Damages For Emotional Distress in Fraud Litigation - Dignitary Tor

Vanderbilt Law Review
Volume 42 Article 1
Issue 1 Issue 1 - January 1989
1-1989
Damages for Emotional Distress in Fraud Litigation: Dignitary

Torts in a Commercial Society
Andrew L. Merrit
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Andrew L. Merrit, Damages for Emotional Distress in Fraud Litigation: Dignitary Torts in a Commercial
Society, 42 Vanderbilt Law Review 1 (1989)
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VANDERBILT LAW REVIEW
VOLUME 42 JANUARY 1989 NUMBER 1
Damages for Emotional Distress in

Fraud Litigation: Dignitary Torts in
a Commercial Society
Andrew L. Merritt*
I. INTRODUCTION ............................................. 2
II. THE CONFLICT IN COMMON-LAW PRECEDENT: A "BLACK-
LETTER" RULE IN INVISIBLE INK ............................ 3
A. Two Conflicting Rules ............................ 3
B. Four Qualified Approaches ....................... 7
1. Magnitude of Emotional Distress ............. 7
2. Severity of Financial Injury .................. 9
3. Distinction Between Business Fraud and Non-
business Fraud .............................. 10
4. Emotional Distress as a Component of Punitive
Damage Awards ............................. 12
III. ASSESSING THE SIGNIFICANCE OF A SPECIAL RULE FOR FRAUD:
THE RELATION OF FRAUD TO INDEPENDENT TORT ACTIONS
FOR INFLICTION OF EMOTIONAL DISTRESS ................... 15
A. Intentional Infliction of Emotional Distress........ 15
B. Negligent Infliction of Emotional Distress ......... 21
IV. SUPPLYING THE MISSING POLICY ANALYSIS: TOWARD A CON-
CEPTION OF FRAUD AS A DIGNITARY TORT .................. 23
A. Compensation for Emotional Distress in Fraud Cases 23
* Assistant Professor of Law, University of linois College of Law. B.A., Hampshire College,
1977; J.D., Columbia University, 1980. I am grateful to my colleagues Deborah Jones Merritt and
Elaine W. Shoben for their comments. I also thank my research assistants, Leonard Rumery and
Lynn Coyle.
VANDERBILT LAW REVIEW [Vol. 42:1
B. Treating Fraud as a Dignitary Tort ............... 30

C. Evaluating the Qualified Approaches .............. 32
1. Requiring Severe Distress .................... 32
2. Requiring Substantial Pecuniary Harm ........ 34
3. Distinguishing Personal Frauds from Business
Frauds ..................................... 35
4. Awarding Emotional Distress Damages as a Part
of Punitive Damages ......................... 37
V. CONCLUSION .............................................. 38
I. INTRODUCTION
One of the most dynamic developments in modern tort law has
been the increased focus on damages for emotional distress. During the
past few decades courts have fashioned several new tort theories to al-
low recovery of emotional distress damages as independent causes of
action.1 At the same time, lobbyists and legislators have attacked these
damages for contributing to "runaway" jury verdicts. As a result of
these attacks, a growing number of states are enacting statutes that
limit recovery of emotional distress damages in traditional tort areas
such as medical malpractice.2 Thus, damages for emotional distress are
at a crossroads between broad trends of expansion and contraction.
One largely unexplored battleground for these conflicting trends is
the awarding of emotional distress damages in commercial tort cases,
particularly in cases of fraud and deceit. No judicial consensus exists on
the propriety of awarding damages for emotional distress in fraud cases.
Many jurisdictions limit damages for fraud to pecuniary injuries; this
view. has had the most influence on legal commentators and treatise
writers.3 Nevertheless, a substantial group of jurisdictions has awarded
emotional distress damages in fraud cases. 4 Few of the decisions on ei-
ther side of this issue have examined closely other jurisdictions' treat-
ment of the issue, and most of these decisions have not analyzed the
policies favoring or opposing the award of emotional distress damages
in fraud cases. Perhaps this lack of detailed consideration in the case
law has been the greatest hindrance to the development of a judicial
consensus.
1. See infra notes 76-78, 106-10, 146 and accompanying text.

2. See, e.g., CAL. CIV. CODE § 3333.2 (West Supp. 1988) (placing a $250,000 ceiling on awards
for noneconomic losses, including pain and suffering, in medical negligence cases); MINN. STAT.
ANN. § 549.23 (West 1988) (placing $200,000 cap on damages for intangible loss in any civil action);
cf. S.D. CODIFIED LAWS ANN. § 21-3-11 (1987) (limiting total damages in medical malpractice cases
to one million dollars). For further discussion, see also statutes cited infra note 147.
3. See infra notes 6, 7 and accompanying text.
4. See cases cited infra note 11.
DIGNITARY TORTS
This Article has two purposes. First, it seeks to direct attention to

an important but rarely noted conflict among the jurisdictions in defin-
ing damages for fraud. Second, the Article attempts to supply the per-
spective of precedent and policy that is lacking in the opinions that
address this issue. Part II of this Article discusses the varying ap-
proaches that courts have taken in deciding whether to award emo-
tional distress damages in fraud litigation. Part III of the Article
highlights the practical difference between allowing recovery for emo-
tional distress as an element of damages for fraud and relegating plain-
tiffs to other tort theories of recovery for emotional distress. Part IV
first examines, as a general matter, whether courts should allow the
awarding of emotional distress damages in fraud cases. After concluding
that policy concerns generally favor granting such damages, Part IV
then considers whether courts should adopt any of the qualified ap-
proaches to the availability of such damages. This Article concludes
that inflexible distinctions between "personal" torts and "commercial"
torts are unrealistic in a modern consumer society. Thus, the Article
urges courts to recognize fraud as a dignitary tort that justifies the
awarding of emotional distress damages.
II. THE CONFLICT IN COMMON-LAW PRECEDENT: A "BLACKLETTER"

