Marso v. Homeowners Realty, Inc

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.

SUMMARY
February 8, 2018

2018COA15

No. 16CA1521 & 17CA0066, Marso v. Homeowners Realty —
Agency — Respondeat Superior — Affirmative Defenses —
Setoff

In this civil case, the division decides two issues of first

impression. First, the division holds that when a party’s liability is

based entirely on respondeat superior, a settlement with the agent

is setoff against the jury verdict entered against the principal. The

division also holds that statutory prejudgment interest accrues on

the jury verdict before the setoff.

Accordingly, the division reverses the district court’s judgment

and remands the case with directions.
COLORADO COURT OF APPEALS 2018COA15

Court of Appeals Nos. 16CA1521 & 17CA0066
Mesa County District Court No. 11CV4626
Honorable Thomas M. Deister, Judge

Samuel A. Marso and Audrey S. Marso,

Plaintiffs-Appellants,

v.

Homeowners Realty, Inc., d/b/a Coldwell Banker Home Owners Realty, Inc.,

Defendant-Appellee.

JUDGMENT REVERSED AND CASE
REMANDED WITH DIRECTIONS

Division VII
Opinion by JUDGE BERGER
Bernard and Freyre, JJ., concur

Announced February 8, 2018

Earl G. Rhodes, LLC, Earl G. Rhodes, Grand Junction, Colorado for Plaintiffs-
Appellants

Davlin & Davlin, LLC, Shawn M. Davlin, Durango, Colorado for Defendant-
Appellee Homeowners Realty, Inc.
¶1 This case requires us to decide whether a monetary settlement

made with an agent must be set off against a jury verdict returned

against the principal when the principal’s liability is entirely

dependent on the doctrine of respondeat superior. And, if such a

setoff is required, is the setoff made before or after statutory

prejudgment interest accrues on the jury verdict?

¶2 We hold that Colorado law requires a setoff and that the setoff is

made after statutory prejudgment interest accrues on the jury

verdict. While the trial court correctly ruled that a setoff was

required, it erroneously concluded that statutory interest did not

accrue until after the setoff was made. Accordingly, we reverse the

judgment and remand the case for further proceedings.

I. Relevant Facts and Procedure

¶3 Elly Dilbeck, who was employed by or associated with

Homeowners Realty, Inc., d/b/a/ Coldwell Banker Home Owners

Realty, Inc. (Coldwell),1 acted as Sam and Audrey Marso’s agent in

1The precise legal relationship between Dilbeck and Coldwell is not
pertinent to our analysis because the parties do not contest that
Coldwell is vicariously liable for any of the damages caused by
Dilbeck.

1
their purchase of a house. At the time of purchase, the Marsos did

not know that the builder used radioactive uranium mill tailings as

fill material.

¶4 Two years after the purchase, the Marsos discovered that

uranium tailings had been used, creating a potential health hazard.

The Marsos filed a complaint against Dilbeck and Coldwell alleging

negligence against Dilbeck and respondeat superior liability against

Coldwell.2

¶5 Sometime before the scheduled trial date, the Marsos settled with

Dilbeck for $150,000, inclusive of interest. In connection with the

settlement, Dilbeck filed a written admission that her failure to

disclose that uranium mill tailings may have been used in the

Marsos’ house fell below the standard of care for a real estate agent.

2The trial court initially granted summary judgment for Dilbeck
and Coldwell on the basis that the Marsos had insufficiently
supported their summary judgment response with evidence of
damages. A division of this court reversed that summary judgment,
holding that the Marsos’ testimony regarding diminution of value
was sufficient to meet their summary judgment burden. Marso v.
Dilbeck, (Colo. App. No. 13CA1784, Oct. 23, 2014) (not published
pursuant to C.A.R. 35(f)).

2
The settlement expressly preserved all claims against Coldwell, and

a jury trial was then held only between the Marsos and Coldwell.3

¶6 The jury was instructed to determine the total amount of

damages sustained by the Marsos and was not informed of the

amount of the settlement with Dilbeck. The jury returned a verdict

of $120,000 against Coldwell.

