The FINAL VERSION of this paper will be published in the November, 1994 Santa Clara University Law Review. .
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This section provides definitions of the three rules being examined as well as assumptions that will be used in the analysis of these rules. These rules are: the no contribution rule; the contribution with claim reduction rule; and the contribution with settlement reduction rule.
1. No Contribution Rule[29]
If a defendant is found liable for damages and pays in excess of the share of damages attributable to it, then the defendant cannot obtain contribution from any other wrongdoer. If the plaintiff settles with a defendant, then the total damages the plaintiff can seek against other defendants is reduced by the settling defendant's settlement amount.[30]
2. Contribution with Claim Reduction Rule
If a defendant is found liable at trial for damages and pays in excess of the share of damages attributable to it, then the defendant can seek contribution only from non-prior-settling wrongdoers for their share of this excess amount. The "with claim reduction" part of the rule means that if the plaintiff settles with one defendant then the total damages the plaintiff can seek against other defendants is reduced by the settling defendant's attributable share of the damages.
3. Contribution with Settlement Reduction Rule
If a defendant is found liable at trial for damages and pays in excess of the share of damages attributable to it, then the defendant can seek contribution from any other wrongdoers, including prior-settling defendants, for their share of this excess amount. The "with settlement reduction" part of the rule means that if the plaintiff settles with one defendant then the total damages the plaintiff can seek against other defendants is reduced by the prior-settling defendant's settlement amount.
Two examples illustrate the differences among the three rules. The first examines the case where one defendant settles before another defendant loses at trial. The second analyzes the case where one defendant loses at trial before any settlement. For these examples, liability will be allocated under the contribution rules by comparative fault.
For each example, assume that there are two defendants, defendant A and defendant B, and a plaintiff. Assume defendant A caused 70% and defendant B caused 30% of the total damages against the plaintiff; the total damages are $100; and if contribution is allowed under the rule, then a defendant is able to obtain contribution with certainty.
Example 1: Suppose the plaintiff settles with defendant A for $10 and then the plaintiff wins at trial against defendant B.
Under the no contribution rule, the plaintiff can sue defendant B for $90 in damages since $90 is the amount of damages for which the plaintiff has not yet been compensated. If the plaintiff wins at trial against defendant B, and is awarded $90 in damages, then defendant B must pay this full amount and cannot seek any contribution from defendant A.
Under the contribution with claim reduction rule, the plaintiff can sue defendant B for only $30 in damages because the plaintiff's settlement with defendant A reduces the amount that can be sought against defendant B by defendant A's attributable share of the damages. In this example, defendant A caused 70% of the damages, which will make defendant A's attributable share $70. Thus, the amount of damages that the plaintiff can seek against defendant B is only $30. If the plaintiff wins at trial against defendant B for $30 in damages, defendant B cannot seek contribution against defendant A because defendant A settled prior to the plaintiff's winning at trial against defendant B, even though defendant B is paying more in damages than defendant A ($30 vs. $10).[31]
Under the contribution with settlement reduction rule, the amount for which the plaintiff can sue defendant B is reduced by defendant A's settlement amount. Thus, the plaintiff cannot sue defendant B for $100, but only for the settlement reduced amount of $90. If the plaintiff wins its lawsuit against defendant B for $90 in damages, defendant B can seek contribution from defendant A for $60, such that defendant A pays its attributable damage share of $70,[32] and defendant B pays its attributable damage share of $30.[33]
The following diagram shows the timeline of events, and the table summarizes the differing results of the rules where: (1) the plaintiff settles with defendant A before suing defendant B; (2) the plaintiff later wins a lawsuit against defendant B; and, (3) when applicable under the rule, defendant B obtains contribution from defendant A.
Timeline of Events
| Rule | Plaintiff settles with Defendant A for | Plaintiff sues and wins against Defendant B damages of | Defendant B obtains contribution from Defendant A of | Defendant A's total damage payment | Defendant B's total damage payment | Plaintiff's total award |
|---|---|---|---|---|---|---|
| No contribution | $10 | $90 | $0 | $10 | $90 | $100 |
| Contribution with claim reduction | $10 | $30 | $0 | $10 | $30 | $40 |
| Contribution with settlement reduction | $10 | $90 | $60 | $70 | $30 | $100 |
Example 2: Suppose the plaintiff sues only defendant A for damages of $100 and wins at trial. Under both the contribution with claim reduction rule and the contribution with settlement reduction rule, defendant A will be able to seek contribution from defendant B of $30. This will leave defendant A with a net payment of $70. Under the no contribution rule, defendant A will be unable to seek contribution from defendant B, and thus defendant A will be burdened with paying the full $100 in damages.
