Lead Opinion
delivered the opinion of the court:
At issuе in this case is whether settlement of a tort action for property damage can meet the good-faith requirement of the Joint Tortfeasor Contribution Act (the Act) (740 ILCS 100/2(c) (West 1994)) when the plaintiffs, as a condition of their settlement agreement, assign their causes of action to a group of the settling defendants. The circuit court of Cook County answered this question in the affirmative and concluded that the settlement reached by the parties was in good faith. The appellate court reversed.
The dispute which gave rise to this appeal arose from a fire in April of 1989, which destroyed a building that housed several Chicago art galleries. The fire occurred while the building was undergoing extensive renovation. Numerous works of art were destroyed.
In the wake of the fire, owners of the art galleries who leased space in the building, artists who exhibited work in the galleries, and their insurers, brought a total of 35 separate actions containing the damage claims of 112 separate plaintiffs, in the circuit court of Cook County, to rеcover for property loss. Most of the actions named as defendants the owners and managers of the building, the general contractors hired to do the renovation work, and their subcontractors. The parties to this appeal include the building owner, Mesirow Realty Development (Mesirow); the general contractor, CCL of Chicago, Inc. (CCL); and the subcontractors, Creative Construction, Ltd. (Creative), Economy Mechanical Industries, Inc. (EMI), K&S Automatic Sprinklers (K&S), and Litgen Concrete Cutting and Coring Company, Inc. (Litgen).
As we noted when this case previously was before us (Dubina v. Mesirow Realty Development, Inc.,
Eventually, plaintiffs’ actions were consolidated for discovery and trial. Prior to trial, all of the plaintiffs settled with all of the defendants except two: Litgen and Gelick Foran Associates, Inc. (Gelick Foran). Gelick Foran subsequently obtained summary judgment in its favor and is not involved in this appeal.
The settling defendants entered into 29 separatе agreements with plaintiffs. Each agreement required plaintiffs to assign their claims against Litgen and Gelick Foran to certain of the settling defendants. Some also named as additional assignees several insurance companies and other nonparties. See
The particular assignees varied from agreement to agreement. In each case, however, the assignees included settling defendants. Under the terms of the agreements, the settling defendants agreed to pay plaintiffs a particular amount in settlement and a separate but equal amount in exchange for the аssignment of plaintiffs’ causes of action against Litgen and Gelick Foran. The total amount paid for settlement was approximately $4.5 million. An equal amount was paid for the assignments. Pursuant to the agreements, plaintiffs agreed to cooperate with the assignees in the assignees’ litigation against Litgen and Gelick Foran, and the assignees agreed to reimburse plaintiffs for the cost of that cooperation.
Over the course of a series of hearings in June and July of 1994, the circuit court found that each of the 29 settlement agreements had been made in good faith within the meaning of section 2(c) of the Act (740 ILCS 100/2(c) (West 1994)). The circuit court found no evidence of collusion or fraudulent conduct, and characterized Litgen’s position as “drag[ging] their feet and obstruct[ing] the process.” The circuit court noted Lit-gen’s objection to the settling defendants’ motion for a good-faith finding, but stated that Litgen’s position would not promote compromise or settlement. The trial court also concluded that Litgen was in the same position it would have been in even if there had been no assignment of claims.
The circuit court thereupon entered orders dismissing plaintiffs’ claims against the settling defendants and dismissing all of the defendants’ contribution claims against one another, including the contribution claims asserted by Litgen. Only plaintiffs’ actions against Lit-gen and Gelick Foran remained.
The settling defendants subsequently substituted their attorneys for plaintiffs’ attorneys, and moved for voluntary dismissal of plaintiffs’ claims against Litgen and Gelick Foran. Their motion was granted on July 28, 1994. Litgen then appealed, contending that the circuit court should not have found the settlement agreements to have been made in good faith and should not have dismissed its contribution claims.
While Litgen’s appeal was pending, the settling defendants, who had takеn plaintiffs’ claims by assignment, refiled those claims against Litgen in the circuit court. The appellate court thereupon dismissed Litgen’s appeal in this case for lack of jurisdiction (Dubina v. Mesirow Realty Development, Inc.,
On remand, Litgen again argued that the circuit court had abused its discretion when it found the settlement agreements had been mаde in good faith. As grounds for this contention, Litgen asserted that the agreements violated the Act by allowing the settling defendants to seek indirectly a remedy they could not seek directly, namely, contribution. In addition, Litgen claimed that the portion of the settlement funds designated for assignments deprived Litgen of a setoff in that amount. Litgen further claimed that the assignments contravened the public policy behind the Act, which is to encourage settlement and the equitable sharing of damages.