¶7 In post-trial proceedings, the trial court set off the settlement

payment of $150,000 against the $120,000 jury verdict, resulting in

a zero recovery for the Marsos. The court rejected the Marsos’

argument that statutory prejudgment interest accrues on the jury

verdict before the setoff. Because the settlement payment exceeded

the jury verdict, the court entered judgment in favor of Coldwell and

later entered a cost award against the Marsos of approximately

$30,000.

3 The settlement agreement was structured to avoid the usual rule
that a release of the agent discharges the principal. Arnold v. Colo.
State Hosp., 910 P.2d 104, 107 (Colo. App. 1995). Neither party
raises on appeal, and we do not address, the questions of whether
or when a settlement with the agent causes the release of the
principal or whether a settlement that contains an admission of
liability by the agent always binds the principal.

3
II. The Trial Court Did Not Abuse Its Discretion in Allowing
Coldwell to Amend Its Answer and Assert the Affirmative
Defense of Setoff

¶8 Shortly after learning of the settlement between Dilbeck and the

Marsos, Coldwell moved to amend its answer to assert the

affirmative defense of setoff. See C.R.C.P. 8(b)-(c); Ochoa v. Vered,

212 P.3d 963, 972 (Colo. App. 2009) (Setoff “must be pled as an

affirmative defense or [it] is waived.”).4 The court granted the

motion over the Marsos’ timeliness objection. The Marsos contend

the court abused its discretion in allowing this late amendment.

¶9 “Under well-established law, leave to amend is a discretionary

matter which is left to the trial court to determine.” Polk v. Denver

Dist. Court, 849 P.2d 23, 25 (Colo. 1993). Thus, we review the

court’s determination for an abuse of discretion. Id. “A court

abuses its discretion when its ruling is (1) based on an erroneous

4 Setoff (or offset) is not one of the examples of affirmative defenses
referenced in C.R.C.P. 8(c) that must be pleaded in accordance with
C.R.C.P. 8(b). We express no opinion whether the pleading of a
setoff is required when a statute expressly requires a court to apply
the setoff. As explained below, here the setoff arises under the
common law, and in those circumstances, we have no reason to
dispute the conclusion in Ochoa v. Vered, 212 P.3d 963, 972 (Colo.
App. 2009), that generally a setoff must be pleaded as an
affirmative defense.

4
understanding or application of the law; or (2) manifestly arbitrary,

unreasonable, or unfair.” Francis v. Aspen Mountain Condo. Ass’n,

Inc., 2017 COA 19, ¶ 25.

¶ 10 “Trial courts may permit amendments to pleadings at any stage

of the litigation process so long as undue delay does not result and

other parties are not prejudiced by such amendments.” Nelson v.

Elway, 971 P.2d 245, 249 (Colo. App. 1998).

¶ 11 The Marsos do not contend that Coldwell’s amendment caused

an undue delay, but they do claim prejudice resulting from its

timing. Although Coldwell’s pleading of the affirmative defense of

setoff ultimately reduced the final judgment entered in the Marsos’

favor, for two reasons the amendment did not result in legal

prejudice to the Marsos.

¶ 12 First, Coldwell did not obtain the settlement agreement until

shortly before trial and so could not have properly raised the

defense previously.5 Second, while the setoff obviously

detrimentally affected the Marsos, they had no right to rely on the

5The Colorado Rules of Civil Procedure prohibit the practice of
pleading every conceivable affirmative defense without a factual
basis for each affirmative defense. C.R.C.P. 12, cmt. 1.

5
absence of a setoff given the uncertainties in the substantive law

regarding such setoffs. Nor have they explained how, if at all, the

possibility of a setoff would have affected their litigation strategy or

settlement posture.

¶ 13 Under these circumstances, we discern no abuse of the court’s

discretion in allowing Coldwell to pursue its setoff defense.

III. The Trial Court Correctly Set Off Dilbeck’s Settlement Payment
Against the Jury’s Verdict

¶ 14 The Marsos next argue that the trial court erred when it set off

the settlement payment against the jury verdict. We reject this

contention.

¶ 15 Two Colorado statutes arguably address when a trial court must

set off “compensation paid to avoid the risk of being held liable in

tort” from a jury verdict against any nonsettling defendants. Smith

v. Zufelt, 880 P.2d 1178, 1183 (Colo. 1994).

