The FINAL VERSION of this paper will be published in the November, 1994 Santa Clara University Law Review..
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This article examines the right to contribution and liability allocation in joint and several liability situations involving conspiracies. Conspiratorial situations are special because the conspirators will often have information about other conspirators' involvement in the illicit act and conspirators can bargain over the division of the total conspiratorial benefit. This inquiry differs from most previous discussions in that we account for parties having asymmetric information and assess the resulting influences upon both deterrence and settlement under the different rules.[258]
We first showed that where conspirators have the same beliefs, some defendants may face less in expected damages, and consequently face less deterrence, under the contribution rules than under the no contribution rule.[259] However, at least one defendant will have higher expected damages and deterrence under the no contribution rule.[260]
We then showed that if defendants have different beliefs, then depending on these beliefs, either the no contribution rule or the contribution rules could lead to less, or more, deterrence for all defendants as compared with the other rules.[261] In some situations, all conspirators may enter into a conspiracy under the no contribution rule because they believe they can escape liability. In other situations, conspirators will be more deterred under the no contribution rule because they fear being liable for more than their share of the damages. What is important with regard to deterrence is each defendant's belief of its own expected liability, not other defendants' beliefs of its liability. It is because defendants can have inconsistent beliefs that we cannot draw any general conclusions about which rule leads to more deterrence. It was also noted that regardless of the beliefs of the defendants, the plaintiff will receive more compensation under the no contribution rule than under either of the contribution rules.[262]
We showed that the different rules can influence a defendant's beliefs of its likelihood to settle cheaply.[263] Because of the settlement-bar to contribution, a defendant will be willing to supply the plaintiff with information to be used against other defendants under either the no contribution rule or the contribution with claim reduction rule. The plaintiff might settle cheaply with an information providing defendant. Information exchange is important because it will allow a plaintiff to break up a conspiracy's united negotiating front, receive a higher damage award, and lead to increased deterrence for the conspirators. Yet under the contribution with claim reduction rule, a plaintiff will have a disincentive to settle cheaply with a defendant that is liable for a large proportion of the damages, regardless of the value of the defendant's information to the plaintiff.[264] Thus, a defendant that is liable for a large proportion of the damage will be more deterred under the contribution with claim reduction rule than under the no contribution rule.
We showed that the more culpable defendants will have the greater incentive to collect and hide information to be used against others than less culpable defendants.[265] Because the more culpable defendants may have better information to provide the plaintiff on other defendants' participation in the conspiracy, the more culpable defendants may be able to settle more cheaply than less culpable defendants.
We also noted that higher risk costs and higher litigation costs will increase deterrence.[266] Risk costs will be higher under the no contribution rule than under the contribution rules because of the defendants' greater uncertainty of their damage payment. Litigation costs will be higher under the contribution rules because damages must be apportioned. Yet if liability is allocated per capita, these apportionment costs may be minimal. Litigation costs will also be higher under the contribution rules because there will tend to be more defendants outstanding at trial and defendants will duplicate some litigation expenditures. Litigation costs will be highest under the contribution with settlement reduction rule because defendants will have a disincentive to settle individually and thus, there are likely to be many outstanding defendants in the event of a trial. The contribution with claim reduction rule will neither encourage the plaintiff to settle, nor discourage the defendants from settling. The no contribution rule will give the plaintiff an incentive to settle with most of the defendants. Risk costs and litigation costs are a social waste, and while these costs may increase deterrence, they should be minimized because there are more efficient ways to increase deterrence, such as increasing liability on the defendants.
Finally, in an extension to the model, we showed that if detection is uncertain, the differences among the rules regarding deterrence may not be as great.[267] Where the probability of detection of the conspiracy is low, the rules converge toward the same expected damages and thus, the same deterrence.
With regard to settlement, we first noted what previous authors had shown: that the contribution with settlement reduction rule will give defendants a disincentive to settle individually.[268] Under the contribution with settlement reduction rule, just one non-settling defendant could conceivably keep all defendants from settling. Because of this disincentive to settle, contribution with settlement reduction is not a desirable rule. In an extension to the model, we observed that if contribution is uncertain, then under the contribution with settlement reduction rule, a defendant might settle with the plaintiff in order to limit its potential liability to its attributable share, even though the settling defendant would still face the possibility of having to pay contribution.[269]
We then modified the analysis of Yi and showed that neither the contribution with claim reduction rule, nor the no contribution rule will always be more likely to lead to complete settlement.[270] Where liability is allocated per capita, complete settlement is more likely under the contribution with claim reduction rule than under the no contribution rule.
I recommend that in general, liability be allocated per capita under the contribution with claim reduction rule for conspiracy cases. The per capita liability allocation rule has been attacked as unfair because it forces each defendant to face the same liability regardless of its share of the damages. However, if conspirators can agree on the act, then they should also be able to agree on a fair division of the conspiratorial benefits. Thus, the fairness argument against the per capita liability allocation rule seems misguided.
