United States District Court, Southern District of Illinois
April 6, 1988
DANNY STIFLE, PLAINTIFF,
MARATHON OIL COMPANY, DEFENDANT, V. INSULATING & MATERIALS CORPORATION, THIRD-PARTY DEFENDANT.
The opinion of the court was delivered by: Foreman, Chief Judge:
MEMORANDUM AND ORDER
This matter is before the Court on third-party defendant
Insulating & Materials Corporation's ("I & M") Motion to
Dismiss Marathon Oil Company's ("Marathon") Third-Party
Complaint; Marathon's Motion to Dismiss the Amended Complaint
for lack of subject matter jurisdiction; Marathon's Motion for
Set-off; and plaintiff Danny Stifle's Motion to Drop a
1. Plaintiff's Motion to Drop a Misjoined Party and
Marathon's Motion to Dismiss the Amended Complaint.
On January 4, 1988, plaintiff filed an Amended Complaint
that added I & M, which has its principal place of business in
Illinois, as a defendant. Under the original complaint, this
Court had subject matter jurisdiction by virtue of 28 U.S.C. § 1332.
Because plaintiff is a citizen of Illinois, adding I &
M as a defendant destroyed the diversity of citizenship between
the plaintiff and defendants. Subsequently, defendant Marathon
moved to dismiss the Amended Complaint for lack of subject
matter jurisdiction and plaintiff responded with a Motion to
Drop the Misjoined Party, I & M, pursuant to Rule 21 of the
Federal Rules of Civil Procedure.
Rule 21 provides that
Misjoinder of parties is not grounds for
dismissal of an action. Parties may be dropped or
added by order of the court on motion of any
party or of its own initiative at any stage of
the action and on such terms as are just. Any
claim against a party may be severed and
proceeded with separately.
Fed.R.Civ.P. 21. It is well-settled that courts may properly
avoid dismissing an action where joinder has destroyed
diversity by eliminating the party whose presence causes the
jurisdictional defect under Rule 21. Nevertheless, a court may
not drop a party under Rule 21 if his presence is needed for
just adjudication under Rule 19. Filippini v. Ford Motor Co.,
110 F.R.D. 131, 133-34 (N.D.Ill. 1986); Erie Mach. Prods., Inc.
v. Mazak Yamazuki Mach. Corp., 574 F. Supp. 1056
, 1058 (E.D.Wis.
1983); C. Wright, A. Miller & M. Kane, Federal Practice and
Procedure § 1658 (1986).
Subdivision (b) of Fed.R.Civ. 19 provides that if joinder of
a party is not feasible because, among other considerations,
it will destroy subject matter jurisdiction, the court
shall determine whether in equity and good
conscience the action should proceed among the
parties before it, or should be dismissed, the
absent person being thus regarded as
indispensable. The factors to be considered by
the court include: first, to what extent a
judgment rendered in the person's absence might
be prejudicial to the person or those already
parties; second, the extent to which, by
protective provisions in the judgment, by the
shaping of relief, or other measures, the
prejudice can be lessened or avoided; third,
whether a judgment rendered in the person's
absence will be adequate; fourth, whether the
plaintiff will have an adequate remedy if the
action is dismissed for nonjoinder.
Marathon's memorandum opposing plaintiff's motion alleges that
once plaintiff added I & M as a defendant, I & M became a
necessary and indispensable party under Rule 19. (Document No.
82). Marathon cites no authority for this proposition and
characterizes plaintiff's motion as simply "a further
illustration of the lack of good faith on the part of
plaintiff and Insulating
on the purported settlement between them." (Document No. 82,
Disregarding plaintiff's motives, it is apparent to this
Court "in equity and good conscience" that I & M is not
indispensable within the meaning of Rule 19(b). Marathon
initially protected its interests by impleading I & M as a
third-party defendant pursuant to Fed.R.Civ.P. 14. That
plaintiff and I & M have reached a settlement, thereby
releasing I & M from any liability in this action, does not
prejudice Marathon. Section 302(c) of the Contribution Among
Joint Tortfeasors Act provides:
(c) When a release or covenant not to sue or
not to enforce judgment is given in good faith to
one or more persons liable in tort arising out of
the same injury or the same wrongful death, it
does not discharge any of the other tortfeasors
from liability for the injury or wrongful death
unless its terms so provide but it reduces the
recovery on any claim against the others to the
extent of any amount stated in the release or the
covenant, or in the amount of the consideration
actually paid for it, whichever is greater.