¶ 16 The first of these statutes is the “percentage statute,” § 13-50.5-

105, C.R.S. 2017. Zufelt, 880 P.2d at 1181. This statute

implements, in part, the General Assembly’s 1986 abrogation (with

exceptions) of the doctrine of joint and several liability among

tortfeasors and replaces that regime with one of proportionate fault.

6
See id. The statute provides that when a release or covenant not to

sue is given to one tortfeasor,

[i]t does not discharge any of the other
tortfeasors from liability for their several pro
rata shares of liability for the injury, death,
damage, or loss unless its terms so provide;
but it reduces the aggregate claim against the
others to the extent of any degree or percentage
of fault or negligence attributable by the finder
of fact . . . to the tortfeasor to whom the release
or covenant is given.

§ 13-50.5-105(1)(a) (emphasis added).

¶ 17 But the percentage statute applies only when more than one

person is responsible for the injuries suffered by the plaintiff. By its

terms, it has no application when, as here, one party (Coldwell) is

vicariously liable solely under the doctrine of respondeat superior

and not because the party itself violated any legal duty.6 “A party

whose liability is based on respondeat superior is not a joint

tortfeasor . . . .” Ochoa, 212 P.3d at 971; see Arnold v. Colo. State

Hosp., 910 P.2d 104, 107 (Colo. App. 1995). Thus, the percentage

statute does not apply here.

6The Marsos did not assert any claim of negligent hiring or
supervision, proof of which would provide a separate basis for
Coldwell’s liability. See Ferrer v. Okbamicael, 2017 CO 14M, ¶ 27.

7
¶ 18 The second potentially applicable statute, the “amount statute,” §

13-21-111.6, C.R.S. 2017, see Zufelt, 880 P.2d at 1181, also does

not apply here. While the exact intent of the General Assembly in

enacting this statute has confounded Colorado courts for years,

compare Simon v. Coppola, 876 P.2d 10, 17-18 (Colo. App. 1993),

with id. at 20-25 (Briggs, J., specially concurring), at a minimum, it

preserves the common law collateral source rule, at least in some

respects.

¶ 19 In Wal-Mart Stores, Inc. v. Crossgrove, the supreme court resolved

some of this confusion and explained that the General Assembly

enacted this statute to both reduce double recoveries resulting from

applications of the collateral source rule and to prevent a defendant

from benefitting from the plaintiff’s purchase of insurance or other

indemnity. 2012 CO 31, ¶¶ 14-16. The statute provides, in

pertinent part, as follows:

In any action . . . to recover damages for a tort
. . . the court, after the finder of fact has
returned its verdict stating the amount of
damages to be awarded, shall reduce the
amount of the verdict by the amount by which
such person . . . has been or will be wholly or
partially indemnified or compensated for his
loss by any other person, corporation,

8
insurance company, or fund in relation to the
injury . . . .

§ 13-21-111.6. Although the plain language of this statute suggests

that a settlement reached with a settling defendant must be set off

against a jury verdict against the nonsettling defendant, the

supreme court held otherwise in Zufelt, 880 P.2d at 1183-84.

¶ 20 There, the supreme court analyzed the amount statute in a

context in which arguably either the amount statute or the

percentage statute applied. Id. at 1182. The question was whether

the amount statute or the percentage statute applied to

compensation paid to avoid the risk of being held liable in tort. Id.

Relying in part on Judge Briggs’ special concurrence in Simon, 876

P.2d at 20-25, the supreme court concluded that:

the amount statute does not mention
payments made to avoid liability at trial. We
are not persuaded, therefore, that the General
Assembly intended that the amount statute
apply not only to payments from a collateral
source independent of any wrongdoing, but
also to compensation paid to avoid the risk of
being held liable in tort.

Zufelt, 880 P.2d at 1183.

¶ 21 The context of the supreme court’s analysis of the amount

statute is different than the context here because in Zufelt, if the

9
amount statute did not apply, the percentage statute certainly did.

Id. at 1182. In contrast, here the only question is whether the

amount statute applies, because the percentage statute cannot.

