Civil litigation involving multiple defendants often presents unique challenges for the parties involved. This is equally true in cases where one defendant wants to settle with the plaintiff and the other defendant does not.
Does the non-settling defendant get to know how much money the plaintiff received from their co-defendant? What if the settling defendant, who has now left the litigation, had information that was crucial to the non-settling defendant’s ability to defend the claim? Is the non-settling defendant now fully accountable to the plaintiff for their proven losses? Can the non-settling defendant insist on keeping the settling defendant in the litigation?
These are the types of questions that Courts have considered over the years in the context of disputes around the settlement of multi-party litigation. Whereas in cases with one plaintiff and one defendant, the mechanics of concluding a claim via settlement are often straightforward (the plaintiff discontinues the claim and usually signs a release in exchange for the payment of an agreed upon sum of money), cases with multiple defendants, with varying appetites for settlement, are often not so simple.
At the centre of many disputes around the settlement of multi-party litigation is the tension between a defendant’s right not to be unfairly prejudiced in the litigation, and the public’s interest is promoting settlement and the early resolution of claims. Faced with increasing demands on limited judicial resources, over time, litigants and the Courts have developed and expanded various tools to address these often-competing objectives, with a view to ultimately encouraging settlement of claims. One such tool is known as a “Pierringer Agreement.”
What is a “Pierringer Agreement”?
A Pierringer Agreement, named after a 1963 Wisconsin tort law case (Pierringer v. Hoger), is a proportionate share settlement agreement that allows one or more defendants in a multi-party proceeding to settle with the plaintiff and withdraw from the litigation, while the remaining (non-settling) defendant remains in the action. The effect of a Pierringer Agreement is to remove the settling defendant from the litigation and ensure that the plaintiff’s claim proceeds only against the non-settling defendant. The non-settling defendant is only liable for their proportionate share of any loss that the Court may find them responsible for after trial. In other words, the non-settling defendant cannot be held jointly liable with the settling defendant.
To avoid overcompensating the plaintiff, the financial terms of the Pierringer Agreement are typically disclosed to the Court after trial and once liability against the non-settling defendant is determined. Except in rare and narrow circumstances, the Courts will not permit a plaintiff to double recover. When a Pierringer Agreement is used, such an issue may arise when the plaintiff settles with a defendant for an amount in excess of the actual damages later awarded at trial. In such a situation, Courts have typically deducted the settlement proceeds received from the settling defendant from the overall damage award granted at trial.
As with any settlement agreement, a Pierringer Agreement results in certainty of outcome for the parties involved and other advantages; a cash-strapped plaintiff may need the money to fund the litigation against the non-settling defendant. As well, the settling defendant is no longer a party to the litigation and has capped their exposure at the settlement amount, irrespective of the Court’s determination as to their liability after trial. While there is theoretically a place for Pierringer Agreements in any multi-party litigation, they may be particularly useful in disputes involving construction projects where there are often multiple participants in the litigation (owner, designer, contractor, sub-contractor and/or material supplier).
However, not every litigant is a fan of the Pierringer Agreement. They often raise the suspicion of the non-settling defendant, who may or may not have had their own (unsuccessful) settlement negotiations with the plaintiff. The non-settling defendant is left to defend the plaintiff’s claim, either on their own or with the help of one fewer defendant. There is also a perceived strategic disadvantage in that the non-settling defendant’s exposure at trial is less predictable; the maximum amount of the plaintiff’s claim is known, but the “true” claim has been adjusted downwards by virtue of the Pierringer Agreement, but to what degree?
Non-settling defendants may also be concerned about procedural issues arising from a defendant being released from the action, particularly if the settlement is reached early in the litigation process. Of course, the question that the non-settling defendant always wants an answer to is: What amount did the plaintiff settle for with the other defendant?
Irwin Homes Ltd. v. Wollmann: Recent Manitoba case on Pierringer Agreements
The Manitoba Court of King’s Bench recently had occasion to consider the principles pertaining to Pierringer Agreements. In Irwin Homes Ltd. v. Wollmann et al., 2024 MBKB 71, the plaintiff was a general contractor who had to pay their client over $300,000 in damages in connection with the construction of their house. The defendants were all sub-trades that the plaintiff had hired to work on the house. The defendant sub-trades had in turn sued each other by way of crossclaims.
The plaintiff brought a motion for Court approval of a Pierringer Agreement in which it had settled with some, but not all, of the defendant sub-trades, for an undisclosed sum of money. All the terms of the Pierringer Agreement were shared with the non-settling defendants, except for the settlement amount. Notably, the Pierringer Agreement was entered into by the plaintiff and settling defendants relatively early in the litigation process, before discovery had been completed. If the Pierringer Agreement was approved, the settling defendants would be removed from the litigation, before having to provide relevant documents to the settling defendants or submit to an examination for discovery (a procedural step in all litigation that is seen as an opportunity to understand another party’s case and obtain relevant information from them).
