Tort law and the inherent limitations of monetary exchange: Property rules, liability rules, and the negligence rule

Journal of Tort Law

Volumn 4, Issue 1, 2011, Pages

  Geistfeld, Mark A ^a  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

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EID: 79958126206     PISSN: None     EISSN: 19329148     Source Type: Journal    
DOI: 10.2202/1932-9148.1107     Document Type: Conference Paper

References (119)

1. See generally Madeline Morris, The Structure of Entitlements, 78 CORNELL L. REV. 822 (1993) (deriving a wide variety of different entitlements from a set of fundamental components).
2. Wesley N. Hohfeld, Some Fundamental Legal Conceptions as Applied in Judicial Reasoning, 23 YALE L. J. 16, 59(1913).
3. Duncan Kennedy & Frank Michelman, Are Property and Contract Efficient?, 8 HOFSTRA L. REV. 711, 751(1980).
4. Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalienability: One View of the Cathedral, 85 HARV. L. REV. 1089 (1972). Although Calabresi and Melamed did not expressly relate their analysis to the Hohfeldian framework, the rules they analyzed can be usefully categorized within that framework.
5. See generally Morris, supra note 1 (elaborating upon the Hohfeldian framework and then analyzing the varied entitlements, including permutations of property, liability, and inalienability rules).
6. Calabresi & Melamed, supra note 4, at 1092.
7. Id.
8. Id. at 1124-1126.
9. Id. at 1092.
10. James E. Krier & Stewart J. Schwab, The Cathedral at Twenty-Five: Citations and Impressions, 106 YALE L. J. 2121, 2122(1997).
11. See Morris, supra note 1, at 876-880 (defining the entitlement for non-negligent injury as an "Uncompensated Taking Rule" that importantly differs from either a property or liability rule).
12. See infra Part I.
13. According to Louis Kaplow and Steven Shavell, the negligence rule can be defined as a combination of property and liability rules. "[O]ne may view the negligence rule as a hybrid of a property rule granting a partial entitlement to cause harm and a liability rule (strict liability): provided that the injurer exercises due care, he effectively acquires a property rule entitlement to cause harm; only if he fails to take due care does he become liable for harm." Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules: An Economic Analysis, 109 HARV. L. REV. 713, 753(1996). Framing the liability-rule component of negligence as a rule of strict liability ignores the role of punitive damages and criminal negligence, each of which is available for cases in which the defendant decides to act unreasonably in exchange for the payment of compensatory damages.
14. See infra notes 27-30 and accompanying text. The negligence rule prohibits such behavior, whereas strict liability does not prohibit duty-holders from creating unreasonable risks in exchange for the payment of compensatory damages. The claim that the negligence rule is fully constituted by a combination of liability and property rules, therefore, mistakenly assumes that the liability-rule component of the entitlement functions as a form of strict liability. This mistake is repeated by the conventional economic analysis of tort law.
15. See infra notes 61-65 and accompanying text.
16. Jules L. Coleman & Jody Kraus, Rethinking the Theory of Legal Rights, 95 YALE L. J. 335 (1986).
17. Id. at 1342-1343.
18. Id.
19. Modern tort law originated with the writ of trespass, and allegations of wrongdoing under that writ "were thought to be inappropriate where the defendant had acted with the consent of the plaintiff." D. J. IBBETSON, A HISTORICAL INTRODUCTION TO THE LAW OF OBLIGATIONS 41-42 (1999). Modern tort law continues to limit liability to nonconsensual interactions.
20. See W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS § 18, at 112 (5th ed. 1984) (explaining why consent "goes to negative the existence of any tort in the first instance");
21. see also DAN B. DOBBS, THE LAW OF TORTS § 95, at 218 (2000) ("In many cases, consent is not a true affirmative defense [to an intentional tort] but instead marks a deficiency in the plaintiff's prima facie case.");
22. id. § 212 (explaining why the prima facie case for negligence liability depends on the absence of consent).
