OCTOBER TERM, 1993
Syllabus
McDERMOTT, INC. v. AMCLYDE ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH
CIRCUIT
No. 92-1479. Argued January 11, 1994-Decided April 20, 1994
When petitioner McDermott, Inc., attempted to use a crane
purchased from respondent AmClyde to move an offshore oil and gas
production platform, a prong of the crane's hook broke, damaging
both the platform and the crane itself. The malfunction may have
been caused by McDermott's negligent operation of the crane, by
AmClyde's faulty design or construction, by a defect in the hook
supplied by respondent River Don Castings, Ltd., or by one or more
of the three companies that supplied supporting steel slings.
McDermott brought suit in admiralty against respondents and the
three "sling defendants," but settled with the latter for $1
million. The case then went to trial, and the jury assessed
McDermott's loss at $2.1 million, allocating 32% of the damages to
AmClyde, 38% to River Don, and 30% jointly to petitioner and the
sling defendants. Among other things, the District Court entered
judgment against AmClyde for $672,000 (32% of $2.1 million) and
against River Don for $798,000 (38% of $2.1 million). Holding that
the contract between McDermott and AmClyde precluded any recovery
against the latter and that the trial judge had improperly denied
respondents' motion to reduce the judgment against them pro tanto
by the settlement amount, the Court of Appeals reversed the
judgment against AmClyde entirely and reduced the judgment against
River Don to $470,000, which it computed by determining McDermott's
full award to be $1.47 million ($2.1 million minus 30% attributed
to McDermott/sling defendants), and then by deducting the $1
million settlement.
Held: The nonsettling defendants' liability should be calculated
with reference to the jury's allocation of proportionate
responsibility, not by giving them a credit for the dollar amount
of the settlement. Pp. 207-221.
(a) Supported by a consensus among maritime nations, scholars,
and judges, the Court, in United States v. Reliable Transfer Co.,
421 U. S.
397,409, adopted a rule requiring that damages in an admiralty
suit be assessed on the basis of proportionate fault when such an
allocation can reasonably be made. No comparable consensus has
developed with respect to the issue in this case. Although it is
generally agreed that nonsettling joint tortfeasors are entitled to
a credit when the plaintiff settles with one of the other
defendants, there is a divergence of views
203
about how that credit should be determined. The American Law
Institute (ALl) has identified three principal alternatives for
doing so: (1) pro tanto setoff with a right of contribution against
the settling defendant; (2) pro tanto setoff without contribution;
and (3) the "proportionate share approach," whereby the settlement
diminishes the injured party's claim against nonsettling
tortfeasors by the amount of the equitable share of the obligation
of the settling tortfeasor. pp. 207-211.
(b) ALl Option 3, the proportionate share approach, best answers
the question presented in this case. Option 1 is clearly inferior
to the other two alternatives, because it discourages settlement
and leads to unnecessary ancillary litigation. As between Options 2
and 3, the proportionate share approach is more consistent with the
proportionate fault approach of Reliable Transfer, supra, because a
litigating defendant ordinarily pays only its proportionate share
of the judgment. Conversely, Option 2, even when supplemented with
hearings to determine the good faith of the settlement, is likely
to lead to inequitable apportionments of liability, contrary to
Reliable Transfer. Moreover, although Option 2 sometimes seems to
better promote settlement than Option 3, it must ultimately be seen
to have no clear advantage in that regard, since, under the
proportionate share approach, factors such as the parties' desire
to avoid litigation costs, to reduce uncertainty, and to maintain
ongoing commercial relationships should ensure nontrial
dispositions in the vast majority of cases. Similarly, Option 2 has
no clear advantage with respect to judicial economy unless it is
adopted without the requirement of a good-faith hearing, a course
which no party or amicus advocates because of the large potential
for unfairness to nonsettling defendants, who might have to pay
more than their fair share of the damages. Pp.211-217.
(c) Respondents' argument that the proportionate share approach
violates the "one satisfaction rule" -which, as applied by some
courts, reduces a plaintiff's recovery against a nonsettling
defendant in order to ensure that the plaintiff does not secure
more than necessary to compensate him for his loss-is rejected,
since the law contains no rigid rule against overcompensation, and,
indeed, several doctrines, such as the collateral benefits rule,
recognize that making tortfeasors pay for the damage they cause can
be more important than preventing overcompensation. The argument
that the proportionate share approach is inconsistent with Edmonds
v. Compagnie Generale Transatlantique,
443 U. S. 256, is also
rejected, since Edmonds was primarily a statutory construction
case, did not address the question at issue here or even involve a
settlement, and can be read as merely reaffirming the
wellestablished principle of joint and several liability, which was
in no way
204
abrogated by Reliable Transfer and is not in tension with the
proportionate share approach. Pp. 218-221.
979 F.2d
1068, reversed and remanded.
STEVENS, J., delivered the opinion for a unanimous Court.
Arden
J. Lea argued the cause for petitioner. With him on
the briefs was R. Jeffrey Bridger.