The appellate court agreed with Litgen and reversed the circuit court’s finding that the settlement agreements hаd been made in good faith. Guided by this court’s decision in In re Guardianship of Babb,
The settling defendants now appeal the appellate court’s decision. Appellate briefs have been filed on behalf of Mesirow, K&S, EMI, and CCL, Creative and Fireman’s Fund Insurance Company (hereinafter “the CCL defendants”). The arguments of the settling defendants fall into two general categories: first, that the appellate court erred in relying on Babb because this case is distinguishable from Babb; and second, that even if Babb applies, the instant agreements are valid because they were entered into prior to the Babb decision.
In reviewing the appellate court’s judgment, we must begin with the provisions of the Act itself. The Act provides that where two or more persons are potentially liable in tort for the same injury or the same wrongful death, there is a right of contribution among them. 740 ILCS 100/2(a) (West 1994). This right, whiсh exists only in favor of a tortfeasor which has paid more than its pro rata share of damages to the injured party (740 ILCS 100/2(b) (West 1994)), is subject to an important limitation. Under the terms of the statute, no contribution can be obtained by or from a tortfeasor with whom the injured party has settled in good faith. If a tortfeasor settles in good faith, that tortfeasor is not entitled to recover contribution from another tortfeasor whose liability is not extinguished by the settlement (740 ILCS 100/2(e) (West 1994)), and any contribution liability the tortfeasor might otherwise have had to any other tortfeasor is thereby discharged (740 ILCS 100/2(d) (West 1994)).
The requirement of “good faith” is the only limitation which the Act places upon the parties’ right to settle and thereby extinguish contribution liability. Babb,
As noted, in finding that the settlement agreements were not made in good faith, the appellate court rеlied upon this court’s decision in Babb. In Babb, this court considered whether loan-receipt agreements were good-faith settlements under the Act. Babb,
In finding that loan-receipt agreements violated the good-faith portion of the Act, this court in Babb noted that the loan-receipt agreements allowed a settling tortfeasor to accomplish indirectly that which is expressly forbidden by the Act. Babb,
“Loan-receipt agreements, however, allow a settling tortfeasor to subvert this portion of the Act by allowing the settling tortfeasor to obtain contributiоn indirectly from the nonsettling tortfeasor. The settling tortfeasor obtains indirect contribution because the plaintiff uses damages recovered from the nonsettling tortfeasor to repay the loan to the settling tortfeasor.” Babb,162 Ill. 2d at 172 .
Because the loan-receipt agreements allowed a settling tortfeasor to achieve indirectly that which it could not do directly, we found that loan-receipt agreements were collusive and not in good faith. Babb,
Finally, we also found that loan-receipt agreements frustrated another purpose of the Act, that оf encouraging the settlement of claims. Babb,
The appellate court in this case acknowledged that the settlement agreements and assignments were not loan-receipt agreements, but found that the principles underlying Babb applied to bar a finding of good faith. Mesirow, K&S, EMI and the CCL defendants each argue that the appellate court erred in failing to consider the defendants’ settlement with thе plaintiffs as a separate transaction from the plaintiffs’ assignment of their claims. The settling defendants note that the trial court found that $4.5 million was an appropriate settlement amount and was made in good faith. Further, in Illinois, a plaintiff may assign his right of recovery in a property damage action. The settling defendants contend that when they received the assignment of plaintiffs’ claims, they were no longer “tortfeasors” under the Act, but for all purposes stood in the shoes of plaintiffs from whom they took the assignments. As plaintiffs, the settling defendants are free to pursue their actions against Lit-gen. The settling defendants argue that because the assignment transaction is entirely separate from the settlement transaction, the settlements in this case differed from the loan-receipt agreements in Babb and were not contrary to the language and policies underlying the Act.
The settling defendants are correct that an assignment of a cause of action for property damage generally is valid in Illinois. See 735 ILCS 5/2 — 403 (West 1994). In this case, however, we cannot look at the assignment of plaintiffs’ claims in a vacuum, but must consider the assignments in conjunction with the settlement agreements. As the appellate court observed, the assignments were a condition precedent to the settlement agreements.
