Entitlement to a Credit for a Settlement Reached in Another Jurisdiction

The plaintiffs filed a lawsuit (the New York action) against the New York physicians who treated Jonathan from December 2004 through January 2006. They alleged that the New York physicians failed to timely diagnose and treat Jonathan's left hip dysplasia. Ultimately, in April 2012, the plaintiffs settled the New York action in the amount of $2 million.

One year later, the plaintiffs instituted a suit against Dr. Hart, alleging that he failed to timely diagnose and treat Jonathan's left hip dysplasia (the New Jersey action). Importantly, Dr. Hart was not a party to the New York action, since the New York courts lacked jurisdiction over him. Similarly, New Jersey's courts lack jurisdiction over the New York physicians. Quite simply, plaintiffs filed a New Jersey action seeking damages for the same injuries that they were compensated for in the New York litigation.

Double Recovery?

Given the above facts, is Dr. Hart entitled to a credit for the $2 million settlement reached in the New York action? Would allowing the plaintiffs to proceed in the New Jersey Action without providing the defendants with a credit for the $2 million settlement in the New York action violate the New Jersey Collateral Source Statute, N.J.S.A. 2A:15-97?

Under general principles, an initial tortfeasor is potentially liable for all natural and proximate injuries that flow from the initial tort, including the consequences of medical treatment for the injuries caused by his wrong. However, in circumstances where other injuries are caused, or the original injuries aggravated, by a successive independent tortfeasor, courts will permit an action for same to assure that plaintiff is fully compensated for his or her injuries.

The issue of whether the plaintiff is fully compensated for all injuries in a case where there are two separate and independent tortfeasors is determined by attributing the amount of damages to each separate tortfeasor. New Jersey courts have applied a formula wherein the theory is that if two parties commit successive independent torts, one of them is entitled to receive a credit for part of the payment made earlier by the other tortfeasor. This formula is meant to avoid duplicating compensation to the plaintiff.

In the case of Dr. Hart, an argument can be made that he is a successive independent tortfeasor and the damages between the independent tortfeasors should be apportioned based on the formula that “if the settlement amount exceeds plaintiff's total provable damages, plaintiff is entitled to no further recovery.” Under this theory, if the total provable damages are equal to or less than $2 million, Dr. Hart would not be responsible for any further damages to the infant plaintiff. Accordingly, Dr. Hart would be entitled to a credit of the $2 million settlement that plaintiffs received from the New York litigation.

It is undeniable that the paintiffs would be displeased with Dr. Hart's being entitled to a $2 million credit and would likely argue that Dr. Hart is a joint tortfeasor subject to the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 et seq . If the plaintiffs' position was accepted, Dr. Hart would not receive a credit as outlined above. Instead, he would be required to establish the New York physicians' negligence at trial, and a jury would have to allocate the liability of both Dr. Hart and the New York physicians.

NJ's Collateral Source Statute

New Jersey's Collateral Source statute, N.J.S.A. 2A:15-97, is instructive in this situation, and arguably dispositive. It applies to civil actions brought for personal injury or death and its primary effect was to eliminate double recovery to plaintiffs. The statute requires that a plaintiff disclose to the court any “benefits [received] for the injuries allegedly incurred from any other source other than a joint tortfeasor[,]” and, where the amount of those “ benefits” “duplicates any benefit contained in the award[,]” the court should deduct it from plaintiff's recovery.

Not all duplicative “benefits” trigger deductions under the collateral source statute. For example, life insurance benefits, workers' compensation benefits and certain automobile insurance benefits are explicitly excepted. Under this approach, at trial a defendant is entitled to a set-off for the equitable share of liability assessed to a settled defendant by the jury. The trial defendant has the burden of proving the settled defendant's liability to the plaintiff. Moreover, under the Comparative Negligence Act, in order for the jury to allocate a percentage of fault, the defendant must be a “party” to the action. Dr. Hart would argue that the Comparative Negligence Act approach would not apply to the instant case, as the New York settling defendants are not parties to the New Jersey action, and their liability could not be assessed by a New Jersey jury.

Notably, if plaintiffs had initially instituted this lawsuit in New Jersey and obtained a $2 million settlement, then filed a lawsuit in New York, New York courts would allow the defendants in that action to receive a $2 million credit for the prior settlement under New York's Release or Covenant Not to Sue statute. This entitlement to a credit is well-settled in New York; however, there is no New Jersey case law directly on point with how to handle a settlement by a plaintiff with a tortfeasor in a prior litigation outside of New Jersey.

