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Unruh v. James D. Vandever Trucking, Inc.

United States District Court, D. New Mexico

April 6, 2018

LINDA UNRUH, Plaintiff,
v.
JAMES D. VANDEVER TRUCKING, INC. and EARL ROGER GARRETT, Defendants.

          MAGISTRATE JUDGE'S PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

          STEPHAN M. VIDMAR UNITED STATES MAGISTRATE JUDGE

         THIS MATTER is before me on the parties' Third Joint Motion to Approve Minors' Settlements [Doc. 73], filed on March 29, 2018. The Honorable Judith C. Herrera, United States District Judge, referred this matter to me to conduct a fairness hearing and make a recommendation as to whether the settlement is in the best interests of the beneficiaries and whether it should be approved. [Doc. 20]. The Court-appointed guardian ad litem, Donald Schutte, submitted his Second Supplemental Report of Guardian Ad Litem on March 23, 2018 [Doc. 70], [1] recommending approval of the settlement agreement. I held a fairness hearing on March 27, 2018. I have considered the motion, the guardian ad litem's report, the representations made during the fairness hearing, the record, and the relevant law. With one exception, I find the proposed settlement to be fair, reasonable, and in the minor children's best interests. I therefore recommend that the motion be DENIED and that the parties be permitted to submit an amended motion as set out more fully below.[2]

         Background

         On February 19, 2017, Robert Unruh was hit by a tractor trailer along Interstate 40 outside of Tucumcari, New Mexico. [Doc. 1-1] at 3. He was killed on impact. Id. at 4. Mr. Unruh operated a towing company and had arrived to assist a disabled vehicle parked along the shoulder of the interstate. Mr. Unruh had gotten out of his vehicle and was directing traffic away from the outside lane of the interstate when he was struck and killed. Id.

         Plaintiff Linda Unruh, the decedent's mother, was appointed personal representative of the decedent's wrongful death estate and next friend of the decedent's three minor children. Id. at 1. She retained attorney Michael Garrett. On March 10, 2017, Mr. Garrett filed a wrongful death action in state court against Earl Roger Garrett, the driver of the truck, and James D. Vandever Trucking Co., his employer. Pursuant to the New Mexico Wrongful Death Act, NMSA 1978, § 41-2-1, Plaintiff alleged that Defendants' negligence caused Robert Unruh's death and requested compensatory and punitive damages. Defendants denied liability.

         Defendants removed the action to this Court on April 6, 2017. [Doc. 1]. On May 3, 2017, counsel for Defendants notified the undersigned's chambers that the parties had reached a settlement in the matter, and I directed the parties to file their closing documents. [Doc. 13]. The parties filed a joint motion to dismiss on June 1, 2017. [Doc. 14]. Subsequently, Judge Herrera ordered the parties to show cause why the proposed settlement should not be subject to review by a guardian ad litem and a fairness hearing to determine whether the settlement was in the minors' best interest. [Doc. 18]. No. party responded, and on June 26, 2017, Judge Herrera ordered that a guardian ad litem be appointed and that the parties file a motion to approve the settlement.[3] [Doc. 20]. Mr. Schutte was appointed as guardian ad litem on August 2, 2017, [Doc. 23], and the parties' Joint Motion to Approve Minor Settlement (“Motion to Approve”) was filed on August 25, 2017. [Doc. 28].

         The motion indicated that the parties had agreed to settle the case for $1, 000, 000, the limits of all available insurance coverage. Id. at 1. The settlement amount was reduced by Mr. Garrett's fee (33.33%), litigation costs, and other expenses. Id. at 4-5. The proposal called for a portion of the settlement funds to be distributed to two towing companies and one of their employees who purportedly “ha[d] claims arising from the incident.” Id. at 1. The remainder was to be split evenly among Plaintiff and the three minors-i.e., one-fourth of the balance was to go to Plaintiff and one-fourth to each of the three minor children. Id. The minors' shares (together) totaled $412, 536.18.

         Mr. Schutte filed his first report on September 28, 2017. [Doc. 29]. Mr. Schutte found that it was likely reasonable to settle the case for the available insurance limits, i.e., $1, 000, 000, assuming Defendants lacked significant assets to satisfy a judgment above policy limits. Id. at 9. However, he had serious concerns about the proposed settlement agreement and distribution. Among other things, he questioned: (1) the distribution of an equal share of the settlement proceeds to Plaintiff, individually; (2) certain expenses claimed by Plaintiff and Mr. Garrett which appeared unnecessary or too high; (3) the amount of attorney's fees claimed by Mr. Garrett; and (4) the lack of a structured settlement for the minors. Id. at 4-9. Given these concerns, he found that the proposed apportionment was not fair to the minors. Id. at 9-10. He also noted that the settlement proceeds had already been received by Plaintiff's counsel, which he noted “may seriously limit or rule out possible available options for structuring future benefits for the children.” Id. at 4. Plaintiff responded to the guardian ad litem's report, maintaining that approval of the settlement was warranted. [Doc. 31].