William K. Kelley argued the cause for the United States as
amicus curiae urging reversal. With him on the brief were Solicitor
General Days, Assistant Attorney General Hunger, Acting Deputy
Solicitor General Kneedler, Richard A. Olderman, and David v:
Hutchinson.
Robert E. Couhig, Jr., argued the cause for respondents.
With him on the brief was Thomas G. O'Brien.*
JUSTICE STEVENS delivered the opinion of the Court.
A construction accident in the Gulf of Mexico gave rise to this
admiralty case. In advance of trial, petitioner, the plaintiff,
settled with three of the defendants for $1 million. Respondents,
however, did not settle, and the case went to trial. A jury
assessed petitioner's loss at $2.1 million and allocated 32% of the
damages to respondent AmClyde and 38% to respondent River Don
Castings, Ltd. (River Don). The question presented is whether the
liability of the non settling defendants should be calculated with
reference to the jury's allocation of proportionate responsibility,
or by giving the non settling defendants a credit for the dollar
amount of the settlement. We hold that the proportionate approach
is the correct one.
I
Petitioner McDermott, Inc., purchased a specially designed,
5,OOO-ton crane from AmClyde.1 When petitioner
*Warren B. Daly, Jr., and George W Healy III filed a brief for
the Maritime Law Association of the United States as amicus curiae
urging reversal.
1 "Am Clyde," formerly known as "Clyde Iron," is a division of
AMCA International, Inc.
205
first used the crane in an attempt to move an oil and gas
production platform-the "Snapper deck" -from a barge to a
structural steel base affixed to the floor of the Gulf of Mexico, a
prong of the crane's main hook broke, causing massive damage to the
deck and to the crane itself. The malfunction may have been caused
by petitioner's negligent operation of the crane, by AmClyde's
faulty design or construction, by a defect in the hook supplied by
River Don, or by one or more of the three companies (the "sling
defendants") that supplied the supporting steel slings.2
Invoking the federal court's jurisdiction under 28 U. S. C. §§
1332 and 1333(1),3 petitioner brought suit against AmClyde and
River Don and the three sling defendants. The complaint sought a
recovery for both deck damages and crane damages. On the eve of
trial, petitioner entered into a settlement with the sling
defendants. In exchange for $1 million, petitioner agreed to
dismiss with prejudice its claims against the sling defendants, to
release them from all liability for either deck or crane damages,
and to indemnify them against any contribution action. The trial
judge later ruled that petitioner's claim for crane damages was
barred by East River S. S. Corp. v. Transamerica Delaval Inc.,
476 U. S. 858
(1986).
In its opening statement at trial, petitioner McDermott
"accepted responsibility for any part the slings played in causing
the damage."4 McDermott, Inc. v. Clyde Iron, 979
2 The three sling defendants, sometimes also described as the
"settling defendants," were International Southwest Slings, Inc.;
British Ropes, Ltd.; and Hendrik Veder B. V.
3 Section 1333(1) provides: "The district courts shall have
original jurisdiction, exclusive of the courts of the States, of:
(1) Any civil case of admiralty or maritime jurisdiction, saving to
suitors in all cases all other remedies to which they are otherwise
entitled."
4 McDermott's motive in taking upon itself responsibility for
the sling defendant's fault is obscure. Perhaps it thought doing so
would prevent a contribution action against the sling defendants
and thus relieve McDermott of its indemnity obligation.
206
F. 2d 1068, 1070 (CA5 1993). The jury found that the total
damages to the deck amounted to $2.1 million and, in answer to
special interrogatories, allocated responsibility among the
respective parties: 32% to AmClyde, 38% to River Don, and 30%
jointly to McDermott and the sling defendants.5 The court denied a
motion by respondents to reduce the judgment
pro tanto by
the $1 million settlement, and entered judgment against AmClyde for
$672,000 (32% of $2.1 million) and against River Don for $798,000
(38% of $2.1 million). Even though the sum of those judgments plus
the settlement proceeds exceeded the total damages found by the
jury, the District Court concluded that petitioner had not received
a double recovery because the settlement had covered both crane
damages and deck damages.6
The Court of Appeals held that a contractual provision precluded
any recovery against AmClyde and that the trial judge had
improperly denied a
pro tanto settlement credit. It reversed
the judgment against AmClyde entirely and reduced the judgment
against River Don to $470,000. It arrived at that figure by making
two calculations. First, it determined that petitioner's "full
damage[s] award is $1.47 million ($2.1 million jury verdict less
30% attributed to McDermott/sling defendants)." 979 F. 2d, at 1081.
Next, it deducted the "$1 million received in settlement to
reach
5 The special interrogatory treated McDermott and the sling
defendants as a single entity and called for a percentage figure
that covered them both. This combined treatment reflected
McDermott's acceptance of responsibility for the damages caused by
the sling defendants.
6 The trial judge also noted that "[tJo hold as the defendants
request would result in the settling defendants, who were at the
most thirty percent (30%) responsible for the accident (no separate
contributory negligence, if any, finding was made as to McDermott),
paying One Million Dollars ($1,000,000.00) while the defendants who
insisted on a trial and were found to be seventy percent (70%)
liable would pay Four Hundred and Seventy Thousand Dollars
($470,000.00) between them. That is unjust .... " App. to Pet. for
Cert. A-52 to A-53.
