Opinion ID: 2052734
Heading Depth: 3
Heading Rank: 3

Heading: Pro Rata

Text: The nonsettling defendant receives a credit reflecting the settling defendant's equitable share [15] of the legal responsibility for the plaintiff's injury. The question of contribution by the settling defendant becomes moot, because the nonsettling defendant never pays more than its pro rata (50%) share of the judgment. Each of these alternatives, reflecting a series of approaches by the National Conference of Commissioners on Uniform State Laws, [16] reflects different problems and benefits. The Supreme Court in McDermott evaluated each alternative for (1) promotion of efficient settlements, (2) promotion of judicial economy, and (3) consistency with judicial precedent. The Court noted that the first alternative is clearly inferior to the other two. Id. at ___, 114 S.Ct. at 1467. It is ideal in the twofold sense that the plaintiff is made whole (in the amount of the jury verdict) and that, after contribution, each defendant pays an equal ( pro rata ) share. But the first alternative tends to discourage settlements because the settling defendant remains exposed to contribution and the settlement thus lacks finality. Most jurisdictions bar the settling defendant from seeking contribution if it settles for more than its proportionate share of the damages. [17] Under this first alternative, therefore, the settling defendant always will end up paying as much or more than it would have paid if it had not settled and gone to trial. See McDermott, ___ U.S. at ___ n. 13, 114 S.Ct. at 1467 n. 13. The plaintiff, of course, could agree to indemnify the settling defendant for any contribution eventually required, but that would not forestall additional litigation or necessarily cover all the additional expenses involved. The failure of this approach to foster settlements led the Commissioners on Uniform State Laws to propose elimination of the nonsettling defendant's right to contribution from the settling defendant. See REVISED UNIF. CONTRIBUTION AMONG TORTFEASORS ACT § 4(b), supra note 15, at 99-100 (Commissioners' Cmt.). The Supreme Court noted that the choice between the second and third alternatives is less clear. McDermott, ___ U.S. at ___, 114 S.Ct. at 1467. The second pro tanto alternative, by eliminating the right to contribution, provides all defendants with a greater incentive to settle than the first. Again, the plaintiff is made whole, but this time the defendants  while equally culpable (in this jurisdiction)  almost inevitably will pay different shares of the judgment. This alternative, therefore, can be overly harsh on the nonsettling defendant when the settlement is less  often considerably less  than half the eventual verdict, and the nonsettling defendant is left to pay more  often much more  than its pro rata share. Some jurisdictions, recognizing that a plaintiff may deliberately settle cheaply with one defendant to obtain a war chest of litigation expenses to pursue another (who may have a deeper pocket), have required a good faith hearing to assure that the settlement is not so low that the nonsettling defendant will bear an unjustifiable share of the eventual judgment. [18] Such good-faith hearings, while facilitating fair settlements, may add substantially to the expenses of litigation and to the burden on judicial resources that settlements are supposed to avoid  unless, of course, the hearings are too perfunctory to achieve their intended purpose. This second approach, structured to make the injured party whole while assuming the finality of the settlement agreement  but also exposing the nonsettling defendant to the risk of paying much more than its pro rata share  tends to be favored by plaintiffs, as well as by those defendants (and their insurers) inclined to settle. See RESTATEMENT (SECOND) OF TORTS § 886A cmt. m. The third alternative assures that the nonsettling defendant will pay no more  and no less  than its pro rata share of the verdict, and thus that the settling defendant will not be exposed to a claim for contribution. But when, as in virtually every case, the settlement differs from the settling defendant's pro rata share of the eventual verdict, the plaintiff will receive less  or more  than the jury has decided the claim is worth; the plaintiff will rarely if ever receive exactly what the jury awards. Probably more often than not, however, the plaintiff settles for an amount less than the settling defendant's pro rata share of the eventual verdict. See McDermott, ___ U.S. at ___, 114 S.Ct. at 1471. It does so 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. Id. Accordingly, [t]his solution works against the interest of the injured party and may have the effect of discouraging him [or her] from entering into a settlement. RESTATEMENT (SECOND) OF TORTS § 886A cmt. m. Furthermore, by limiting the litigating defendant's payment to its pro rata share of the verdict, this third alternative tends to be favored by defendants (and their insurers) who are disinclined to settle. Cf. McDermott, ___ U.S. at ___, 114 S.Ct. at 1468. Having concluded that neither the pro tanto (without contribution) rule nor the proportionate share (here pro rata ) rule presents a clear advantage in promoting settlements or judicial economy, the Supreme Court next compared the two rules for their consistency with existing judicial precedent. The Court decided that the pro tanto (without contribution) rule would likely lead to inequitable apportionments of liability contrary to admiralty case law apportioning damages based on relative fault. Id. at ___, 114 S.Ct. at 1468. The Court, therefore, concluded that although the arguments for the two approaches are closely matched, we are persuaded that