ECO 4751
Spring 2013 D. Butterfield
Assignment 3

Stella Liebeck v. McDonalds Corporation Facts of the Case Stella Liebeck of Albuquerque, New Mexico, was in the passenger seat of her grandson's car when she was severely burned by McDonalds' coffee in February 1992. Liebeck, 79 at the time, ordered coffee that was served in a styrofoam cup at the drivethrough window of a local McDonalds. After receiving the order, the grandson pulled his car forward and stopped momentarily so that Liebeck could add cream and sugar to her coffee. Liebeck placed the cup between her knees and attempted to remove the plastic lid from the cup. As she removed the lid, the entire contents of the cup spilled into her lap. The sweatpants Liebeck was wearing absorbed the coffee and held it next to her skin. A vascular surgeon determined that Liebeck suffered full thickness burns (or third-degree burns) over 6 percent of her body, including her inner thighs, perineum, buttocks, and genital and groin areas. She was hospitalized for eight days, during which time she underwent skin grafting. Liebeck, who also underwent debridement treatments [removal of dead skin], sought to settle her claim for $20,000, but McDonalds refused. During discovery, McDonalds produced documents showing more than 700 claims by people burned by its coffee between 1982 and 1992. Some claims involved third-degree burns substantially similar to Liebecks. This history documented McDonalds' knowledge about the extent and nature of this hazard. [All of these claims had been settled out of court and the injured parties had all agreed to a confidentiality clause as a part of the settlement. McDonalds not only knew about the problem, but kept it from becoming public knowledge.] McDonalds also said during discovery that, based on a consultants advice, it held its coffee at between 180 and 190 degrees fahrenheit to maintain optimum taste. The consultant admitted that he had not evaluated the safety ramifications at this temperature. Other establishments sell coffee at substantially lower temperatures, and coffee served at home is generally 135 to 140 degrees. Further, McDonalds' quality assurance manager testified that the company actively enforces a requirement that coffee be held in the pot at 185 degrees, plus or minus five degrees. He also testified that a burn hazard exists with any food substance served at 140 degrees or above, and that McDonalds coffee, at the temperature at which it was poured into styrofoam cups, was not fit for consumption because it would burn the mouth and throat. The quality assurance manager admitted that burns would occur, but testified that McDonalds had no intention of reducing the "holding temperature" of its coffee.

Plaintiffs' expert, a scholar in thermodynamics applied to human skin burns, testified that liquids, at 180 degrees, will cause a full thickness burn to human skin in two to seven seconds. Other testimony showed that as the temperature decreases toward 155 degrees, the extent of the burn relative to that temperature decreases exponentially. Thus, if Liebeck's spill had involved coffee at 155 degrees, the liquid would have cooled and given her time to avoid a serious burn. McDonalds asserted that customers buy coffee on their way to work or home, intending to consume it there. However, the company’s own research showed that customers intend to consume the coffee immediately while driving. McDonalds also argued that consumers know coffee is hot and that its customers want it that way. The company admitted its customers were unaware that they could suffer third degree burns from the coffee and that a statement on the side of the cup was not a "warning" but a "reminder" since the location of the writing would not warn customers of the hazard. Legal Decisions: The jury awarded Liebeck $200,000 in compensatory damages. This amount was reduced to $160,000 because the jury found Liebeck 20 percent at fault in the spill. The jury also awarded Liebeck $2.7 million in punitive damages, which equals about two days of McDonalds' coffee sales. The trial court subsequently reduced the punitive award to $480,000 -- or three times compensatory damages -- even though the judge called McDonalds' conduct reckless, callous and willful. The parties eventually entered into a secret settlement which has never been revealed to the public, despite the fact that this was a public case, litigated in public and subjected to extensive media reporting. Post-verdict investigation found that the temperature of coffee at the local Albuquerque McDonalds had dropped to 158 degrees fahrenheit. [Also McDonald’s now adds the sugar and cream requested by customers to the coffee and then puts on the lids before it is served to customers at a drive-thru window.] [excerpted from ATLA fact sheet. © 1995, 1996 by Consumer Attorneys of California]