207
$470,000." Ibid. It treated this figure as the maximum that
could be recovered from the nonsettling defendants. Because it was
less than River Don's liability as found by the jury (38% of $2.1
million or $798,000), it directed the entry of judgment against
River Don in that amount. Ibid.
Because we have not previously considered how a settlement with
less than all of the defendants in an admiralty case should affect
the liability of nonsettling defendants, and because the Courts of
Appeals have adopted different approaches to this important
question, we granted certiorari. 509 U. S. 921 (1993).
II
Although Congress has enacted significant legislation in the
field of admiralty law,7 none of those statutes provides us with
any "policy guidance" or imposes any limit on our authority to
fashion the rule that will best answer the question presented by
this case. See Miles v. Apex Marine Corp.,
498 U. S. 19, 27 (1990).
We are, nevertheless, in familiar waters because "the Judiciary has
traditionally taken the lead in formulating flexible and fair
remedies in the law maritime." United States v. Reliable Transfer
Co.,
421 U. S.
397, 409 (1975).
In the Reliable Transfer case we decided to abandon a rule that
had been followed for over a century in assessing damages when both
parties to a collision are at fault. We replaced the divided
damages rule, which required an equal division of property damage
whatever the relative degree of fault may have been, with a rule
requiring that damages be assessed on the basis of proportionate
fault when such an allocation can reasonably be made. Although the
old rule avoided the difficulty of determining comparative degrees
of
7 See, e.
g., Longshore and Harbor Workers' Compensation
Act, 33 U. S. C. §§ 901-950; Death on the High Seas Act, 46 U. S.
C. §§ 761-768; Public Vessels Act, 46 U. S. C. §§781-790.
208
negligence, we concluded that it was "unnecessarily crude and
inequitable" and that "[p]otential problems of proof in some cases
hardly require adherence to an archaic and unfair rule in all
cases." Id., at 407. Thus the interest in certainty and simplicity
served by the old rule was outweighed by the interest in fairness
promoted by the proportionate fault rule.
Our decision in Reliable Transfer was supported by a consensus
among the world's maritime nations and the views of respected
scholars and judges. See
id., at 403-405. No comparable
consensus has developed with respect to the issue in the case
before us today. It is generally agreed that when a plaintiff
settles with one of several joint tortfeasors, the nonsettling
defendants are entitled to a credit for that settlement. There is,
however, a divergence among respected scholars and judges about how
that credit should be determined. Indeed, the American Law
Institute (ALl) has identified three principal alternatives and,
after noting that "[e]ach has its drawbacks and no one is
satisfactory," decided not to take a position on the issue.
Restatement (Second) of Torts § 886A, pp. 343-344 (1977). The ALl
describes the three alternatives as follows:
"(1) The money paid extinguishes any claim that the injured
party has against the party released and the amount of his
remaining claim against the other tortfeasor is reached by
crediting the amount received; but the transaction does not affect
a claim for contribution by another tortfeasor who has paid more
than his equitable share of the obligation." Id., at 343.
"(2) The money paid extinguishes both any claims on the part of
the injured party and any claim for contribution by another
tortfeasor who has paid more than his equitable share of the
obligation and seeks contribution." Ibid. (As in alternative (1),
the amount of the injured party's claim against the other
tortfeasors is cal-
209
culated by subtracting the amount of the settlement from the
plaintiff's damages.)
"(3) The money paid extinguishes any claim that the injured
party has against the released tortfeasor and also diminishes the
claim that the injured party has against the other tortfeasors by
the amount of the equitable share of the obligation of the released
tortfeasor." Id., at 344.8
The first two alternatives involve the kind of "pro tanto"
credit that respondents urge us to adopt. The difference between
the two versions of the pro tanto approach is the recognition of a
right of contribution against a settling defendant in the first but
not the second. The third alternative, supported by petitioner,
involves a credit for the settling defendants' "proportionate
share" of responsibility for the total obligation. Under this
approach, no suits for contribution from the settling defendants
are permitted, nor are they necessary, because the nonsettling
defendants pay no more than their share of the judgment.
8 The three alternatives sketched by the ALl correspond to three
detailed model Acts proposed by the National Conference of
Commissioners on Uniform State Laws. Uniform Contribution Among
Tortfeasors Act (1939 Act), 12 U. L. A. 57-59 (1975) (ALl Option
1); Revised Uniform Contribution Among Tortfeasors Act (1955
Revised Act),
id., at 63-107 (ALl Option 2); Uniform
Comparative Fault Act (1977 Act), 12 U. L. A. 45-61 (1993 Supp.)
(ALl Option 3). Although the three ALl options are the most
plausible, a number of others are possible. So, for example, in
addition to arguing for the
pro tanto rule, respondents
suggest that we consider a rule that allows the nonsettling
defendants to elect before trial either the
pro tanto or the
proportionate share rule. Although respondents claim support for
their proposal in Texas and New York statutes, those statutes enact
regimes quite different from that proposed by respondents. Texas
Civ. Prac. & Rem. Code Ann. § 33.012(b) (Supp. 1994)
(nonsettling defendant can choose
pro tanto rule or
reduction of damages by fixed proportion of total damages without
regard to relative fault); N. Y. Gen. Oblig. Law § 15-108 (McKinney
1989)
(pro tanto rule or proportionate share rule, whichever
favors nonsettling defendants). We are unwilling to consider a rule
that has yet to be applied in any jurisdiction.