23. Heidi M. Hurd, The Moral Magic of Consent, 2 LEGAL THEORY 121, 123(1996).
24. See RESTATEMENT OF THE LAW, TORTS: APPORTIONMENT OF LIABILITY § 2 (2000) (describing the rule governing expressly assumed risks).
25. To be sure, in many cases tort law does not limit the tort duty based on the right-holder's voluntary consent, but the reason involves the difficulty of reliably determining whether the rightholder had sufficient information and choice with respect to the relevant range of safety alternatives, not because of any inherent inalienability of the tort right. See MARK A. GEISTFELD, TORT LAW: THE ESSENTIALS 299-310, 323-25 (2008);
26. see also Mark A. Geistfeld, The Value of Consumer Choice in Products Liability, 74 BROOK. L. REV. 781 (2009) (identifying various doctrines in products liability that appear to disregard informed consumer choice and then explaining why these doctrines can be adequately conceptualized as furthering the value of informed consumer choice). Indeed, if the tort right were inalienable, then a plaintiff presumably would be barred from voluntarily selling a tort claim to the defendant in a settlement.
27. See, e.g., GEISTFELD, TORT LAW: THE ESSENTIALS, supra note 19, at 94-95 (explaining why tort rules that further the value of individual autonomy would violate the principle of equality if the right-holder's unilateral choices could increase the substantive tort obligations faced by the duty-holder).
28. See supra notes 13-15 and accompanying text.
29. Coleman & Kraus, supra note 13, at 1349.
30. Id. at 1356.
31. Id. at 1350.
32. Id. at 1357.
33. Id.
34. DOBBS, THE LAW OF TORTS, supra note 16, at § 381.
35. "[T]he overwhelming majority of jurisdictions allow crimes based on ordinary negligence." State v. Hazelwood, 946 P.2d 875 (Alaska 1997). However, ordinary negligence "applies in only a relatively few modern statutory crimes.... [F]or the most part,... something more than negligence is required for criminal liability: "a risk greater than simply an unreasonable risk" and/or "a subjective awareness of the unreasonable risk he [the duty-holder] creates."
36. WAYNE R. LAFAVE, SUBSTANTIVE CRIMINAL LAW § 5.4 (a) (2d ed. 2003). These added requirements for criminal liability correspond to those required for purposes of punitive damages.
37. Perhaps the best example of this rule is Grimshaw v. Ford Motor Co., 119 Cal. App. 3d 757 (Cal. App. 1981), in which the court upheld a substantial punitive award based on the finding that the defendant manufacturer had concluded that it would be cheaper to pay compensatory damages than to remedy a defectively designed automobile. The court was concerned that "in commercerelated torts, the manufacturer may find it more profitable to treat compensatory damages as a part of the cost of doing business rather than to remedy the defect."
38. Id. at 810. The court then concluded that "[d]eterrence of such 'objectionable corporate policies' serves one of the principal purposes" of punitive damages.
39. Id. The court could find the policy to be objectionable only if the defendant manufacturer's willingness to pay compensatory damages did not absolve it from the obligation to comply with its primary duty to sell a nondefective product. The court's conclusion in this regard is supported by the widely recognized rule that although a court "must presume that a plaintiff has been made whole for his injuries [through the award of compensatory damages], exemplary damages are permitted if the wrongdoing is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence." Bennett v. Reynolds, 315 S. W.3d 867, 874 (Tex. 2010) (citations omitted). The deterrence rationale for punitive damages encompasses all cases in which the defendant's conduct was based on an expectation that it could avoid liability in at least some cases. By implication, a pure retributive rationale for punitive damages can assume that the defendant fully expected to pay compensatory damages. The retributive rationale also presumes that compensatory damages "make the plaintiff whole." Retribution, therefore, must find justification in the defendant's failure to comply with the primary duty of care, which becomes reprehensible when done with the requisite bad state of mind. The reprehensibility of the conduct has nothing to do with the defendant's willingness to pay compensatory damages.
40. See Geistfeld, TORT LAW: THE ESSENTIALS, supra note 19, at 95-98 (explaining how the objectively defined negligence rule creates pockets of strict liability and immunity from liability).
