the unsuccessful pursuit of a merger with Columbia, a health care conglomerate that owns hundreds of hospitals, outpatient surgical centers, and home health agencies.

In or about October 1997, a partial settlement was proposed that would dispose of all the plaintiffs' claims against all of the defendants except Seminatore. The agreement provided for payments totaling $6,807,500. Seminatore filed his objection to the proposed settlement, arguing that it would improperly bar him from seeking contribution from the other defendants in the event he was held liable to the plaintiffs. The trial court ruled that Seminatore had no standing to be heard at the hearing on the proposed settlement "because his right to contribution has not been established and appears speculative at best."

A hearing was held on the settlement on December 17, 1997. After the hearing, the trial court approved the settlement, concluding that "the plaintiffs, the settling defendants, and Medical Mutual/Blue Cross have entered into the settlement agreement in 'good faith' within the meaning of R.C. 2307.33." The plaintiffs' claims were dismissed against all of the defendants except Seminatore.

On January 8, 1998, the plaintiffs moved to amend their complaint to add a new legal malpractice action against Seminatore arising out of the cancellation of Blue Cross' license to use the Blue Cross and Blue Shield trademarks. On January 15, 1998, Seminatore also sought leave to file a third party complaint for contribution against the attorneys, accountants, consultants, and other professionals whose opinions he relied on regarding the Columbia transaction; none of these third party defendants were parties in the derivative action. On the same date, Seminatore filed his notice of appeal challenging the trial court's decision to approve the partial settlement.

In his first assignment of error, Seminatore argues the trial court erred in finding that he lacked standing to object to the settlement agreement. "Standing refers to whether a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy." In re Miamisburg Train Derailment Litigation (1993),92 Ohio App.3d 304, 316, appeal dismissed (1994), 69 Ohio St.3d 1418;Local Union 1886, United Workers of Am. v. Reclamation Bd. Of Review (1996), 116 Ohio App.3d 371, 373, appeal dismissed (1997),78 Ohio St.3d 1418; In Matter of Foreclosure of Liens, Forfeiture ofProperty for Delinquent Land Taxes by Action in Rem Ann Fenner, CountyTreasurer v. Parcels of Land Encumbered with Delinquent Tax Liens (Feb. 28, 1997), Highland App. No. 96CA906, unreported.

The burden of establishing standing falls upon appellant Seminatore. See In re School Asbestos Litigation (C.A. 3, Pa. 1990), 921 F.2d 1130, 1332. Generally, only a party to a proposed settlement may object to that settlement. Zupnick v. Fogel (C.A. 2 N.Y. 1993), 989 F.2d 93, 98, certiorari denied (1993) 114 S.Ct. 384; Agretti v. ANR Freight System (C.A. 7 Ill. 1992), 982 F.2d 242, 248; Alumax Mill Products, Inc. v.Congress Financial Corp. (C.A. 8 Minn. 1990), 912 F.2d 996, 1001; In reSchool Asbestos Litigation (C.A. 3 Pa. 1990), 921 F.2d 1330, 1332, certiorari denied (1991) 499 U.S. 976. However, an exception to this rule has been recognized in cases where a non-settling defendant can show that he will suffer some "formal legal prejudice" as a result of the settlement. Zupnick at 98; Eichenholtz v. Brennan (C.A. 3 N.J. 1995),52 F.3d 478.

In its journal entry approving the settlement between the parties, the trial court held that "[t]he Plaintiffs, the settling Defendants, and Medical Mutual/Blue Cross have entered into the Settlement Agreement in 'good faith' within the meaning of R.C. 2307.33." R.C. 2307.33(F)(2) provides:

When a release or a covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury or loss to person or property or the same wrongful death * * * [t]he release or covenant discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor.

Seminatore argues he suffered formal legal prejudice because the trial court's ruling that the settlement was reached "in good faith" effectively bars him from seeking contribution from the other defendants. See Harris v. Alexander Grant Co. (1990), 61 Ohio App.3d 172,183; Baker v. Clouse (1990), 69 Ohio App.3d 618, 623.