210
The proportionate share approach 9 would make River Don
responsible for precisely its share of the damages, $798,000 (38%
of $2.1 million).lO A simple application of the
pro tanto
approach would allocate River Don $1.1 million in damages ($2.1
million total damages minus the $1 million settlement).l1 The Court
of Appeals, however, made a different
9 In this opinion, we use the phrase "proportionate share
approach" to denote ALl Option 3. We have deliberately avoided use
of the term "pro rata," which is often used to describe this
approach, see, e.
g., T. Schoenbaum, Admiralty and Maritime
Law §4-15, p. 153 (1987), because that term is also used to
describe an equal allocation among all defendants without regard to
their relative responsibility for the loss. See In re Masters Mates
& Pilots Pension Plan and IRAP Litigation,
957 F.2d
1020,
1028 (CA2 1992); Silver, Contribution Under the
Securities Acts: The Pro Rata Method Revisited, 1992/1993 Ann.
Survey Am. L. 273. Others have used different terms to describe the
approach adopted here. Ibid. ("proportionate method"); Kornhauser
& Revesz, Settlements Under Joint and Several Liability, 68 N.
Y. U. L. Rev. 427, 438 (1993) ("apportioned share set-off rule");
Polinsky & Shavell, Contribution and Claim Reduction Among
Antitrust Defendants: An Economic Analysis, 33 Stan. L. Rev. 447
(1981) ("claim reduction").
10 It might be thought that, since AmClyde is immune from
damages, River Don's liability should be $1.47 million (McDermott's
$2.1 million loss minus 30% of $2.1 million, the share of liability
attributed to the settling defendants and McDermott). This
calculation would make River Don responsible not only for its own
38% share, but also for the 32% of the damages allocated by the
jury to AmClyde. This result could be seen as mandated by
principles of joint and several liability and by Edmonds v.
Compagnie Generale Transatlantique,
443 U. S. 256 (1979). See
infra, at 220-221. Nevertheless, McDermott has not requested that
River Don pay any more than its 38% share of the damages. AmClyde
is immune from damages because its contract with McDermott provided
that free replacement of defective parts "shall constitute
fulfillment of all liabilities ... whether based upon Contract,
tort, strict liability or otherwise."
979 F.2d
1068, 1075
(CA5 1993) (emphasis omitted). The best way
of viewing this contractual provision is as a quasi settlement in
advance of any tort claims. Viewed as such, the proportionate
credit in this case properly takes into account both the 30% of
liability apportioned to the settling defendants (and McDermott)
and the 32% allocated to AmClyde. This leaves River Don with
$798,000 or 38% of the damages.
11 For simplicity, we ignore AmClyde, which was found to be
immune from damages by the Court of Appeals. Id., at 1075-1076. No
party
211
calculation. Because McDermott "accepted responsibility for any
part the sling played in causing the damage," 979 F. 2d, at 1070,
the Court of Appeals treated the 30% of liability apportioned to
"McDermott/sling defendants" as if that 30% had been caused solely
by McDermott's own negligence. Id., at 1081. The Court of Appeals,
therefore, gave River Don a double credit, first reducing the total
loss by the McDermott/sling defendants' proportionate share and
then applying the full pro tanto reduction to that amount. This
double credit resulted in an award of only $470,000 ($2.1 million
minus 30% of $2.1 million minus $1 million).12
III
In choosing among the ALl's three alternatives, three
considerations are paramount: consistency with the proportionate
fault approach of United States v. Reliable Transfer,
421 U. S. 397 (1975),
promotion of settlement, and judicial economy. ALl Option 1, pro
tanto setoff with right of contribution against the settling
defendant, is clearly inferior to the other two, because it
discourages settlement and leads to unnecessary ancillary
litigation. It discourages settlement, because settlement can only
disadvantage the settling defendantP If a defendant makes a
favorable settlement, in
appeals that holding. Although AmClyde spent a considerable
amount replacing the defective hook, River Don does not argue that
that amount should be included in the calculation of its
liability.
12 Whether the Court of Appeals correctly applied the
pro
tanto rule in the context of McDermott's acceptance of
responsibility for the sling damages is a difficult question.
Fortunately, since we adopt the proportionate share approach, we
need not answer it.
13 Uniform Contribution Among Tortfeasors Act § 4 (1955 Revised
Act), Commissioners' Comment, 12 U. L. A. 99 (1975); Kornhauser
& Revesz, 68 N. Y. U. L. Rev., at 474; Polinsky & Shavell,
33 Stan. L. Rev., at 458-459, 462, 463. This argument assumes, in
accordance with the law of most jurisdictions, that a settling
defendant ordinarily has no right of contribution against other
defendants. See Uniform Contribution Against Tortfeasors Act §
l(d), 12 U. L. A. 63 (1975); Uniform Comparative Fault Act § 4(b),
12 U. L. A. 54 (1993 Supp.); Restatement (Second) of Torts §
886A(2) and Comment 1, pp. 337, 339 (1977).
