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Serna v. Kingston Enterprises9/26/2002
Initially, the passengers had obtained a default judgment in the amount of $2,350,000 against Kingston, which was vacated when the claim against Kingston was settled. Nevertheless, the difference between the default judgment, $2,350,000, and the settlement amount, $850,000, was the amount of the judgment to which Serna confessed as part of the agreement at issue here.
The parties here dispute the validity of the settlement agreement. Kingston asserts that it contains the same evils as a traditional "Mary Carter" agreement, but is even more damaging to the integrity of the judicial process. Under a Mary Carter agreement, a settling defendant typically agrees to guarantee the plaintiff a minimum payment, the plaintiff agrees not to enforce a judgment against the settling defendant, and the settling defendant's exposure is reduced in proportion to any liability found against other co-defendants. Often, this agreement is not revealed to the non-settling defendant. See Booth v. Mary Carter Paint Co., 202 So. 2d 8 (Fla. Dist. Ct. App. 1967).
The Colorado Supreme Court has expressly declined to rule on the permissibility of Mary Carter agreements. See Copper Mountain, Inc. v. Poma of America, Inc., 890 P.2d 100, 108 n.13 (Colo. 1995). Nevertheless, courts in Florida, Nevada, New Mexico, Oklahoma, Texas, and Wisconsin have declared such agreements to be contrary to public policy and do not permit them. See Dosdourian v. Carsten, 624 So. 2d 241 (Fla. 1993); Lum v. Stinnett, 488 P.2d 347 (Nev. 1971); Watson Truck & Supply Co. v. Males, 801 P.2d 639 (N.M. 1990); Cox v. Kelsey-Hayes Co., 594 P.2d 354 (Okla. 1978); Elbaor v. Smith, 845 S.W.2d 240 (Tex. 1992); Trampe v. Wisconsin Tel. Co., 252 N.W. 675 (Wis. 1934).
Serna asserts that these cases are inapposite because no Mary Carter agreement is involved here, particularly because a second lawsuit was filed and the agreement was revealed to Kingston. Instead, Serna asserts that the agreement here was based upon the supreme court's opinion in Bashor, and therefore was proper.
Although the supreme court held the Bashor agreement was not illegal, void, or contrary to public policy, it did not consider whether the agreement contravened the then-existing ethical rules.
As the majority opinion notes, Bashor has been applied only in the context of bad faith insurance litigation. Additionally, a comparison of the circumstances in Bashor with those here reveals significant differences.
In Bashor, the injured party entered into an agreement with Bashor, whose negligence had caused a car accident. The injured party received an assignment from Bashor, thereby permitting her to sue Bashor's insurer for part of the amount of the judgment she had already obtained against Bashor. Here, in contrast, Serna was effectively prosecuting a second lawsuit on behalf of the passengers, under which the passengers stood to gain a substantial amount of money (up to $1,250,000) in addition to the $850,000 settlement they had already achieved.
Although the Bashor agreement provided that the injured party would select the attorney for Bashor with Bashor's consent, there is no indication that the attorney for both parties was the same. Here, however, the same attorney represented both Serna as plaintiff and the passengers as third-party defendants in the same litigation. This arrangement appears to violate Colo. RPC 1.7(a). See Colo. RPC 1.7 cmt. ("(a) prohibits representation of opposing parties in litigation").
Serna asserts that this arrangement is permissible because her interests coincide with those of the passengers, but that is not necessarily so. While Serna has an interest in obtaining a judgmen
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