         I scheduled a fairness hearing on October 30, 2017, and ordered the parties to deposit the full amount of the settlement proceeds in the Court registry.[4] [Doc. 34]. By the time of the fairness hearing, Plaintiff had discharged Mr. Garrett and hired Brian Grayson. [Docs. 40, 46]. Mr. Garrett had also retained counsel. [Doc. 38]. Mr. Schutte had filed a supplemental report, in which he reasserted his concerns as to the proposed disbursements, expenses, and attorney's fees. [Doc. 42].

         At the hearing, Mr. Grayson stated that Plaintiff did not believe the settlement was fair, and that she planned to withdraw her motion to approve. See [Doc. 48] at 2. Given the representations of Plaintiff's counsel and the reports from the guardian ad litem, I declined to proceed with the fairness hearing. Instead, with the parties' consent, I held a mediation at which we discussed a number of issues, including the proposed attorney's fees, disbursements to third parties, expenses to be reimbursed, and structured settlements for the children. Those mediation efforts continued over the next several months.

         At a status conference on March 9, 2018, counsel stated that they had reached an agreement and were prepared to proceed with a fairness hearing. See [Doc. 67]. On March 23, 2018, the parties filed their second Joint Motion to Approve Minors' Settlement [Doc. 69]. The same day, Mr. Schutte filed a second supplemental report. [Doc. 70]. As to the settlement amount, Mr. Schutte was satisfied that it constituted the total amount of available insurance coverage, and that attempting to obtain an excess judgment against Defendants “would not be particularly productive in a timely fashion.” Id. at 1-2. He further found that the revised disbursement schedule addressed the matters to which he had objected in his prior reports. Id. at 2. Mr. Garrett had agreed to reduce his fee from 33.33% to 27.5%. Mr. Schutte noted that while he would have liked to see the fee percentage reduced even further, he agreed not to oppose the proposed fee in the interest of getting the settlement funds disbursed for the benefit of the minors. He further found that the proposed structured settlement plan was reasonable. Id. at 3-4.

         I held a fairness hearing on March 27, 2018. Mr. Grayson presented the parties' updated settlement proposal. He pointed out that no settlement funds would go to the towing companies, their employee, or Plaintiff individually. He noted other expenses that would no longer be reimbursed from the settlement funds. He also stated that Plaintiff had agreed to waive certain expenses that she had claimed in the second Joint Motion to Approve. He described the conservatorship that had been set up for two of the minor children and the structured settlements that were proposed for all three. He noted that the three structured settlements would pay out more than $1, 000, 000 over the life of the plan. He argued for the reasonableness of fees and expenses that would be reimbursed from the settlement. I also heard from Defendants' counsel, Mr. Garrett's counsel, the guardian ad litem, and Plaintiff. Ultimately, all parties believed that the settlement was fair and reasonable and recommended that it be approved by the Court. We discussed the fact that the settlement proceeds had earned a small amount of interest while deposited in the Court registry. Everyone agreed that the interest should go to the children. I asked Mr. Grayson to file an amended motion reflecting the final figures discussed at the fairness hearing. He filed the parties' Third Joint Motion to Approve Minors' Settlement (“Third Motion to Approve”), on March 29, 2018. [Doc. 73].

         The following table shows the proposed distribution of settlement funds, accounting for attorney's fees, expenses to be reimbursed to Plaintiff and Mr. Garrett, and other disbursements. It compares the initial proposed distribution scheme against the final proposal. The final settlement proposal would result in a balance of $623, 647.81. Adding the interest that accrued while the settlement funds were in the Court registry, the total balance to the three minor children comes to $625, 797.24.

Costs and Expenses

Initial Settlement

Final Settlement

Items Eliminated from Original Settlement Proposal

Payment to Plaintiff

$137, 512.06

$0.00

Payment to Chad Becerra

$5, 000.00

$0.00

Payment to Pinky's Towing

$2, 500.00

$0.00

Payment to Allrite Towing

$2, 500.00

$0.00

Probate Costs

$5, 405.00

$0.00

Guardian Ad Litem Fee

$325.13

$0.00

Funeral Expenses

$12, 193.09

$0.00

Costs to be Reimbursed to Mr. Garrett

Workers' Compensation Subrogation Claim

$30, 000.00

$30, 000.00

Network and Security Solutions

$6, 486.00

$6, 000.00

Other Litigation Costs

$0.00

$1, 833.50

Costs to be Reimbursed to Plaintiff

Conservatorship

$5, 405.00

$5, 405.00

M. Brian McDonald

$1, 901.50

$1, 901.50

J.G. Vick Consulting

$17, 341.85

$17, 341.85

Clements Special Investigations

$1, 361.58

$5, 389.62

Crash Analysis (“black box” data download)

$2, 802.59

$2, 802.59

Attorney's Fees

Mr. Grayson's Fee and gross receipts tax (“GRT”)

$0.00

$8, 062.50

Mr. Garrett's Fee and GRT

$356, 730.00

$297, 515.63

Other Costs

Mr. Grayson's Litigation Costs

$0.00

$100.00

Total Deductions

$587, 463.80

$376, 352.19

Balance to Minors (Interest Added)

