Vicarious Windfalls

Author:Justin Sevier
Position::Charles Ehrhardt Assistant Professor, Florida State University College of Law
Pages:651-707
SUMMARY

The vicarious liability doctrine, which holds third parties responsible for the legal obligations of their duly authorized agents, was designed in part to ensure that tort victims are not undercompensated by insolvent agent wrongdoers. But many legal scholars are highly critical of the doctrine and suggest that fact finders' systematic biases—particularly with respect to corporate third parties—cause... (see full summary)

 
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Vicarious Windfalls
Justin Sevier*
ABSTRACT: The vicarious liability doctrine, which holds third parties
responsible for the legal obligations of their duly authorized agents, was designed
in part to ensure that tort victims are not undercompensated by insolvent agent
wrongdoers. But many legal scholars are highly critical of the doctrine and
suggest that fact finders’ systematic biases—particularly with respect to
corporate third parties—cause unworthy tort plaintiffs to be overcompensated
at the expense of innocent, deep-pocket corporate defendants. These scholars
have offered little empirical evidence for these claims and, in fact, behavioral
research suggests that their predictions are incorrect.
This Article introduces the concept of the vicarious windfall. A vicarious
windfall describes the conditions—contrary to our intuitions—under which lay
fact finders are significantly less inclined to assign vicarious tort liability to a
corporate employer, compared to their willingness to assign liability to the
employee–agent who directly causes the harm. The vicarious windfall rests on
insights from construal level theory and moral psychology, which suggest that
laypeople perceive indirect wrongdoers as more psychologically distant from
themselves, which causes fact finders to perceive indirect actors as less morally
culpable for harm.
This Article reports the results from three original experiments, in which the
theory of the vicarious windfall is tested in the context of a toxic tort lawsuit.
The experiments reveal that, regardless of the fact finders’ business experience:
(1) jurors are less likely to assign tort liability to corporate actors vicariously (in
contravention of popular wisdom); and (2) jurors award significantly lower
punitive damages against vicarious defendants compared to the agent who
harmed the plaintiff directly. Vicarious windfalls have significant implications
for the future direction of corporate tort doctrine, for the debate regarding juror
competency, and for attorneys’ strategic decisions in civil litigation.
*
Assistant Professor, Florida State University College of Law. Ph.D. Candi date in
Psychology, Yale University (2016); J.D., Harvard Law School (2006). I thank Shawn Bayern,
Avlana Eisenberg, Mark Seidenfeld, Mark Spottswood, Kip Viscusi, Joni Hersch, Arden Rowell,
Tom R. Tyler, the Florida State University College of Law Faculty and the Yale University
Department of Psychology for their guidance and for helpful oral and written comments
regarding the contents of this Article. I also thank Vincent Fernandez and Amanda Qadri for
their excellent research assistance.
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652 IOWA LAW REVIEW [Vol. 102:651
I. INTRODUCTION ............................................................................. 653
II. VICARIOUS LIABILITY AND THE CORPORATE EMPLOYER ............... 657
A. RESPONDEAT SUPERIOR ........................................................... 657
B. LAW, ECONOMICS, AND THE ‘ANTI-CORPORATE BIAS............... 660
III. THE SOCIAL PSYCHOLOGY OF DISTANCE ....................................... 662
A. CONSTRUAL LEVEL THEORY ..................................................... 662
B. DISTANCE AND MORAL BLAME ................................................. 665
IV. STUDY 1: TORT LIABILITY ............................................................. 668
A. PARTICIPANTS ......................................................................... 669
B. PROCEDURE AND MEASURES ..................................................... 671
C. RESULTS ................................................................................. 674
1. Preliminary Matters ..................................................... 674
2. Main Analysis ............................................................... 677
3. Serial Mediation Analysis ............................................ 679
D. DISCUSSION ............................................................................. 682
V. STUDY 2: PUNITIVE DAMAGES ....................................................... 682
A. PARTICIPANTS ......................................................................... 683
B. PROCEDURE AND MEASURES ..................................................... 683
C. RESULTS ................................................................................. 685