41. The ensuing analysis of the compensatory damages remedy is largely derived from Mark A. Geistfeld, The Principle of Misalignment: Duty, Damages, and the Nature of Tort Liability, 121 YALE L. J. (forthcoming 2011).
42. FREDERICK POLLOCK, THE LAW OF TORTS: A TREATISE ON THE PRINCIPLES OF OBLIGATIONS ARISING FROM CIVIL WRONGS IN THE COMMON LAW 52-53 (1887).
43. E.g., Thompson v. Estate of Petroff, 319 N. W.2d 400, 405 (Minn. 1982) (interpreting Minnesota's wrongful-death statute as furthering the purpose recognized by "modern tort theory", under which "the primary reason for the existence of a cause of action is to provide a means of compensation for the injured victim").
44. Pollock, supra note 32, at 59.
45. See, e.g., Andrew J. McClurg, Dead Sorrow: A Story About Loss and a New Theory of Wrongful Death Damages, 85 B. U. L. REV. 1, 18-33 (2005) (finding that the decedent's loss of life's pleasures is not compensable by the compensatory damages remedy in the vast majority of states).
46. W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS, supra note 16, § 127, at 945. For example, the average jury verdict in New York City from 1984-1993 in a case of wrongful death was over $1 million, whereas the average verdict in a case of brain damage averaged over $3 million.
47. See Edward A. Adams, Venue Crucial to Tort Awards: City Verdicts Depend on Counties, N. Y. L. J., April 4, 1994, at 1, 4.
48. See Edward A. Adams, Venue Crucial to Tort Awards: City Verdicts Depend on Counties, N. Y. L. J., April 4, 1994, at 1, 4.
49. Id.
50. W. PAGE KEETON ET AL., PROSSER AND KEETON ON TORTS, supra note 16, at 535.
51. See also, e.g. Keene v. Brigham & Women's Hosp., Inc., 775 N. E.2d 725, 739 (Mass App. Ct.) (concluding that there should be no award of damages for loss of enjoyment of life when plaintiff lacks cognitive awareness of his loss)
52. modified on other grounds, 786 N. E.2d 824 (Mass. 2003).
53. McDougald v. Garber, 536 N. E.2d 372, 374 (N. Y. 1989) (concluding that a comatose plaintiff could not be compensated for the loss of life's pleasures).
54. Grosso v. Delaware, L. & W. R. R., 13 Atl. 233, 235 (N. J. 1888).
55. See Dan B. Dobbs, 2 LAW OF REMEDIES § 2. 1 (1), at 58;
56. § 2.5 (2), at 129-32 (2d ed. 1993).
57. J. Pomeroy, EQUITY JURISPRUDENCE § 1357, at 389 (1st ed. 1887) (emphasis in original).
58. See DOBBS, LAW OF TORTS, supra note 16, §377, at 1047 & n. 5 (stating that injunctions are "occasionally available in tort cases" and citing instances involving property interests, dignitary rights, and constitutional rights).
59. The problem, yet again, involves compensation for the way in which severe bodily injuries have caused the right-holder to suffer a loss of life's pleasures. Cf. RESTATEMENT (SECOND) OF TORTS § 903 cmt. a (1979) (stating that a damages award for the loss of life's pleasures is not supposed to "restore the injured person to his previous position" but should instead only "give to the injured person some pecuniary return for what he has suffered or is likely to suffer").
60. Zibbell v. Southern Pacific Co., 116 P. 513, 520 (Cal. 1911).
61. Sean Hannon Williams, Self-Altering Injury: The Hidden Harms of Hedonic Adaptation, 96 Cornell L. Rev. 535, 581(2011);
62. see also Robert E. Goodin, Theories of Compensation, 9 Oxford J. Legal Stud. 56, 68-69 (1989).
63. See Restatement (Third) of Torts: Liability for Physical and Emotional Harm §§ 4, 6(2010) (defining "physical harm" to include physical impairment of the body caused by death, and stating general rule of negligence liability for having caused "physical harm").
