Settling Multidefendant Lawsuits: The Advantage of Conditional Setoff Rules

Posted: 13 Oct 2000

See all articles by Daniel M. Klerman

Daniel M. Klerman

University of Southern California Gould School of Law

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Abstract

In cases involving multiple defendants, each defendant's incentive to settle is influenced by the setoff rule enforced in the relevant jurisdiction. This article suggests that the effect of a setoff rule depends on whether the setoff is conditional on a finding that the settling defendant or defendants were legally liable. Previous research, which assumed that the setoff was unconditional, found that the two principal rules applied by modern courts -- the pro tanto and proportionate share rules -- often discourage settlement when the plaintiff's probabilities of prevailing against each defendant are not perfectly correlated. This article shows that the disincentive to settlement can be reduced or eliminated by making the setoff conditional on the liability of the settling defendant or defendants. The conditional setoff rules are of practical as well as theoretical interest, because several states already apply them.

JEL Classification: K41

Suggested Citation

Klerman, Daniel M., Settling Multidefendant Lawsuits: The Advantage of Conditional Setoff Rules. Journal of Legal Studies, Vol. 25, No. 2, Pp. 445-462, 1996. Available at SSRN: https://ssrn.com/abstract=241760

Daniel M. Klerman (Contact Author)

University of Southern California Gould School of Law ( email )

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HOME PAGE: http://weblaw.usc.edu/contact/contactInfo.cfm?detailID=227

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