However, as an intermediate appellate court, we are not “at liberty

to disregard” a rule established by the supreme court “absent some

clear indication” that the supreme court “has overruled it.” Silver v.

Colo. Cas. Ins. Co., 219 P.3d 324, 330 (Colo. App. 2009). The

supreme court held in Zufelt that the amount statute does not apply

“to compensation paid to avoid the risk of being held liable in tort.”

880 P.2d at 1183. We thus conclude that Coldwell is not entitled to

a setoff under the amount statute.

¶ 22 Because neither the percentage statute nor the amount statute

permits a setoff in this case, we must determine whether any other

law authorizes the setoff of the settlement payment against the

jury’s verdict.

¶ 23 In so doing, we first conclude that the General Assembly did not

intend to preempt common law setoff rules, except to the extent

addressed by the specific statutes. Were we to conclude that the

General Assembly fully occupied that space, we could not look to

the common law to determine if any common law rule authorizes a

10
setoff because “we acknowledge and respect the General Assembly’s

authority to modify or abrogate common law.” Vigil v. Franklin, 103

P.3d 322, 327 (Colo. 2004); see § 2-4-211, C.R.S. 2017.

¶ 24 But it is apparent to us that the General Assembly did not intend

to encourage windfalls to plaintiffs. Precisely the opposite

motivated the General Assembly, at least in enacting the percentage

statute. See Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070,

1077 (Colo. 1992).

¶ 25 The parties have not cited, and we have not found, any Colorado

case law that addresses the amount statute, the percentage statute,

or common law setoff rules when liability is premised exclusively on

the doctrine of respondeat superior.7 We thus turn to the common

law applicable when a nonsettling defendant is liable solely under

the doctrine of respondeat superior and not because of any

7 Both parties cite Ochoa, but neither party in Ochoa raised the
amount statute, percentage statute, or common law setoff rule.
Instead, the parties in Ochoa focused on the application of McCall v.
Roper, 32 Colo. App. 352, 511 P.2d 541 (1973), section 13-50-103,
C.R.S. 2017 (liability of remaining debtor statute), and the effect of
the trial court’s denial of the defendant’s motion to amend his
answer to plead the defense of setoff. Ochoa, 212 P.3d at 972.
Except for the last question, which is addressed above, none of
these considerations are relevant here.

11
wrongdoing by that defendant. The Restatement (Second) of Torts,

§ 885(3) (2017), contains a common law setoff rule that does not

appear to differ depending on whether the liability of the principal

results exclusively from the doctrine of respondeat superior. See

Villarini-Garcia v. Hosp. del Maestro, 112 F.3d 5, 7-8 (1st Cir. 1997).

¶ 26 The Michigan Supreme Court decided a case remarkably similar

to the present case: Kaiser v. Allen, 746 N.W.2d 92 (Mich. 2008).

Like Colorado, Michigan has enacted statutes dealing with setoffs

when the defendants are joint tortfeasors. Id. at 94. Rather than

holding that because those statutes are inapplicable to the

respondeat superior situation, no setoff is appropriate, the court

looked to common law setoff rules and determined that a setoff was

required. Id. Under the applicable common law rule, any payment

“made in compensation of a claim for a harm” will reduce the

liability of the remaining defendants, “whether or not the person

making the payment is [the] liable [person].” Restatement (Second)

of Torts § 885(3). Thus, the court held that the plaintiff’s jury

12
award against a vicariously liable party “must be reduced pro tanto8

by [the] plaintiff’s settlement proceeds from” another party. Kaiser,

746 N.W.2d at 97.

¶ 27 Similarly, in Villarini-Garcia, the First Circuit held that under

Puerto Rico law, a jury award against one defendant must be set off

against a settlement payment made by another defendant who was

vicariously liable for the same injury. 112 F.3d at 7-8. Relying on

the Puerto Rico Supreme Court’s “general hostility to double

recovery,” the First Circuit applied the “modern rule” exemplified by

the Restatement. Id.

¶ 28 We agree with the Michigan Supreme Court’s and First Circuit’s

analyses and hold that, in the absence of a governing statute (or

any indication that the legislature intended to entirely displace

common law setoff rules), the common law setoff rules remain in

force.

