Yesterday, Arthur Andersen, the near-defunct accounting firm, joined a long list of proclaimed innocents that have agreed to pay millions or billions to WorldCom investors, the telecom company that declared bankruptcy in 2002.
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All told, investors will recover about $6 billion from WorldCom defendants, more than two-thirds from JPMorgan Chase and Citigroup banks that financed WorldCom and that might have uncovered the fraud at what was once the nation's second-largest long-distance carrier. The payout is large in historical terms, but small compared to WorldCom's market value at its height.
All this was made possible by the genius--or folly, depending on your point of view--of joint and several liability, a legal doctrine that is coming under fire by advocates for tort reform.
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Parceling out who contributed what to the WorldCom fraud (short of blaming it all on Sullivan) might be an impossible task. But each defendant agreed to settle and pay something, at least in part because of the doctrine of joint and several liability, which is very much under attack by tort reform advocates.
This doctrine evolved as a fairness rule. As described by the Center for Democracy and Justice, a group that warns of the dangers of tort reform, it applies "when more than one defendant is found fully or substantially responsible for causing an injury (not 1% or 10% responsible, as is commonly misstated). If one wrongdoer is insolvent or cannot pay their share, the other fully responsible wrongdoers must pick up the tab, to make sure the innocent victim is fully compensated."
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