212
which it pays less than the amount a court later determines is
its share of liability, the other defendant (or defendants) can sue
the settling defendant for contribution. The settling defendant
thereby loses the benefit of its favorable settlement. In addition,
the claim for contribution burdens the courts with additional
litigation. The plaintiff can mitigate the adverse effect on
settlement by promising to indemnify the settling defendant against
contribution, as McDermott did here. This indemnity, while removing
the disincentive to settlement, adds yet another potential burden
on the courts, an indemnity action between the settling defendant
and plaintiff.
The choice between ALl Options 2 and 3, between the pro
tanto rule without contribution against the settling
tortfeasor and the proportionate share approach, is less clear. The
proportionate share rule is more consistent with Reliable Transfer,
because a litigating defendant ordinarily pays only its
proportionate share of the judgment. Under the pro
tanto
approach, however, a litigating defendant's liability will
frequently differ from its equitable share, because a settlement
with one defendant for less than its equitable share requires the
nonsettling defendant to pay more than its share.14 Such deviations
from the equitable apportionment
14 Suppose, for example, that a plaintiff sues two defendants,
each equally responsible, and settles with one for $250,000. At
trial, the nonsettling defendant is found liable, and plaintiff's
damages are assessed at $1 million. Under the
pro tanto
rule, the nonsettling defendant would be liable for 75% of the
damages ($750,000, which is $1 million minus $250,000). The
litigating defendant is thus responsible for far more than its
proportionate share of the damages. It is also possible for the
pro tanto rule to result in the nonsettlor paying less than
its apportioned share, if, as in this case, the settlement is
greater than the amount later determined by the court to be the
settlors' equitable share. For a more complex example illustrating
the potential for unfairness under the
pro tanto rule when
the parties are not equally at fault, see Kornhauser & Revesz,
68 N. Y. U. L. Rev., at 455-456
(pro tanto rule can lead to
defendant responsible for 75% of damages paying only 37.5% of loss,
while 25% responsible defendant pays 31.25%).
213
of damages will be common, because settlements seldom reflect an
entirely accurate prediction of the outcome of a trial. Moreover,
the settlement figure is likely to be significantly less than the
settling defendant's equitable share of the loss, because
settlement reflects the uncertainty of trial and provides the
plaintiff with a "war chest" with which to finance the litigation
against the remaining defendants. Courts and legislatures have
recognized this potential for unfairness and have required
"good-faith hearings" as a remedy.15 When such hearings are
required, the settling defendant is protected against contribution
actions only if it shows that the settlement is a fair forecast of
its equitable share of the judgment.16 Nevertheless, good-faith
hearings cannot fully remove the potential for inequitable
allocation of liabilityP First, to serve their protective function
effectively, such hearings would have to be minitrials on the
merits, but in practice they are often quite cursory.18 More
fundamentally, even if the judge at a good-faith hearing were able
to make a perfect forecast of the allocation of liability at trial,
there might still be substantial unfairness when the plaintiff's
suc-
15 In re Masters Mates & Pilots Pension Plan and IRAP
Litigation,
957 F.2d
1020 (CA2 1992); Miller v. Christopher,
887
F.2d 902, 906-907 (CA9 1989); Tech-Bilt, Inc. v. Woodward-Clyde
& Assocs., 38 Cal. 3d 488, 698 P. 2d 159 (1985); Uniform
Contribution Among Tortfeasors Act § 4 (1955 Revised Act), 12 U. L.
A. 98 (1975) (enacted as statute law in 19 States, 12 U. L. A. 81
(1993 Supp.)).
16 Tech-Bilt, Inc., 38 Cal. 3d, at 499, 698 P. 2d, at 166;
Miller, 887 F. 2d, at 907; In re Masters, 957 F. 2d, at 1031; but
see Noyes v. Raymond, 28 Mass. App. 186, 190, 548 N. E. 2d 196, 199
(1990) (judge in good-faith hearing should not scrutinize the
settlement amount, but merely look for "collusion, fraud,
dishonesty, and other wrongful conduct").
17 Franklin v. Kaypro Corp.,
884 F.2d
1222, 1230 (CA9 1989).
18 Tech-Bilt, 38 Cal. 3d, at 500, 698 P. 2d, at 167 ("[T]he
determination of good faith can be made by the court on the basis
of affidavits"); TBG Inc. v. Bendis, 811 F. Supp. 596, 605, n. 17,
608 (Kan. 1992) (no "mini trial" required; settlement amount is
"best available measure of liability").
214
cess at trial is uncertain.19 In sum, the pro tanto approach,
even when supplemented with good-faith hearings, is likely to lead
to inequitable apportionments of liability, contrary to Reliable
Transfer.
The effect of the two rules on settlements is more ambiguous.
