The FINAL VERSION of this paper will be published in the November, 1994 Santa Clara University Law Review. .

Copyright 1994-95 by the Santa Clara Law Review

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I. Introduction

Joint and several liability presents itself in a variety of situations where actors cause damage. Tort, antitrust, ERISA, environmental, and securities laws must all be applied in instances where multiple parties cause an injury. Under joint and several liability laws, an injured plaintiff may seek damages from any or all of the defendants that cause the injury.[1] Whether a defendant who pays more than its share of the damages has a right to seek contribution[2] from other wrongdoers depends on the particular law or statute that has been violated. Three rules which have been applied regarding a right to contribution include the no contribution rule,[3] the contribution with claim reduction rule[4] and the contribution with settlement reduction rule.[5]

At common law there was no right to contribution among joint tortfeasors for intentional torts.[6] Many American jurisdictions applied this common law rule to negligent tort cases as well.[7] Currently, most states provide for some sort of contribution among negligent but not intentional tortfeasors.[8]

Most federal laws also allow for contribution.[9] Some federal laws, however, do not provide for a right to contribution.[10] In several legislative and judicial contexts, the questions of whether a right of contribution should exist among joint tortfeasors,[11] and if so, whether claim reduction or settlement reduction is preferable,[12] remain unanswered.

This article will examine the three rules that have been applied in joint and several liability situations: no contribution, contribution with claim reduction, and contribution with settlement reduction. The rule selected affects a party's expected liability, and thus the level of deterrence a party faces ex ante an activity. Moreover, after detection of the activity has occurred, the rule affects the likelihood of settlement between parties.

This paper focuses on conspiracies that cause joint harm. Much of the analysis in the article applies to both conspiracy and non-conspiracy joint and several liability situations.[13] Nevertheless, some analysis that is particular to conspiratorial acts by parties will be presented.[14] Conspiracies raise a special case of harm caused by multiple actors. Conspirators are likely to have information on the activities of the other conspirators. This information may be of value to the plaintiff, and thus could be exchanged by a defendant for a lower monetary settlement. Conspirators can also take into account the different liability rules in negotiating a division of the conspiracy's benefits.[15] Furthermore, the plaintiff's likelihood of winning at trial against one conspirator will often correlate with the likelihood of winning its case against another conspirator.

Whether a right to contribution should exist in joint and several liability situations for conspirators was analyzed in the early 1980's by Professors Easterbrook, Landes and Posner,[16] and Professors Polinsky and Shavell.[17] They examined conspiracies in the context of antitrust violations. Easterbrook, Landes and Posner concluded that the no contribution rule would lead to more settlement and at least as much deterrence as the contribution rules.[18] Polinsky and Shavell showed that if an organization's decisionmaker is insulated from the full amount of an organization's damages, then the no contribution rules might lead to less deterrence than the contribution rules.[19]

This article will build on previous analyses in examining the deterrent and settlement effects of the different contribution rules. The above authors assumed symmetric information and beliefs in reaching their conclusions and recommendations. Yet it is often the case that conspirators will not have symmetric information and beliefs.[20] This article explores the effects of asymmetric information and beliefs on the decisionmaking of the defendants and the plaintiff. When the analysis is expanded to allow for asymmetric information, previous conclusions do not always hold.

After providing a basic introduction to the rules and the model's assumptions, this article examines the deterrent effects of the different rules under asymmetric information. It then shows that neither the no contribution rule nor the contribution rules always lead to more deterrence, even where the decisionmaker is not insulated from the full amount of damages.[21]

The article then explores the conspiratorial defendants' incentives to give and the plaintiff's incentives to accept information and evidence about the conspiracy in lieu of monetary compensation in settlements.[22] Because of the settlement-bar to contribution under the no contribution rule and the contribution with claim reduction rule, a defendant will be willing to provide the plaintiff with information about the conspiracy at settlement. However, while the plaintiff will have an incentive to accept information in lieu of monetary compensation from any defendant under the no contribution rule, under the contribution with claim reduction rule the plaintiff will have a disincentive to cheaply settle with defendants who are liable for a high proportion of the damage. Additionally, the article demonstrates that the defendants that appear most culpable, in that they are aware of the wrongfulness of their actions, are more likely to expend effort collecting conspiracy information against others and hiding conspiracy information about themselves.[23] As a consequence, these defendants may be likely to obtain a low monetary settlement by providing conspiracy information to the plaintiff.[24]

