In 1994, a New Mexico jury awarded 2.7 million dollars in punitive damages to a woman burned by McDonald's coffee. The case went around the world as a symbol of excessive American litigiousness. The court documents tell a more precise story - and, for anyone interested in franchising, a more instructive one.
The facts
On 27 February 1992, in Albuquerque, Stella Liebeck, aged 79, bought a coffee at the counter of a McDonald's restaurant. A passenger in a stationary Ford Probe with no cup holder, she wedged the cup between her knees to remove the lid. The coffee spilled.
The amended complaint, filed on 5 October 1993 before the court of the Second Judicial District for Bernalillo County, describes burns “to the perineum, inner thighs, buttocks, genitals and lower abdomen”, second and third degree, “of such severity that they required debridement and skin grafts”. The third-degree burns covered about 6% of the body. Stella Liebeck was hospitalised for eight days and remained impaired for more than two years.
The temperature, imposed by the franchisor
This is the point that the public controversy almost entirely erased. The complaint targets two separate defendants: McDonald's Restaurants, P.T.S., Inc., the company operating the restaurant - that is, the franchisee - and McDonald's Corporation, the franchisor, sued on the basis of vicarious liability. The ground is explicit:
“McDONALD'S CORPORATION is vicariously liable […] because it is the licensor or, alternatively, the franchisor of McDONALD'S RESTAURANTS P.T.S., INC., and it dictates precisely the policies and practices imposed [on the franchisee] for the heating and sale of the product in question, coffee, or alternatively […] retained a right of control […] to the point that it imposed the temperature at which the coffee was to be sold.”Amended complaint, Liebeck v. McDonald's Restaurants, P.T.S., Inc. and McDonald's Corporation, no. CV-93-02419, 5 October 1993
In other words, the lawsuit rests on the idea that the franchisee was not free to set the parameter in question. The coffee was served at between 82 and 88 °C (180-190 °F), that is, according to evidence produced at trial, twenty to thirty degrees Fahrenheit hotter than in most other restaurants. At that temperature, contact of less than three seconds is enough to cause a third-degree burn. The plaintiff's expert, Dr Charles Baxter, recommended 155 to 160 °F.
The question of the degree of control exercised by the head of a network over its franchisee, and what follows from it in terms of liability, is exactly the one documented by the specialist press of the time in France, for example this feature in PME & Affaires on the independence and dependence of the franchisee, or the investigation by Franchise Magazine into the twenty-year agreement.
The verdict, and what became of it
The evidence put before the court refers to more than 700 reports of burns linked to coffee between 1982 and 1992, settled out of court for a total of more than 500,000 dollars. McDonald's disputed the significance of this figure, its expert describing it as “statistically insignificant” in view of the number of cups sold. Before trial, Stella Liebeck had asked for her expenses to be covered - sources put the request at around 20,000 dollars; McDonald's offered 800 dollars. A mediation recommending 225,000 dollars was rejected.
On 18 August 1994, the jury found a defective product and apportioned liability - 80% to McDonald's, 20% to Stella Liebeck:
| Item | Amount |
|---|---|
| Compensatory damages | $200,000, reduced to $160,000 after apportionment of liability |
| Punitive damages (jury verdict) | 2 700 000 $ |
| Punitive damages after reduction by the judge (16 Sept 1994) | 480 000 $ |
| Total after reduction | 640 000 $ |
Judge Robert Scott found the punitive damages “excessive as a matter of law” and reduced them to three times the compensatory damages. As both parties appealed, the judgment was vacated on 28 November 1994 and the case ended in a confidential settlement, reported by the press as being less than 600,000 dollars. The exact amount has never been disclosed.
The myth and how it was made
The figure of 2.7 million dollars, the only one retained in public debate, made the case the textbook example of the frivolous lawsuit, widely used in the United States by supporters of civil liability reform (tort reform). Yet the Wall Street Journal had published as early as 1st September 1994 an article setting out the real facts. The documentary Hot Coffee (2011), directed by former lawyer Susan Saladoff and broadcast on HBO, argues that businesses funded a deliberate distortion of the case; the organisations concerned dispute this reading.
What remains established, regardless of the controversy: an American court held that a franchisor could be held liable for an operating parameter it imposed on its franchisee. It is the same mechanism - the network's control over the point of sale - that lies at the heart of the case decided in Paris on 8 March 2000, on entirely different ground.
What the proceedings teach us
Three points, rarely reported, change how the case is read.
It was not a class action. Stella Liebeck acted alone, in her own name. No class of victims was formed, no collective proceedings were certified.
The amounts were not those of the headlines. The jury awarded 200,000 dollars in compensatory damages, reduced to 160,000 to take account of the victim's share of liability, and 2.7 million in punitive damages - which the judge reduced to 480,000 dollars. The total, about 640,000 dollars, was then replaced by a confidential settlement. The constitutional limits placed on such damages by the Supreme Court came, moreover, afterwards: in 1996, then in 2003.
The franchisor was targeted for a specific reason. The holding temperature of the coffee was not the restaurant's choice: it was imposed by the network's specifications. These specifications are part of the know-how transmitted, recorded in the operations manual annexed to the franchise agreement. The franchisee applies; the franchisor prescribes. It is this division that grounds the claim against both.