Upon review and considering the totality of the circumstances, we affirm the appellate court’s finding that the settlement agreements and assignments are contrary to the terms of, and the рolicies underlying, the Act. The settlement agreements in this case violate the terms of the Act because they deprive Litgen of its statutory right to a setoff. When a settlement is reached in good faith, the amount a plaintiff receives on any claim against any other nonsettling tortfeasors is to be reduced by the amount stated in the settlement agreement, or the amount of consideration actually paid by the settling tortfeasor, whichever is greater. 740 ILCS 100/2(c) (West 1994). This provision protects nonsettling defendants from paying more than their pro rata share of the final damage judgment and reflects a public policy of protecting the financial interests of nonsettling tortfeasors. See Babb,
Here, $4.5 million was allocated as payment toward the settlement, while another $4.5 million was allocated as payment for the assignments, so that Litgen would be entitled to a setoff of only $4.5 million, even though the settling defendants had paid, and plaintiffs had received, consideration totaling $9 million. The settling defendants respond that the circuit court found that $4.5 million was a good-faith settlement, so that Litgen was not deprived of its setoff despite the amount paid for the assignments. As noted, however, the fact remains that the settlement agreements would not have been entered into absent the additional $4.5 million consideration. The fact that the settling defendants were willing to pay an additional $4.5 million for an assignment of the plaintiffs’ causes of action certainly calls into question whether a setoff of only $4.5 million would result in Litgen’s paying more than its pro rata share of the final damage judgment.
The settlement agreement in this case also defeats the Act’s purpose of equitably distributing among all joint tortfeasors the burden of compensating an injured plaintiff. In receiving the assignment of plaintiffs’ causes of action, the settling defendants stand to recoup $4.5 million of their settlement payment (the portion paid for the assignment), as well as any damages exceeding $9 million. For example, if Litgen is found liable for $12 million in damages, it is entitled to a setoff of $4.5 million, with the result that the settling defendants are reimbursed $4.5 million and receive a windfall of $3 million. Such a result simply cannot be reconciled with the Act’s purpose to equitably distribute among all joint tortfeasors the burden of compensating an injured plaintiff. For that reason, the settlement agreements in this case are contrary to the purposе of the Act.
The settlement agreements and assignments also violate the Act because they allow the settling defendants to accomplish indirectly that which they could not do directly — recover contribution from Litgen. As noted, the Act prohibits a settling tortfeasor from recovering contribution from another tortfeasor whose liability is not extinguished by the settlement. 740 ILCS 100/2(e) (West 1994). Here, the plaintiffs assigned their causes of action to the settling defendants, thereby allowing the settling defendants, in the guise of plaintiffs, to indirectly recover contribution from Litgen. By incorporating an agreement to obtain an object forbidden by law, such agreements may be regarded as collusive. See Babb,
For these reasons, we find that the settlement agreements at issue in this case violate both the terms of, and the policies underlying, the Act. Because the settlement agreements violate both the terms of and the policies underlying the Act, the settlement agreements do not satisfy the good-faith requirement of the Act.
K&S makes the additional argument, as it did in the appellate court, that even if the settlement agreements and assignments are viewed as one transaction, the transaction constitutes a loan-receipt agreement. K&S observes that in Babb, this court validated loan-receipt agreements entered into prior to September 29, 1994. Because the agreements in this case were entered into prior to September 29, 1994, K&S maintains that the agreements are valid loan-receipt agreements.
The appellate court found that the settlement agreements and assignments in this case did not fit the definition of loan-receipt agreements.
Finally, we note that EMI raises the additional argument that this court should affirm the circuit court’s good-faith finding as to EMI’s settlement agreement with the plaintiffs. EMI points out that it did not take an assignment from plaintiffs. Acсordingly, EMI contends that even if this court finds that the assignments were improper under the Act, this court should affirm the trial court’s good-faith finding as to EMI.
Here, too, we agree with the appellate court, which in addressing this issue, found that because the settling defendants settled as a group, EMI’s payment toward the settlement fund was part of the combined fund used to pay for the settlement and the assignment.
In conclusion, then, we find that the settlement agreements between the plaintiffs and the settling defendants were not made in “good faith” within the meaning of the Act. We further find that the settlement agreements and assignments were not loan-receipt agreements, which would be considered valid under Babb. Therefore, we affirm the appellate court’s decision reversing the circuit court’s finding that the settlement agreements were made in good faith, reversing the dismissal of Litgen’s contribution claims, and remanding for further proceedings.
Affirmed.
Dissenting Opinion
dissenting:
Whether the settlement agreements at issue here were made in good faith within the meaning of section 2(c) of the Contribution Act (740 ILCS 100/2(c) (West 1994)) was a matter for the trial court’s discretion. In re Guardianship of Babb,
When a settling tortfeasor can establish that the settlement was supported by consideration, that is prima facie evidence of the settlement’s good faith. See Solimini v. Thomas,
The settling tortfeasors in this case clearly made a prima facie showing of good faith. The settlement agreements were supported by millions of dollars in consideration. Those agreements were therefore presumptively valid, and the burden was on Litgen to establish, by clear and convincing evidence, that the agreements had not, in fact, been made in good faith.
