TortsProf Blog

Wendel on Punitive Damages for Corporate Wrongdoing

Bradley Wendel has posted to SSRN Malice or Snafu?  Punitive Damages and Organizational Culture Defects.  The abstract provides:

This paper was written for the annual Clifford Symposium on Tort Law and Policy at DePaul Law School. The theme for this year is tort law as a response to corporate wrongdoing. The paper was part of a panel on the Boeing 737-MAX disasters.

In engineering or risk-management (not tort) terms, the root cause of the Lion Air and Ethiopian Airlines crashes involving 737-MAX aircraft can be understood as a failure of Boeing’s organizational culture. A certain narrative has become accepted as conventional wisdom, described in journalistic accounts, reports of House and Senate investigative committees, and the Netflix documentary Downfall. For the purposes of this paper, let’s stipulate to the story: Boeing enjoyed a well-deserved decades-long reputation as a solid, engineering-driven company in which safety concerns were always paramount. Then came the merger with McDonnell-Douglas in 1996 which led to the adoption of an organizational culture that prioritized maximizing stock prices and shareholder value, subordinated engineering values to cost-cutting concerns, and reoriented internal reporting relationships to place bean-counting MBAs in charge of teams of engineers. Then the company was confronted by a market shock when Airbus introduced a fuel-efficient variant on its popular A320 narrowbody jetliner, risking a further loss of market share to Boeing’s European rival. Rather than develop a clean-sheet design to compete with the A320neo, Boeing hastily updated its venerable 737 airframe by adding new fuel-efficient engines. In order to attract customers who had an existing fleet of 737NG aircraft, Boeing committed itself to a goal of a redesign that would not require extensive additional training for flight crews. Thus, when a relatively minor aerodynamic issue – one that would not arise during normal airline operations – was discovered during flight testing, Boeing adopted a software fix known as MCAS for the purpose of certifying the design. However, it decided not to disclose the operation of the system in the Flight Operation Manual for the aircraft, for fear that the FAA would require simulator training for pilots transitioning from the 737NG to the MAX. The MCAS system proved to have significant design defects (in products liability terms), and these defects were the proximate cause of the Lion Air and Ethiopian Airlines accidents.

The dynamics of organizational cultural failures are by now fairly well understood. In some cases the failure is the result of top-down directives from senior leadership, sometimes driven by market pressures. Other situations, however, are more subtle, and sometimes are the result of the unintended consequences of either neutral or well-intentioned organizational decisions. There is a folklore version of the Challenger launch story, in which an engineer for Thiokol, one of the contracting firms, heroically tried to prevent the launch, but was shot down by managers at NASA and Thiokol, one of whom notoriously told the engineers to take off their engineering hat and put on their management hat. In fact the story is quite a bit more complicated, involving subtle psychological factors at work at the level of both individual and collective decisionmaking. As detailed in a report by Jenner and Block commissioned by company’s board of directors, the GM ignition switch response is almost entirely a story of dysfunctions in the company’s organizational culture that were the result of well-intended procedures and reporting structures that had the unintended effect of diffusing responsibility so thoroughly within the organization that no one really had any ability to respond effectively.

In my judgment Boeing is an intermediate case between GM, which I would characterize as a true SNAFU (emphasis on “situation normal” in a gigantic, decentralized organization), and the conscious imposition by upper management of unrealistic goals that foreseeably would reorient lower-level managers and employees away from goals like safety and social responsibility. Even granting the truth of some of the most damning allegations, such as reports by flight-test crews that MCAS behaved in surprisingly aggressive ways and calls by some engineers to include information about MCAS in the FAA-approved Flight Operation Manual for the plane, the ultimately fatal decisions did not arise from a state of mind that traded lives for dollars or ignored safety concerns. Rather, there were mistakes, miscommunications, perhaps excessive optimism (e.g. that flight crews would handle an inadvertent MCAS firing as an ordinary trim runaway), failures to be more proactive in managing risks, and above all a kind of blinkered obsession with not having to retrain flight crews which may have led to unconscious framing of some of the judgments regarding MCAS. In order words, the explanation is more in line with the findings of behavioral psychology, beginning with Kahneman and Tversky, than with an assumption that Boeing was a rogue actor that was consciously indifferent to safety. The damage is real – both the lives lost and the financial and reputational losses to the company. However, the underlying explanation bears more similarities to the Challenger launch decision or the GM ignition switch recall than to cases like Enron or Wells Fargo.