Questions:
1. For each of the following possible liability rules,
a) No Liability Neither party is liable 0 cost both parties
b) Strict Liability Injurer (I) is always liable (McDonalds)
c) Simple Negligence Injurer (I) is liable if they are negligent (McDonalds)
d) Simple Negligence plus Contributory Negligence Injurer (I) is liable only if I is negligent and Victim (V) is not negligent.
e) Strict Liability with a defense of Contributory Negligence Injurer (I) is liable unless Victim (V) is negligent.
f) Comparative Negligence Each party is liable according to their contribution to the damage.
i) state what the decision would have been (which, if any, of the parties in this case would have been held liable by the court) and which party or parties would bear the cost of the accident and ii) what incentives the decision would have created for similar parties (drive-thru restaurants selling coffee and their customers).
2. Which of the above rules was used for the trial decision?
Strict liability and then the verdict was reduced for comparative negligence.
3. What factors should McDonalds consider in determining the temperature of its coffee? Try to express this decision in the form of an equation and write down the marginal conditions for McDonalds’ optimal choice. Why did McDonalds reduce the temperature of its coffee after the Lubeck court decision?
The jury was informed that McDonald's operations and training manual required its coffee to be brewed at 195 to 205 degrees and held at 180 to 190 degrees for optimal taste, and that this was 40 to 50 degrees hotter than coffee made at home. A McDonald's expert argued that any coffee hotter than 130 degrees could produce third-degree burns, so it did not matter that McDonald's coffee was hotter. But a plaintiff's expert testified that lowering the serving temperature to about 160 degrees could make a big difference, because it takes less than three seconds to produce a third-degree burn at 190 degrees, about 12 to 15 seconds at 180 degrees, and about 20 seconds at 160 degrees. According to Stella's son-in-law, McDonald's experts "admitted the [coffee] was too hot for consumption when sold. They did not contest the fact that it took 25 minutes to cool to a drinkable temperature."
4. What factors should McDonalds consider in determining whether or not to put the cream and sugar in the coffee cups before giving the customers the coffee at their drive thru windows? Try to express this decision in the form of an equation and write down the conditions for McDonalds’ optimal choice. Why did McDonalds start putting the cream and sugar in the cups after the Lubeck court decision? Was this change efficient?
The upper finished brew temperature limit assures that the coffee does not reach the boiling point which can affect the taste and aroma. The lower temperature limit assures generally acceptable drinking temperature when pouring into a cold cup, adding cream, sugar and spoon.
5. What precautions could Stella Liebeck and other McDonalds’ customers have taken to reduce the probability of injury from consuming coffee obtained at a drive-thru window? What is the basis for their optimal choices of these precautions?
McDonald's should not have served drinks at any temperature which would have caused a bad scalding injury. The evidence is that tea or coffee served at a temperature of 65 °C will cause a deep thickness burn if it is in contact with the skin for just two seconds. Thus, if McDonald’s were going to avoid the risk of injury by a deep thickness burn they would have had to have served tea and coffee at between 55 °C and 60 °C.
6. How did the lack of information about the dangers associated with the coffee affect Liebeck’s and other customers actions?
Coffee is served at around 150 degrees, at around 180-190 it is way too hot for consumption. Warning customers coffee is abnormally hot is a common sense safety precaution as there is way for customers to know how hot it is till they open the lid.
7. How would McDonalds make the choice about whether or not to inform customers of the potential dangers associated with drinking its coffee? How did the Lubeck court decision affect McDonalds decision about informing consumers? Was this change efficient?
Making existing and potential customers knowledgeable about products/services, consumer awareness creates more informed buying decisions and significally reduces the risk of law suits.
8. What is the basis for the socially optimal choices of the temperature of McDonalds’ coffee, whether or not to insert the cream and sugar in the cups before giving it to customers at the drive-thru window, the amount of caution exercised by the customers and the provision of information about the dangers of using the product? [Just state the general principles.] * At 180 degrees, coffee can cause a third-degree burn requiring skin grafts in 12-15 seconds * Lower temperature would increase length of exposure necessary * McDonalds had received 700 prior complaints of burns, and had settled with some of the victims * Quality control manager testified that 700 complaints, given how many cups of coffee McDonalds serves, was not sufficient for McDonalds to reexamine practices

9. The court also awarded punitive damages to Liebeck. Discuss why punitive damages were assessed and how the amount of punitive damages might have been determined. (See the discussion on pages 311-316 in the textbook.)
Liebeck attempted to have McDonald's pay her $20,000 medical bills as indemnity for the incident. McDonald's refused, and Liebeck sued. During the case's discovery process, internal documents from McDonald's revealed the company had received hundreds of similar complaints from customers claiming McDonald's coffee caused severe burns. At trial, this led the jury to find McDonald's knew their product was dangerous and injuring their customers, and that the company had done nothing to correct the problem. The jury decided on $200,000 in compensatory damages, but attributed 20 percent of the fault to Liebeck, reducing her compensation to $160,000. The jury also awarded Liebeck $2.7 million in punitive damages, which was at the time two days of McDonald's coffee sales revenue.