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Current Developments in the Commercial Divisions of the
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Posted: January 27, 2016

Settlement Agreement Not Improper Mary Carter Agreement Increasing Other Defendant’s Liability

On January 14, 2016, the Third Department issued a decision in Reutzel v. Hunter Yes, Inc., 2016 NY Slip Op. 00240, holding that a settlement agreement was admissible to show the third-party defendant’s share of liability.

In Reutzel, the “defendant leased a portion of” a building “to [the] third-party defendant.” The plaintiff, one of the third-party defendant’s employees, “slipped and fell while descending an external rear staircase at the leased premises, prompting plaintiff to commence this negligence action against defendant seeking to recover for her resulting injuries. Defendant answered and, in March 2012, commenced a third-party action against [the third-party defendant] seeking, among other things, contractual indemnification based upon a provision embodied in the subject lease.” The plaintiff subsequently settled with the defendant in an agreement in which the plaintiff “stipulated that plaintiff bore some culpable conduct with respect to the subject fall.” The third-party defendant “moved for summary judgment dismissing the third-party action,” arguing, among other things, that the “plaintiff’s admission of culpable conduct constituted an impermissible ‘Mary Carter’ agreement.” The trial court denied the motion. The Third Department affirmed, explaining, regarding the settlement agreement, that:

A “Mary Carter” agreement is a contract by which one or more of the defendants in a multiparty case secretly conspires with the plaintiff to feign an active role in the litigation in exchange for assurances that its own liability will be diminished proportionately by increasing the liability of the nonagreeing defendant(s). Notably, secrecy is the essence of what generally is regarded as an essentially collusive agreement. Here, the record is bereft of any evidence of an agreement between plaintiff and defendant to increase [the third-party defendant’s] share of liability and, contrary to [its] assertion, the underlying settlement between plaintiff and defendant — made in open court and with [the third-party defendant’s] full knowledge — lacks any of the indicia of collusion and secrecy that mark a disfavored Mary Carter agreement. Accordingly, the settlement agreement itself is not a bar to defendant’s claim for contractual indemnification.

(Internal quotations and citations omitted).

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