U.S. District Judge Phyllis J. Hamilton last week rejected a challenge to a judgment-sharing agreement. Makers of dynamic random access memory chips entered into the agreement in connection with the ongoing price-fixing litigation against them. The California Attorney General challenged the agreement as inhibiting settlement. Not so, Her Honor held. Lookie here (subscription necessary). California v. Infineon Technologies AG, No. 06-cv-04333-pjh (N.D. Cal. Nov. 29, 2007).
Blawgletter concurs. The DRAM judgment-sharing agreement does make settlement harder in the sense that it gives the defendants big incentives to hang together rather than separately. But it does so in a rational and not the least bit illegal way.
Each party to a judgment-sharing agreement promises to contribute money, in proportion to its "sharing percentage", to any judgment that befalls any other party or parties to the agreement. Each may also vow to try to get a global settlement and, failing that, to require the settlement agreement to reduce the non-settling defendants’ liability by the settling defendant’s sharing percentage (rather than just by the amount of the settlement defendant’s payment). Other provisions may go into the agreement also, but the judgment-sharing part furnishes the essential glue for the pact.
The genius of judgment sharing lies in the cohesion it enforces among defendants. It thus combats the plaintiffs’ ability, in a typical price-fixing case, to encourage Defendant A to settle early by offering a discount from its likely share of any damages award. Defendant A — possibly the guiltiest of them all — likes the idea of getting out cheap. The remaining defendants still face joint and several liability for actual damages times three minus the early settlement amount (not actual damages minus the early settlement amount times three). A judgment-sharing agreement takes the early-settlement-for-cheap option away.
Why don’t defendants routinely enter into judgment-sharing agreements in antitrust cases? We guess in part because defense counsel don’t normally evaluate relative culpability early on. The lawyers instead default to the ’tain’t so defense (even when their clients have pleaded guilty!), beguiling themselves with the notion that they’ll do something brilliant (or dumb luck will happen) to turn the tide. Meanwhile, vigorously and separately representing their own clients will keep the lights on at the office and groceries in the pantry at home.
So, instead of the defendants forming a coherent group, they each proceed amidst a thundering defendant herd — in it but not of it. Fully individual in its pristine and courageous glory. Without the protection of the group. And therefore susceptible to separation — of the involuntary kind.