In doctrinal terms, the argument of this paper is that Boeing’s conduct, in the conventional wisdom story recounted above, does not rise to the level of malice, as required by the common law of punitive damages, or the reprehensibility required by the constitutional test from Gore and Campbell. The theoretical argument is that most defects in organizational cultures, although capable of producing serious harms, are not private wrongs that can justify the imposition of punitive damages in tort. They are governance failures or occasions for regulation, but not private wrongs. Obviously the second argument takes a position on a much-debated issue, so I will address briefly the New Private Law approach, with which I have some sympathy.

The company definitely screwed up and squandered a reputation earned, at least since World War II, for being a pilot’s and engineer’s kind of company. The conclusions of the paper should have implications beyond the case study of Boeing, however. To me at least, the most interesting question is how to understand the common law malice standard as applied to corporate actors where the explanation for wrongdoing rests largely on subtle effects known to social psychologists but very difficult to counteract. Good organizational cultures are extremely difficult to maintain, given the often-unconscious tendencies that underlie cultural declines. NASA and Thiokol weren’t bad actors in the Challenger case; they were pretty good organizations full of conscientious engineers and managers who just happened to get caught by some very sneaky psychological effects. Most failures of organizational cultures do not count as reprehensible private wrongs, however devastating the consequences of these failures.

Yousefi, Black, & Hyman on Med Mal Claim Risk Factors

Kowsar Yousefi, Bernard Black, & David Hyman have posted to SSRN Paid Medical Malpractice Claims:  How Strongly Does the Past Predict the Future?.  The abstract provides:

Using hazard analysis, we study whether various physician characteristics, including prior paid claim history, gender, specialty, years of experience, type of degree (M.D. versus D.O.), country of medical school attendance (U.S. versus non-U.S.), and gender) predict future paid medical malpractice (“med mal”) claims, using detailed data on all licensed physicians and all paid claims in Illinois over a 25-year period. This level of granularity is not available using national data. After controlling for other factors, physicians with a single prior paid claim have a four-fold higher risk of future claims than physicians with zero prior paid claims. Male gender, attending a non-U.S. medical school, and practicing in a high-malpractice-risk specialty all predict higher paid claim risk. Paid claim risk is also higher for physicians with 6-15 prior years of experience than for those who are either earlier or later in their careers. We find having an M.D. (rather than a D.O.) is associated with higher paid claim risk, but only in our multiple-failure models.

The appendix is here.

Rabin on Reducing Medical Error

Bob Rabin has posted to SSRN The Search for Strategies to Reduce Medical Error.  The abstract provides:

This essay is based on a book review of Closing Death’s Door: Legal Innovations to End the Epidemic of Healthcare Harm, by Michael J. Saks and Stephan Landsman. The book examines in precise detail the empirical evidence and policy dimensions of strategies for reducing medical error—both through analysis of data on medical malpractice litigation, and more centrally, through the organizational lens of the provision of medical care in the healthcare system.

Lemann on the Duty to Warn and Automation

Alex Lemann has posted to SSRN The Duty to Warn in the Age of Automation.  The abstract provides:

Autonomous vehicles are expected to drive far more safely than humans do, and yet they create novel risks of their own. This Article explores how the risks of autonomous vehicles should be communicated to those who buy and use them.

In low-level automation systems, where drivers are required to monitor their cars’ driving, instructions provide the information drivers need to understand their role and perform it safely. The fatal crashes involving low-level automation that have already occurred show that instructions alone are not sufficient, and that cars must be designed to account for humans’ tendency to lose focus when engaged in “passive vigilance.”

High-level automation, in which the only driver is an algorithm and there is nothing for the human passenger to do, presents a thornier problem. What form disclosure of the risks of highly autonomous vehicles should take depends on what we expect disclosure to accomplish.

One model of disclosure is utilitarian. Here the goal is to nudge people in the direction of better choices, and disclosures are tailored to encourage optimal behavior. Implicitly adopting this framework, scholars who have addressed this issue argue that the risks of autonomous driving should be presented numerically: disclose to consumers a price, like a risk-rated insurance premium, as an indication of how well the autonomous vehicle they are about to buy performs on the roadways.