64. See Nicholas J. McBride, Duties of Care-Do they Really Exist?, 24 Oxford J. Legal Stud. 417, 417-419 (2004) (claiming that the "vast majority of tort scholars working today seem to" interpret negligence liability in terms of a duty to pay damages, whereas only a minority of scholars recognize the primary duty of care). Based in part on the laws governing punitive damages and injunctions, McBride concludes that the negligence rule is based on a primary duty of care.
65. Id. at 425-432.
66. Jeremiah Smith, Tort and Absolute Liability: Suggested Changes in Classification, 30 Harv. L. Rev. 409, 417(1917) (arguing that instances of liability without fault could be reclassified into a body of law other than torts).
67. See Coleman & Kraus, supra note 13, at 1342 ("Each legitimate interest... that is marked as a right is necessarily associated with, and in fact entails, some legitimate claims.").
68. Restatement (Second) of Torts §§ 519-520 (1977).
69. See, e.g., Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076 (5th Cir. 1973) (applying Texas law) (upholding jury verdict finding that defendants failure to warn of asbestos hazards was subject to both negligence and strict products liability).
70. Restatement (Third) of Torts: Products Liability and § 2 cmt. a (1998) (contrasting the rule of strict liability for construction defects with the rules of negligence liability for design and warning defects).
71. See supra notes 6-8 and accompanying text.
72. Coleman & Kraus, supra note 13, at 1343.
73. For discussion of the two approaches, see Christopher J. Robinette, Tort Rationales, Pluralism, and Isaiah Berlin, 14 Geo. Mason L. Rev. 329 (2007).
74. See Kenneth S. Abraham, The Forms and Functions of Tort Law 20 (3d ed. 2007) ("[T]ort law as it actually operates does not serve any single goal, but a set of different goals whose strength is likely to vary with the situation.... In some cases concern for corrective justice will dominate, but in others deterrence or concern for loss distribution will be key.... For those who seek perfect clarity, this may be an unsatisfying state of affairs.");
75. Izhak Englard, The Philosophy of Tort Law 64-65 (1992) ("The rhetoric of tort law is pluralistic: law-givers and courts rely on a multitude of contrasting reasons in imposing liability. From a formal point of view, the justifications of substantive liability rules are a mixture of corrective justice and distributive justice, of instrumental and non-instrumental reasons.");
76. Robert Stevens, Torts and Rights 326 (2007) ("If the account given in this book is correct, attempts to construct unitary theories to explain the law of torts are wrong-headed.");
77. Robinette, supra note 57.
78. But see Robinette, supra note 57 (arguing that pluralism can be applied in a principled manner).
79. Coleman & Kraus, supra note 13, at 1335-1337.
80. See supra note 12.
81. Marcel Kahan, Causation and Incentives to Take Care Under the Negligence Rule, 18 J. Legal Stud. 427, 432(1989) (footnotes omitted). A complete efficiency analysis of the problem also considers how the standard of care affects the duty-holder's level of participation in the risky activity.
82. See Steven Shavell, Do excessive legal standards discourage desirable activity?, 95 Econ. Letter 394, 395(2007).
83. Kahan, supra note 62, at 432 n. 18.
84. See supra notes 27-29 and accompanying text.
85. See generally Mark A. Geistfeld, Fault Lines in the Positive Economic Analysis of Tort Law, in Research Handbook on the Economics of Torts (Jennifer H. Arlen ed. forthcoming 2011) (explaining the importance of descriptive accuracy for the economic analysis of tort law).
86. See supra notes 35-39 and accompanying text.
87. E.g., Romo v. Ford Motor Co., 6 Cal. Rptr. 3d 793, 811 (Ct. App. 2003) (upholding a substantial award of punitive damages in a wrongful-death case in which the decedent's estate received no compensatory damages).
88. See Restatement (Third) of Torts: Liability for Physical and Emotional Harm §§ 4, 6(2010) (defining "physical harm" to include physical impairment of the body caused by death, and then stating the general rule of negligence liability for having caused "physical harm").
