Bad Arguments in Tort
[Draft: Please Do Not Quote Without Permission]
Tort attracts its share of sloppy thinking, bad arguments and platitudes. Here are a few commonly heard defenses or criticisms that just don’t work. There may be good arguments for the same positions, but these aren’t they.
1. Liability should be limited because liability makes prices go up.
Tort liability indeed does mean higher prices for the product causing the injury, but that by itself is not a reason to reduce tort liability. Accidents are one of the costs of a product and they ought to be included in the price of the product just like all other costs.
To permit producers to cause injure other people, property or the environment without paying is a distorting subsidy. It results in unfairly low prices for irresponsible businesses, much as allowing some businesses to steal their raw materials would result in unfairly low prices. Allowing some producers to produce without paying their full costs is a direct injury not only to the uncompensated suppliers (or tort victims) but also to responsible businesses that do pay for all their costs. Indeed, in a reasonably competitive economy, it will quickly result in responsible businesses going out of business, as their costs will be higher than competitors which are not paying for the injuries they cause.
Moreover, even if there were some reason to subsidize a particular product or put its manufacturers on welfare, reducing tort liability is a particularly cruel form of welfare subsidy. It is a direct, involuntary, transfer from tort victims – often the worst off in society – to producers and consumers of their products.
The related good argument: Tort can distort prices upward, but not by its existence. It distorts prices upward if the damages awarded are larger than the cost of the injuries the product or producer causes to victims.
2. The tort goal of compensating victims is a basis for holding solvent persons liable (or relieving insolvent persons of liability).
If this were correct, we could save a lot of work and simply make Bill Gates liable for all torts. He, after all, is far more likely to be able to pay than any of the rest of us. And we could eliminate the half the population with no net worth as potential defendants.
In fact, tort doctrine neither relieves the insolvent of tort liability (and, if they are humans rather than organizations, bankruptcy doesn’t do so either), nor imposes it for reasons of solvency. Indeed, except in determining the size of punitive damages, solvency simply isn’t a relevant issue in court: lawyers ordinarily will not be permitted to present to the jury evidence of the defendant’s wealth or poverty.
No tort doctrine currently extant imposes liability without causation. Nor does tort recognize that wealth alone creates a duty to those worse off. Tort rejects the Biblical claims that we are our brother’s keepers, that we must care for the poor, or that we are required to act like the Good Samaritan; similarly it rejects the secular claims of Rawls and others that society ought to be organized so as to maximize the welfare of the worst off; of the utilitarians that it ought to maximize overall welfare; and of social contract rights theorists that it ought never to treat one person as a means to another’s ends. Tort, far more modest, never recognizes injury alone as a basis for a claim or an obligation.
Only those who injure others are liable under tort – and even then, only a subset of those who injure are obliged to compensate. To recover, a victim must always prove duty and proximate causation, and with the limited exception of strict products liability, also intent or carelessness. This argument appears to miss that fundamental point.
The goal of compensating victims might be a basis for abandoning tort altogether or in part and replacing it with a system of no-fault insurance, socialized medicine, or compulsory bonding or liability insurance of potential tort-feasors. Each of those systems – used by us or other advanced democracies in areas once covered by tort – might well compensate more victims for less cost than does tort. They would, however, abandon two other distinctive features of tort as we know it: correction of product pricing, as discussed in 1 above, and the principle of limited responsibility: that defendants are only obliged to pay damages to victims they harmed.
3. A related bad argument: Corporations are liable for their employees’ torts because they are more likely to be solvent than their employees.
The factual claim is simply incorrect. Most corporations are closely held and one of the key reasons to create a closely held corporation is to avoid liability. For that to work, the corporation must be kept close to insolvency. Closely held businesses, as a result, typically will have few assets and will be close to judgment proof. Their owners may well have great wealth, and their owners are often employees as well.
It is the case that publicly held corporations are likely to have vastly greater wealth than average Americans (the median American has essentially no net worth), but tort does not distinguish between public and close corporations, or between highly paid CEOs and minimum wage workers.
Significantly, tort never holds the owners of corporations liable for the corporations’ torts, as it would have to do if it were actually seeking solvent parties. (Corporate law does lift the corporate shield under quite unusual conditions, but even corporate law starts from the premise that avoiding tort liability is a perfectly acceptable reason to form a corporation).
