SETTLEMENTS UNDER JOINT AND SEVERAL LIABILITY

In this Article, Professors Kornhauser and Revesz study the settlement -inducing properties of the rules governing the litigation of claims i nvolving multiple defendants. Most importantly, they show that the eff ects of joint and several liability on the choice between settlement a nd litigation depend on the correlation of the plaintiff's probabiliti es of success against the defendants. In the case of two defendants, t hese probabilities are independent if the outcome of the plaintiffs cl aim against one defendant does not depend upon whether the plaintiff p revails against, loses to, or settles with the other defendant. In con trast, these probabilities are perfectly correlated if when the plaint iff litigates against both defendants, it either has to prevail agains t both or lose to both. Joint and several liability coupled with a pro tanto set-off rule (under which, when the plaintiff settles with one defendant and litigates against the other, its claim against the non-s ettling defendant is reduced by the amount of the settlement), discour ages settlement with both defendants if the plaintiff's probabilities of success are independent. In turn, joint and several liability encou rages settlement with at least one defendant if these probabilities ar e perfectly correlated The authors also analyze the arguments raised b y the courts concerning the relative settlement-inducing properties of the pro tanto set- off rule and the apportioned share set- off rule ( under which, when the plaintiff settles with one defendant and litigat es against the other, its claim against the non-settling defendant is reduced by the apportioned share of the settling defendant). They show that essentially all of these arguments are based on an incomplete or incorrect understanding of the incentives faced by the respective par ties.