89. See Geistfeld, Principle of Misalignment, supra note 31.
90. "The negligence rule is usually the base line around the world.... Given the basic [economic] analysis of negligence versus strict liability, it is difficult to see what explains this." Hans-Bernd Schaffer & Frank Muller-Langer, Strict Liability versus Negligence, in Tort Law and Economics 37 (Michael Faure ed. 2009). The deterrence problem posed by cases of wrongful death strongly enhance the efficiency rationale for negligence liability because the efficiency rationale for strict liability depends on its ability to reduce risk relative to negligence liability.
91. See Mark Geistfeld, Should Enterprise Liability Replace the Rule of Strict Liability for Abnormally Dangerous Activities?, 45 UCLA L. Rev. 611 (1998) (explaining why the high transaction costs of strict liability relative to first-party insurance implies that strict liability can be more efficient than negligence liability only if it reduces risk below the level attainable by the negligence regime). (Pubitemid 128443585)
92. E.g., Lewis A. Kornhauser, Wealth Maximization, in 3 The New Palgrave Dictionary of Economics and the Law 679-83 (Peter Newman ed. 1998).
93. See generally Louis Kaplow & Steven Shavell, Fairness versus Welfare (2006).
94. Jules L. Coleman, The Practice of Principle 32 (2001).
95. Coleman & Kraus, supra note 13, at 1357.
96. As Coleman explains, Whether or not the corrective justice account owes us a theory of first-order duties, one might suppose that we still need such a theory-that is, one from which the duties enforced by tort law might be systematically derived-before we can claim to have provided an adequate account of our tort institutions and practices. Coleman, Practice of Principle, supra note 73, at 34. Coleman is "dubious about the prospects [for] a general theory of first-order duties from which we can derive all of them systematically."
97. Id. Coleman instead maintains that much of the content of first-order duties that are protected in tort law is created and formed piecemeal in the course of our manifold social and economic interactions. These generate conventions that give rise to expectations among individuals regarding the kind and level of care they-we-can reasonably demand of one another. The content of these duties is then further specified in the practice of tort law itself-in the process of litigation, in the development of case law, in the writing of restatements, and the like.... [T]here is no reason to suppose that [first-order] duties must be derivable from some theory, nor that providing such a theory is a condition for an adequate explanation of our tort practices.
98. Id. at 34-35.
99. Coleman's proposed method for deriving the content of first-order duties is lacking. "[T]he notion that the finder of fact can identify, rather than create, a norm applicable to injuries involving everyday activities is problematic. Often we do not have norms capable of selfapplication even to everyday activities." Kenneth S. Abraham, The Trouble with Negligence, 54 Vand. L. Rev. 1187, 1196(2001). The existence of widespread norms is dubious given the diverse values of contemporary society, and existing norms ordinarily do not have the level of detail required for resolution of a negligence case. (Pubitemid 33656613)
100. Id. at 1195-97. To be sure, the jury in a negligence case can develop a pre-existing norm when applying it to the particular facts at hand, but "a new rule is made again for each case, and the rule may differ from case to case even when the facts do not."
101. Id. at 1197.
102. Negligence practice simply does not involve the development or refinement of norms as assumed by Coleman. Even when tort law can resort to pre-existing norms, Coleman's account is still problematic. Whereas the substance of first-order duties under the early common law were presumably constituted by pre-existing norms, custom today plays a highly circumscribed role in negligence cases. See Geistfeld, Tort Law: The Essentials, supra note 19, at 214-216 (explaining why the evolution of society from small, close-knit communities into a highly industrialized global economy means that "custom now narrows the negligence inquiry in only a few important ways"). When courts are unable to rely on pre-existing norms of behavior to determine the requirements of reasonable care, they must resort to some other abstract norm or principle. According to Coleman, that norm or principle is not one of corrective justice, so his account of corrective justice cannot explain how courts determine the most important component of the negligence entitlement-the amount of care that the duty-holder must take in order to satisfy fully the right-holder's entitlement to bodily security.
103. Benjamin Zipursky, Civil Recourse, Not Corrective Justice, 91 Geo. L. J. 695, 712(2003).
104. Id. at 711.
105. Id. at 724.
106. John Gardner, What is Tort Law For? Part 1: The Place of Corrective Justice, at 19, U. Oxford Legal Research Paper Series, No. 1/2010 (Jan. 2010)
107. (quoting Jules L. Coleman, The Practice of Principle 21), available on-line at http://ssrn.com/abstract=1538342.
