Summary
allowing one defendant to settle with plaintiff and seek contribution against codefendants in a separate action
Summary of this case from In re Rural/Metro Corp.Opinion
C.A. No. 19260.
November 19, 2003.
Kenneth J. Nachbar, Esquire Morris, Nichols, Arsht Tunnell, Wilmington, DE.
Joel Friedlander, Esquire Bouchard Margules Friedlander Wilmington, DE.
Jesse A. Finkelstein, Esquire Daniel A. Dreisbach, Esquire Richard P. Rollo, Esquire Richards, Layton Finger, Wilmington, DE.
Elizabeth M. McGeever, Esquire Prickett, Jones Elliott, Wilmington, DE.
Robert K. Payson, Esquire Potter Anderson Corroon LLP, Wilmington, DE.
Dear Counsel:
In this case, shareholders of Telecorp PCS, Inc. challenged a merger between that company and AT T Wireless Services, Inc. The plaintiffs named as defendants AT T Wireless and Telecorp, as well as certain of the Telecorp directors and other parties.
The case proceeded on a relatively expedited schedule. Approaching a June 4, 2003 trial, AT T Wireless struck a deal with the plaintiffs. In exchange for $47.5 million from AT T Wireless, the plaintiffs agreed to dismiss their claims against all of the defendants. All of the defendants who were former Telecorp directors and unaffiliated with AT T Wireless, namely, Gerald Vento, Thomas Sullivan, and Michael Hannon (collectively, "the Non-Settling Directors") — and their insurers — had been involved in the settlement discussions but refused to put up any funds. Forced with the choice of going to trial or funding the entire settlement, AT T Wireless took the latter course but clearly indicated its desire to seek financial participation from the NonL-Settling Directors and their insurers.
During the settlement negotiations, a period of jockeying began with AT T Wireless raising the prospect of receiving an assignment from the plaintiffs of their claims. Eventually, AT T Wireless decided on a different course, and on August 11, 2003, it filed a motion to amend its answer to assert cross-claims against the Non-Settling Directors. The difficulty this course presented was that the plaintiffs' claims were about to be presented for imminent resolution at an August 20, 2003 settlement hearing, after which the plaintiffs would be out of the case.
At the settlement hearing, the court approved the proposed settlement and granted an award of attorneys' fees and costs to the plaintiffs. The court reserved the question of whether AT T Wireless could amend its answer to state cross-claims or receive relief of some other kind for another day.
The court now having received briefing on the question, that day has come. AT T Wireless has presented its position and so have the Non-Settling Directors.
Their respective positions are easy to state. For AT T Wireless's part, it notes that it promptly injected the possibility of seeking relief from its co-defendants once the settlement with the plaintiffs crystallized and it became clear that the Non-Settling Directors would not contribute. Given the liberality built into Rule 15(a), AT T Wireless submits that no prejudice to the Non-Settling Directors exists that is so substantial as to justify depriving AT T Wireless of the right to show that the Non-Settling Directors should fund all or a portion of the settlement. Because the plaintiffs have already been dismissed from this case, AT T Wireless believes that the claims it seeks to press against its co-defendants cannot practicably be pursued in this action but should be pressed in an independent proceeding. It therefore seeks an order indicating my agreement with that view and that 10 Del. C. § 6306(b) does not bar AT T Wireless from suing its co-defendants in an independent action for contribution.
The parties have assumed the applicability of the Delaware Uniform Contribution Among Tortfeasors Law (the "Tortfeasors Law"), 10 Del. C. § 6301- 10 Del. C. § 6308, to breach of fiduciary duty claims and in the absence of a dispute, I have as well. Section 6306(b) of the Tortfeasors Law provides:
A pleader may either (1) state as a cross-claim against a co-party any claim that the co-party is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant; or (2) move for judgment for contribution against any other joint judgment debtor, where in a single action a judgment has been entered against joint tortfeasors one of whom has discharged the judgment by payment or has paid more than his or her pro rata share thereof. If relief can be obtained as provided in this subsection no independent action shall be maintained to enforce the claim for contribution.Id. § 6306(b).
