Taking Corporate Torts Seriously
Tort law does not apply to corporations (more correctly, significant collective economic actors) the same way it does to human beings. Corporations do not respond to tort incentives in the same way that human beings do. In particular, neither intent nor negligence work in the bureaucratic context in the same way that it does in the individual context. Moreover, the basic conceptual apparatus of tort law ignores the law of large numbers, resulting in confusion when an economic actor repeats the same behavior over and over again.
For individuals, negligence represents a set of social judgments about how we act in the world. All actions create risks to some degree or another; almost anything one person does creates externalities, impositions, on others. Tort law represents social judgments that certain degrees of risk taking and impositions on others are socially acceptable and others are not. As such, it is closely related to judgments about rudeness and other issues of social propriety. Tort law, like criminal law, expresses social disapproval of certain behavior, seeks to create incentives for citizens to change their behavior, and makes those who act improperly compensate those whom they victimize, judging, condemning and approving along the way.
Fundamental to the tort analysis is the distinction between intentional and negligent torts: if someone means to hurt another, we view that as worse than if they do not mean to, even if the injury is the same. As Holmes says, even a dog knows the difference between being kicked and being tripped over.
Corporations aren’t people and they aren’t rude, although their representatives may be. Moreover, corporations, as bureaucracies, do not make decisions based on unconscious weightings of social propriety.
All corporate torts are either the result of conscious decisions to take a certain risk because the prospective (private) profit outweighs the prospective (private) costs or the results of failures of that decision-making process resulting in collective decisions to embark on a certain course without making that calculation (or without making it adequately).
Typically, if a business corporation has adequately tested its product or production processes, it will learn that failure can be expected at some, hopefully low, rate. Of course, in a modern mass-production economy, if the enterprise is successful, it will be making many of the product or repeating the process repeatedly. Thus, by the law of large numbers, injuries are inevitable. Even highly unlikely events are highly likely if the gamble is repeated often enough.
The problem is that the former course–when corporations act as we expect them to–results in intentional, deliberate injuries, in the simple sense that the organization and its principal decision-makers know that the injuries will be the inevitable result of the decision they have made. The latter, where corporations take risks with human lives and property without considering the implications of their acts, is merely negligent. Tort law struggles with corporate torts because under standard (individual-based) torts analysis, corporations are more culpable when they act properly (on a corporate law understanding) than when they don’t.
No producer could stay in business if it were required to avoid all injuries to others, and neither tort law nor ordinary morality expect it to do that. Rather, we expect businesses to take the care to calculate the rate of injury they anticipate with some degree of accuracy, and to proceed to production only if the injuries are outweighed by the benefit of the product. But tort law fails in that mission.
Corporate decision-makers are obligated, as a matter of corporate law, to set aside their own personal interests and, to a large extent, beliefs, and instead to work for the good of their employer, the corporation. Although the good of corporation is sometimes controversial, for current purposes it is sufficient to think of it as roughly the same as corporate profit: corporate decision-makers are expected to aim, directly or indirectly, at profit.
This means that corporate decision-makers acting in good faith have a corporate law obligation to take actions that are profit-maximizing, even if they predictably will injure others in the process.
The role of tort law, it has often been claimed, is to provide the corporation with the correct information and the correct incentives in making this decision. By requiring the firm to pay for the injuries it causes, tort law both provides a number for the cost of injuries to be used in the firm’s calculations and assures that the production cost to the firm (private cost) will reflect cost to society as a whole. Not incidentally, this also means that the price of the product will include the cost of the accidents associated with it, so that the consumer market will pressure producers to find the minimum cost of accidents and prevention.
But standard tort law cannot accomplish this goal.
First, tort law continues to be based in individual morality notions and therefore ordinarily requires a finding of wrongdoing before holding a tortfeasor liable. Thus, if the firm was careful, did its research, and properly concluded that the product’s benefits outweighed its costs, this view of tort law suggests that it should not be liable. Both the Hand formula and traditional fault based tort find no wrong in the corporation’s behavior and therefore no liability. But if the corporation is not liable for some of the injuries its product or production causes, then it will no include those costs in its calculation of the profit associated with the product, and those calculations will be incorrect. In other words, a firm that makes its calculations correctly will be rewarded by the tort system by not being held liable, which will make its calculations incorrect. If it correctly predicted that it will not be held liable, then if its calculations were privately correct, they are socially incorrect; the firm is producing more product (at too low a price) and more accidents than it would with correct pricing.
To ensure correct pricing, tort law must hold the firm liable for the accidents it causes regardless of whether the product is on balance socially beneficial or not. The firm’s innocence or the good faith in which it made even a clearly correct calculation that the product is socially worthwhile is no more reason why it should be relieved of the obligation to pay for the accidents it causes than it is a reason why it should be relieved of the obligation to pay for any other resource (electricity, raw materials, wages) it consumes in production. The proper role of tort on this analysis is to correct pricing, not to display public condemnation.
But tort liability without fault continues to be quite exceptional and strongly resisted by both tortfeasors, politicians and judges: the fault view of tort is simply too strong.
The fault view also creates the opposite problem. If the corporation deliberately calculated costs, then it must have known that it was going to injure people. That clearly makes its torts deliberate and pre-meditated, and sets the groundwork for the deep offense felt by juries in the McDonald’s coffee or Ford Pinto cases.
Conscious decisions to injure, even for good causes, offend fundamental notions of justice. People are not mere tools for profit. Business corporations lack the basic political legitimacy to be engaging in what is in effect “eminent domain” or a draft: placing tort victim’s health, safety or property at risk without their consent and paying only market value for it. So it is entirely predictable, and entirely defensible, that juries confronted with evidence that companies consciously decided to injure, will respond with punitive damages awards designed not to price the injury but to punish the company for knowingly injuring another in a morally reprehensible way.
In the final analysis, tort will remain incoherent and controversial until we reach a social consensus on these tough issues. Perhaps we will conclude that it is acceptable for an organization (even if not an individual) to treat random victims as mere tools to the social good. That a business organization, with no democratic authority at all, has the right to expropriate or maim citizens merely because in the private judgment of its decision-makers, the benefit to be gained (to consumers or the firm) exceeds the costs (to others). If so, we must at a minimum assure that tort law demands restititution for every injury, however justifiable, and does so at a price that if it does not make the victim whole (or reflect the price at which the victim would have been willing to sell) at least reflects the (dis)value of the injury to society as a whole.
But can we in fact legislate a rule that says that private citizens are entitled to treat each other as means and nothing more than that? Is such a view compatible with the fundamental requirements of community and nation? What does it mean to say that I have property if a private organization can simply take it from me without my consent by paying the market price? Or that I have human rights if a private organization can invade my body without my consent for a fee that I myself have no say in setting? On a basic level, this view of tort law in the industrial economy contradicts fundamental aspects of decency in a democratic capitalist society.
The traditional tort alterative is worse. Traditional tort suggests that companies should not calculate cost-benefits but should simply act appropriately. That is simply incoherent. It can not be right that the appropriate thing to do is to lie to yourself about the possibility of injuring someone, or to guess whether your product or production will cause unacceptable injuries when you could calculate how many injuries you may cause. Nor can it be correct that companies should never injure; that would mean that we would have no modern production. Once we are in the world of the law of large numbers, ordinary moral intuitions–that deliberate injury is worse than negligent injury–fall apart.
For more on this topic, see Do Corporations Have a Fiduciary Duty to Commit Torts and Leichtman: Battery, pollution, and statistical torts