The following diagram shows the timeline of events, and the table summarizes the differing results of the rules where:
(1) the plaintiff wins at trial against defendant A for the total damage award; and, (2) when applicable under the rule, defendant A obtains contribution from defendant B. In this example, contribution with claim reduction and contribution with settlement reduction achieve the same result.
Timeline of Events
| Rule | Plaintiff sues and wins against Defendant A damages of | Defendant A obtains contribution from Defendant B of | Defendant A's total damage payment | Defendant B's total damage payment | Plaintiff's total award |
|---|---|---|---|---|---|
| No contribution | $100 | $0 | $100 | $0 | $100 |
| Contribution with claim reduction | $100 | $30 | $70 | $30 | $100 |
| Contribution with settlement reduction | $100 | $30 | $70 | $30 | $100 |
The model assumes that there are multiple conspiratorial defendants that cause harm to one plaintiff, and that the defendants are jointly and severally liable for the damages caused to the plaintiff. Thus, the plaintiff can settle or go to trial against any or all of these defendants.
Initially quite a few assumptions will be explicitly made to more easily show the differences among the rules. Most of these assumptions are not essential to the conclusions, and will be lifted in [34] It will be assumed that the plaintiff, in entering negotiations with any particular defendant, cannot credibly commit to suing a particular defendant first if a settlement is not reached.[35] If the plaintiff fails to settle with any or all of the defendants, it will be assumed that the plaintiff will randomly choose one of the non-settling defendants to sue.
The deterrence and settlement differences between the no contribution and contribution rules result from the party negotiations following detection of the conspiracy. Thus, it will be assumed that the plaintiff is able to detect the conspiracy, and that the uncertainty of the plaintiff collecting a damage award from a defendant is due solely to the uncertainty of the plaintiff winning at trial after detection has occurred.[36] To the extent that uncertainty of detection exists, the different rules converge towards the same result in the analysis.
It will be assumed that the defendants are unable to form, prior to entering into the conspiracy, an enforceable sharing agreement regarding damage payments, or an agreement that no individual defendant will settle without all of the defendants settling as a group.[37] Such agreements would change the multi-defendant analysis into one that is similar to that of the single defendant case.[38] Thus, if there were an enforceable sharing agreement, each of the rules would lead to the same outcome.
It will be further assumed that if a defendant loses at trial against the plaintiff, then under the contribution rules the defendant is able to obtain contribution from the other defendants with certainty.[39]
Finally, it will be assumed that the plaintiff's probabilities of winning at trial against different defendants are perfectly correlated.[40] Thus, suppose the plaintiff has probabilities of winning at trial against defendant A of 0.5 and defendant B of 0.5. If the plaintiff sues both defendants in the same trial, then the plaintiff's probability of winning will still be 0.5. If the plaintiff loses at trial against defendant A, and then sues defendant B, the plaintiff will also lose at trial against defendant B. If the plaintiff wins at trial against defendant A, then the plaintiff would have won at trial against defendant B.[41]
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The analysis of this rule, where probabilities of the defendants' loss at trial are correlated, leads to the same results as the no contribution rule. See Easterbrook et al., supra note 16, at 363.
This contribution among non-settling defendants rule, with slight modifications such as judicial approval of settlements, has been proposed by the American Law Institute for negligent tortfeasors. See Unif. Contribution Among Tortfeasors Act, 12 U.L.A. 57 (1968).
As revised in 1955, section 4 of the Uniform Act states:
When a release or a covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury or the same wrongful death: (a) It does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide; but it reduces the claim against the others to the extent of any amount stipulated by the release or the covenant, or in the amount of the consideration paid for it, whichever is the greater; and (b) It discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor.
Unif. Contribution Among Tortfeasors Act ¤ 4, 12 U.L.A. 98 (1955). Return to text
For example, suppose there are 3 defendants (X, Y and Z), each causing an equal proportion of the total damages of $90. Suppose defendant X settles with the plaintiff prior to any trial for $10. Assume that after this settlement with defendant X, that the plaintiff sues and wins at trial against defendant Y for $60 in damages ($90 less defendant X's attributable share of $30). Because defendant X settled prior to defendant Y's loss at trial, even though defendant Y has paid more than its attributable share of the damages ($60 > $30) and defendant X has paid less than its attributable share of the damages ($10 < $30), defendant Y cannot seek contribution from defendant X. But defendant Y can seek contribution from non-prior-settling defendant Z for defendant Z's attributable share of the damages of $30. If defendant Y is able to obtain contribution from defendant Z for defendant Z's attributable share of $30, this will reduce defendant Y's net payment to $30, which is defendant Y's attributable share of the damages. Return to text
In an extension of the model where the plaintiff's probabilities of winning at trial against different defendants are uncorrelated, it will be shown that under all of the rules, the plaintiff is able to credibly commit to negotiating with the defendants sequentially in a particular order. See infra Return to text
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