The Vital Importance of Punitive Damages at the Intersection of Law and Economics

Introduction

Liebeck v. McDonald’s (1994) is a legendary tort case.¹ Characters Kramer and Attorney Jackie Chiles hilariously re-enacted the case on the Seinfeld show (1995)². Liebeck spilled McDonald’s hot coffee on her lap (30 to 40 degrees hotter than competitors’ coffees), sued McDonald’s, and received a jury award of $2.7 million in punitive damages plus $160,000 in medical damages. Liebek learned during the case that 700 other people had been burned by McDonald’s coffee, yet McDonald’s had not made attempts to ensure a safer temperature of coffee in their franchise restaurants. The Liebeck case provides an opportunity to better understand the rationale behind punitive damages in the U.S. legal system.

The news media framed the Liebek case to promote the view that the punitive damages jury award to Liebek was outrageously large. This frame sought to elicit public sympathy for McDonald’s, the large corporation. In tandem, the frame also fostered public envy, turning to enmity, toward the victim, Liebek, for winning such a large punitive damages award.

Soon after Liebeck, the news media continued the narrative for tort reform in the United States. A tort lawsuit is when a plaintiff is wronged by a defendant, while the defendant owes a duty of care to the plaintiff. Some believe that corporate lobbyists paid the media to advance the issue of tort reform into the public consciousness in order to minimize corporate liability exposure for unsafe products.

Punitive damages are meant as a deterrent to unsafe conduct and should be great enough to correct the unsafe conduct of the defendant and their peers. In the wake of Liebeck, the public were hoodwinked by the politicians and news media to call for tort reform. The power of the news media, even 30 years ago, got people to sympathize with a mega-corporation rather than with 700 burn victims represented by Liebeck.

Thesis

Punitive damages provide a very important legal and economic framework used to stabilize the ethos of a strongly leaning capitalistic society.

History

The history of exemplary (aka, punitive) damages reads more like lore. Rather than debate the details, simply understand that some believe that damages awarded beyond compensatory damages (compensation for harm such as lost wages or emotional distress) goes back to the Roman empire; and others believe that these “extra” damages began with the first use of the word “exemplary” in a judge’s order, which occurred in mid-1700s in England.

The American history of punitive damages goes back more than 200 years. The Supreme Court and top state courts have been continually limiting punitive damages over time. Recently, the courts seem to have capped punitive damages to be no more than 10X compensatory damages, usually far less.³

In fact, the Liebeck trial judge reduced the punitive damages to $480,000, and the parties later settled for a confidential amount likely around that.

Arguments

In the case of Liebeck, notwithstanding the reduction to $480,000, the $2.7 million award seems appropriate when viewed in context of McDonald’s’ consolidated financial statement from 1994. McDonald’s’ revenue in 1994 was $26 billion and net income was $1.2 billion. The compensatory damages award of $160,000 would not have been much of a deterrent for McDonald’s. The cost to McDonald’s of ensuring that every franchise lowered the temperature of their coffee 30 to 40 degrees before serving it was likely much greater than $160,000. On the other hand, $2.7 million is likely in excess of the cost of training, procedure, and equipment required to avoid customer injuries from hot coffee. Thus, $2.7 million in punitive damages would achieve the desired result to protect society because McDonald’s would likely enact new policy across all franchises to lower the temperature of coffee to 160°F at the time customers take possession of the product. McDonald’s’ market peers would also notice the award and follow suit, making the market safer for all. The court reduction to $480,000 does not achieve the intent of punitive damages because it is too low relative to McDonald’s’ annual profits.

Each tort case has important nuances. The de facto 10X cap is often inequitable because some companies operate on thin margins and others on fat margins. If the intent is to punish the defendant as a deterrent of egregious behavior, the 10X cap de facto rule fails terribly in the desired effect for society. A set amount such as 10X compensatory would disproportionately punish smaller companies much more than it would mega-corporations. Either a different formula must be applied or the amount should truly be left to a jury. A caveat to the jury-only determination of punitive damages is that a jury could potentially bankrupt a company and put thousands of employees on the unemployment rolls, which is not necessarily a bad idea. A new company with safer policies would likely fill the market demand for services and products.

In a capitalistic society, manufacturers will shirk their responsibility to make products safe if they are not held to account financially by some mechanism of penalty through the legal system’s tort laws. Manufacturers of products generally have a duty to the stockholders to return the greatest profit, growth rate, or other financial metric for the benefit of the stockholders. In tort claim lawsuits, a defendant that loses is liable for damages to the plaintiff who was harmed. The medical bills or replacement costs are sometimes too small or too infrequent to cause the manufacturer to make the product safe. Thus, the manufacturer chooses to maximize profits despite causing people pain, suffering, or even death. Given: a) a manufacturer pays one million dollars per wrongful death, b) five people die per year from their product, and c) the manufacturer earns $20 million profit per year in that product line. Result: the manufacturer is going to keep killing five people per year because it pays off. The corporate executives’ duty is to the stockholders. Alternate Result: a $10 million punitive damages award just once would be a hit to the net income for one year, but it would likely cause the corporation to ensure safe products and stop killing five people per year. Again, punitive damages are an important tool of society to keep manufacturers from harming the public.