By contrast, the Non-Settling Directors claim that the last-second nature of AT T Wireless's motion to amend exposes them to prejudice. They also argue that § 6306(b) bars the contribution claims because AT T Wireless could have brought cross-claims earlier in this action and therefore should not be permitted to proceed with the contribution claims either in this civil action or an independent action. Based on conclusory allegations, the Non-Settling Directors allege that the mere filing of claims for contribution by AT T Wireless subjects them to the possibility of losing their insured status. For these reasons, the Non-Settling Directors believe that I should deny the motion to amend and further refuse to grant any order indicating that § 6306(b) does not preclude AT T Wireless from seeking contribution from them in a separate action.
The Non-Settling Directors interpret the last sentence of § 6306(b) to mean that "so long as any cross-claims could have been litigated with, and as part of, the litigation of the plaintiff's claims, they cannot be separately litigated thereafter." Non-Settling Directors' Opp'n Br. at 6. They argue that AT T Wireless could have litigated its contribution claims concurrently with the plaintiffs' claims by filing cross-claims earlier in the action, and that by filing the present motion after settlement, AT T Wireless effectively seeks to maintain a separate action for contribution in contravention of § 6306(b).
After considering the parties' submissions, I find that AT T Wireless's position is the more sensible one. This brief discussion should suffice to explain why.
In the typical corporate matter, the defendants work as a relatively unified force to defeat the shareholder-plaintiffs' claims. In the event of settlement, it is rare for the defendants not to work out some allocation of the costs that avoids the need for litigation within the defendant class itself.
Given that common backdrop, I find perhaps less fault than I should in AT T Wireless's failure to file cross-claims against the Non-Settling Directors earlier in the litigation. Although I do not doubt that defendants often strike tolling and other claim-preserving agreements in cases like these that never find their way into the court docket and that apparently no such agreements were reached in this case, the degree of prejudice that AT T Wireless faces if I deny its requested relief seems far more substantial than any prejudice that the Non-Settling Directors have suffered as a result of the delay by AT T Wireless.
From the record before me, it is clear that the Non-Settling Directors were aware during the settlement negotiations that AT T Wireless wanted them to contribute and was not waiving any right to seek contribution. That the ultimate form by which AT T Wireless would seek relief was not made concrete until shortly before the settlement hearing is, again, regrettable but does not obviate the indisputable fact that the Non-Settling Directors were on notice before the settlement-in-principle that AT T Wireless wished to preserve its right to seek contribution.
Thus, the real question before me is whether AT T Wireless's failure to propose cross-claims formally before the settlement talks with plaintiffs bore fruit was so inexcusable and prejudicial as to deny it altogether from seeking contribution at any time from the Non-Settling Directors. This forces me to make a stark choice.
Posed in this way, I cannot responsibly conclude that AT T Wireless should be foreclosed altogether because of its torpor. By permitting it to proceed against the Non-Settling Directors, I do not subject those defendants to any rush to judgment. They will not be forced to defend in a hasty way.
Nor, I hasten to add, do insurance considerations support a claim of undue prejudice. For starters, any claim of prejudice on this ground does not relate in any way to the timing of AT T Wireless's cross-claims; it relates solely to the fact of their existence. If AT T Wireless had filed cross-claims at the inception of this case, whatever effect that filing had on the Non-Settling Directors' insurance rights would have been irrelevant to AT T Wireless's right to state its cross-claims. Secondarily, the Non-Settling Directors' conclusory argument is not supported by a citation to the relevant insurance policies and AT T Wireless has cited contractual language that suggests that the Non-Settling Directors' argument that their insurance coverage is endangered by the claims is erroneous.
Given that the prejudice to the Non-Settling Directors, if any, is relatively slight, I find that it is outweighed by the prejudice AT T Wireless will face if it is precluded from seeking contribution. The loss of an opportunity to shift some or all of the costs of the settlement to the Non-Settling Directors would be substantial. In view of the dynamics that led to its funding of the settlement — the need to guarantee a settlement for the plaintiff class in order to avoid a trial — and its fellow defendants' refusal to contribute, I do not regard AT T Wireless's delay as a fatal offense. In so finding, I am mindful that the Delaware Supreme Court has taken a very liberal view of the time when a defendant may seek contribution, having reversed the Superior Court for denying a motion to file cross-claims made on the morning of a trial.