In assessing good faith under the totality-of-the-circumstances analysis, a court should consider whether the agreement is consistent with the terms of and the policies underlying the Contribution Act. An agreement that conflicts with the Act’s provisions or its underlying policies will not satisfy the good-faith requirement and cannot discharge the settling tortfeasor from contribution liability. Babb,
Our court has recognized two policies that support the Contribution Act: (1) the promotion of settlement, and (2) the equitable sharing of damages. Babb,
Nothing about any aspect of the contested assignments can fairly be claimed to have discouraged litigants from coming to the bargaining table and resolving their differences prior to trial. For all parties, the effect of the assignments was to facilitate rather than impede the settlement process. By affording plaintiffs the opportunity to obtain additional sums in exchange for assignment of their causes of action against the nonsettling defendants, the agreements provided an extra inducement for plaintiffs to settle. By giving defendants an opportunity they would nоt otherwise have had to recover money damages from their nonsettling codefendants, the agreements offered defendants additional incentive to settle. From each side, the assignments thus promoted settlement.
There is likewise no merit to the contention that the assignment agreements will apportion the burden of damages among defendants in a way which is not equitable.
Although the agreements may ultimately enable the settling defendants to recover damages from Litgen, their ability to recover is contingent on the outcome of trial. If Litgen prevails and they lose, their recovеry will be nothing and they, rather than Litgen, will bear the full weight of plaintiffs’ loss. Even if they do prevail, the recovery will scarcely constitute a windfall. To the extent that the settling defendants succeed in obtaining any money damages, it will be because they were willing to bear the full risk and expense of prosecuting the claims and paid millions of dollars in advance, without recourse, for the right to do so.
There is no unfairness in this for Litgen. Litgen could have settled too, but chose not to, as was its right. While the company still faces litigation, its position is no different than it would have been had the settlements not included the assignmеnts and plaintiffs prosecuted their claims against it directly. In either instance, Litgen would not be permitted to recover contribution from the settling defendants, but would be able to claim a setoff against any judgment entered against it for the amount stated in the settlement agreements between plaintiffs and the settling defendants or the actual amount paid by the settling defendants in consideration for the release of the settling defendants from liability, whichever is greater. 740 ILCS 100/2(c) (West 1996). Litgen would be entitled to such a setoff and will be entitled to such a set-off if judgment is ultimately entered against it even if the resultant monetаry award is thereby reduced to zero dollars. Pasquale v. Speed Products Engineering,
My colleagues’ concern that Litgen’s potential setoff might be inadequate is premature. Whether Litgen is entitled to any setoff is dependent upon the outcome of the trial, which has yet to occur. If Litgen’s defense is unsuccessful and it needs to claim a setoff against the judgment entered against it, the amount of the setoff will be a matter for the trial court to determine. If Litgen is dissatisfied by the amount of the setoff allowed by the trial court, it can raise the issue by appeal at that time.
Even if the adequacy оf the potential setoff were properly before us, my colleagues’ concerns would be misguided. The problem with their analysis is that it overlooks the clear and unambiguous wording of section 2(c) of the Act. While the terms of the settlement agreements at issue here allocate only half of the total consideration paid to the settlement, section 2(c) makes clear that the phrasing of the agreements is not controlling. If the trial court ultimately determines that the full $9 million should be attributed to the settlement and therefore represents “the amount of consideration actually paid,” it may allow the full $9 million as a setoff, notwithstanding the fact that the terms of the agreements purport to allocate only $4.5 million to the settlement.
For Litgen, the principal risk of being the sole remaining nonsettling defendant is that even after setoff for the amounts paid by the other defendants in settlement, the judgment could be so large that it will end up paying an amount disproportionally higher than its actual comparative fault. Again, however, that potential result is unrelated to the fact that plaintiffs have assigned their causes of action to settling defendants. It would exist even if plaintiffs retainеd their claims and prosecuted them personally.
The settlement agreements in this case are not subject to challenge based on this court’s decision in Babb,
The matter before us today involves assignments of causes of action for property damage, not loan-receipt agreements in a personal injury case, and Illinois law has long recognized the validity of assignments of claims for compensatory damages for damage to property. Grunloh v. Effingham Equity, Inc.,
For the foregoing reasons, I would hold that the circuit court did not abuse its discretion when it held that the settlement agreements at issue here had been made in good faith. The judgment of the appellate court should therefore be reversed, and the judgment of the circuit court should be affirmed.
JUSTICES FREEMAN and KILBRIDE join in this dissent.