The PREP Act immunity shield is a stark example of how a violation of principles at the intersection of tort law and economics has resulted in mass death and maim to the public. The PREP Act is effectively a contract that Congress made with the pharmaceutical industry. The act deprives the people of their right to file a tort lawsuit against a pharmaceutical manufacturer of a product that maimed them or killed their loved one. Id est, in exchange for the liability shield consideration, the people receive consideration in the form of pharmaceutical companies producing medical countermeasures (e.g., vaccine) during an emergency, which is purportedly for the good of society. The issue that manifests from this contract is that when liability is artificially driven to zero for the manufacturer, the manufacturer then shirks their duty to make the product safe. Instead of paying billions of dollars in testing and development to ensure product safety, the manufacturer ships the product into the stream of commerce. The unintended negative effects of poorly tested products injected into people manifest not in financial costs to the public, but rather death and maim of loved ones.⁴

In the case, Adams et al v MGB,⁵ a $20.6 billion corporation was incentivized, ordered, and contracted by the Commonwealth of Massachusetts to coerce, threaten, harass, deprive of rights, defraud, and physically and emotionally harm 80,000 employees. As a result of more than 99% staff vaccination rate in 2021, MGB got their billions of dollars in blood money revenue from the Commonwealth. Perhaps that is why the president and CEO, Anne Klibanski, received an extra $2 million in her bonus for fiscal 2021 performance notwithstanding MGB’s losses in almost every financial metric that year.

The religious and disability discrimination claims of the Pro Se 5 plaintiffs are capped at $300,000 each in punitive damages. Why? Did corporate lobbyists convince legislators to add the cap to anti-discrimination legislation? If the Pro Se 5 each win $300,000 in punitive damages, the total is only $1.5 million. The executives would not change their conduct at all. That total is less than the extra bonus one executive received. The question remains—what is a reasonable amount in order to punish MGB to the point that they stop abusing their employees?

Frequent readers of my work will understand the following calculus. From 80,000 employees injected with Covid gene drugs at MGB hospitals, several tens must have been killed. There is no doubt in my mind that, with access to personnel files, I would find more than fifty Covid vaccine deaths among MGB staff. Only a week ago, it was announced that ten nurses on one floor at Newton Wellesley Hospital, owned by MGB, were treated for brain tumors, some malignant and some benign.⁶

Surely, each of the Pro Se 5 in Adams et al v MGB is owed several years of lost wages and emotional damages. Each has gone through emotional turmoil with friends and family strain for 3.5 years thus far. The case will likely go 5 to 10 years through trial and appeals. Compensatory damages must be in the millions of dollars each. Punitive damages, even with the 10X cap are thus in the tens of millions of dollars each. Anything less than that leaves an incentive for MGB executives to destroy the lives of employees all over again when bird flu, Marburg, monkeypox, or some other “emergency” strikes their fancy.

Conclusion

Punitive damages are an important framework in tort law. The public needs to be protected from the evils of pure capitalism, in which maximizing profit is the duty of corporate executives even when public safety is at risk.

Corporate interests have infiltrated the news media, Congress, statehouses and assemblies, and the courts. The rules of court procedure and the discretion of judges leans very heavily toward protecting corporations to the great detriment of the people. The PREP Act and its Emergency Use Authorization (EUA) killed more than a million Americans in the last five years. Yet the public, and even most lawyers, do not understand the root causes of such a man-made disaster. The intersection of law and economics is barely understood by attorneys, politicians, and judges. Resurrect Judge Learned Hand to bring back some pragmatism to the judiciary. Else the restraint on punitive damages will allow great profits for corporate executives and major stockholders (oligarchs) resulting from murder and maim of the public under the guise of public health countermeasures.

God Bless you all.

John 14:6 TRUTH

References

1. Liebeck v. McDonald's Restaurants, P.T.S., Inc., No. CV-93-02419, 1995 WL 360309 (D.N.M. Aug. 18, 1994). Found at https://www.tortmuseum.org/liebeck-v-mcdonalds/ on 2025-04-04.

2. (1995). Kramer Tries To Sue A Coffee Company | The Maestro | Seinfeld. Seinfeld. Found at https://www.youtube.com/watch?v=Qpru2vsqdN8 on 2025-04-08.

3. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). Found at https://scholar.google.com/scholar_case?case=16237518376692401359&q=State+Farm+Mutual+Automobile+Insurance+Co.+v.+Campbell+(2003)&hl=en&as_sdt=40000006 on 2025-04-04.

4. (2021). The Hand Formula; Economics of Torts; Importance of Torts; Vax tort immunity. John Beaudoin. YouTube. Found at https://www.youtube.com/watch?v=JObGnOCD6mI on 2025-04-09.

5. Adams v. Mass General Brigham Incorporated (1:21-cv-11686). Court Listener. Found at https://www.courtlistener.com/docket/60652918/adams-v-mass-general-brigham-incorporated/ on 2025-02-24.

6. Kavanaugh, K. (April 03, 2025). 25 Investigates: Newton-Wellesley Hospital investigating brain tumors among nurses. Boston 25 News. Found here https://www.boston25news.com/news/local/25-investigates-newton-wellesley-hospital-investigating-brain-tumors-among-nurses/F2HUMVDIQZHLLO23DODCGCIVSQ/ on 2025-04-09.