Although the parties have not explored this point, another fact undermines the Non-Settling Directors' claim of prejudice: Had no settlement occurred and the case proceeded to the entry of a final judgment against all defendants, which AT T Wireless satisfied, AT T Wireless might still have been be able to obtain an equal pro rata contribution from the Non-Settling Directors under § 6306(b)(2), even if no cross-claims had been filed under § 6306(b)(1). See Unif. Contribution Among Tortfeasors Act § 7 Commissioners' Note (1939) (revised 1955), 9 U.L.A. 249 (1957) (stating that the provision on which § 6306(b)(2) is based "afford[s] contribution on motion among parties subject to joint judgment liability to the injured person, where they had neglected to file cross-claims against each other for contribution pursuant to the [provision on which § 6306(b)(1) is based]"). The failure to assert cross-claims pursuant to § 6306(b)(1) before the entry of a joint judgment against co-parties at most precludes a party who satisfied the entire judgment from obtaining contribution from a co-party in excess of the latter's equal pro rata share, but does not extinguish the right to contribution altogether. As the Commissioners' Note to the provision on which § 6306(d) is based states:
[I]f a joint judgment is finally entered in P's favor against A and B, which A pays, on his motion against B for contribution, . . . he cannot for the first time raise the issue of apportionment of fault as between himself and B, after the trial has been concluded, but must abide by the contributive ratio of equal pro rata shares.Id. See also 10 Del. C. § 6306(d) ("As among joint tortfeasors against whom a judgment has been entered in a single action, subsection (d) of § 6302 of this title [providing for apportionment of liability based on relative degrees of fault] applies only if the issue of proportionate fault is litigated between them by cross-complaint in that action."); Ikeda v. Molock, 603 A.2d 785, 787 (Del. 1992) ("[T]he filing of a cross-claim is a prerequisite to the apportionment of liability between joint tortfeasors based upon relative degrees of fault.").
Ikeda, 603 A.2d at 787-88.
Therefore, I will grant the requested relief. Because the plaintiffs have already been dismissed from this action, I agree with AT T Wireless that its claims cannot practicably be pursued in the current action and that § 6306(b) should not foreclose an independent action for contribution. It is more efficient for all concerned for AT T Wireless to commence an independent action with a fresh complaint, devoid of the detritus left over from this action. After all, as a practical matter, the only remaining dispute is between AT T Wireless and the Non-Settling Directors.
The Non-Settling Directors' interpretation of § 6306(b) as barring this course of action is unconvincing. I see no reason to read the statute to mandate the filing of cross-claims sufficiently early in the action to allow concurrent litigation with the plaintiffs' claims. The Non-Settling Directors have cited no authority suggesting that the last sentence of § 6306(b) is intended to preclude a party from asserting cross-claims under § 6306(b)(1) after settlement of the plaintiffs' claims (but before judgment). Rather, other statutory provisions suggest that normal Rule 15(a) standards govern the question of whether AT T Wireless may amend its answer to assert a cross-claim at this time. See 10 Del. C. § 6306(a) ("Third-party practice under this chapter shall be as provided by rule of court except as provided in this section."). See also Ikeda, 603 A.2d at 787 (stating that question of whether non-settling defendant could amend pleadings under Rule 15(a) to assert cross-claim for contribution against settling co-defendants on day of trial "turns on questions of prejudice to the various parties").
Not only does the last sentence of § 6306(b) not bar a party from asserting cross-claims late in the action, but it actually permits the preferred form of relief that AT T Wireless requests, which is a ruling that an "independent action" for contribution can be pursued because "relief can[not] be obtained as provided in" § 6306(b). See Unif. Contribution Among Tortfeasors Act § 7 Commissioners' Note (1939) (revised 1955), 9 U.L.A. 249 (1957). Thus, the Tortfeasors Law does not bar AT T Wireless from pursuing an independent action merely because AT T Wireless could have asserted its cross-claims earlier in this action; on the contrary, if the relative prejudice to the parties supports granting AT T Wireless's motion to file its cross-claims, but relief cannot be obtained in this action for "any . . . reason," id., I may permit AT T Wireless to pursue its contribution claims in a separate action.
For all these reasons, I deny AT T Wireless's motion for leave to amend its answer, but grant its preferred form of relief. I have entered the order it has requested.