¶ 29 Reaching an opposite conclusion would require us to assume

that the General Assembly intended to preclude windfall recoveries

8 Black’s Law Dictionary 1417 (10th ed. 2014) defines pro tanto as
“[t]o that extent; for so much; as far as it goes.”

13
in cases in which there are joint tortfeasors, but to permit such

recoveries when the basis for liability is respondeat superior. Such

a conclusion is contrary to every indication of legislative intent that

we can glean. Importantly for present purposes, the statutes

enacted by the General Assembly “limit the circumstances under

which a plaintiff can receive double compensation for an injury.”

Van Waters, 840 P.2d at 1075; see also Volunteers of Am. Colo.

Branch v. Gardenswartz, 242 P.3d 1080, 1088-89 (Colo. 2010) (Rice

J., dissenting).

¶ 30 In so holding, we do not disregard the Colorado public policy that

favors the settlement of disputes. In his concurrence in Simon, 876

P.2d at 24, Judge Briggs outlined two reasons that a setoff under

the amount statute could discourage settlements.

¶ 31 The first of these reasons is that an injury victim would be less

likely to settle because he or she

would know that any benefit obtained from
making what proves to have been a good
settlement could be taken away and bestowed
on the tortfeasors who refuse to settle, even to
the extent that the injury victim could receive
less than full compensation as determined at
trial.

14
Id. But, in a case of vicarious liability, there is no risk that a

settlement will result in the victim receiving “less than full

compensation as determined at trial” because there is no

apportionment of damages, see Ochoa, 212 P.3d at 971. Plaintiffs

also realize the benefit of “good settlements” that are greater than

the amount awarded by the jury.

¶ 32 Second, Judge Briggs noted that joint tortfeasors would be

discouraged from settling:

[T]ortfeasors would have an incentive not to
settle, hoping that intransigence would be
rewarded when another tortfeasor settled for
an amount in excess of its true liability.

Simon, 876 P.2d at 24 (quoting Kussman v. City & Cty. of Denver,

706 P.2d 776, 781 n.5 (Colo. 1985)).

¶ 33 Although the setoff of settlements in cases of vicarious liability

might, in particular circumstances, reduce the incentive to settle,

just like any setoff of a settlement against a later jury verdict may

reduce the incentive to settle, we think that the clear public policy

of avoiding windfalls must take precedence in the common law

realm, just as it does under the statutory scheme. See id.

15
¶ 34 For these reasons, we conclude the court correctly set off the

settlement payment against the jury’s verdict.

IV. The Trial Court Erred When It Set Off the Settlement Payment
Before the Statutory Interest Accrued on the Jury Verdict

¶ 35 The Marsos next contend the trial court erred when it set off the

settlement payment before statutory prejudgment interest accrued

on the jury verdict. We agree.

¶ 36 Whether statutory prejudgment interest accrues on the jury

verdict before or after the setoff matters a lot, as this case

illustrates. If, as the trial court ruled, interest does not accrue until

after the setoff, Coldwell is the prevailing party for purposes of

assessing costs. But, if interest accrues before the court makes the

setoff, it is likely that the Marsos are the prevailing party.

¶ 37 Eight years passed between the tortious conduct by Dilbeck and

the date the jury entered its verdict. By operation of law, a jury

verdict in a case such as this accrues interest at the statutory rate.

See § 5-12-102(4), C.R.S. 2017 (“Except as provided in section 5-

12-106, creditors shall be allowed to receive interest on any

judgment recovered before any court authorized to enter the same

within this state from the date of entering said judgment until

16
satisfaction thereof . . . .”); see also § 5-12-106, C.R.S. 2017

(establishing rate of interest in cases where “a judgment for money

in a civil case is appealed by a judgment debtor”).

¶ 38 As the statutory language indicates, a court has no discretion to

dispense with awarding this interest. Barrett v. Inv. Mgmt.

Consultants, Ltd., 190 P.3d 800, 804 (Colo. App. 2008).

