How often have you told yourself, if I had it to do over, I would have done things differently? My thinking is that hindsight is 50/50, because the correct answer isn’t always clear. Even so, when I read the court’s opinion in St. Paul Fire and Marine Ins. Co. v. The Nolen Group, recently decided by a federal court in Pennsylvania, there appeared to be a number of crucial decision points where the losing party continued to keep the path open for its loss at trial. What would you have done? For this analysis, pretend you are the clearing and grubbing subcontractor.
The Nolen Group planned to build townhouses in southeastern Pennsylvania. The project was situated on a hillside, at the bottom of which were a creek and a bridge. An office complex was on the other side of the creek.
Pennsylvania’s Storm Water Management Act applied to the work, as did the local township’s municipal code. In order to comply with these laws, The Nolen Group obtained an erosion plan from the local conservation district. This plan included a construction sequence sec-tion.
The erosion plan appeared to be reasonable. First, a detention basin was to be designed and built at the bottom of the hill to control the volume and velocity of storm water runoff from the construction site. After the basin was erected, trees and ground cover could be removed. An engineering company was retained to prepare development plans, including the basin design. A contractor was hired to build the basin, and another company, Baringer Land Clearing, got the contract to clear and grub.
Prior to starting the basin, The Nolen Group directed Baringer to clear the trees. A few months later, Baringer was further directed to strip the site down to bare soil, also before the basin had been put in place. It is not clear from the court’s ruling whether Baringer knew about the approved erosion plan from the conservation district. However, Baringer did not look at it.
DECISION POINT NO. 1:
Baringer followed the owner’s directive to remove the trees in November, and to clear and grub the following March. What would you have done? Ask for the soil conservation plan? Tell the owner no? Isn’t there a contract obligation to follow the owner’s orders? Would you write a letter saying you will proceed, but you won’t accept responsibility? What good would that do?
More facts and the lawsuit
About three months after Baringer finished its work, a storm hit. Heavy rains caused significant amounts of water to pour down the barren hillside and increase the creek’s water level. When the creek rose, the water eroded an earthen bridge abutment, collapsing the bridge, which dammed the creek. The water backed up and flooded the low-lying office complex.
The office owners’ insurers sued Baringer, the developer, the developer’s engineer, the general contractor and SEPTA (the govern-ment agency responsible for bridge maintenance). Everyone agreed that SEPTA should be dismissed from the case.
DECISION POINT NO. 2:
If you were Baringer, would you try to form alliances with your codefendants? Would you approach the plaintiffs (the insurers) to settle the claims against you? Or would you think your liability in court was so remote that you need to do little?
The defendants’ trial strategy
After nearly two years of pretrial efforts, the developer settled with the plaintiffs for $20 million in what is described as a “pro tanto” settlement. It appears this deal required that there be a trial to determine the relative liability of each defendant to the plaintiffs.
At that juncture, the developer’s exposure would be the percent of its’ negligence (“pro tanto” literally means “for so much as”), up to a maximum of $20 million.
All of the parties then agreed to bifurcate, or split, the trial in two: Part one was a jury trial to decide each defendant’s percentage share of liability. Part two would determine the actual amount of money the plaintiffs would be awarded. Separately, the engineer was dis-missed from the suit with no liability assigned to it.
DECISION POINT NO. 3:
As will be seen, $20 million was not the full amount of the plaintiffs’ claims. Should Baringer have agreed to bifurcate the trial? Was it so sure that its liability would be zero dollars that it was worth the risk and cost of trial? If Baringer wanted to pursue settlement on its own, how much would you advise it to offer? And, what is the law on sharing liability? Is your exposure limited, as in some “comparative negli-gence” states, to your percent of negligence? I will discuss this last legal question later.
The jury trial on liability
Remember, this trial was based on tort principles, not on contract. Quoting the court’s later ruling, “Baringer’s duty not to cause exces-sive storm water runoff arose from common law, state statute, and the Storm Water Management Act.” Baringer’s arguments were that the storm was unforeseen, that it was just following orders and that it had no power to force the developer to build the basin. The jury rejected them all.
As the judge noted after the trial, the “law [does not] recognize subcontractors . . . to be passive instruments blindly following the orders of others.”
By helping create a condition that gave rise to the flood, Baringer breached its duty to act without negligence. Baringer also had a duty to become acquainted with the flood control plan and with the county-approved sequencing of construction and to comply with those plans.
The jury found the developer was 97 percent, the general contractor 2 percent and Baringer 1 percent liable.
DECISION POINT NO. 4:
As the expression goes, close only counts in horseshoes and hand grenades. One percent is not 0 percent. In this case, it was not even close.
But when Baringer was at 1 percent, what should it have done? Offer to settle? If it made an offer, how much should it have been? What does 1 percent negligent mean in your state? Do you join with the general contractor (who is at 2 percent) and make a joint offer of settle-ment? Or, do you go for broke, thinking you can keep the ultimate damages award so low that your 1 percent won’t be worth much?
The trial on damages
Right after the liability trial phase, the general contractor settled with the plaintiffs in what is described in the court’s later opinion as a “pro rata” settlement. Presumably, the general contractor agreed to pay 2 percent of the ultimate damage award (its pro rata share), with-out a cap like the developer had in its pro tanto settlement. Baringer was the only party without a settlement of some type.
The lawsuit proceeded on damages. The developer participated in the trial as a defendant, but because his settlement capped his losses, he was not very aggressive in his own defense. The general contractor also took a secondary role in the damages trial.
What happened was that the damages award ate up the developer’s $20 million. Even with the 2 percent pro rata share of the general contractor, the plaintiffs had more than $8.6 million left unpaid. That amount fell squarely on Baringer, as it was jointly and severally responsible with the other defendants. What happened to the 1 percent?
Under Pennsylvania law, which is not unique on this point, the percentages are meaningful only as to how the defendants share liabil-ity among themselves. Any defendant who is so compelled to pay more than his percentage share may seek contribution from the other defendants. The plaintiffs were free to go after any defendant for the full amount unless that recovery is limited, as it was here for the developer and general contractor.
For reasons best left for another article, Baringer now had only one option: Pay the huge net damages first and then sue the devel-oper for contribution. Under Pennsylvania law, a pro tanto settlement does not cut off contribution obligations, but a pro rata settle-ment does. No right to contribution exists until actual payment by him of more than the share of the whole debt has been made.
Multiparty litigation creates a number of challenges and decision points. Throughout, it is of the utmost importance that you know the applicable law and that your negotiation and trial strategies are undergoing regular analysis.