The non-settling defendants opposed the motion on the basis that they would be prejudiced if the Court approved the settlement. Of note, the non-settling defendants pointed to the fact that the Pierringer Agreement effectively constrained their ability to obtain documentary discovery from the settling defendants, who had also worked on the house, and eliminated their ability to question the settling defendants at an examination for discovery. Alternatively, if the Court was going to approve the Pierringer Agreement, the non-settling defendants wanted conditions placed on the settlement which would force the settling defendants to submit to an examination for discovery and provide for the disclosure of the amount of the settlement prior to trial.
The Manitoba Court of King’s Bench reviewed the Supreme Court of Canada’s seminal decision on the topic of Pierringer Agreements in Sable Offshore Energy Inc. v. Ameron International, 2013 SCC 37 (“Sable”). In Sable, the Court determined that the financial terms of a Pierringer Agreement were protected by settlement privilege and did not need to be disclosed before trial. In that case, the non-settling defendants had failed to establish that their interest in knowing the dollar amounts outweighed the public interest in encouraging settlement.
Generally speaking, the dollar amounts negotiated by the settling defendants and the plaintiff, while no doubt of great interest to the non-settling defendant, will be seen as having no material impact on the non-settling defendant’s ability to present their case.
In Irwin Homes, the Manitoba Court recognized the fact that the settlement was early in the litigation and appreciated the fact that the terms of the Pierringer Agreement could create obstacles for the non-settling defendants, particularly relating to pre-trial disclosure. However, in an expression of support for out-of-Court settlements, the Court cautioned that:
“…judges should not dismiss Pierringer Agreements simply based on the fact that the non-settling defendants will inevitably face greater obstacles in obtaining the kind of pre-trial disclosure and evidence on examinations for discovery that they would have otherwise received had all of the defendants remained active in the litigation.”
In approving the Pierringer Agreement, the Court in Irwin Homes recognized that the plaintiff and the settling defendants were careful to remain onside the key conditions laid down in Sable, and that they had proceeded in a way that sufficiently mitigated the non-settling defendants’ concerns, namely:
- The non-settling defendants had been properly given all the non-financial terms of the Pierringer Agreement (i.e. everything except the amount of the settlement);
- The settling defendants had provided their relevant documents to the plaintiff, and it was agreed that the plaintiff would give the non-settling defendants access to those records. To the extent that the non-settling defendants still wished to examine the settling defendants, they could seek permission under the rules of Court that allow for the discovery of non-parties with leave of the Court. Moreover, the Court in Irwin Homes remarked that the pre-trial judge’s expansive case management powers will ensure that non-settling parties will not necessarily be forced to the expense or risk of having to bring that motion if they can establish a need for disclosure of material or to examine a non-party prior to trial; and
- The plaintiff had properly agreed to disclose to the trial judge after the trial the amount that it received under the Pierringer Agreement, so there was no risk of overcompensating the plaintiff.
The Court confirmed that the evaluation process for a Pierringer Agreement involves the application of the following four key principles:
- “A court must keep in mind the strong public policy reason which encourages settlement;
- The fact that a non-settling defendant has restricted rights of third party disclosure under the [Rules of Court] does not justify refusing to give effect to a proportionate share settlement agreement;
- A court need not approve a proportionate share settlement agreement containing contractual provisions that directly limit the procedural rights a non-settling defendant would otherwise have; and
- A proportionate share settlement agreement should be disclosed to the non-settling party. To further reduce potential prejudice, the terms of the agreement, although not necessarily the amount of the settlement, should also be disclosed to the court.”
Important to the Court’s decision in Irwin Homes was the fact that the Pierringer Agreement had been carefully drafted and that there were provisions in place, albeit imperfect ones, to protect the rights of the non-settling defendants.
Key takeaways
The Manitoba Court’s decision in Irwin Homes represents a strong show of support for out-of-Court settlements.
In the right circumstances, a Pierringer Agreement remains an effective tool for willing litigants to extricate themselves from complex and contentious multi-party litigation. However, as this case and others demonstrate, there are several practical matters for both plaintiffs and defendants to take into consideration before entering into a Pierringer Agreement, and also for non-settling defendants to consider when faced with the prospect of remaining in an action while co-defendants settle their way out. Obtaining the Court’s approval of a Pierringer Agreement should not be seen as a guaranteed outcome. Before approving a Pierringer Agreement the Courts will carefully consider what prejudice may flow to the non-settling defendant and how best to mitigate legitimate concerns. That may take the form of imposing additional terms and conditions on the settlement, or, in rare circumstances, refusing to approve it altogether. For that reason, Pierringer Agreements need to be carefully drafted with a view to all of these issues and balancing several competing interests.
If you are involved in multi-party litigation and would like to better understand your rights as it relates to settlement, or if you want to know if a Pierringer Agreement is right for your situation, the MLT Aikins Litigation group can assist. The writers, Curtis Parker and Robert Prokopanko, are both partners in the firm’s Litigation group. Feel free to reach out to either of them if you have any questions about how we can assist with your litigation needs.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.