The Purpose of the Collateral Source Rule

The most analogous New Jersey cases are those involving successive independent tortfeasors, but they are not dispositive in our example. Given the lack of case law, Dr. Hart's position is supported by equitable considerations: He would have to argue to the court that unless he was afforded a credit, the plaintiffs would receive a windfall, or double recovery, for the same injuries, thereby contravening or circumscribing the Collateral Source Rule. Specifically, Dr. Hart should argue that affording him a credit in the New Jersey action would dissuade plaintiffs from first filing a lawsuit in New York and then coming to New Jersey to file a second lawsuit with the hope of receiving a double recovery for the same injuries.

Notably, New York would prohibit this from occurring, as any other settlement would result in a credit when the liability of the settling defendant is unable to be determined by the jury at trial. And New Jersey public policy should prohibit plaintiffs from doing in the New Jersey action what they could not do in New York. A defendant physician, like Dr. Hart, could argue that it is patently unfair to the citizens of New Jersey for them potentially to be exposed to paying for injuries for which the plaintiff has already been compensated through litigation in another jurisdiction.

For these reasons, a New Jersey defendant physician has a good-faith basis and argument for why a trial court should provide a credit for any settlement a plaintiff obtains in another jurisdiction.

Robert E. Spitzer, a member of this newsletter's Board of Editors, is an attorney with Post, Polak, Goodsell, MacNeill & Strauchler, P.A., where he concentrates his practice on medical malpractice and civil litigation. Thomas J. Pyle, Jr. is a partner in the firm who concentrates his practice on medical malpractice.

This article addresses the dynamics of New Jersey's Collateral Source doctrine and defendant physician's entitlement to a credit for a settlement that a plaintiff reached in another jurisdiction.

Background

On Dec. 1, 2004, the infant plaintiff, Jonathan Doubletree (Jonathan) was born at Double Down Hospital in Yonkers, NY. Thereafter, Jonathan and his parents (collectively Plaintiffs) resided in Queens until Jan. 2006, when they moved to Short Hills, NJ. While they were living in Queens, New York physicians treated Jonathan. After moving to New Jersey, Jonathan began treating with Melvin Hart, M.D. (Dr. Hart). The latter treated Jonathan from January 2006 until February 2007. When Jonathan was 25 months old, Dr. Hart diagnosed him with developmental left hip dysplasia. In March 2007, Jonathan underwent a left hip open reduction.

The plaintiffs filed a lawsuit (the New York action) against the New York physicians who treated Jonathan from December 2004 through January 2006. They alleged that the New York physicians failed to timely diagnose and treat Jonathan's left hip dysplasia. Ultimately, in April 2012, the plaintiffs settled the New York action in the amount of $2 million.

One year later, the plaintiffs instituted a suit against Dr. Hart, alleging that he failed to timely diagnose and treat Jonathan's left hip dysplasia (the New Jersey action). Importantly, Dr. Hart was not a party to the New York action, since the New York courts lacked jurisdiction over him. Similarly, New Jersey's courts lack jurisdiction over the New York physicians. Quite simply, plaintiffs filed a New Jersey action seeking damages for the same injuries that they were compensated for in the New York litigation.

Double Recovery?

Given the above facts, is Dr. Hart entitled to a credit for the $2 million settlement reached in the New York action? Would allowing the plaintiffs to proceed in the New Jersey Action without providing the defendants with a credit for the $2 million settlement in the New York action violate the New Jersey Collateral Source Statute, N.J.S.A. 2A:15-97?

Under general principles, an initial tortfeasor is potentially liable for all natural and proximate injuries that flow from the initial tort, including the consequences of medical treatment for the injuries caused by his wrong. However, in circumstances where other injuries are caused, or the original injuries aggravated, by a successive independent tortfeasor, courts will permit an action for same to assure that plaintiff is fully compensated for his or her injuries.

The issue of whether the plaintiff is fully compensated for all injuries in a case where there are two separate and independent tortfeasors is determined by attributing the amount of damages to each separate tortfeasor. New Jersey courts have applied a formula wherein the theory is that if two parties commit successive independent torts, one of them is entitled to receive a credit for part of the payment made earlier by the other tortfeasor. This formula is meant to avoid duplicating compensation to the plaintiff.