Another model of disclosure, however, is deontological. Built on ideas like consent and autonomy, this view of disclosure aims to provide people with salient notice of the risks they might choose to encounter, so that they are not subjected to risk involuntarily. This account has deep roots in our legal culture and, I argue, counsels against disclosing the risks of autonomous vehicles solely in the form of a price. Instead or perhaps in addition, customers should be given a qualitative sense of the hazards they face in driverless cars.

JOTWELL Torts: Steel on Stone on Liability without Wrongdoing

At JOTWELL, Sandy Steel reviews Rebecca Stone's Private Liability without Wrongdoing.

Brown on Foreseeability

Teneille Brown has posted to SSRN Minding Accidents.  The abstract provides:

Tort doctrine states that breach is all about conduct. Unlike in the criminal law, where jurors must engage in an amateur form of mindreading to evaluate mens rea, jurors are told that they can assess civil negligence by looking only at how the defendant behaved. But this is false. Foreseeability is at the heart of negligence—appearing as the primary tests for duty, breach, and proximate cause. And yet, we cannot ask whether a defendant should have foreseen a risk without interrogating what he subjectively knew, remembered, perceived, or realized at the time. In fact, the focus on actions in negligence is misleading, because unreasonable actions are not necessary for negligence liability, while a negligent mental state is. Unfortunately, when we assume that foreseeability can be assessed objectively through conduct, this encourages significant hindsight bias. Jurors are left rudderless—free to replace what *could* have been foreseen with what they think *should* have been in retrospect. Further, while the outputs of mental states can be labeled reasonable or unreasonable, the underlying mental states themselves cannot be. There is no such thing as “objectively reasonable memory” or “objectively reasonable perception.” If there were, it would need to be keyed to a population standard of poor performance, as typical adults are lousy at foresight. If we are committed to negligence being based on breach and not being simply a form of wealth redistribution or compensation, we must pay more attention to whether a particular defendant is capable of foresight. This article argues that foresight has been deemed a “vexing morass” and a “malleable standard” precisely because we fail to treat it as an epistemic construct—similar to intent, knowledge, or recklessness. Given the foregoing, I propose a revision to the elements of negligence to recognize foresight as mental state. While relying heavily on the current prima facie elements, I reshuffle them to focus the jury’s attention on the descriptive inquiries and the judge’s attention on the normative ones. In addition to reducing hindsight bias by emphasizing the defendant’s capacity for foresight, my proposal also has the added benefit of better distinguishing the tests for duty, breach and proximate cause, which presently overlap and blur the roles of judge and jury.

Lytton on Tort Reform and COVID-19

Tim Lyttton has posted to SSRN Responsive Analysis:  Public Health Federalism and Tort Reform in the U.S. Response to COVID-19.  The abstract provides:

Tort liability offers a means of incentivizing healthcare facilities and businesses to adopt reasonable measures to prevent the spread of COVID-19. Reliance on tort liability to regulate the risk of disease transmission is consistent with the decentralized approach to public health policy and the aversion to government mandates that have characterized the U.S. pandemic response. However, thirty-six states, via legislation and executive orders, have shielded healthcare facilities and businesses from civil liability for COVID-19 transmission. Tort reform advocates lobbied successfully for these measures by arguing, contrary to the available empirical evidence, that sweeping immunity from civil liability was necessary to prevent a costly flood of litigation.

Common Law and Civil Law Perspectives on Tort Law

Mauro Bussani, Tony Sebok, and Marta Infantino have published with OUP Common Law and Civil Law Perspectives on Tort Law.  The blurb provides:

The book provides scholars, lawyers and law students with a comparative overview of the law of civil liability for injuries arising outside of contract in five major legal systems in the common law and civil law traditions: England, the United States, France, Germany and Italy. The book analyzes a select number of foundational issues that lie at the core of tort law in all the jurisdictions surveyed, and takes them as points of comparison for appreciating commonalities and differences between the common law and the civil law traditions, as well as within these traditions. The analysis covers the structure and context of tort law architectures, the role of negligence and the continuum between fault and strict liability, rules on recovery for personal injuries, non-economic losses and for pure economic losses, tests and approaches to causation, medical malpractice and products liability regimes. As such, the book provides an updated and enriched framework for understanding the rules, the theories, the styles of reasoning and the tort law cultures across the Atlantic.