Sometimes the pro tanto approach will better promote settlement.2o
This beneficial effect, however, is a conse-
19 Suppose again, as in footnote 14, that plaintiff sues two
equally culpable defendants for $1 million and settles with one for
$250,000. At the good-faith hearing, the settling defendant
persuasively demonstrates that the settlement is in good faith,
because it shows that its share of liability is 50% and that
plaintiff has only a 50% chance of prevailing at trial. The
settlement thus reflects exactly the settling defendant's expected
liability. If plaintiff prevails at trial, the nonsettling
defendant will again be liable for 75% of the judgment even though
its equitable share is only 50%. The only way to avoid this
inequity is for the judge at the good-faith hearing to disallow any
settlement for less than $500,000, that is, any settlement which
takes into account the uncertainty of recovery at trial. Such a
policy, however, carries a grave cost. It would make settlement
extraordinarily difficult, if not impossible, in most cases. As a
result, every jurisdiction that conducts a good-faith inquiry into
the amount of the settlement takes into account the uncertainty of
recovery at trial. Miller, 887 F. 2d, at 907-908; Tech-Bilt, 38
Cal. 3d, at 499, 698 P. 2d, at 166; TBG Inc., 811 F. Supp., at
600.
20 Illustration of the beneficial effects of the pro tanto rule
requires substantial simplifying assumptions. Suppose, for example,
that all parties are risk neutral, that litigation is costless, and
that there are only two defendants. In addition, suppose everyone
agrees that the damages are $100, that if one defendant is found
liable, the other one will also be found liable, and that if the
defendants are liable, each will be apportioned 50% of the damages.
And suppose, as frequently happens, that the plaintiff is more
optimistic about his chances of prevailing than the defendants:
Plaintiff thinks his chances of winning are 60%, whereas the
defendants think the plaintiff's chances are only 50%. In this
case, under the proportionate setoff rule, settlement is unlikely,
because the plaintiff would be reluctant to accept less than $30
(60% times 50% of $100) from each defendant, whereas neither
defendant would be disposed to offer more than $25 (50% times 50%
of $100). On the other hand, under the pro tanto rule, the
plaintiff would be willing to accept a $25 settlement offer,
because he would believe he had a 60% chance of recovering $75
($100 minus the $25 settlement) at trial from the other defendant.
Accepting the $25 settlement offer would give the plaintiff an
expected recovery of $70 ($25 plus
215
quence of the inequity discussed above. The rule encourages
settlements by giving the defendant that settles first an
opportunity to pay less than its fair share of the damages, thereby
threatening the nonsettling defendant with the prospect of paying
more than its fair share of the loss. By disadvantaging the party
that spurns settlement offers, the
pro tanto rule puts
pressure on all defendants to settle.21 While public policy wisely
encourages settlements, such additional pressure to settle is
unnecessary. The parties' desire to avoid litigation costs, to
reduce uncertainty, and to maintain ongoing commercial
relationships is sufficient to ensure nontrial dispositions in the
vast majority of cases.22 Under the proportionate share approach,
such factors should ensure a similarly high settlement rate. The
additional incentive to settlement provided by the
pro tanto
rule comes at too high a price in unfairness.23 Furthermore, any
conclusion that the
pro tanto rule generally encourages more
settlements requires many simplifying assumptions, such as low
litigation costs. Recognition of the reality that a host of
practical
60% of $75), which is more than the $60 (60% of $100) the
plaintiff would expect if he went to trial against both defendants.
For a more thorough discussion of settlement under the pro tanto
rule, see Kornhauser & Revesz, 68 N. Y. U. L. Rev., at
447-465.
21 See H. Hovenkamp, Economics and Federal Antitrust Law § 14.6,
p. 377 (1985), summarizing Easterbrook, Landes, & Posner,
Contribution among Antitrust Defendants: A Legal and Economic
Analysis, 23 J. Law & Econ. 331, 353-360 (1980).
22 Less than 5% of cases filed in federal court end in trial.
Administrative Office of United States Courts, Annual Report of the
Director, 186, 217 (1991) (Of 211,713 civil cases terminated
between July 1, 1990, and June 30, 1991, only 11,024 involved
trials). Although some of the nontrial terminations are the result
of pretrial adjudications, such as summary judgments and contested
motions to dismiss, the bulk of the nontrial terminations reflect
settlements. Kritzer, Adjudication to Settlement: Shading in the
Gray, 70 Judicature 161, 163-164 (1986).
23 United States v. Reliable Transfer Co.,
421 U. S. 397, 408 (1975)
("Congestion in the courts cannot justify a legal rule that
produces unjust results in litigation simply to encourage speedy
out-of-court accommodations").
216
considerations may be more significant than stark hypotheticals
persuades us that the
pro tanto rule has no clear advantage
in promoting settlements.24
The effect of the two rules on judicial economy is also
ambiguous. The
pro tanto rule, if adopted without the
requirement of a good-faith hearing, would be easier to administer,
because the relative fault25 of the settling defendant would not
have to be adjudicated either at a preliminary hearing or at trial.