1. Main Analysis ............................................................... 686
2. Mediated Moderation Analysis ................................... 687
D. DISCUSSION ............................................................................. 690
VI. STUDY 3: EMPLOYER ATTRIBUTES ................................................. 691
A. PARTICIPANTS, PROCEDURES, AND MEASURES ........................... 691
B. RESULTS ................................................................................. 693
1. Punitive Damages ........................................................ 694
2. Employee Selection ..................................................... 696
C. DISCUSSION ............................................................................. 699
VII. IMPLICATIONS, OBJECTIONS, AND CONCLUSIONS .......................... 700
A. RESEARCH AND POLICY IMPLICATIONS ...................................... 702
B. OBJECTIONS AND FUTURE DIRECTIONS ...................................... 705
VIII. CONCLUSIONS ............................................................................... 707
2017] VICARIOUS WINDFALLS 653
“Windfall (n.) Originally literal, in reference to wood or fruit blown down by the
wind, and thus free to all.”1
I. INTRODUCTION
Turing Pharmaceuticals CEO Martin Shkreli made headlines in 2015—
and aroused the nation’s collective ire—when he hiked the price of a life-
saving HIV treatment drug, Daraprim, by over 5000%, from $13.50 per tablet
to $750.00 per tablet.2 Rather than developing its own drugs for the market,
Turing targeted out-of-patent medicines—for which there are small markets
and few competitors—obtained the licenses for the drugs, and then raised the
price of these medicines in pursuit of windfall profits.3 Shkreli pursued this
strategy with respect to several pharmaceuticals, including anti-parasitic and
toxoplasmosis medications.4
Shkreli’s actions caused a public backlash in which several prominent
news organizations published stories critical of his decisions.5 The public
outcry against Shkreli’s business model was swift and severe. Several news
outlets dubbed Shkreli the “most-hated man in America” and called for
congressional investigations in addition to civil and criminal penalties under
various state and federal statutes.6 It is uncontroversial that the general public
1. Windfall, ONLINE ETYMOLOGY DICTIONARY, http://www.etymonline.com/index.php?
allowed_in_frame=0&search=windfall (last visited Oct. 28, 2016). In medieval England, commoners
were forbidden from chopping down trees for fuel. But if a strong wind broke the branches or blew
down the trees, the debris was a legitimate find. It was to the commoner, literally, a windfall. See WILLIAM
MORRIS & MARY MORRIS, MORRIS DICTIONARY OF WORD AND PHRASE ORIGINS 605 (1977) (explaining
the etymology of the word “windfall”); see also generally Eric Kades, Windfalls, 108 YALE L.J. 1489 (1999)
(citing the Morris Dictionary and discussing a varying array of public and private legal windfalls).
2. See, e.g., Hazel Sheffield, Martin Shkreli, the CEO that Hiked Price of HIV Treatment Drug, Arrested
on Securities Fraud Charges, INDEPENDENT (Dec. 17, 2015), http://www.independent.co.uk/news/
business/news/martin-shkreli-the-ceo-that-hiked-price-of-hiv-treating-drug-arrested-on-securities-
fraud-charges-a6776756.html.
3. See id.; see also James Surowiecki, Taki ng on the Drug Profiteers, NEW YORKER (Oct. 12,
2015), http://www.newyorker.com/magazine/2015/10/12/taking-on-the-drug-profiteers; Arlene
Weintraub, Gadfly Pharma Investor Shkreli Starts Anew After Ousting from Retrophin, FORBES (Feb. 27,
2015, 9:10 AM), http://www.forbes.com/sites/arleneweintraub/2015/02/27/gadfly-pharma-
investor-shkreli-starts-anew-after-ousting-from-retrophin/#32c99304359d.
4. See, e.g., Dave Muoio, Daraprim Price Jump Raises Concerns Among ID Groups, Providers, HEALIO
(Sept. 17, 2015), http://www.healio.com/infectious-disease/hiv-aids/news/online/%7B745d9cc5-
df37-4139-b1ac-6dde7b8ae463%7D/daraprim-price-jump-raises- concerns-among- id-groups-
providers.
5. Id.; see also Andrea Mitchell & Phil Helsel, Drug CEO Will Lower Price of Daraprim Aft er
Hike Sparked Outrage, NBC NEWS (Sept. 23, 2015, 6:43 AM), http://www.nbcnews.com/news/us-
news/drug-ceo-will-lower-price-daraprim-after-outrage-n431926; Andrew Pollack, Drug Goes from
$13.50 a Tablet to $750, Overnight, N.Y. TIMES (Sept. 20, 2015), http://www.nytimes.com/
2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html.
6. Heather Long & Matt Egan, Meet the Guy Behind the $750 AIDS Drug, CNN: MONEY (Sept. 22,
2015, 7:50 PM), http://m oney.c nn.com/ 2015/09/22/investing/aids-drug-martin-shkreli-750-
cancer-drug. Prominent critics of Shkreli included Hillary Clinton, Donald Trump, and Bernie
Sanders. Id.; see also Ariana Eunjung Cha, CEO Who Raised Price of Old Pill More than $700 Calls Journalist

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