Ill.Rev.Stat. ch. 70, ¶ 302(c) (1985).
Thus, any judgment rendered against Marathon will be reduced
to the extent of the amount stated in the release. Marathon's
complaint that the settlement between plaintiff and I & M was
not entered in good faith is not supported by cases construing
this provision of the Contribution Act.
A third-party plaintiff has the burden of proving that a
third-party defendant's settlement agreement with a plaintiff
was not in good faith. Perez v. Espinoza, 137 Ill. App.3d 762,
92 Ill.Dec. 377, 484 N.E.2d 1232 (1st Dist. 1985). Even if a
plaintiff's cause of action against a third-party defendant
could have been time barred at the time they entered into
settlement, if the third-party defendant neglected to raise a
statute of limitations defense, the third-party defendant's
potential liability is sufficient consideration by plaintiff
for a good-faith settlement. Ballweg v. City of Springfield,
114 Ill.2d 107, 102 Ill.Dec. 360, 499 N.E.2d 1373 (1986).
In sum, applying the factors enumerated in Fed.R.Civ.P.
19(b) to the circumstances of this lawsuit compels this Court
to find that I & M is not a party whose presence is needed for
a just adjudication.
Accordingly, plaintiff's Motion to Drop a Misjoined Party
(Document No. 79) is GRANTED. Furthermore, Marathon's Motion
to Dismiss the Amended Complaint (Document No. 75) for lack of
subject matter jurisdiction is hereby DENIED.
2. I & M's Motion to Dismiss the Third-Party Complaint.
I & M moves this Court to dismiss Marathon's Third-Party
Complaint on the grounds that by settling with plaintiff, I &
M has extinguished all liability it may have to others who may
also be liable to plaintiff. Marathon is potentially liable to
plaintiff. As a preliminary matter, this Court GRANTS I & M's
Motion to Substitute (Document No. 78) the original signed
release for the copy attached to I & M's Motion to Dismiss the
The Illinois Contribution Among Joint Tortfeasors Act
provides that "[t]he tortfeasor who settles with a claimant
pursuant to paragraph (c) [quoted above] is discharged from
all liability for any contribution to any other tortfeasor."
Ill.Rev.Stat. ch. 70, ¶ 302(d) (1985). Under the Contribution
Act, the settlement must be in "good faith" before it precludes
a co-tortfeasor's right of contribution. Marathon asserts that
the settlement between the plaintiff and I & M did not comport
with the spirit of the Contribution Act and was not in good
The Supreme Court of Illinois has explicated the purpose of
the Contribution Act in two recent cases. In Rakowski v.
Lucente, 104 Ill.2d 317, 325, 84 Ill.Dec. 654, 658,
472 N.E.2d 791, 795 (1984), the supreme court stated:
As a matter of public policy the settlement of
claims should be encouraged. If we were now to
add limitations not expressed in the general
language of the settlement instrument or in the
of the Contribution Act, we would make those who
desire to end litigation wary and uncertain of
what they would accomplish by settlement.
See also Ballweg v. City of Springfield, 114 Ill.2d 107
499 N.E.2d 1373
(1986). Marathon alleges that the settlement
between I & M and plaintiff was not in good faith because I &
M, plaintiff's employer, had the valid defenses of exclusive
remedy of a workmen's compensation claim as well as expiration
of the applicable Statute of Limitations. Nevertheless, the
Supreme Court of Illinois has noted that "the potential for
tort liability exists until the defense is established." Doyle
v. Rhodes, 101 Ill.2d 1
, 10-11, 77 Ill.Dec. 759, 764,
461 N.E.2d 382
, 387 (1984); see also, Johnson v. Jack B. Kelley,
Inc., 669 F. Supp. 191, 193-94 (N.D.Ill. 1987). Thus, a
plaintiff may recover a tort judgment against his employer for
a work-related injury if the employer fails or refuses to raise
a Workers' Compensation Act defense in the belief that the
plaintiff will be unable to prove negligence to a jury's
satisfaction. See Rhodes v. Industrial Com., 92 Ill.2d 467
Ill.Dec. 83, 442 N.E.2d 509
(1982). In the instant case, I & M
has raised none of the defenses Marathon alleges it had. I & M
was therefore potentially liable for plaintiff's injuries, and
any settlement entered into with plaintiff could not be in bad
faith on the grounds alleged by defendant.
