Vicarious Windfalls

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

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651

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.

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*

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

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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