4. Respondeat superior is “vicarious” liability in which an employer is held liable for torts it did not commit without a finding of fault.
No way. Respondeat superior is almost the opposite: it explains how one proves that a business organization, which normally acts through its employees, is at fault. The doctrine is not about vicarious liability but organizational fault: it tells us that when an organization acts, it is responsible for the consequences under more or less the usual rules.
First, thinking of respondeat superior as a no fault doctrine requires extraordinary mental acrobatics, since the doctrine requires the plaintiff to prove fault in all its normal complexity. Respondeat superior is fundamentally different from strict liability, under which a plaintiff need only prove causation, not unreasonable actions.
Second, respondeat superior only holds employers liable for the employers’ own torts.
The basic rule of respondeat superior is that both employer and employee are liable for torts committed by the employee in the course of employment. But if the employee is acting in the scope of employment, his or her torts ARE the organization’s torts. There is no other rule that makes sense of the organization’s existence.
When I go into a bank and hand some money to the teller, I assume I am doing business with the bank, not the teller (and ordinary agency law agrees). If I receive a receipt with the wrong amount on it, or the money doesn’t appear in my next account statement, my complaint is with the bank, not the teller. I don’t really care whether the problem was a mistake by the teller, dishonesty in the back office or a computer failure: as far as I am concerned, I made a contract with the bank and the bank has failed to fulfill its obligation. How it failed is a problem for the bank’s management to resolve, not for me.
This rule is essential to the functioning of a modern economy. If I had to know which teller made the mistake or to rely on the accuracy or honesty of particular tellers, I’d be unable to do business with banks: the brand name would be worthless, the organization pointless. Instead, I’d have to find particular individuals to rely on.
Ordinary agency law recognizes all this. When an employee makes a contract for the employer, only the employer, not the employee, is bound. Even if the employee specifically violates the employer’s rules, only the employer is bound: the economy couldn’t function if outsiders had and obligation to do sociological studies of organizations to determine precisely how they are organized, or to demand detailed job descriptions to assure themselves that an employee was obeying internal norms. If I walk into a bank and see someone sitting in the teller’s booth, I am entitled to assume that they are a teller authorized to take my money on behalf of the bank. If in fact the bank has put a trainee there and barred him from making any transactions without supervision, that is the bank’s problem, not mine. It is still bound to the contract it made with me; if it doesn’t like the contract, its remedy is against its employee, who bound it, not against me.
There is no reason why the rules should be different with tort. When I hire the Gas Company to supply me with gas, my relationship is with the organization, not the individual who the company happens to send to my house. If he fails to close the valve properly and my house blows up, the negligence was the Gas Company’s: it is the Gas Company I was relying on, it is the Gas Company that has a duty to me, it is the Gas Company that designed the valve, it is the Gas Company that set safety standards, it is the Gas Company that trained its representative, it is the Gas Company that installed failsafe valves or required checklists or didn’t, it is that Gas Company that decided that gas was safe for home use, it is the Gas Company that advertised itself as a reputable supplier. The Gas Company is liable because the Gas Company is at fault, caused the accident and is responsible. I have no relationship–and want no relationship—with the employee.
Internal consistency requires the same result. The Gas Company expects to bill me for the time the employee spent working at my house; were I to send him a check made out to him privately and mailed to his home address, it would contend that I did not meet my contractual obligations, and, of course it would be right. Under standard agency law, the servant’s work is the master’s. The work the employee did is the Gas Company’s work (and not his own). It fulfills the Gas Company’s obligations to me, not the employee’s, and my reciprocal obligation is to the Gas Company, not to the employee. If that is the boundary and meaning of the enterprise when things are working well, it must be the boundary and meaning of the enterprise when things go bad. I can’t enter into relationship with the Gas Company if it retains the option to decide, after the fact, which of my contacts were with it (e.g., when I signed a contract with its employee) but others were not (when its employee made an offer she now wishes she hadn’t).
Although this example mainly involves contract, there is no reason the rule should be different in tort. Business organizations function as organizations through the actions of their employees. It is, typically, employees who act when the organization acts. They buy for it, sell for it, produce for it, consume for it, make, perform and breach contracts for it. And commit torts for it.