108. Gregory C. Keating, Is Tort a Remedial Institution?, USC Legal Studies Research Paper No. 10-10 (2010) (arguing that remedial responsibilities in tort are both logically and normatively subordinate to primary duties), available on-line at http://ssrn.com/abstract=1633687.
109. See Arthur Ripstein, As If It Never Happened, 48 Wm. & Mary L. Rev. 1957, 1964(2007) ("In the account that I will offer, duties of conduct and duties of repair are inseparable.");
110. Ernest J. Weinrib, The Idea of Private Law 76 (1995) ("corrective justice serves a normative function: a transaction is required, on pain of rectification, to conform to its contours").
111. Gardner, supra note 79, at 28-29 (citation omitted).
112. Arthur Ripstein, Equality, Responsibility, and the Law 11-12 (1999) (arguing that deterrence is only of "secondary concern" to corrective justice because it is "derivative" of the retrospectively set remedies required by corrective justice);
113. Ernest J. Weinrib, Deterrence and Corrective Justice, 50 UCLA L. Rev. 621, 625(2002) (arguing that a function of deterrence, "which comes on the scene after the wrong has been defined", is "not inconsistent" with corrective justice but is also "not part of corrective justice either").
114. See Arthur Ripstein, Tort Law in the Liberal State, 1 J. Tort L., Issue 2, Art. 3, at 30 (2007) (arguing that as a matter of corrective justice, "harm-based tort[s] require fault, in the sense of excessive danger"), available online at www.bepresscom;
115. Weinrib, The Idea of Private Law, supra note 81, at 177 (arguing that strict liability violates the requirement of equality inherent in corrective justice by unilaterally favoring the interests of the plaintiff).
116. A sketch of the argument is as follows. A tort norm of compensation can be derived from the value of individual autonomy and the requirement of equal treatment. The norm can be satisfied by voluntary exchange but is not wholly defined by the right-holder's actual consent; the compensatory norm instead is based on some conception of reasonable consent.
117. Cf. supra notes 19-21 and accompanying text (explaining why a property rule can violate the principle of equality). A compensatory formulation of the negligence entitlement is not immediately transparent, however, because a primary duty of compensation directly translates into a rule of strict liability. But for reasons discussed in Part I above, the inherent limitations of monetary exchange prevent duty-holders from exercising this form of corrective justice. An automobile driver, for example, cannot ordinarily pay compensation to a pedestrian prior to their risky interaction, and in the event that the pedestrian is killed in an accident, the driver cannot provide ex post compensation with the damages remedy. Despite this problem, the risky activity cannot be banned for reasons of autonomy and equal treatment. The only way to prevent this corrective injustice is to give the pedestrian right-holder the compensation to which she is entitled. Tort law does so by requiring the duty-holder to exercise reasonable care. This precautionary burden can be specified in a manner that equals the total burden that the duty-holder would otherwise occur under conditions of full compensation. Thus, under the negligence rule, the duty-holder can satisfy the compensatory obligation by incurring these expenses as required forms of reasonable care that directly protect the right-holder's interest in physical security. When the first-order duty is formulated in this manner, the duty-holder's exercise of reasonable care satisfies a compensatory obligation and is a form of corrective justice. Breach of that duty is a corrective injustice-the right-holder has not been adequately compensated as required by the initial entitlement, and this injustice is not fully remedied by the second-order duty of repair (due to the inherent inadequacy of compensatory damages). Other aspects of the entitlement for the negligence rule, including the supplementary claims for punitive damages and strict liability, can also be justified by such a compensatory duty.
118. See generally Geistfeld, Tort Law: The Essentials, supra note 19 (developing a compensatory conception of the tort right and showing how it can explain the important doctrines and practices of tort law, including the negligence rule and its varied no-duty rules).
119. Calabresi & Melamed, supra note 4, at 1127-1128.