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A civil defendant against whom a judgment has been entered may sue for contribution another defendant who later settles the case, despite a statute that in most instances bars such suits, the Appellate Division, 1st Department, ruled last week. The ruling in Chase Manhattan Bank v. Jefferies & Co. Inc., 2484, arose in a case in which a Texas-based corporation had a claim against two potential defendants relating to the placement of a private offering of 1.5 million shares of its stock. The company, 50-Off Stores, sued Chase Manhattan Bank in federal court in Texas, charging that the bank that held the stock had prematurely released it, so the purchasers received it without having to pay for it. The second potential defendant, which was separately sued for technical reasons in a Texas state court, was the agent 50-Off had retained to make the placement, Jefferies & Co. Inc. Jefferies, according to 50-Off’s complaint, had failed to adequately check the buyers’ background. The buyers of the stock were subsequently discovered to be using fictitious names, said Chase lawyer Martin J. Flannery Jr. of Pattison & Flannery. In December 1997, 50-Off won a $10.6 million judgment in federal court in Texas against Chase for prematurely releasing the stock. A month later, 50-Off settled its claim against Jefferies for $4.3 million. Chase then sued Jefferies in New York for contribution, claiming that it had paid more than its fair share of 50-Off’s damages. Jefferies countered by citing General Obligation Law (GOL) � 15-108(b), which specifies that a defendant who settles a claim shall not be liable “to any other person for contribution.” Despite that language, 1st Department Justice David Friedman, writing for a unanimous panel, concluded that the bar on contribution actions did not apply where a judgment had previously been entered against a non-settling party, such as Chase. The 1st Department thus allowed Chase to proceed with its contribution action against Jefferies in New York state court. In reaching that result, the appellate panel was in agreement with an Appellate Division, 2nd Department, panel in Cover v. Cohen, 113 AD2d 502 (1985). The 1st Department ruling affirmed Supreme Court Justice Charles E. Ramos, but used different reasoning. TWIN GOALS To extinguish a defendant’s contribution claim against another defendant who settled, even though judgment had already been entered against the first defendant, would be at odds with the twin goals of New York’s complex statute for apportioning liability among joint tortfeasors and limiting their contribution actions against each other, Justice Friedman wrote. The twin goals, Justice Friedman pointed out, are the promotion of settlements and the equitable apportionment of liability. To deny Chase the right to sue for contribution would be inconsistent with the goal of equitable apportionment in light of the prior judgment, he reasoned. Because of that judgment, he noted, Chase, if deprived of its right to sue, would not have an opportunity to have its liability to 50-Off reduced by Jefferies’ “equitable share of damages.” Joining in the 1st Department decision were Justices Richard T. Andrias, David B. Saxe, Ernst H. Rosenberger and Alfred D. Lerner. In addition to Mr. Flannery, Chase was represented by Barbara Ellis of Locke Liddell & Sapp, and Alyssa Kelman of J.P. Morgan Chase’s legal department. Andrew W. Stern, Steven E. Klein, and Chad L. Edgar of Sidley Austin Brown & Wood represented Jefferies.

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