On July 20, 2012, James Holmes killed 12 persons and wounded many others during a showing of the Batman movie The Dark Knight Rises at the Century Aurora 16 theater complex in Aurora, Colorado. Holmes is on trial for murder and has pleaded innocent by reason of insanity. Meanwhile, some of Holmes' victims have sued the owners of the theater for money damages. On August 15, 2014, US District Court Judge R. Brooke Jackson denied defendants' motion for summary judgment.
What are the economic implications of holding movie theater owners financially liable?
Wall Street Journal reporter Erich Schwartzel writes (subscription required):
A jury should decide whether a movie theater operator is liable for the deaths of 12 patrons and injuries to several more in a 2012 shooting spree at a multiplex in Aurora, Colo., a federal judge ruled.
THE COURT DID NOT RULE THAT THEATER OWNERS WERE LIABLE
Unlike the Wall Street Journal, the widely distributed story by Denver Post reporter John Ingold incorrectly states that US District Judge R. Brooke Jackson decided the "deadly 2012 attack could have reasonably enough foreseen the danger of such an attack to be held liable for it." In fact, Judge Jackson ruled only that the plaintiffs' had presented sufficient facts to proceed to trial, where a jury could decide whether to hold the theater owners liable.
THE LIABILITY RULE IN COLORADO
Under Colorado law, the announced legal standard for liability is as follows, where patrons at a theater are considered "invitees" of the "landowner" (i.e., theater owner):
[A]n invitee may recover for damages caused by a landowner’s unreasonable failure to exercise reasonable care to protect against dangers of which he actually knew or should have known.
The theater owners could be held liable if:
- they "actually knew or should have known" about the risk of a deranged individual committing mass murder in a movie theater; and
- they failed to "exercise reasonable care" to protect against such a danger.
These conditions are inherently vague. For example, there is no objective way to determine that a theater owner "should have known" about a particular risk. "Actual" knowledge might be objectively verifiable, but there will always be uncertainty about whether the risk a theater owner knows about is properly transferable to the specific risk of interest. Judge Jackson recognized as much, noting that the theater owners' engagement of a firm to evaluate its security with respect to drug cartel activity near the US-Mexico border was not necessarily relevant to potential mass shootings by others in non-border locations.
Similarly, there is no objective definition of "reasonable care," particularly when risks differ in nature and severity across locations. And it is easy to improperly treat as similar risks that are fundamentally different. To give a pertinent example, even though it is undisputed that these theater owners hired extra security at about 25% of the their theaters showing The Dark Knight Rises, there was no evidence indicating and preposterous to imply that they did so to deter mass murder. Yet Judge Jackson concluded that selectively hiring extra security was "part of the totality of what Cinemark presumably knew or should have known at the time."
THE ECONOMIC EFFECTS OF VAGUE LIABILITY RULES
Because vague liability rules maximize uncertainty, their incentive effects are generally very weak. The best that a theater owner could do is rely on case law reflecting past applications of the statutory text. And even this is problematic. Facts always differ across cases; there were no cases of mass murder in movie theaters prior to Holmes' attack. Judges often decline to be bound by case law; Judge Jackson declined to follow a 1987 opinion involving a mass murder committed in a San Ysidro, California McDonald's restaurant even while purporting not to "disagree at all with" its holding).
A vague liability rule thus invites unpredictable outcomes. a jury that interprets the statutory text narrowly might hold theater owners liable for nothing. Conversely, a jury that interprets the vague statutory text broadly would have little difficulty holding theater owners liable for virtually anything, thus making the negligence-based Colorado statute imperceptibly different from one holding landowners strictly liable. The outcome in this case will depend on the personal predilections of jury members, the extent to which jurors sympathize with the victims, the group dynamics of the jury when it deliberates, the quality of lawyering on both sides, and the biases displayed by the presiding judge.
As an economic matter, therefore, theater owners have virtually nothing to inform their risk management decisions when they face a vague liability rule such as Colorado's. They may choose to do nothing or spare no expense, or anything in between. But there is no "safe harbor," no amount of due diligence that is assured of protecting them from liability for the actions of persons beyond their control.
WHAT WOULD AN ECONOMICALLY EFFICIENT LIABILITY RULE LOOK LIKE?
Economic efficiency is prized by economists because it defines the state wherein no one can be made better off. In the case of theaters, it would mean that theater owners and theater patrons would be required to undertake any security action for which expected benefits exceed expected costs. The party capable of undertaking each action most cost-effectively would be responsible for doing do.
Given the nature of security risks at movie theaters, virtually all of this burden would likely be borne by theater owners. Nonetheless, they would have an objectively definable stopping point: they would have no obligation to take an action for which expected costs exceed expected benefits. They would be expected to take actions necessary to prevent mass murder only if mass murder were a disturbingly likely event. (In such a case, movie theaters would have few customers unless they took extraordinary steps to prevent mass murder on their premises.)
THE ECONOMIC EFFECTS OF AN INEFFICIENTLY NARROW LIABILITY RULE
An inefficiently narrow liability rule is one that leaves some risks unmanaged even though managing them would generate more expected benefits than expected costs. This could allow owners to reduce prices, thus increasing patronage. But some consumers, reasonably fearful of these risks, would choose not to go to the movies, reducing theater owners' revenues and profits.
It is unlikely that much would change related to mass-murder risk if juries in the Aurora cases interpret the Colorado statute in a way that is inefficiently narrow. Owners will install and operate security systems based on their perception of site-specific safety risks simply because it makes good business sense to protect your customers.
THE ECONOMIC EFFECTS OF AN INEFFICIENTLY BROAD LIABILITY RULE
An inefficiently broad liability rule is one that encourages theater owners to undertake risk management steps that generate more expected costs than benefits. This could lead to higher ticket prices, as theater owners tried to recover their expenditures on security. But few consumers would be willing to pay more for security features that return less in value than they cost.
Much would change if juries in the Aurora cases interpret the Colorado statute in a way that is inefficiently broad. Theater owners would be incentivized to purchase and operate security features that few theater patrons want and many consider invasive. In the limiting case, one in which the Colorado statute is given the broadest possible interpretation, the operation of a movie theater would be deemed an inherently risky activity, effectively subjecting theater owners to strict liability. Attendance at movie theaters would decline as consumers opted to watch movies at home instead.