In the case of Dr. Hart, an argument can be made that he is a successive independent tortfeasor and the damages between the independent tortfeasors should be apportioned based on the formula that “if the settlement amount exceeds plaintiff's total provable damages, plaintiff is entitled to no further recovery.” Under this theory, if the total provable damages are equal to or less than $2 million, Dr. Hart would not be responsible for any further damages to the infant plaintiff. Accordingly, Dr. Hart would be entitled to a credit of the $2 million settlement that plaintiffs received from the New York litigation.

It is undeniable that the paintiffs would be displeased with Dr. Hart's being entitled to a $2 million credit and would likely argue that Dr. Hart is a joint tortfeasor subject to the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 et seq . If the plaintiffs' position was accepted, Dr. Hart would not receive a credit as outlined above. Instead, he would be required to establish the New York physicians' negligence at trial, and a jury would have to allocate the liability of both Dr. Hart and the New York physicians.

NJ's Collateral Source Statute

New Jersey's Collateral Source statute, N.J.S.A. 2A:15-97, is instructive in this situation, and arguably dispositive. It applies to civil actions brought for personal injury or death and its primary effect was to eliminate double recovery to plaintiffs. The statute requires that a plaintiff disclose to the court any “benefits [received] for the injuries allegedly incurred from any other source other than a joint tortfeasor[,]” and, where the amount of those “ benefits” “duplicates any benefit contained in the award[,]” the court should deduct it from plaintiff's recovery.

Not all duplicative “benefits” trigger deductions under the collateral source statute. For example, life insurance benefits, workers' compensation benefits and certain automobile insurance benefits are explicitly excepted. Under this approach, at trial a defendant is entitled to a set-off for the equitable share of liability assessed to a settled defendant by the jury. The trial defendant has the burden of proving the settled defendant's liability to the plaintiff. Moreover, under the Comparative Negligence Act, in order for the jury to allocate a percentage of fault, the defendant must be a “party” to the action. Dr. Hart would argue that the Comparative Negligence Act approach would not apply to the instant case, as the New York settling defendants are not parties to the New Jersey action, and their liability could not be assessed by a New Jersey jury.

Notably, if plaintiffs had initially instituted this lawsuit in New Jersey and obtained a $2 million settlement, then filed a lawsuit in New York, New York courts would allow the defendants in that action to receive a $2 million credit for the prior settlement under New York's Release or Covenant Not to Sue statute. This entitlement to a credit is well-settled in New York; however, there is no New Jersey case law directly on point with how to handle a settlement by a plaintiff with a tortfeasor in a prior litigation outside of New Jersey.

The Purpose of the Collateral Source Rule

The most analogous New Jersey cases are those involving successive independent tortfeasors, but they are not dispositive in our example. Given the lack of case law, Dr. Hart's position is supported by equitable considerations: He would have to argue to the court that unless he was afforded a credit, the plaintiffs would receive a windfall, or double recovery, for the same injuries, thereby contravening or circumscribing the Collateral Source Rule. Specifically, Dr. Hart should argue that affording him a credit in the New Jersey action would dissuade plaintiffs from first filing a lawsuit in New York and then coming to New Jersey to file a second lawsuit with the hope of receiving a double recovery for the same injuries.

Notably, New York would prohibit this from occurring, as any other settlement would result in a credit when the liability of the settling defendant is unable to be determined by the jury at trial. And New Jersey public policy should prohibit plaintiffs from doing in the New Jersey action what they could not do in New York. A defendant physician, like Dr. Hart, could argue that it is patently unfair to the citizens of New Jersey for them potentially to be exposed to paying for injuries for which the plaintiff has already been compensated through litigation in another jurisdiction.

For these reasons, a New Jersey defendant physician has a good-faith basis and argument for why a trial court should provide a credit for any settlement a plaintiff obtains in another jurisdiction.

Robert E. Spitzer, a member of this newsletter's Board of Editors, is an attorney with Post, Polak, Goodsell, MacNeill & Strauchler, P.A., where he concentrates his practice on medical malpractice and civil litigation. Thomas J. Pyle, Jr. is a partner in the firm who concentrates his practice on medical malpractice.