Leaving the Horse and Buggy Days of Limited Recovery for Economic Loss

Ellen Bublick

More than a hundred years ago, in Mitchell v. Rochester Railway Co., 151 N.Y. 107, 108 (1896), New York’s highest Court denied recovery to a plaintiff who had being negligently charged by a team of horses. Although the plaintiff was rendered unconscious and suffered a miscarriage, the Court held that she could not recover for “mere fright.” The court excluded recovery even though the team of horses “came so close to the plaintiff that she stood between the horses’ heads when they were stopped.” (P. 108.) The court reasoned: cases had not historically allowed recovery for fright or shock; if recovery were established “it would naturally result in a flood of litigation… a wide field would be opened for fictitious or speculative claims”; and “damages were too remote.” Today, notwithstanding these historical worries, most authorities would permit recovery on the Mitchell line of facts.

In her important article, Public Nuisance as a Modern Business Tort: A New Unified Framework for Liability for Economic Harms, Professor Cathy Sharkey invites readers to question whether nonliability for economic loss, and courts’ similar rationales, should also go the way of horse and buggy. Sharkey suggests “the calculus may be shifting in an age of global financial crises, escalation of digital and informational harms, and growing sense that societal harms of the 21^st century involve risky conduct leading to purely financial harms.” (P. 3.) In particular, Sharkey focuses her attention on the public nuisance tort. Are authorities right to specifically permit liability in public nuisance cases while generally limiting liability for negligently caused economic loss? Are they right to focus on liability limitation as their exclusive policy concern in both the public nuisance and economic loss space?

Sharkey’s answer to both questions is a resounding no. First, she tackles the interplay between the economic loss rule(s) and the public nuisance tort. The Restatement Third of Torts: Liability for Economic Harms restricts liability for most negligently inflicted economic losses. However, it then permits the public nuisance tort to stand as an exception to the general rule. Doctrinally, the stance is unsurprising. But on reflection, it is theoretically difficult to justify. The Restatement Third says public nuisance recovery is permitted because social and private costs of a public nuisance are large and private rights of action can deter wrongs. True enough. But as Sharkey points out, this rationale does not differ from many contexts of negligently caused economic loss—contexts in which liability is generally excluded. Sharkey skillfully guides the reader through a number of situations­—street and bridge closures, oil spills and gas leaks—to show that public nuisance claims are best understood cases in which courts (rightly) grant liability for negligently caused economic harm. As such, public nuisance claims and economic loss claims “should rise or fall together—the business’s ability to recover should not be contingent on whether the case is framed as negligence or public nuisance.” (P. 11.)

Sharkey also takes issue with an exclusive policy focus on restricting unlimited liability in public nuisance and economic loss cases. Instead, she would add a second, and equally compelling policy concern­— “a channeling or enforcement rational: namely, deputizing a class of significantly impacted individuals or entities who can sue to force the tortfeasor to internalize the costs of its activities.” (P. 3.) With this dual focus on deterring negligently caused economic loss and restricting unlimited liability, “the aim should be to find a class of victims most immediately and obviously affected by the violation of a public right, … incentivize this class of persons to sue the tortfeasor, who must thereby internalize the costs of its actions, and thus realize tort law’s objective of allocative efficiency in the case of economic or business torts.” (P. 16.) For Sharkey then, courts should concern themselves with underdeterrence as well as overdeterrence. The need for enforcement mechanisms to foster deterrence is particularly salient in the modern era because of “widespread financial harms in which there are not likely to be physical injuries (such as data breaches).” (P. 16.)

After situating private actions for public nuisance within the context of other negligently caused economic losses and articulating dual concern for liability imposition and liability limitation, Sharkey presents three questions courts should ask in negligent economic loss/public nuisance actions, such as the Southern California Gas case in which a gas leak drove people from their homes and shuttered businesses. “Who are the ‘immediate and obvious’ victims of the gas leak”? “Does deputizing the first tier of plaintiffs … suffice for deterrence purposes”? And finally, “are the marginal gains from expanding the circle of plaintiffs to the next tier of impacted victims worth the higher administrative costs that multiple actions for lost profits entail”? Sharkey then brings this critical analysis to an important set of claims of the day—public nuisance actions for opioid addiction. The issues center not on whether plaintiffs should be able to seek recovery, but instead on which plaintiffs should be able to do so.

Sharkey’s article adds a fresh perspective that immediately adds value. Her evaluation of public nuisance alongside negligent economic loss cases is both surprising and obviously helpful. Doctrinally, it is easy to say that liability is to be eschewed in one circumstance (economic loss) and granted in another (public nuisance), but why should we? Her article asks readers to step back and reevaluate why liability should and should not be granted with respect to negligently caused economic loss in general, and in private actions for public nuisance in particular. Her focus is on reasoning and not just historical experience.

Sharkey’s conclusion in the public nuisance context hearkens back to a similarly thoughtful discussion by Professor Willem Van Boom in the economic loss sphere. In Pure Economic Loss: A Comparative Perspective,¹ Van Boom writes: “Some authors have suggested that the ripple effect might be taken quite literally as a demarcation method: if a ripple consists of ever decreasing circles, it might be efficient – be it, admittedly, somewhat arbitrary at times – to discard the exclusionary rule [for economic loss] and instead allow the first two or three circles adjacent to the primary victim to claim compensation (provided that all the other requirements for liability are met).” (P. 50.) Sharkey’s article makes a compelling case that in public nuisance cases, like the negligent economic loss cases, courts should demarcate a few ripples of harm. As such, instead of evaluating public nuisance claimants through a “special injury” analysis that asks if the plaintiff’s injury is “different in kind” from others’ (an analysis already abandoned in a number of areas of tort law), or attempting to define the nature and extent of “public rights,” courts should ask which negligently harmed individuals or entities should be incentivized to sue. That latter question turns out to be a difficult one. Still, Sharkey makes a compelling argument that, even if difficult, the question is an important one to ask. These are new days of financial loss. Perhaps in the modern times, courts are best advised to think about catching (at least some of) a wave.

1. , W.H. van Boom, Pure Economic Loss: A Comparative Perspective in Pure Economic Loss (W.H. van Boom, H. Koziol & C. A. Witting, eds., 2004).