Legal Definitions - Mary Carter agreement

A Mary Carter agreement is a specific type of settlement contract made between a plaintiff (the party bringing the lawsuit) and one or more, but not all, of the defendants in a multi-defendant case. In essence, some defendants settle with the plaintiff, but instead of exiting the lawsuit entirely, they agree to remain involved. The unique aspect of this agreement is that the settling defendants' financial liability to the plaintiff is often capped or reduced, sometimes even to zero, depending on how much the plaintiff ultimately recovers from the *other*, non-settling defendants. In some instances, the settling defendants might even receive a portion of any money the plaintiff wins from the remaining defendants.

These agreements are typically controversial because they can create unusual incentives, potentially aligning the interests of the settling defendants with the plaintiff against the non-settling defendants. While some states prohibit them due to concerns about fairness and public policy, other states allow them, often with the requirement that the agreement be disclosed to the court and jury.

Here are some examples to illustrate how a Mary Carter agreement might work:

• Multi-Vehicle Accident Lawsuit:

  Imagine a complex car accident involving three vehicles. The injured driver (the plaintiff) sues Driver A (who allegedly caused the initial collision), Driver B (who then rear-ended Driver A), and the manufacturer of Driver A's vehicle (for alleged brake failure). Driver B, believing their fault is minor compared to Driver A and the manufacturer, might enter a Mary Carter agreement with the plaintiff. Driver B agrees to pay the plaintiff $50,000 *if* the plaintiff recovers nothing from Driver A or the manufacturer. However, if the plaintiff recovers, say, $500,000 from Driver A and the manufacturer, Driver B's $50,000 obligation might be reduced or eliminated, and Driver B might even receive a small percentage of that $500,000. Driver B remains a named defendant in the trial, but their incentive shifts to helping the plaintiff prove the fault of Driver A and the manufacturer.

  This illustrates how some defendants settle, remain in the lawsuit, and their financial obligation to the plaintiff becomes contingent on the plaintiff's recovery from the non-settling defendants, potentially even allowing them to share in that recovery.

• Construction Defect Case:

  A homeowner sues a general contractor, an architect, and a plumbing subcontractor for significant water damage due to faulty construction. The plumbing subcontractor, arguing their fault is minor compared to the general contractor and architect, might enter a Mary Carter agreement with the homeowner. The subcontractor agrees to pay the homeowner $20,000, but this amount is reduced dollar-for-dollar by any amount the homeowner recovers from the general contractor or architect, up to $20,000. The subcontractor continues to participate in the trial, but their primary interest now lies in helping the homeowner establish the liability of the general contractor and architect, effectively reducing their own payout.

  This demonstrates a defendant settling, staying in the case, and their payment obligation being directly offset by the plaintiff's recovery from other defendants, creating an incentive for the settling defendant to assist the plaintiff.

• Product Liability Litigation:

  Several individuals sue a pharmaceutical company (Manufacturer X) and a distributor (Distributor Y) for injuries allegedly caused by a defective drug. Distributor Y, arguing they merely distributed the product and had no control over its formulation, might enter a Mary Carter agreement with the plaintiffs. Distributor Y agrees to pay the plaintiffs a fixed sum, say $1 million, but only if the plaintiffs fail to recover at least $5 million from Manufacturer X. If the plaintiffs recover $10 million from Manufacturer X, Distributor Y's obligation is completely extinguished, and they might even receive a small percentage of that $10 million as a "kickback" for their cooperation in the trial against Manufacturer X. Distributor Y remains a party, actively participating in discovery and trial, but their efforts are now aligned with the plaintiffs in proving Manufacturer X's liability.

  This example shows a defendant settling, remaining in the suit, and their payment being contingent on the plaintiff's recovery from the primary defendant, potentially even receiving a share of that recovery, which can significantly alter trial dynamics.