Seminatore urges us to follow Eichenholtz v. Brennan (C.A. 3 N.J. 1995),52 F.3d 478. In Eichenholtz, the circuit court of appeals held that a non-settling defendant has standing to object to a partial settlement when the district trial court issues an order barring all claims for contribution or indemnification against the settling defendants. However, here the trial court did not issue an order barring contribution; consequently, Eichenholtz is distinguishable.

A showing of "plain legal prejudice" is easier where the terms of the settlement or the trial court's approval order contains language purporting to bar the non-settling defendant's claim for contribution. SeeAlumax Mill Products, Inc. v. Congress Financial Corp. (1990), 912 F.2d 996 (terms of settlement included dismissal with prejudice of non-settling defendants' cross claims for contribution); Wainwright v. Kraftco Corp. (N.D. Ga. 1971), 53 F.R.D. 996 (settlement agreement contained a provision that settling defendants would not be held liable for contribution to the remaining defendants). However, in this case, in its order finding that Seminatore had no standing to object to the settlement, the trial court stated that it had no present plans to enter a bar order which would limit Seminatore's right to seek contribution from the other settling defendants. In fact, neither the settlement nor the trial court's order contained any language barring contribution.

Consequently, we reject Seminatore's claim that the trial court's approval of the settlement caused him to suffer formal legal prejudice. Our review of the trial court record reveals that Seminatore has not brought contribution claims against any of the settling defendants. As discussed above, neither the language of the settlement itself nor the language of the court's order approving the settlement contained any language barring Seminatore from asserting any contribution claims against the settling defendants.

Seminatore argues that the settlement in effect triggers the application of R.C. 2307.33(F)(2), which provides that no contribution claim can be brought against a defendant who enters into a good faith settlement of a tort action. However, the trial court has not made a determination as to the applicability of R.C. 2307.33(F)(2) to any such claims by Seminatore, and we believe any discussion on this issue is premature. "[C]ourts have repeatedly held that a settlement which does not prevent the later assertion of a non-settling party's claims, although it may force a second lawsuit against the dismissed parties, does not cause plain legal prejudice to the non-settling party." Agretti v. ANR FreightSystem, Inc. (C.A. 7 (Ill.) 1992), 982 F.2d 242, 247 (citations omitted.) See also Quad/Graphics, Inc. v. Fass (C.A. 7 (Wis.) 1983), 724 F.2d 1230,1233; Transamerican Refining Corp. v. Dravo Corp. (C.A. 5 (Tex.) 1992,952 F.2d 898, 900.

Furthermore, it should be noted that R.C. 2307.33 provides that a settlement by one of two or more tortfeasors reduces the plaintiff's claim against the non-settling tortfeasors to the extent of the greater of any amount stipulated by the release, or in the amount of the consideration paid for it. See Niemann v. Post Industries, Inc. (1991),68 Ohio App.3d 392, 396. This provision would adequately protect Seminatore's interests if he is ultimately found liable on the plaintiff's complaint. Consequently, Seminatore has failed to demonstrate any formal legal prejudice suffered as a result of the trial court's approval of the partial settlement. Seminatore's first assignment of error is without merit.

Having concluded that Seminatore lacked standing to object to the partial settlement, we overrule his remaining assignments of error as moot.

Judgment affirmed.

It is ordered that appellees recover of appellants their costs herein taxed.

The Court finds there were reasonable grounds for this appeal.

It is ordered that a special mandate issue out of this Court directing the Common Pleas Court to carry this judgment into execution.

Exceptions.

KARPINSKI, J., and ROCCO, J., CONCUR.

_________________________________ PATRICIA ANN BLACKMON, ADMINISTRATIVE JUDGE

N.B. This entry is an announcement of the court's decision. See App. R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App. R. 22(E) unless a motion for reconsideration with supporting brief, per App. R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the clerk per App. R. 22(E). See, also, S.Ct.Prac.R. II, Section 2(A)(1).

¹ The defendants in the action were John Burry, Jr., Rena Blumberg, Kent Clapp, Thomas Farson, Charles Clark, James Jerele, J. Richard Kelso, Dennis McClung, Bradford Roller, Jerome Rogers, Robert Trombly, Kenneth Seminatore, William Silverman, Blue Cross/Blue Shield nka Medical Mutual of Ohio, and Fidelity Investments Charitable Gift Fund.