The article then focuses on settlement. First, the article examines the disincentive for defendants to settle individually under the contribution with settlement reduction rule.[25] Then it demonstrates that, although the no contribution rule may lead to more defendants settling with the plaintiff, neither the no contribution rule, nor the contribution with claim reduction rule always leads to an increased likelihood of complete settlement between all parties and the avoidance of trial.[26]

The analysis does not give a clear cut choice for a best rule, as the informational settings and types of defendants will often determine outcomes under the different rules. However, I recommend that the contribution with claim reduction rule be applied to conspiratorial joint and several liability situations because, while placing greater liability, and thus deterrence, on defendants liable for larger proportions of the damage, the rule will not discourage settlement.[27] Since the no contribution rule does not discourage settlement, it is my second choice. The contribution with settlement reduction rule is the least desirable because it tends to discourage settlement by furnishing a disincentive to the defendant to provide the plaintiff with information at settlement, as the defendant may have to pay contribution to later trial-losing defendants.

The article also examines the apportionment of damages under the contribution rules. Professors Kornhauser and Revesz extensively analyzed the allocation of damages under the contribution rules for joint and several liability.[28] However, they did not examine situations where bargaining by the conspirators over the benefit of the conspiracy can occur and situations where one party is able to control the actions of another. This article examines these situations. It shows that if conspirators are able to bargain about the division of the conspiratorial benefit, then the per capita liability allocation rule may be more efficient than either the comparative fault or comparative benefit liability allocation rules. However, the comparative fault liability allocation rule should be applied in situations where one conspirator, through the use of a "bad" threat, is able to coerce another conspirator into the conspiracy. Other exceptions to the per capita liability allocation under the contribution rules are explored as well.

Finally, the article recommends that in most conspiratorial situations the contribution with claim reduction rule should be applied where harm is caused by conspiracies; and that liability be allocated per capita. The recommendations are quite general, and apply to antitrust law in the same manner as tort law.

The article proceeds as follows: Section III provides a basic introduction to the model and examines the deterrence effects of the different rules; Section V reexamines the model by lifting several of the assumptions and provides additional extensions of the model; Section VII offers a conclusion; and Previous Section, Table of Contents | Go to Next Section, Section II ]

Notes

[Note 1] See generally W. Page Keeton et al., Prosser and Keeton on the Law of Torts ¤ 47, at 324 (5th ed. 1984). Return to text
[Note 2] "Contribution refers to a cause of action whereby one who has discharged a common liability or obligation, typically by satisfying a judgment, may recover from others who are jointly liable for their respective shares of that liability or obligation." Contribution and Claim Reduction in Antitrust Litigation, 11 A.B.A. Sec. Antitrust L. Monograph 4-5 (1986) [hereinafter Contribution and Claim Reduction] (paraphrasing the definition given in Fidelity & Casualty Ins. Co. v. Sears, Roebuck & Co., 199 A. 93 (Conn. 1938)). See generally Keeton et al., supra note 1, ¤ 50, at 336-41. Return to text
[Note 3] Under the no contribution rule, if the plaintiff settles with a defendant, then the amount of damages that the plaintiff can seek from the remaining non-settled defendants is reduced by the settling defendant's settlement amount. A defendant who pays more than its share of the liability cannot seek contribution from other defendants.
[Note 4] Under the contribution with claim reduction rule, if the plaintiff settles with a defendant, then the amount of damages that the plaintiff can seek from the remaining non-settled defendants is reduced by the settling defendant's attributable share of the damages. A defendant who pays more than its share of the liability can only seek contribution from defendants that have not previously settled. This rule has also been referred to as claim reduction. Return to text
[Note 5] Under the contribution with settlement reduction rule, if the plaintiff settles with a defendant, then the amount of damages that the plaintiff can seek from the remaining non-settled defendants is reduced by the settling defendant's settlement amount. A defendant who pays more than its share of the liability can seek contribution from all defendants, including those that have previously settled. This rule has also been referred to simply as contribution. Return to text
[Note 6] Merryweather v. Nixan, 101 Eng. Rep. 1337 (K.B. 1799). For an analysis of this case see Theodore W. Reath, Contribution Between Persons Jointly Charged for Negligence--Merryweather v. Nixan, 12 Harv. L. Rev. 176 (1898). Return to text
[Note 7] Reath noted the expandability of the no contribution rule, stating:

It is singularly unfortunate, and has led to misunderstanding, that Merryweather v. Nixan should have been continually treated as stating the "general rule." As a matter of fact that case states not the rule, but the exception. The general rule is that among persons jointly liable the law implies an assumpsit either for indemnity or contribution, and the exception is that no assumpsit, either express or implied, will be enforced among willful tort-feasors or wrongdoers.

Reath, supra note 6, at 177.

Prosser and Keeton, in discussing the application by American courts of Merryweather v. Nixan, note that its holding was extended to negligent torts. They explain:

The early American cases applied the rule against contribution to cases of willful misconduct, but refused to recognize it where the tort committed by the claimant was a matter of negligence or mistake. But once the door was thrown open to joinder in one action of those who had merely caused the same damage, the origin of the rule and the reason for it were lost to sight. The great majority of our courts proceeded to apply it generally, and refused to permit contribution even where independent, although concurrent, negligence had contributed to a single result.

Keeton et al., supra note 1, ¤ 50. Return to text

[Note 8] See Contribution and Claim Reduction in Antitrust Litigation, supra note 2, at 6 n.37. See generally Keeton et al., supra note 1, ¤ 50; Victor E. Schwartz, Comparative Negligence 251-92, Supp. 49-62 (2d ed. 1986 & Supp. 1990). Return to text
[Note 9] Federal environmental laws explicitly provide a right to contribution under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) 42 U.S.C. ¤¤ 9601-9675, ¤ 9613(f)(1) (1993). The Securities Act of 1933, 15 U.S.C. ¤ 77k(f) (1994), and the Securities Exchange Act of 1934, 15 U.S.C. ¤¤ 78i(e), 78r(b) (1993), also explicitly permit contribution.

The Supreme Court recently ruled that violators of Rule 10b-5 of the Securities Exchange Act of 1934, 15 U.S.C. ¤ 78j(b) (1994) have an implied right to seek contribution. Musick, Peeler & Garrett v. Employers Ins. of Wausau, 113 S. Ct. 2085 (1993). In addition, federal courts have also upheld a right of contribution for admiralty cases, Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417 U.S. 106, 110-13 (1974); aviation collisions, Kohr v. Allegheny Airlines, Inc., 504 F.2d 400, 405 (7th Cir. 1974), cert. denied sub nom. Forth Corp. v. Allegheny Airlines, Inc., 421 U.S. 978 (1975); employment discrimination, Grogg v. General Motors Corp., 72 F.R.D. 523, 528 (S.D.N.Y. 1976); Blanton v. Southern Bell Tel. & Tel. Co., 49 F.R.D. 162, 162-64 (N.D. Ga. 1970); claims under the Federal Employers' Liability Act, 45 U.S.C. ¤ 51 (1994), Chicago & N.W. Ry. v. Minnesota Transfer Ry., 371 F.2d 129 (8th Cir. 1967) (applying Minnesota law); torts in the District of Columbia, Knell v. Feltman, 174 F.2d 662, 666 (D.C. Cir. 1949); and torts in the Virgin Islands, Gomes v. Brodhurst, 394 F.2d 465, 468 (3d Cir. 1967). Return to text

[Note 10] Federal courts have refused to imply the right of contribution for violators of Title VII of the Civil Rights Act, 42 U.S.C. ¤ 2000e (1994), Northwest Airlines, Inc. v. Transport Workers Union, 451 U.S. 77 (1981), and for antitrust violators under the Sherman Act, 15 U.S.C. ¤ 1 (1994),or Clayton Act, 15 U.S.C. ¤ 15 (1994), Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630 (1981). Return to text
[Note 11] For example, proposed legislation to change the antitrust laws to allow contribution has been periodically debated. See, e.g., Contribution and Claim Reduction in Antitrust Litigation, supra note 2, at 71-85; Edward D. Cavanagh, Contribution, Claim Reduction, and Individual Treble Damage Responsibility: Which Path to Reform of Antitrust Remedies?, 40 Vand. L. Rev. 1277, 1314-22 (1987). Return to text
[Note 12] Many of the laws providing a right of contribution have not explicitly stated whether claim reduction or settlement reduction should be applied. Courts have not interpreted legislative silence on the issue consistently.

