WISDOM, Circuit Judge.
This appeal is from a judgment for $18 million in favor of Grant Company against the defendants, Sioux Natural Gas Corporation, Sioux Pipeline Corporation, Elliott H. Powers, and J.F. Freel. Shortly before this Court heard oral argument on the case, the individual appellants — Powers and Freel — reached a settlement with Grant, which the district court approved after a hearing. We remand for a determination whether the settlement has mooted the entire appeal.
In November 1974, Lee Ratner, John Zuro, and their partnership, the Grant Company,
Powers and Freel created and incorporated Sioux Natural Gas to take title to the Grant properties.
The plaintiffs filed a complaint with the United States District Court for the Southern District of Texas on November 25, 1977. Alleging that the defendants had fraudulently induced the plaintiffs to enter into the 1974 agreement, the complaint charged the defendants with violating federal and state securities law. After a nine-day trial, a jury found the defendants guilty of common law fraud and of fraud under the Texas Securities Act
On May 6, 1983, less than two weeks before this Court heard argument on the appeal, Powers and Freel settled with Grant. The settlement provides that Grant will receive all of the common stock of Rapada Corporation — the parent of Sioux, Sioux Pipeline, and several other companies — along with other assets of the individual defendants. In return, Powers and Freel are discharged from liability on the judgment. The settlement agreement states that the "judgment shall remain in full force and effect against ... Sioux Natural Gas Corporation and Sioux Pipeline Corporation".
The settlement between Grant and the individual defendants requires this Court to address the effect of settlements on the liability of nonsettling joint tortfeasors. We hold that, in the circumstances that this case presents, the value of the property received by Grant through the settlement should be credited against the entire judgment before the liability of Sioux and Sioux Pipeline is assessed. If the value of the property received exceeds the total judgment,
Texas tort law recognizes a "one satisfaction" rule: "[A]n injured party is entitled to but one satisfaction for a single injury, so that an amount received in settlement from one alleged tortfeasor must be applied as a credit reducing the amount to be recovered against other defendants." Gill v. United States, 5 Cir.1970, 429 F.2d 1072, 1079.
The "one satisfaction" rule does not, however, completely dispose of the question addressed here, for several cases have held the rule inapplicable to punitive damages. See Howard v. General Cable Corp., 5 Cir.1982, 674 F.2d 351, 358; Hill v. Budget Finance & Thrift Co., Tex.Civ.App.1964, 383 S.W.2d 79, 81-82, no writ; see also Dobson v. Camden, 5 Cir.1983, 705 F.2d 759, 772 (Higginbotham, J., dissenting) (citing Hill), reheard en banc, Sept. 13, 1983 (No. 82-2066). These cases are not directly relevant. In both Howard and Hill, the decision not to apply the rule to punitive damages turned on the fact that such damages were not common to all of the defendants. Hill concerned a situation in which the plaintiff sought compensatory damages against four groups of defendants for their joint actions, as well as punitive damages against each defendant for its separate actions. Three of the defendant groups settled with the plaintiff; the remaining defendant went to trial and was adjudged liable for compensatory — but not punitive — damages. The appellate court held that the amount of the settlement that represented punitive damages could not be used to offset the compensatory damages awarded against the nonsettling defendant, because "credit to be claimed by a joint tort-feasor is confined to those damages for which all tort-feasors are equally liable". 383 S.W.2d at 81. The factual context and holding of Howard are essentially the same as those in Hill. See Howard, 674 F.2d at 358.
In the instant case the district court held all four defendants jointly and severally liable for both actual and punitive damages. The court did not apportion liability among the defendants, and liability for all of the defendants was premised upon the same actions — the actions and alleged misrepresentations of Powers and Freel. Hill and Howard are therefore not directly relevant here.
Nevertheless, the rationale of the "one satisfaction" rule is usually inapposite to punitive damages. The purpose of the rule is to ensure that a plaintiff receives no more than full compensation for his loss. See, e.g., Dobson v. Camden, 5 Cir.1983, 705 F.2d 759, 766, reheard en banc, Sept. 13, 1983 (No. 82-2066); Snowden v. D.C. Transit Systems, D.C.Cir.1971, 454 F.2d 1047, 1048; Harrington v. Texaco, Inc., 5 Cir.1964, 339 F.2d 814, 820, cert. denied, 1965, 381 U.S. 915, 85 S.Ct. 1538, 14 L.Ed.2d 435. A plaintiff awarded punitive damages has been given the right to receive more than "one satisfaction". The award of punitive damages is unconcerned with compensation; it is intended to punish the wrongdoer and to deter the commission of similar offenses in the future. E.g., City of Newport v. Fact Concerts, Inc., 1981, 453 U.S. 247, 266-67, 101 S.Ct. 2748, 2759-60, 69 L.Ed.2d 616; Maxey v. Freightliner Corp., 5 Cir.1982, 665 F.2d 1367, 1378; 17 Tex.Jur.2d Damages § 174, at 240-41 (1960). To further the objectives of punishment and deterrence, it is more important that a defendant pay for his wrongdoing than that the plaintiff receive the payment. Dobson v. Camden, 705 F.2d at 769-70.
But punitive damages are a harsh remedy, not favored by the law,
Moreover, because of the present financial situation of the nonsettling defendants and because the settlement has in effect vested Grant with ownership of the nonsettling defendants, further recovery by Grant against Sioux and Sioux Pipeline can have no deterrent or punitive effect on those defendants. Sioux and Sioux Pipeline are in bankruptcy. If their corporate assets are insufficient to satisfy all claims against them, upholding the validity of Grant's claim for punitive damages would hurt the corporate defendants' unsecured creditors, not the corporate defendants. If the corporate assets are sufficient to satisfy all claims, allowing Grant to recover would simply effect a transfer of assets between corporations owned by Ratner and Zuro. In either situation, no public purpose is furthered.
The holding of this case is limited to the circumstances with which we are confronted. We do not hold that punitive damages should not be awarded against corporate defendants when liability is wholly derivative from the actions of controlling individual defendants. We recognize that the "one satisfaction" rule usually should not apply to punitive damages. Nonetheless, we find that the purposes underlying the award of punitive damages in this case will have been adequately served if the settlement is sufficient to cover the entire judgment. Accordingly, we remand for a determination of the value of the property received by Grant in its settlement with Powers and Freel.
We are mindful of the exigency created by the financial straits of the corporate defendants,
Because of the necessity for determining whether the case is moot, we do not reach the merits.
The case is REMANDED for proceedings consistent with this opinion.
That Grant is now effectively the owner of the nonsettling defendants does not itself render this case moot. Rapada, Sioux, and Sioux Pipeline are in reorganization proceedings under chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174 (1982), and the assignment of the Rapada common stock to Grant is subject to prior bank liens. If Grant is entitled to further recovery from Sioux and Sioux Pipeline, a resolution of the merits of this appeal will determine Grant's priority in the reorganization proceedings.