Allocating liability per capita will be simpler for courts to administer, and fewer resources will be wasted trying to influence the allocation of liability than allocating liability by either the comparative fault or comparative benefit rules. We can expect conspirators to have better information regarding the conspiracy than can later be obtained by judges or other third party decisionmakers. Thus, it should be less costly and more fair to have conspirators allocate the benefit among themselves than to have a third party decisionmaker allocate the liability by comparative fault or comparative benefit for those conspiracies that are detected.[271]
There are some exceptions I would make to the per capita liability allocation rule. I recommend the comparative fault liability allocation rule for cases of unfair conspiracies, where one conspirator has effective control over another conspirator through the use of a bad threat. However, I would not apply the comparative fault liability allocation rule just because one conspirator is more culpable than another. The key factor is control of one conspirator by another, not the relative depravity of the conspirators. The comparative benefit liability allocation rule may be of use for situations where conspirators face high transaction costs to bargaining or are asset-constrained ex ante the conspiracy.[272]
The contribution with claim reduction rule and the no contribution rule each have strengths and weaknesses that make a clear cut choice impossible. However, if liability is allocated per capita for most conspiracies, then I favor the contribution with claim reduction rule.[273]
We showed that neither the contribution with claim reduction rule nor the no contribution rule will always lead to more deterrence or complete settlement.[274] The contribution with claim reduction rule will increase deterrence for those conspirators who are liable for larger proportions of the damage. In addition, when liability is allocated per capita, the contribution with claim reduction rule is less likely to lead to situations where conspirators believe they will face little liability when entering into a conspiracy.
Another advantage of the contribution with claim reduction rule is that its expected damages are a constant function of the damage caused per conspirator, regardless of the number of conspirators. Under the no contribution rule, conspirators in large conspiracies are likely to face increased expected damage payments per damages actually caused.[275] Having damages that are consistent across conspiracy size should make it easier to determine the correct multiplier on damages in many cases. I favor the contribution with claim reduction rule because of its consistency and its deterrence on defendants liable for a large proportion of the damages.
Both the contribution with claim reduction rule and the no contribution rule will lead to some wasteful costs. The no contribution rule will lead to more risk costs, while the contribution with claim reduction rule will likely lead to more litigation costs. But if liability is allocated per capita, then at least the liability allocation costs will be minimized. Both risk costs and litigation costs are a social waste and a rule which minimizes these costs is desirable. The contribution with claim reduction rule, where liability is allocated per capita, seems to meet this requirement.
Although the no contribution rule will lead to fewer outstanding defendants in the event of trial, the contribution with claim reduction rule is more likely to lead to complete settlement when liability is allocated per capita. If there are many conspirators, then the no contribution rule may be favored, but for conspiracies involving a small number of conspirators, the contribution with claim reduction rule will be favored. Since most conspiracies are likely to involve only a few conspirators, the settlement analysis also seems to favor the contribution with claim reduction rule.
Equity among defendants has also been argued as a reason for the contribution rules. Critics have complained that both the no contribution rule and the contribution rules, when liability is allocated per capita, are "unfair". However, there are forces of equity, such as juries and judgment proof defendants, that operate regardless of the rule chosen. In addition, conspirators can take the potential liability of each defendant into account when making their conspiratorial benefit division. I do not give the fairness argument much weight for cases involving conspirators.
The one undisputed advantage of the no contribution rule is that it will more fully compensate the plaintiff once a conspiracy has been detected. This will be true even if the no contribution rule leads to less deterrence than the contribution rules. However, we could increase liability under the contribution rules such that a plaintiff would be able to receive a higher damage award.
For many laws, such as tort laws, legislatures should move away from only using a negligent-intentional act dichotomy and focus more on whether a joint act was caused by conspirators or non-conspirators. Conspiracy situations will allow for simpler rules, such as per capita liability allocation, as conspirators can solve fairness and liability allocation problems through their negotiation over the division of the conspiratorial benefit. It seems odd that legislatures apply different rules for intentional and negligent joint-torts and yet apply the same rules for joint tortfeasors regardless of whether they are acting in concert or causing joint harm by a simple chance accident.
For conspiracy situations, I favor the contribution with claim reduction rule, with liability to be allocated per capita, because of the deterrence and settlement effects the rule will have on conspiracies. For situations involving a controlling conspirator that manipulates the actions of a controlled conspirator, I recommend that liability be allocated by comparative fault, with additional liability placed on the controlling conspirator. The no contribution rule, if it is modified to exert extra penalties in control conspiracies on controlling conspirators, would be my second choice. I definitely disfavor the contribution with settlement reduction rule for conspiracy cases as it will discourage settlement and lead to more trials. My recommendations apply to conspiracies that cause any type of injury, whether the harm is a negligent tort, intentional tort, securities violation, vertical antitrust violation, horizontal antitrust violation, aviation collision or some other damage caused by a conspiracy.
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