Thanks to Richard Wright for the tip.

Engstrom on Medicaid and Personal Injury Litigation

On Monday, the USSC interpreted the federal Medicaid Act as allowing a state, exercising its right of subrogation, to recoup not only past but also future expenses from Medicaid beneficiaries.  Nora Freeman Engstrom and Graham Ambrose discuss the implications of Gallardo v. Marstiller here.

Kendrick on Public Nuisance

Leslie Kendrick has posted to SSRN The Perils and Promise of Public Nuisance.  The abstract provides:

Public nuisance has lived many lives. A centuries-old doctrine defined as “an unreasonable interference with a right common to the general public,” it is currently the backbone of thousands of opioid and climate-change suits across the United States. It was a major force behind the landmark 1998 tobacco settlements and has figured in litigation over issues as diverse as gun sales, lead contamination, water pollution, Confederate monuments, and Covid safety standards. Although this common-law oddity has shaped the face of modern tort law, it is unfamiliar to the public and usually ignored even in law schools. When it is discussed, it often provokes anxiety—about whether it is a tort at all and whether, whatever it is, it might swallow tort law, the regulatory state, and separation of powers as we know it.

This article utilizes the opioid litigation to explore the three most common sets of objections to public nuisance: (1) traditionalist, (2) formalist, and (3) institutional. Public nuisance can seem unusual, even outlandish. At worst, it is a potentially capacious mechanism allowing executive branch actors to employ the judicial process to address legislative and regulatory problems. Nevertheless, its perils are easily overstated and its promise overlooked. I argue that, historically, public nuisance has long addressed problems such as harmful products; doctrinally, it accords better with tort law than commonly recognized; and institutionally, it functions as a response to non-ideal conditions.

Drawing on long-standing tort principles of duties generated by risk creation, I propose a conception of public nuisance that highlights its coherence with familiar aspects of tort and its consistency across past and present. Public nuisance is an object lesson in the common law’s balance of stability and evolution, across time and within varying regulatory contexts.

Sharkey, Wu, Walsh & Offit on DTC Genetic Testing

Cathy Sharkey, Xiaohan Wu, Michael Walsh, and Kenneth Offit have posted to SSRN Regulatory and Medical Aspects of DTC Genetic Testing.  The abstract provides:

The recent Food and Drug Administration (FDA) marketing authorizations granted for testing mutations associated with hereditary breast and colon cancer, as well as pharmacogenomic susceptibilities, provide an opportunity to reexamine the medical as well as regulatory underpinnings of direct-to-consumer genetic testing (DTC-GT). In this chapter, we make the case for federal regulation of DTC-GT at two levels: protecting consumers/patients who access particular tests and building an informational environment for genetic testing that supports innovation in the aggregate.

JOTWELL Con Law: Lidsky on Tilley on Defamation

At JOTWELL, Lyrissa Lidsky reviews Cristina Carmody Tilley's (Re)Categorizing Defamation.

The Kingston Coal Ash Spill and the Tennessee Silica Claims Priorities Act

I have been covering a case in the Eastern District of Tennessee brought by workers alleging injuries sustained during the cleanup of a massive coal ash spill in 2008.  Today the Tennessee Supreme Court hears arguments about whether the Tennessee Silica Claims Priorities Act, a statute passed in the wake of fraudulent silicosis claims in the early 2000s, applies to coal ash.  In a recent post, I wrote:

The Tennessee Supreme Court, meanwhile, is going to decide whether the Tennessee Silica Claims Priorities Act applies to the case.  That statute is a reform that includes a 10-year lung cancer latency requirement, a five-year substantial occupational exposure requirement, and various requirements for medical experts providing testimony.  If the statute applies, many of the plaintiffs will be dismissed.  The issues include whether coal ash qualifies as "mixed dust" for purposes of the statute and whether the statute, not invoked until considerably after the complaints were filed, is an affirmative defense.

Earlier posts on the case are here and here.  Anila Yoganathan of the Knoxville News Sentinel, who is providing excellent coverage of the case, has a new piece about today's arguments.  The proceeding is on YouTube here.  Anila's (post-argument) coverage of it is here.