The distinctive feature of respondeat superior is not that it extends liability to employers – ordinary agency law analysis and any sensible understanding of enterprises would reach that conclusion anyway.
Rather, the difference the rule makes is that it holds the servant liable to outsiders for torts committed on behalf of the master – that is a dramatic departure from the usual rules. In contract, I don’t get an option to sue the teller if my money doesn’t show up in my account. My complaint is with the bank, even if the bank’s problem is a corrupt or incompetent teller. But if the teller leaves a banana peel on the floor in front of the booth, and I trip, I have the option of suing bank or teller. It is the bank, however, that committed this tort, and its liability is based on its own actions: the bank placed that banana peel on the floor and the bank failed to remove it. The teller, acting in the course of employment, is the bank.
A related good argument: The act in question–burning down motel rooms with cigarettes, assaulting patients in the operating room, driving into someone on the way to work or during a business trip--was not within the scope of employment.
The scope of employment is not self-defining. Employees are not slaves and they have personal lives in which they are not acting for the employer. So it is often possible to make a good argument that a given act was not by the employee but by the same person acting as an individual apart from the organization.
The usual test to determine whether an act is taken as the organization or as a private person, is whether the employee is acting for her own interests or for the interests of the company. But that is nearly impossible to apply: in a capitalist economy most employees, quite properly, take jobs for their own interests, not out of selfless love of the employer. So most of the time, the test won’t separate personal from business.
We use some fairly arbitrary rules to tell when an employee is the company and when she is herself. On company premises and on hourly pay, the employee is the company. Commuting to work, the employee is normally still separate, even though she is commuting for the business and wouldn’t be driving that way otherwise. If she’s paid to commute, however, she is on the job. On a business trip, the person is generally viewed as an employee (that is why the company pays for food and housing), but still, it seems somewhat odd to think of her as still on the job while she is asleep.
But in a world in which increasing numbers of employees are on salary, on call all the time, able to and frequently work off premises, and so on, the boundaries of the organization are difficult to determine and should be controversial. I type this essay as an employee of the University as part of my job (and also to further my reputation as an academic, which might make it easier for me to get a different job elsewhere and could be detrimental to the U, and also because it is more interesting than other functions such as grading exams that my supervisors would prefer I do right now, and also as a contribution to the increase of knowledge in the world or part of my obligation as a citizen that I would do even if I weren’t paid). I’m typing at home on a University computer. Am I part of the organization? If I negligently spill peanut butter into the keys of the University’s computer, is that a University act (covered by U insurance)? If I slander someone in this essay, is the U speaking? If I get carpal tunnel, is it an on the job injury? (Probably). If my neighbor slips because I’m typing now instead of shoveling the sidewalk, did the U commit the tort? (Probably not). Would any of those answers be different if I were typing on my own computer or outside of regular business hours or if I were a lawyer billing the U hourly or a U staff lawyer rather than a U professor? (Yes).
Deciding the scope of employment is often a difficult question with good arguments on both sides. But the issue is not whether the employer is liable for “the employee’s” torts. The issue is whether the actor is an employee and therefore part of the employer – am I acting as the University, is the University acting through me – when the person commits the tort.
5. The Hand Formula
The Hand Formula is a classic example of very smart people making very bad arguments. The formula, which is widely accepted as positive law, combines two quite sensible (but somewhat contradictory) conceptions of tort law in a way that makes no sense within either understanding. By attempting to use a price conception of tort to determine when to condemn companies for acting in an anti-social manner, it ends up doing neither.
[Explanation to follow. Price concept requires that decisionmaker be the company not the court, and proper incentives require that the company be liable for all injuries it causes regardless of whether it “should” have caused them (i.e., regardless of whether, on balance, society is better off having the accident or preventing it). The formula relieves companies of liability incorrectly, inducing too many accidents by its own terms.
Fault-based conception requires that companies refrain from using others as tools to ends not their own, regardless of profit. Mutual respect and citizen’s private rights. There are no “right” accidents when they are deliberate: formula treats intentional, abhorrent, torts as if they were negligent, less blameworth.
Reasonable actor conception demands that companies act no worse than is conventional and traditional, but the formula is radical, not traditional.]
-- Dec' 04