Contribution Case Analysis

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Parties adversely affected by the decision in this case should nevertheless preserve objections for potential review in the Supreme Court. Although the decision may not contradict any binding case law, neither does any precedent require the holding, and the holding is contrary to public policy.

The court cites a great number of prior precedents to support its holding, but none requires the court’s result.

For example, the court cites State Farm Mut. Ins. Co. v. Schara, 56 wis.2d 262, 201 N.W.2d 758 (1972), for the proposition that a contribution claim is timely even though the statute of limitations for the underlying tort has expired.

A more analogous situation to the one in the case at bar, however, is one in which a party could have, but failed to, raise a meritorious statute of limitations defense against the original plaintiff, and then seeks contribution from another liable party. On this question, authority from other jurisdictions justly holds that the first party cannot do so.

18 C.J.S. Contribution sec. 26 states, "if a defense is available which would have defeated an action by plaintiff, defendant who failed to assert it but instead compromised the claim or been cast in judgment has no right to contribution against a third party (citing GAF Corp. v. Tolar Construction Co., 271 S.E.2d 811; and Jones v. Wright, 258 So.2d 195)."

A defendant who fails to answer a complaint, at all, and thus permits judgment to be entered against him uncontested has also clearly "compromised the claim or been cast in judgment," similar to a defendant who fails to assert the statute of limitations, and should be treated the same.

The Schara case, on the other hand, is not even remotely analogous to the situation in the case at bar, because the party seeking contribution has not compromised the defense in the underlying action.

An even more analogous situation is discussed in 18 C.J.S. Contribution sec. 30: "A liable defendant may not enter into a post-trial settlement with the plaintiff and then initiate an action for contribution against those defendants who settled with the plaintiff before trial (cites omitted)."

If a defendant who vigorously defended his rights, but lost at trial and then settled with the plaintiff, cannot seek contribution from settling tortfeasors, then a defendant who did nothing to defend himself, and then had to settle with the plaintiff, should have far less standing to seek contribution from tortfeasors who did defend their interests in the underlying action, but chose to settle.

The court of appeals also quotes Teacher Ret. Sys of Texas v. Badger XVI Limited Partnership, 205 Wis.2d 532, 556 N.W.2d 415 (Ct.App.1996), as follows: "whether ‘common liability’ exists [and thus, the prerequisites for contribution] is determined at the time the damages were sustained and cannot be extinguished by one or more of those allegedly responsible for the plaintiff’s damages subsequently settling with the plaintiff." From this quote, the court adds, "It is thus immaterial that Philadelphia Indemnity’s settlement was spurred by the default rather than an active lawsuit against it."

Like Schara, however, this case and its holding are irrelevant, and the court of appeals’ conclusion does not follow from it. The issue in the case at bar is not whether Cincinnati could extinguish Philadelphia’s contribution action by settling with the plaintiffs (it cannot) or whether Philadelphia would be barred from seeking contribution if it had reasonably defended the underlying suit but ultimately settled (it would not).

The issue is whether Philadelphia forfeited its right to seek contribution by allowing default judgment to be entered against it without presenting any defense, and on this issue, Teacher Ret. Sys. sheds no light, much less provides binding precedent.

Nor is the decision in Kafka v. Pope, 194 Wis.2d 234, 533 N.W.2d 491 (1995), dispositive. The only issues in Kafka were whether contribution was applicable to contract, as well as tort, actions, and whether contribution was applicable even though the parties’ obligations arose out of separate instruments.

Admittedly, Kafka, as well as Schara, sets forth only two requisites for contribution: that the parties are liable for the same obligation; and that the party seeking contribution paid more than his equitable share of the debt.

As the second requirement suggests, however, contribution is an equitable doctrine, and all equitable relief is dependent on two maxims: equity aids the vigilant, not those who sleep on their rights; and one who seeks equity must have clean hands. Kenosha County v. Town of Paris, 148 Wis.2d 175, 434 N.W.2d 801, 807 (Ct.App.1988); Becker v. First Wis. Trust Co., 274 Wis. 404, 80 N.W.2d 440, 445 (1957).

In this case, Philadelphia Indemnity, by sleeping on its right to file an answer in the underlying action, allowed default judgment to be entered against it, and thus fails the first and foremost prerequisite for obtaining equitable relief. There is no need to even consider the two Kafka elements in this case.

The case of Heggy v. Grutzner, 156 Wis.2d 186, 456 N.W.2d 845 (Ct.App.1990), is instructive. In Heggy, a default judgment was entered against Heggy in a harassment action. Heggy then brought suit against the plaintiff’s attorney, Grutzner, for defamation, but the court of appeals held the action barred by the doctrine of issue preclusion.

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Although default judgment does not necessarily result in issue preclusion, the court found it appropriate, because Heggy offered no reason for his failure to litigate, and raise the claim in, the underlying action. Heggy, 456 N.W.2d at 849.

Heggy may not have dealt with contribution, but the principle for which it stands is far more relevant to the case at bar than any of the contribution cases cited by the court, none of which involve a default judgment. There is no sound reason why Philadelphia Indemnity should not be required, as the plaintiff in Heggy was, to offer a good reason for its failure to litigate the underlying action, as a prerequisite to being allowed to seek contribution from Cincinnati Insurance.

Rather than remanding the case to determine whether Bates’ negligence has already been determined in the underlying action, the first question on remand should be why Philadelphia Indemnity allowed its position to be compromised by its failure to appear in that action. If it lacks a good explanation, it should not be allowed to transfer the effects of its inaction to a party which diligently defended its own position.

– David Ziemer

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David Ziemer can be reached by email.