Nevertheless, because of the large potential for unfairness, no
party or
amicus in this suit advocates the
pro tanto
rule untamed by good-faith hearings. Once the
pro tanto rule
is coupled with a good-faith hearing, however, it is difficult to
determine whether the
pro tanto or proportionate share
approach best promotes judicial economy. Under either approach, the
relative fault of the parties will have to
24 An excellent discussion of the effect of the various rules on
settlement is Kornhauser & Revesz, Settlement Under Joint and
Several Liability, 68 N. Y. U. L. Rev. 427 (1993). After
considering the effects of strategic behavior, litigation costs,
and whether the probabilities of the defendants' being found liable
at trial are "independent" or "correlated," they conclude that
"neither rule is consistently better than the other." Id., at 492.
In addition, in comparing the
pro tanto and proportionate
share rules, they generally assume that the
pro tanto rule
is implemented without goodfaith hearings. Good-faith hearings,
however, "mak[e] the pro tanto setoff rule relatively less
desirable from the perspective of inducing settlements than the
apportioned [i. e. proportionate] share set-off rule." Id., at 476.
Moreover, the
pro tanto rule contains a unique disincentive
to settlement in cases, like this one, in which the settlement
covers more items of damage than the litigated judgment. McDermott
argued that the settlement covered damage both to the crane and to
the deck, whereas the judgment against River Don related only to
the deck. The Court of Appeals refused to apportion the settlement
between deck damages and crane damages and to credit River Don only
with that portion related to deck damages. 979 F. 2d, at 1080. This
refusal to apportion will greatly discourage settlement, because
parties like McDermott will be unable to recover their full damages
if they settle with one party.
25 By referring to the relative fault of the parties, we express
no disapproval of the lower courts' use of relative "causation" to
allocate damages. See 979 F. 2d, at 1081-1082.
217
be determined. Under the pro tanto approach, the settling
defendant's share of responsibility will have to be ascertained at
a separate, pretrial hearing. Under the proportionate share
approach, the allocation will take place at trial. The pro tanto
approach will, therefore, save judicial time only if the good-faith
hearing is quicker than the allocation of fault at trial. Given the
cursory nature of most good-faith hearings, this may well be true.
On the other hand, there is reason to believe that reserving the
apportionment of liability for trial may save more time. First, the
remaining defendant (or defendants) may settle before trial, thus
making any determination of relative culpability unnecessary. In
addition, the apportionment of damages required by the
proportionate share rule may require little or no additional trial
time. The parties will often need to describe the settling
defendant's role in order to provide context for the dispute.
Furthermore, a defendant will often argue the "empty chair" in the
hope of convincing the jury that the settling party was exclusively
responsible for the damage. The pro tanto rule thus has no clear
advantage with respect to judicial economy.26
In sum, although the arguments for the two approaches are
closely matched, we are persuaded that the proportionate share
approach is superior, especially in its consistency with Reliable
Transfer.
26 A further cost of the
pro tanto rule would be incurred
in cases in which the settlement covered more items of damage than
the judgment. See n. 24,
supra. To avoid discouraging
settlement, the judge would have to figure out what proportion of
the settlement related to damages covered by the judgment and what
percentage related to damages covered only by the settlement.
Presumably this allocation would be done by comparing the settling
defendant's liability for the damages to be covered by the judgment
to those not so covered. Ascertaining the liability of a settling
defendant for damages not otherwise litigated at trial would be at
least as difficult as ascertaining an absent defendant's
responsibility for damages already the subject of litigation.
218
IV
Respondents advance two additional arguments against the
proportionate share approach: that it violates the "one
satisfaction rule" and that it is inconsistent with Edmonds v.
Compagnie Generale Transatlantique,
443 U. S. 256 (1979).
In the 19th and early 20th centuries, the "one satisfaction
rule" barred a plaintiff from litigating against one joint
tortfeasor, if he had settled with and released another.27 This
version of the one satisfaction rule has been thoroughly
repudiated.28 Respondents do not ask that the one satisfaction rule
be applied with its original strictness, but rather in the milder
form in which some courts still invoke it to reduce a plaintiff's
recovery against a nonsettling defendant in order to ensure that
the plaintiff does not secure more than necessary to compensate him
for his loss.29 As a preliminary matter, it is far from clear that
there was any danger of supercompensatory damages here. First,
there is the question of the crane damages, which were not covered
by the judgment against River Don. In addition, even limiting
consideration to deck damages, the jury fixed plaintiff's losses at
$2.1 million. Plaintiff received $1 million in settlement from the
sling defendants. Under the proportionate share approach, plaintiff
would receive an additional $798,000 from River Don. In total,
plaintiff would recover only $1.798 million, over $300,000 less
than its damages. The one satisfaction rule comes into play only if
one assumes that the percent share of liability apportioned to
McDermott and the sling defendants really represented McDermott's
contributory
27 Conway v. Pottsville Union Traction Co., 253 Pa. 211, 97 A.
1058 (1916); Rogers v. Cox, 66 N. J. L. 432, 50 A. 143 (1901); w.
Prosser, Law of Torts § 109, pp. 1105-1111 (1941).
28W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and
Keeton on Law of Torts § 49, pp. 333-334 (5th ed. 1984);
Restatement (Second) of Torts § 885(1), Comment
b, at
334.
