The following article was written by Seth Goldin and published on his blog, Latent Paradigm, October 22nd, 2012.

I recently watched the documentary Hot Coffee. This is an excellent film, and I highly recommend it.

The movie covers a few different cases, brilliantly debunking the myth of tort reform as a check on widespread frivolous lawsuits. The film exposes the reality that tort reform is an intrusion on the proper mechanism for holding wrongdoers accountable in a free society.

Stella Liebeck

The film, at its core, is a defense of the civil justice system against tort reform. Most people don’t understand what tort cases are, or the extremely valuable role they play in effecting positive social change.

I first learned about the truth behind the McDonald’s coffee case from a discussion with John Hasnas back in the summer of 2010. He explained that the popular understanding of the McDonald’s coffee case was completely wrong. Hot Coffee was released in June, 2011, but I only heard about it recently, so I rushed to see it.

You probably dismiss or even scowl at the McDonald’s coffee case as an example of a frivolous lawsuit, in which one greedy and opportunistic woman successfully gamed the system. The popular thinking is that a coffee spill is such a common occurrence that it shouldn’t be grounds for anyone to get millions of dollars. You might think that juries are so stupid and biased against big corporations that they enable widespread abuse of the system, extracting money from big corporations, and passing on the costs to consumers in the form of higher prices. All this is wrong.

There are lots of popular misconceptions about the case. The plaintiff, Stella Liebeck, wasn’t absentmindedly driving. She wasn’t even in the driver’s seat of the car. When the spill happened, the car wasn’t even moving.

In reality, the plaintiff and her son got coffee at their local McDonald’s drive-through. Her son was driving. After getting the coffee, he pulled over into a parking space so that his mother could remove the lid and put cream and sugar into her coffee. When the car was stopped, she took the lid off, and spilled the coffee right onto her lap.

The coffee was so hot that Liebeck suffered extensive third degree burns across her legs and groin, and actually required multiple skin grafts. Liebeck herself wasn’t being opportunistic, and wasn’t even after punitive damages. She only wanted McDonald’s to pay for the difference of the cost of her medical bills, for what Medicare wouldn’t cover.

In the trial it was revealed that McDonald’s had documented about 700 complaints about their coffee being too hot, prior to Liebeck’s spill. McDonald’s even conceded that their coffee would certainly seriously burn someone if they tried to drink it immediately. The official determination was that at such a high temperature, the coffee would only need to make contact with a person’s skin for a few seconds to cause a third-degree burn.

Some portray this case as typical leftist activism by attacking big corporations and absolving individuals of their responsibility. Such framing is entirely wrong.

There’s often a knee-jerk reaction among libertarians and conservatives to defend businesses against the left, and admittedly, the left is usually wrong when they advocate the use of the legislative and the executive branches to regulate businesses preemptively, but the judicial branch is different.

Central planning, and all the destructiveness associated with it, is a product of the legislative and executive branches. In contrast, judicial systems predate centralized governments [PDF], so framing tort reform as a move toward free markets doesn’t make any sense. Historically, in the absence of governments, courts were the premier mechanism to redress disputes and wrongdoings.

The issue of tort reform manifests Haidt’s moral foundations in an unusual way. The progressives who advocate for strong protection of tort law are concerned with power imbalances that favor big companies, and are operating on the oppression foundation, while the conservatives who wish to avoid rewarding societal moochers are operating on the fairness foundation. The equilibrium is sort of backwards. Usually progressives discount how governments subvert spontaneous orders when advocating for central planning that undermines the rule of law, and usually conservatives hesitate to challenge established traditions for fear of unintended consequences. In the case of tort reform, conservatives are advocating for central planning that would subvert the spontaneous order of the civil justice system, and progressives are defending the mechanism that protects the vulnerable.

Tort law is crucial because it is simultaneously surgical and effective, unlike anything you would ever see from the executive or legislative branches. The day after the ruling of Liebeck v. McDonald’s Restaurants, every restaurant in America cooled its beverages to safer temperatures, because they knew precisely what they would be liable for, and what kind of punishment might befall them if they failed to serve beverages at a safe temperature. It would be unthinkable to see compliance like that from a rule out of some bloated bureaucracy in DC. A hypothetical attempt at regulation by the legislative or executive branches might have been to create some ineffective new agency, bureaucratically guzzling millions of dollars, perhaps employing inspectors to roam the country and issue fines.

The jury had originally awarded $2.7 million dollars as punitive damages, but the judge reduced that to $480,000. Those large figures embody what H. L. A. Hart called the Benthamite “economy of threats.” Punitive damages need to be high enough to change the behavior of the wrongdoers, and if the company is quite large, like McDonald’s, it might take a few million dollars to send the message.

Colin Gourley

Tort reform is destructive because it limits liability. In the case of Colin Gourley, an OB/GYN was found to have breached the standard of care, thereby causing Colin Gourley to suffer numerous mental and physical defects in utero. The parents sued for medical malpractice, and won, but a tort reform law limited the offending doctor’s liability.

Colin Gourley will never be an independent adult, and his parents were seeking enough money to insure that their son would be taken care of for the rest of his life, after the point at which they’d be able to take care of him. The tort reform law effectively absolved the offending doctor from their negligence.

Sure, doctors make mistakes, but it doesn’t follow that protecting strong tort law allows just any patient dissatisfied with their results to sue. The standard of care is an established legal concept, and courts can decide with expert testimonies whether it has been breached.

It is incompatible with a free society for a government to limit liability. Just as centrally planned bankruptcy laws are economic interventions [PDF], centrally planned laws limiting liability for doctors, or corporations, or anyone for that matter, are economic interventions. A free market of private business insurance would better weigh the costs and benefits to society of various risky activities. Governments shouldn’t arbitrarily decide in advance how much damage a party can cause. After all, in the course of history, we humans have demonstrated profound creativity in being destructive.

Laws that limit liability systematically favor businesses at the expense of the general public. Tort reform is obviously special interest lobbying for government-created rents.

Oliver Diaz

When discussing the case of Oliver Diaz, Hot Coffee loses focus by pivoting to tangential leftist issues, incorrectly accusing Citizens United v. Federal Election Commission as a primary driver that corrupts the elections of judges. Citizens United correctly protected free speech.

The real culprit is democracy itself. Choosing judges through democratic processes at all opens up the judicial system to politicking. Less democratic alternative institutional structures for the judicial system are perhaps more robust and less corruptible, if support for tort reform is a widespread weak preference. That the preference for tort reform is widespread and weak is probably due to rational ignorance. The preference is probably just expressive, because conservative framing of the issue has been quite effective and popular. We should expect voters to vote against their own self-interest in democratic referenda about tort reform.

Jamie Leigh Jones

When is a contract not enforceable? When shouldn’t a contract be enforced?

Jamie Leigh Jones fought against a mandatory arbitration clause in her employment contract, in the fine print. She wasn’t even aware of the clause.

Jones was an employee of Halliburton, and at the time of Hot Coffee’s release, she was supposedly brutally raped while working for them in Iraq. After the film’s release, Jones did finally win the ability to sue Halliburton in open court, but the jury found that the sex in question was consensual. Regardless, the important broader question is the validity of mandatory arbitration clauses.

These stock arbitration firms conduct much repeat business with the large firms that are their clients, but conduct no repeat business with disgruntled employees, so these arbitration firms are strongly biased against employee claims. Would obviously unfair clauses in the fine print of agreements actually hold up in court, or any sensible common law regime? Can you actually sign your rights away in an iTunes EULA? Fortunately, I don’t believe a lot of these clauses actually hold up.