Accordingly, I & M's Motion to Dismiss the Third-Party
Complaint (Document No. 74) is GRANTED.
3. Marathon's Motion for Set-Off.
Marathon moves that this Court grant it a set-off on any
verdict against it in the amount of the workmen's compensation
lien and $10,000, the amount of consideration recited in the
release executed by plaintiff. Marathon asserts that § 302(c)
of the Contribution Act authorizes the requested set-off. As a
preliminary matter, the Court GRANTS Marathon's Motion to File
a Reply Brief (Document No. 81). Marathon's Reply Brief simply
clarifies its position that I & M's waiver of its lien rights
under § 5(b) of the Workers' Compensation Act, Ill.Rev.Stat.
ch. 48, ¶ 138.5(b), is the subject of the set-off.
In its response, I & M states that Marathon is entitled to
a set-off in the amount of $10,000 under § 302(c) of the
Contribution Act, but does not have a right to a set-off of I &
M's waiver of its rights under § 5(b) of the Workers'
Compensation Act. The Court agrees that § 302(c) only warrants
a $10,000 set-off.
Marathon alleges that the value of I & M's waiver of its
compensation lien should be set-off against any award to
plaintiff in order to avoid contravening the policies of this
state disallowing double recovery by tort plaintiffs. As I &
M correctly observes, none of the cases Marathon cites address
the issue of a defendant's right to set-off from a jury award
the amount of worker's compensation benefits previously paid
to a plaintiff. They also do not support Marathon's claim that
an employer's waiver of its workmen's compensation lien should
inure to a joint tortfeasor's benefit.
In Pierce v. Commonwealth Edison Co., 101 Ill. App.3d 272, 56
Ill.Dec. 855, 428 N.E.2d 174 (3d Dist. 1981), the Illinois
Appellate Court for the Third District succinctly stated the
common law rule Illinois courts follow:
It should be noted that our courts have
universally held that a worker's compensation
recovery is money received by the injured party
from a collateral source which should not off-set
a judgment in an action based on common law
428 N.E.2d at 178 (citations omitted).
Marathon's unsupported claim that a waiver of a worker's
compensation lien should operate as a set-off benefitting a
joint tortfeasor even though actual payment of a worker's
compensation claim would not be a set-off raises a false
distinction and does violence to the policies served by the
Since the Contribution Act was enacted on September 14,
1979, no Illinois court has directly confronted the issue of
a non-employer defendant setting-off the compensation lien of
an employer-tortfeasor who settled. Nevertheless, the Illinois
Appellate Court for the First District impliedly addressed the
issue in Doellman v. Warner
& Swasey Co., 147 Ill. App.3d 842, 101 Ill. Dec. 366,
498 N.E.2d 690 (1st Dist. 1986). In evaluating whether a settlement
was entered into in good faith, the court determined that a
settling employer/third — party defendant gave consideration
for its release by paying $140,000 to a primary defendant, who
contributed $5,000 and passed it on to plaintiff, and by
waiving its compensation lien (which was worth $56,925). The
court found that the settlement was in good faith, but did not
consider the dollar value of the compensation lien waiver as
part of the total settlement value. 498 N.E.2d at 697. It is
therefore apparent that Illinois courts still regard an
employer's waiver of its compensation lien as a collateral
source of recovery not intended to benefit a primary or joint
Accordingly, Marathon's Motion for Set-Off (Document No. 76)
is GRANTED to the extent of the $10,000 I & M turned over to
plaintiff, but DENIED as to the value of I & M's waiver of its
workers' compensation lien.
In summary, it is hereby ORDERED that plaintiff's Motion to
Drop a Misjoined Party (Document No. 79) is GRANTED.
IT IS FURTHER ORDERED THAT Marathon's Motion to Dismiss the
Amended Complaint (Document No. 75) is DENIED.
IT IS FURTHER ORDERED THAT I & M's Motion to Dismiss the
Third-Party Complaint (Document No. 74) is GRANTED.
IT IS FURTHER ORDERED THAT Marathon's Motion to File a Reply
Brief (Document No. 81) is GRANTED.
IT IS FURTHER ORDERED THAT Marathon's Motion for Set-Off
(Document No. 76) is GRANTED in part and DENIED in part.
Marathon is entitled to a set-off of $10,000 but is not
entitled to a set-off in the amount of the value of I & M's
waiver of its workers' compensation lien.
IT IS SO ORDERED.
© 1992-2003 VersusLaw Inc.