the proportionate share approach is superior, especially given its consistency with the comparative fault rule. Id. at ___, 114 S.Ct. at 1470. The Supreme Court's analysis in McDermott informs our decision today. If Martello were not the law, recognizing the nonsettling tortfeasor's right (at least when the settlement is less than half the verdict) to a pro rata credit, we might look at this case differently. There is much to be said for an across the board pro tanto (without contribution) rule, coupled with a required showing of a good faith settlement. Under such a rule, whether the settling defendant is a joint tortfeasor or not, (1) settlement pressure on all defendants is great, and (2) a plaintiff, by settling with one defendant and successfully litigating against another, will always be made whole in the amount of the jury's verdict. Bound by precedent, however, we are not free to consider overruling our bifurcated system of credit rules under Martello and Snowden even if one uniform credit rule regime were demonstrably superior. But we do have some freedom. Because both Martello and Snowden concerned credits where the settlements did not reach the settlers' pro rata shares, neither case presented the question whether the plaintiff's recovery against joint tortfeasors always must be limited by the one satisfaction rule. Both practical considerations  encouragement of settlements with accompanying judicial economy  and concerns about fairness lead us to conclude that a straight Martello ( pro rata credit) rule should be applied in all cases of joint tortfeasors, even when the one satisfaction rule must give way. Given Martello for cases where the one satisfaction rule would not be violated, we believe a switch to Snowden in cases such as this one would chill prospects for settlement. The plaintiff would know its recovery could never exceed the amount of the jury's verdict, so even the prospects for an especially favorable settlement would be likely to lose force. On the other hand, a defendant disinclined to settle would know it could pay no more, and might even be able to pay less, than its pro rata share of an eventual verdict if it refused to settle. If under Martello, therefore, a nonsettling defendant will never have to pay more than its pro rata share  a rule defendants generally favor over the pro tanto rule  then settlement with all defendants is most likely to occur if each defendant also knows that it can never pay less than its pro rata share by continuing with the litigation  i.e., that there is no prospect for a pro tanto credit greater than its pro rata allocation. We have noted that the Martello regime, because of its pro rata credit, often cuts a plaintiff's total recovery down well below the amount of the jury's verdict. Under such circumstances, we see no principled basis for changing the rule simply because a plaintiff negotiates an unusually favorable settlement. See McDermott, ___ U.S. at ___, 114 S.Ct. at 1471. Under the pro tanto regime, the plaintiff's equitable recovery (jury verdict) is assured in the amount of the jury verdict; in the pro rata regime, the nonsettling defendant's equitable contribution ( pro rata share) is assured without regard to the plaintiff's total recovery. The equities involved, therefore, do not persuade us to shift from pro rata to pro tanto at the very first moment a credit rule that ordinarily favors the litigating defendant shifts in favor of a hard bargaining plaintiff. The principles underlying the one satisfaction rule suggest no persuasive reason to refrain from applying the pro rata rule to the exceptional facts of this case. The Supreme Court acknowledged in McDermott that its decision potentially conflicted with the one satisfaction rule. The Court concluded nonetheless: 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. ___ U.S. at ___, 114 S.Ct. at 1470. [19] The Court was unwilling to say that a defendant's generous settlement should benefit a nonsettling defendant through a large pro tanto credit amounting to a windfall, rather than benefitting the plaintiff for successful negotiation of half the claim. As the Court observed, a plaintiff often settles for too low an amount because of the uncertainty of recovery and of the need for a settlement to help strengthen its litigation prospects against a nonsettler. See id. at ___, 114 S.Ct. at 1471. On the other hand, the Court also recognized that, in some cases, settlements exceed what a defendant would have to pay after litigation because savings in litigation expenses and other factors occasionally cause a defendant to offer a higher amount than its anticipated share of the judgment alone would indicate. See id. The Court concluded that the two situations did not justify different rules: 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. Id. [20] Whatever credit rule is chosen inevitably will play into all parties' settlement calculations. Making particular credit rules contingent upon the relative amounts of the settlement and the jury's verdict, as Dr. Footer asks us to do here, would only increase uncertainty and make it even more difficult for litigants to negotiate settlements. We are persuaded, as the Supreme Court was in McDermott, that consistency with established precedent applicable to settlements with joint tortfeasors weighs in favor of applying Martello, not the one satisfaction rule in Snowden, to the unusual facts of this case. We conclude, accordingly, that when the settling defendant is a joint tortfeasor, the Martello rule applies even though the nonsettling defendant's pro rata contribution to the amount of the jury verdict, when added to the amounts recovered in settlement, will result in a plaintiff's recovery that exceeds the verdict.