For example, the circuit courts are currently split as to whether claim reduction or settlement reduction should be used for securities violations. The Ninth Circuit uses the claim reduction approach, whereas the Second Circuit uses the settlement reduction rule. Compare Franklin v. Kaypro Corp., 884 F.2d 1222 (9th Cir. 1989), cert. denied sub nom. Franklin v. Peat Marwick Main & Co., 498 U.S. 890 (1990) (applying contribution with claim reduction) with Singer v. Olympia Brewing Co., 878 F.2d 596 (2d Cir. 1989), cert. denied, 493 U.S. 1024 (1990) (applying contribution with settlement reduction). Return to text

[Note 13] On the difference between joint torts and joint tortfeasors see Keeton et al., supra note 1, ¤ 46. In this article, the focus is on joint tortfeasors, where multiple parties jointly perform the act. Return to text
[Note 14] See infra Return to text
[Note 15] This contrasts with the case of a non-conspirator, whose participation in a multiparty tort may result from some unfortunate event. Return to text
[Note 16] Frank H. Easterbrook, William M. Landes & Richard A. Posner, Contribution Among Antitrust Defendants: A Legal and Economic Analysis, 23 J.L. & Econ. 331 (1980). See also William M. Landes & Richard A. Posner, Joint and Multiple Tortfeasors: An Economic Analysis, 9 J. Leg. Stud. 517 (1980). Return to text
[Note 17] A. Mitchell Polinsky & Steven Shavell, Contribution and Claim Reduction Among Antitrust Defendants: An Economic Analysis, 33 Stan. L. Rev. 447 (1981). See also Steven Shavell, Economic Analysis of Accident Law 164-67 (1987). Return to text
[Note 18] Easterbrook et al., supra note 16, at 344-53, 364. Return to text
[Note 19] Polinsky & Shavell, supra note 17, at 453-55, 462. Return to text
[Note 20] See infra part Return to text
[Note 21] See infra part Return to text
[Note 22] See Jong-Goo Yi, Essays in the Economics of Litigation with Multiple Parties; Essay 3 Litigation with Multiple Defendants: How to Settle under Different Apportionment Rules 92-94 (1991) (unpublished Ph.D. dissertation, Stanford University). I will extend his analysis of information exchange between the defendant and the plaintiff to include situations where a defendant will not be willing to provide the plaintiff with information until after they settle. Return to text
[Note 23] See infra Return to text
[Note 24] Compare Easterbrook et al., supra note 16, at 360 (defining the most culpable defendants as the defendants most likely to lose at trial) with Yi, supra note 22, at 79 (defining the most culpable defendants as the defendants causing the most damage). Return to text
[Note 25] This analysis is shown both by Easterbrook, Landes and Posner, and by Polinsky and Shavell. See Easterbrook et al., supra note 16, at 362; Polinsky & Shavell, supra note 17, at 458-59. Return to text
[Note 26] Yi showed that where the plaintiff and defendants have asymmetric information about the amount of damage the plaintiff has suffered, the different contribution rules will effect settlement behavior and provide the above-mentioned result. See Yi, supra note 22, at 82-90. The article explores the case where the defendants and the plaintiff disagree about the probability of the plaintiff succeeding at trial and concludes that the results are the same. Return to text
[Note 27] An alternative would be to use the contribution with settlement reduction rule and allow Mary Carter agreements. Mary Carter agreements limit a settling defendant's liability, and thus do not create a disincentive for the defendant to settle or to give information to the plaintiff. See infra Return to text
[Note 28] Lewis A. Kornhauser & Richard L. Revesz, Sharing Damages Among Multiple Tortfeasors, 98 Yale L.J. 831 (1989). Return to text
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