$412, 536.18

$625, 797.24

         Legal Standard

         “The general rule [in many jurisdictions] is that a next friend or guardian ad litem acting for a minor may negotiate a settlement, but such compromise is not binding on the infant in the absence of judicial approval.” Garcia v. MiddleRio Grande Conservancy Dist., 1983-NMCA-047, ¶ 28, 99 N.M. 802, overruled on othergrounds by Montoya v. AKAL Sec., Inc., 1992-NMSC-056, 114 N.M. 354. Though New Mexico has not adopted this rule, under its common law, the Court “has a special obligation to see that [children] are properly represented, not only by their own representatives, but also by the court itself.” Id. ¶ 30; see also Garrick v. Weaver, 888 F.2d 687, 693 (10th Cir. 1989) (Courts have a “general duty . . . to protect the interests of [minors and incompetent persons] in cases before the court.”). Thus, when a settlement is presented to a reviewing court for approval, the court must determine whether the settlement is fair and the best interests of the minor children. See Shelton v. Sloan, 1999-NMCA-048, ¶ 41, 127 N.M. 92 (concluding that the Court's role is to “review[ ] the fairness of the agreement itself”); Garcia, 1983-NMCA-047, ¶ 30 (“In passing upon settlements dealing with claims or rights of minors, the court must determine whether the approval of a compromise would be in the best interests and welfare of the minor child.”). “[W]hen a settlement involving a minor is presented to a court for approval and the information before the court indicates that the settlement is not fair to the minor, the court must reject the settlement.” Shelton, 1999-NMCA-048, ¶ 42.

         Analysis

         In reviewing the fairness of the settlement presently before me, I have been guided by the following factors:

(1) whether the settlement terms were fairly and honestly negotiated; (2) whether serious questions of law or fact exist, placing the ultimate outcome of litigation in doubt; (3) whether the value of an immediate recovery outweighs the mere possibility of a greater future recovery after protracted and expensive litigation; and (4) whether the settlement is fair and reasonable in its effect.

Ball v. DATS Trucking, Inc., No. 11-cv-0094 JB/WPL, [Doc. 61] at 4 (D.N.M. Dec. 11, 2012) (citing Jones v. Nuclear Pharm., Inc., 741 F.2d 322, 324 (10th Cir. 1984)). I find that, with one exception, the proposed distribution is fair, reasonable, and in the minors' best interests.

         1. The proposed settlement was fairly and honestly negotiated.

         There are two aspects to this factor: the negotiations between Mr. Garrett and Defendants, and the negotiations between Mr. Garrett and Plaintiff's new counsel, Mr. Grayson. As to the former, there is no indication those negotiations were anything other than above board. The insurance carrier for Defendants tendered its full policy limits less than 90 days after the accident. Mr. Garrett investigated Defendants' assets to determine whether there was any likelihood of collecting on a judgment in excess of policy limits. He learned that while Defendant Vandever Trucking owned a number of expensive vehicles, all were heavily encumbered. See [Doc. 42] at 16-29; [Doc. 57-3] (“Vandever Trucking Company, Inc.- Summary of Assets, Liens and Values”). He therefore properly accepted Defendants' policy-limits offer.

         The subsequent negotiations between Mr. Garrett and Mr. Grayson primarily involved litigation costs and Mr. Garrett's fees. Mr. Grayson had asked Mr. Garrett to provide documentation to support certain costs. Mr. Garrett provided the requested information. Mr. Grayson and the guardian ad litem are satisfied that the costs reflected in the Third Motion to Approve are appropriate. Based on my conversations with the guardian ad litem and the evidence presented at the fairness hearing, I concur. Mr. Garrett agreed to reduce his fees from 33.3% to 27.5%. Plaintiff and the guardian ad litem agree that this fee is reasonable, although both have expressed some reservations. See [Doc. 70] at 2. While I disagree as to the reasonableness of Mr. Garrett's fees, which I will discuss in more detail below, I conclude that the terms of the final proposed settlement were fairly and honestly negotiated.

         2. Serious questions of fact exist, which place the ultimate outcome of the litigation in doubt.

         Plaintiff settled for the limits of all available insurance coverage. Thus, this factor is not as significant as it might be in the typical compromise settlement. As a practical matter, Plaintiff is receiving in the settlement all she could reasonably expect to recover at trial. That being said, there are serious questions of fact that place the ultimate outcome of the litigation in doubt. The New Mexico State Police investigated the accident. See [Doc. 45-2] (State of New Mexico Uniform Crash Report) (hereinafter “Accident Report”). The investigating officer took photographs of the scene, obtained statements from several witnesses, and prepared a detailed, 24-page Accident Report. Id. The Accident Report places all the blame on the decedent, id. at 4 (Mr. Unruh “walked into roadway”), and none on the Defendant driver, id. at 3 (“Veh. No. 1-No Driver Error”). Additionally, the physical evidence at the scene clearly established that the point of impact occurred in the traveled lane of the highway, not on the shoulder. See id. at 6, 14 (skid marks from decedent's shoes clearly in lane of travel). This evidence was consistent with the Defendant driver's statement. Id. at 12 (“As I came up on the trailer I saw a person step ...


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