¶ 39 “The addition of prejudgment interest to a judgment for

compensatory damages recognizes that the loss caused by the

tortious conduct occurred at the time of the resulting injury but

that the damages paid to compensate for that loss are not received

by the injured party until later.” Seaward Constr. Co. v. Bradley,

817 P.2d 971, 975 (Colo. 1991). Prejudgment interest compensates

the plaintiff for the loss of earnings on that money due to its

delayed payment and is therefore necessary to make the plaintiff

whole. Id. Put another way, prejudgment interest is an integral

component of a jury award of damages.

¶ 40 The present case illustrates the fundamental unfairness of

setting off a settlement against a jury award before it accrues

interest. The damages sustained by the Marsos were not limited to

the amount of the jury verdict. By law, those damages included

17
statutory prejudgment interest. See § 5-12-102. Making the setoff

before the interest accrues means that the interest component of a

jury verdict, required by statute, is disregarded. Thus, we hold that

in the circumstances presented here, the setoff must be made

against the jury verdict after statutory prejudgment interest accrues

on the jury verdict.

¶ 41 For two reasons we reject Coldwell’s and the trial court’s reliance

on Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022, 1028-29 (Colo. 2011),

for the proposition that interest accrues only after the setoff. First,

as Ferrellgas explicitly states, the rule of decision in that case was

based on the law of subrogation. Id. at 1028. The present case is

not a subrogation case; no subrogation claim was asserted by any

party.

¶ 42 Second, as we have explained above, the purposes of the

common law setoff rule is to prevent double recoveries, not frustrate

a claimant’s ability to obtain full compensation for injuries caused

by the tortious conduct of another. Application of the setoff before

interest accrues meets no legitimate objective of the setoff rule (nor

any other valid interest). To the contrary, application of the setoff

before interest accrues frustrates the public policy of permitting

18
injured parties to be made whole. See Kirk v. Denver Pub. Co., 818

P.2d 262, 265 (Colo. 1991).

¶ 43 Similarly, cases addressing the timing of interest accrual when a

statutory cap limits a claimant’s recovery, see Morris v. Goodwin,

185 P.3d 777, 780 (Colo. 2008), have no application here. A

statutory cap reflects a legislative policy that, despite the fact that a

claimant suffers a particular amount of damages, other public

policies justify the existence of a cap such that the injured party

will not recover the full amount of the suffered damages. Colo.

Permanente Med. Grp., P.C. v. Evans, 926 P.2d 1218, 1229 (Colo.

1996). Thus, statutory caps on damages address interests entirely

different than those of a setoff rule. As explained above, when, as

here, there is no statutory cap on recovery, the application of a

setoff before statutory interest accrues on the jury verdict renders

an unfair result not compelled by any Colorado statutes or common

law principles.

¶ 44 Based on these principles, the court must set off the settlement

payment amount against the sum of the jury verdict and the

statutory interest that had accrued on the verdict at the time of the

settlement payment. Put another way, the court must calculate the

19
interest that accrued on the jury’s verdict from the date of the

Marsos’ injury to the date of Dilbeck’s settlement payment and add

it to the jury verdict. This amount represents the total amount of

the jury verdict. (When the Marsos received Dilbeck’s settlement

payment, they were compensated (at least in part) for their injury.

§ 5-12-102(1)(b).)

¶ 45 If, after the setoff, the Marsos have not been fully compensated

for their loss as determined by the jury (plus the sum of the

statutory interest described above), the court must also calculate

the interest that accrued on the unpaid amount from the date of the

settlement payment to the date of the setoff which, in that event,

constitutes the recoverable prejudgment interest.9

V. Conclusion

¶ 46 The judgment is reversed and the case is remanded for further

proceedings, as described in the immediately preceding paragraphs.

9 Given the amount of the jury verdict, the amount of the
settlement, the number of years of prejudgment interest, and the
statutory rate of prejudgment interest, see section 5-12-102, C.R.S.
2017, a judgment in favor of Coldwell on remand seems unlikely.
Nevertheless, it is for the trial court to make these computations
and enter an appropriate judgment.

20
Because we have reversed the judgment in favor of Coldwell, we

also reverse the cost award in its favor.

JUDGE BERNARD and JUDGE FREYRE concur.

21