Bishop Michael Mulvey
Cracking the whip on an effort to evade the one-satisfaction rule, the Texas Supreme Court has held that a settlement agreement with an agreed judgment of $1.9 million, most of which will be paid prospectively, if at all, can be claimed by a non-settling defendant in a lawsuit involving the same parties.
Bay, Ltd. v. The Most Reverend Wm. Michael Mulvey, S.T.L., D.D., Bishop of Corpus Christi (No. 22-0168; March 1, 2024) arose from a dispute between Bay, a development and construction company, and its employee Mendietta. Mendietta entered into a long-term hunting lease agreement with the Bishop that required him to make certain improvements to the Bishop’s ranch at his own expense. Mendietta, without his employer’s consent, used Bay’s materials, equipment, and employees to make the Bishop’s improvements. While he was at it, he did the same to make improvements to his homestead. Bay got wind of this and filed two lawsuits: one against Mendietta and the Bishop in Jim Wells County, and the other against Mendietta alone in Nueces County. After the suits languished for six years, Bay and Mendietta entered into an agreement to resolve the Nueces County suit and their claims against one another in the Jim Wells suit (leaving the Bishop stranded in the Jim Wells case). Under the agreement, Mendietta agreed to pay Bay $750 per month. In return for those payments, Bay agreed to forbear executing on the agreed judgment of $1.9 million in its favor as long as Mendietta kept up the payments. Bay further took out a $175,000 lien against Mendietta’s homestead and agreed to allocate the monthly payments first to repayment of the lien. The agreement incorporated the agreed judgment into its terms.
Bay nonsuited Mendietta from the Jim Wells case, which proceeded to trial. A jury found the Bishop liable for about $458,000 for the value of improvements he didn’t pay for. The Bishop requested the trial court to apply a settlement credit based on the agreed judgment in the Nueces County case. The trial court denied the request. On appeal, the San Antonio Court of Appeals reversed, holding that Bay and Mendietta executed a settlement agreement for $1.9 million and that, after subtracting the $175,000 allocation to repayment of the lien, left $1.725 million to apply to the Jim Wells case. Applying the settlement credit, the court of appeals entered a take-nothing judgment for the Bishop. Bay sought review.
In an opinion by Justice Huddle, SCOTX affirmed. The central issues in the case were whether Bay and Mendietta’s agreement constituted a “settlement,” and, if so, how much was the credit. As to the first question, the Court had no difficulty finding that the agreement, which incorporated the agreed judgment, was a settlement agreement. Bay tried to argue that the agreement was “merely an agreement to pay $750/month for a separate and distinct injury unique to Mendietta and in exchange for forbearing foreclosure on Mendietta’s homestead.” The Court brushed this argument aside, pointing out that its precedent that, whatever the parties might call it, a settlement is a settlement if it resolves the dispute. That’s what this agreement did, and the Court ruled as a matter of law that the parties settled.
Turning to the amount of the settlement, the Court concluded that it was $1.9 million, the amount stipulated in the agreed judgment. Bay argued that the agreement really only required Mendietta to pay $175,000 relating to Mendietta’s homestead and nothing relating to the Bishop’s ranch. The Court rejected this argument as well, holding that the agreement and agreed judgment unambiguously proved that Mendietta was liable for $1.9 million and that the monthly payments were simply allocated first to satisfaction of the lien (which would take 19 years to pay off) and to the remainder of the judgment after that. If the parties had meant that Mendietta only had to pay $175,000, the agreement should have said so. Bay tried again, asserting that unsatisfied obligations should be excluded from the settlement credit because only paid amounts should be credited, not prospective ones. The Court responded that its precedents do not support that position, but rather hold that prospective payments under a settlement agreement count. If that were not the case, it “would complicate the work of trial courts applying settlement credits and invite windfalls and collusive settlements the one-satisfaction rule seeks to avoid.”
Finally, the Court held that Bay allocated only $175,000 to injuries other than what it sued the Bishop for. Absent specific language in the settlement agreement or agreed judgment, the remainder of $1.725 million was not allocated to anything in particular. The whole amount, therefore, was available for allocation to the jury’s verdict against the Bishop. And that was more than enough to absorb the jury’s verdict against the Bishop.
We must admit to a bit of head-scratching as to why SCOTX took this somewhat odd case when the court of appeals got it right. The only thing we can figure is that the Court wanted to be clear that parties can’t get around the settlement credit by cooking up a bogus installment plan that “forbears” execution of a judgment while the plaintiff goes after the deeper pocket for the same damages. In any event, this decision leaves no doubt about how the Court feels about that or any other scheme designed to circumvent the one-satisfaction rule.