29 Rose v. Associated Anesthesiologists,
501
F.2d 806, 809 (CADC 1974); Sanders v. Cole Municipal Finance,
489 N. E. 2d 117, 120 (Ind. App. 1986).
219
fault, and that it would be overcompensatory for McDermott to
receive more than the percentage of the total loss allocated to the
defendants, here $1.47 million (70% of $2.1 million).
Even if the Court of Appeals were correct in finding that the
proportionate share approach would overcompensate McDermott, we
would not apply the one satisfaction rule. The law contains no
rigid rule against overcompensation. Several doctrines, such as the
collateral benefits rule,30 recognize that making tortfeasors pay
for the damage they cause can be more important than preventing
overcompensation. In this case, any excess recovery is entirely
attributable to the fact that the sling defendants may have made an
unwise settlement. It seems probable that in most cases in which
there is a partial settlement, the plaintiff is more apt to accept
less than the proportionate share that the jury might later assess
against the settling defendant, because of the uncertainty of
recovery at the time of settlement negotiations and because the
first settlement normally improves the plaintiff's litigating
posture against the nonsettlors. In such cases, the entire burden
of applying a proportionate share rule would rest on the plaintiff,
and the interest in avoiding overcompensation would be absent. More
fundamentally, we must recognize that settlements frequently result
in the plaintiff's getting more than he would have been entitled to
at trial. Because settlement amounts are based on rough estimates
of liability, anticipated savings in litigation costs, and a host
of other factors, they will rarely match exactly
30 See 4 F. Harper, F. James, & O. Gray, Law of Torts §
25.22 (2d ed. 1986) (injured person can recover full damages from
tortfeasor, even when he has already been made whole by insurance
or other compensatory payment); Restatement (Second) of Torts §
920A(2) (1977). The one satisfaction rule once applied to
compensatory payments by nonparties as well, thus preventing or
diminishing recovery in many situations in which the collateral
benefits rules would now permit full judgment against the
tortfeasor. W. Prosser, Law of Torts § 109, pp. 1105-1107
(1941).
220
the amounts a trier of fact would have set. It seems to us that
a plaintiff's good fortune in striking a favorable bargain with one
defendant gives other defendants no claim to pay less than their
proportionate share of the total loss. In fact, one of the virtues
of the proportionate share rule is that, unlike the pro tanto rule,
it does not make a litigating defendant's liability dependent on
the amount of a settlement negotiated by others without regard to
its interests.
Respondents also argue that the proportionate share rule is
inconsistent with Edmonds v. Compagnie Generale Transatlantique,
443 U. S. 256
(1979). In that case, we refused to reduce the judgment against a
shipowner by the proportionate fault attributed to a stevedore
whose liability was limited by the Longshoremen's and Harbor
Workers' Compensation Act. Instead, the Court allowed the plaintiff
to collect from the shipowner the entirety of his damages, after
adjusting for the plaintiff's own negligence. There is no
inconsistency between that result and the rule announced in this
opinion. Edmonds was primarily a statutory construction case and
related to special interpretive questions posed by the 1972
amendments to the Longshoremen's and Harbor Workers' Compensation
Act. Both parties acknowledge that this case must be resolved by
judge-made rules of law. Moreover, Edmonds did not address the
issue in this case, the effect of a settlement on nonsettling
defendants. Indeed, there was no settlement in that case. Instead,
one can read that opinion as merely reaffirming the
well-established principle of joint and several liability. As the
Court pointed out, that principle was in no way abrogated by
Reliable Transfer's proportionate fault approach. Edmonds, 443 U.
S., at 271272, n. 30. In addition, as the Commissioners on Uniform
State Laws have noted, there is no tension between joint and
several liability and a proportionate share approach to
settlements.31 Joint and several liability applies when there
31 Uniform Comparative Fault Act §2, Comment "Joint and Several
Liability and Equitable Shares of the Obligation," 12 U. L. A. 51
(1993 Supp.).
221
has been a judgment against multiple defendants. It can result
in one defendant's paying more than its apportioned share of
liability when the plaintiff's recovery from other defendants is
limited by factors beyond the plaintiff's control, such as a
defendant's insolvency. When the limitations on the plaintiff's
recovery arise from outside forces, joint and several liability
makes the other defendants, rather than an innocent plaintiff,
responsible for the shortfall. Ibid.32 Unlike the rule in Edmonds,
the proportionate share rule announced in this opinion applies when
there has been a settlement. In such cases, the plaintiff's
recovery against the settling defendant has been limited not by
outside forces, but by its own agreement to settle. There is no
reason to allocate any shortfall to the other defendants, who were
not parties to the settlement. Just as the other defendants are not
entitled to a reduction in liability when the plaintiff negotiates
a generous settlement, see supra, at 219-220, so they are not
required to shoulder disproportionate liability when the plaintiff
negotiates a meager one.
V
The judgment of the Court of Appeals is reversed, and the case
is remanded for further proceedings consistent with this
opinion.
It is so ordered.
32 See also Uniform Comparative Fault Act § 2 (reallocation of
insolvent defendant's equitable share),
id., at 50.
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