The Fraud-on-the-Market Tort

Fraud on the market is at the core of contemporary securities law, permitting 10b-5 class actions to proceed without direct proof of investor reliance on a misrepresentation. Yet the ambiguities of this idea have fractured the Supreme Court from its initial recognition of the doctrine in Basic v. Levinson to its recent decision in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds. Amidst divergent views of the coherence and advisability of liability for fraud on the market a fundamental question lurks: is a suit for damages that invokes the fraud-on-the-market theory a claim for common law deceit, such that liability is properly limited by requirements such as scienter and loss causation, or is it an indirect regulatory enforcement action that should be unconstrained by these requirements so that liability can better serve its deterrent and compensatory purposes? Rejecting both of these options, we argue for a third way. Fraud-on-the-market claims are not private attorney general actions; they are genuine tort claims through which victims seek redress for having been wronged. Yet the wrong differs fundamentally in substance from the wrong of deceit. Building on a careful analysis of Dura Pharmaceuticals, Inc. v. Broudo, Basic v. Levinson, and common law, we articulate the unique character of the fraud-on-the-market tort. Rooted not in deceit but instead in the Congressionally recognized right of investors to trust in the integrity of securities markets, it does not protect investors from being deceived, but rather protects them against economic loss caused by intentional distortions of market prices. This simultaneously explains why fraud-on-the-market plaintiffs are properly freed from having to prove reliance and why the Supreme Court was perhaps justified in imposing restrictions on liability that are foreign to the common law

The Strict Liability in Fault and the Fault in Strict Liability

Tort scholars have long been obsessed with the dichotomy between strict liability and liability based on fault or wrongdoing. We argue that this is a false dichotomy. Torts such as battery, libel, negligence, and nuisance are wrongs, yet all are “strictly” defined in the sense of setting objective and thus quite demanding standards of conduct. We explain this basic insight under the heading of “the strict liability in fault.” We then turn to the special case of liability for abnormally dangerous activities, which at times really does involve liability without wrongdoing. Through an examination of this odd corner of tort law, we isolate “the fault in strict liability”—that is, the fault line between the wrongs-based form of strict liability that is frequently an aspect of tort liability and the wrongs-free form of strict liability that is found only within the very narrow domain of liability for abnormally dangerous activities. We conclude by defending these two features of the common law of tort: the strictness of the terms on which it defines wrongdoing and its begrudging willingness to recognize, in one special kind of case, liability without wrongdoing

Civil Recourse Defended: A Reply to Posner, Calabresi, Rustad, Chamallas, and Robinette

As part of a symposium issue of the Indiana Law Journal devoted to our Civil Recourse Theory of Tort Law, we respond to criticisms by Judge Calabresi, Judge Posner, and Professors Chamallas, Robinette, and Rustad. Calabresi and Posner criticize Civil Recourse Theory as a bit of glib moralism that fails to generate useful answers to the difficult questions that courts face when applying Tort Law. We show with several examples, both old and new, that the glibness is all on their side. From duty to causation to punitive damages, from products liability to fraud to privacy, our scholarship has had a great deal to say on pressing questions in tort. Posner and Calabresi seem to assume that, because our work engages rather than deconstructs concepts such as \u27duty\u27, it cannot address the ‘practical’ issues raised by tort cases. They have things exactly backwards. Civil Recourse Theory engages Tort Law’s concepts precisely in order to address those issues; that is, to a great extent, the point of the enterprise. In a similar vein, Professors Chamallas, Rustad, and Robinette allege that Civil Recourse Theory is blind to various ‘realities\u27; including that Tort Law’s value resides in part in its furtherance of certain policies, that it sometimes operates as an agent of injustice, and that it departs in practice from theory. Of course we have never denied any of these obvious truths. Rather, we have argued that, if Tort Law’s instrumental value is to be appreciated and enhanced, its content as a body of common law cannot be treated in a facile manner. If its discriminatory impact is to be grasped and eliminated, the particular way in which it empowers injury victims must be made clear. If the behavior of legal actors in the shadow of the law is be understood and evaluated, the structure and content of Tort Law’s rules must be rendered more transparent

The Myths of Macpherson

For a symposium marking the centenary of MacPherson v. Buick, we identify three common characterizations of Cardozo’s famous opinion that purport to explain its importance. Unfortunately, each of these characterizations turns out to be a myth. MacPherson is worthy of celebration, but not because it recognizes that negligence law’s duty of care is owed to the world, nor because it displays the promise of an instrumental, policy-oriented approach to adjudication, nor because it embraces a nascent form of strict products liability. These myths of MacPherson reflect deep misunderstandings of tort law, and of Cardozo’s distinctively pragmatic approach to adjudication. Ironically, although they have been largely fostered by progressives, the myths lend support to the cause of modern tort reform. By contrast, an accurate appreciation of MacPherson’s virtues permits an understanding of negligence, tort law, and common law adjudication that provides grounds for resisting regressive reforms

The Easy Case for Products Liability: A Response to Polinsky & Shavell

In their article “The Uneasy Case for Product Liability,” Professors Polinsky and Shavell assert the extraordinary claim that there should be no tort liability - none at all - for injuries caused by widely-sold products. In particular, they claim to have found convincing evidence that the threat of tort liability creates no additional incentives to safety beyond those already provided by regulatory agencies and market forces, and that tort compensation adds little or no benefit to injury victims beyond the compensation already provided by various forms of insurance. In this response, we explain that, even on its own narrow terms, “Uneasy,” comes nowhere near to demonstrating what it purports to demonstrate. We also identify various “benefits” provided by tort liability for product-related injuries that Polinsky and Shavell entirely fail to consider. In fact, the case for some form of products liability - whether fault-based or defect-based - is really quite easy

What Are We Reforming? Tort Theory\u27s Place in Debates Over Malpractice Reform

Those who are reforming medical malpractice law, or studying its reform, ought to attend to tort theory. This is not because theory will settle difficult policy debates. But it does enable reformers and scholars to be more aware of how under-appreciated and possibly dubious assumptions or inferences might be skewing their analyses. In this Essay, I aim to make this point with two examples. My first example concerns under-litigation-the apparent fact that a substantial percentage of persons with injuries plausibly traceable to malpractice never sue their doctors.\u27 Assume this is a real phenomenon. What are we to make of it? In the eyes of some, it provides proof that the tort system is dysfunctional. After all, if only a small percentage of malpractice victims sue, then there is likely to be significant under-deterrence of bad medical practices and significant under-compensation of injured patients. And, if the point of tort law is-as courts and commentators commonly say-to deter and compensate, it follows inexorably that we have a problem. Enter theory. The preceding syllogism, of course, starts from an initial condition: if the point of tort is to deter and compensate, then .... Now some would say that this particular condition is definitional or axiomatic: What else can tort law promise to deliver? But this is a mistake. The claim that the purpose of tort law is to deter and compensate is not an analytic truth. Rather it is shorthand Associate Dean for Research and Professor, Vanderbilt University Law School. Thanks to the Roscoe Pound Institute for sponsoring this symposium, and to fellow participants for very helpful comments on an earlier version of this paper. Remaining errors are my own

Doing Justice in the Face of a Disaster

What follows is an edited version of comments given at the panel of the AALS Section on Remedies at the AALS annual meeting in January, 2011