RULE IN INVISIBLE INK
The proper measure of fraud damages always has been a matter of
controversy. Most of the argument has centered on the proper way to
recompense a plaintiff's pecuniary losses. Courts have long split over
whether the plaintiffs should recover the benefit of their bargain or
whether recovery should be limited to out-of-pocket loss. 5 Relatively
few cases have considered the propriety of awarding damages for non-
pecuniary loss. Increasingly, however, defrauded plaintiffs are seeking
to supplement their recovery for monetary losses with recovery for emo-
tional distress. Though a substantial body of precedent now addresses
this issue, no judicial consensus has emerged.
A. Two Conflicting Rules

Commentators believe that emotional distress damages generally
should not be recovered in fraud cases. The Restatement (Second) of
Torts (Restatement) defines the appropriate recovery for plaintiffs in
fraud cases solely in terms of "pecuniary" losses.6 Similarly, a leading
5. Compare Smith v. Bolles, 132 U.S. 125 (1889) (adopting an out-of-pocket measure) and
Beardmore v. T.D. Burgess Co., 245 Md. 387, 226 A.2d 329 (1967) with Kinsey v. Scott, 124 Ill.
App. 3d 329, 341, 463 N.E.2d 1359, 1367 (1984) (using a benefit of the bargain standard).
6. RESTATEMENT (SECOND) OF TORTS § 525 (1977) [hereinafter RESTATEMENT].
treatise on remedies concludes that "separate recovery for mental

anguish is usually denied in deceit cases."'7 Thus, the "blackletter" law
appears to deny fraud plaintiffs recovery for emotional distress.
The history of emotional distress damages in fraud litigation, how-
ever, is marked by disagreement rather than accord. Since at least the
turn of the century, courts have taken radically different approaches to
the awarding of damages for fraud. Cable v. Bowlus8 is perhaps the ear-
liest American case specifically addressing the issue. In Cable an Ohio
court declared that a plaintiff who was defrauded into purchasing stock
in a gold mining company could not recover for his "feelings, disap-
pointment, or disgrace."" In 1912 a Pennsylvania court reached a con-
trary result in a real estate fraud case, allowing the jury to award "an
amount sufficient to compensate the plaintiff, in a reasonable measure,
for his trouble, vexation and annoyance."' 10 Subsequent decisions have
added to both lines of precedent."
To label either of these lines of precedent as a firm majority rule
would be inaccurate. Certainly most reported decisions measure fraud
damages by economic loss rather than emotional harm. In most of these
cases, however, no indication exists that any party requested emotional 12
distress damages or that the court consciously considered the issue.
7. D. DOBBS, HANDBOOK ON THE LAW OF REMEDIES § 9.2, at 602 (1973). For a contrasting
view, see R. DUNN, RECOVERY OF DAMAGES FOR FRAUD 147-52 (1988) (recognizing the conflict in the
case law and urging that recovery for emotional distress is appropriate).
8. 21 Ohio C.C. 53 (1900).
9. Id. at 54 (syllabus by the court).
10. Schusler v. Clark, 50 Pa. Super. 459, 466 (1912).
11. Jurisdictions that specifically have addressed the award of emotional distress damages
are divided almost evenly between those denying recovery and those supporting recovery. For pre-
cedent denying recovery, see Moore v. Slonim, 426 F. Supp. 524, 527 (D. Conn.) (applying Con-
necticut law), aff'd mem., 562 F.2d 38 (2d Cir. 1977); Kantor v. Comet Press Books Corp., 187 F.
Supp. 321, 323 (S.D.N.Y. 1960) (applying New York law); Umphrey v. Sprinkel, 106 Idaho 700,
711-12, 682 P.2d 1247, 1258-59 (1983); Cornell v. Wunschel, 408 N.W.2d 369, 382 (Iowa 1987);
Harsche v. Czyz, 157 Neb. 699, 710-11, 61 N.W.2d 265, 272 (1953); Carrigg v. Blue, 283 S.C. 494,
497 n.1, 323 S.E.2d 787, 789 n.1 (Ct. App. 1984). For precedent permitting recovery, see Holcombe
v. Whitaker, 294 Ala. 430, 434, 318 So. 2d 289, 293 (1975); Rosener v. Sears, Roebuck & Co., 110
Cal. App. 3d 740, 755, 168 Cal. Rptr. 237, 246 (1980), appeal dismissed, 450 U.S. 1051 (1981);
Trimble v. City of Denver, 697 P.2d 716, 730 (Colo. 1985); Food Fair, Inc. v. Anderson, 382 So. 2d
150, 154-55 (Fla. Dist. Ct. App. 1980); Captain & Co. v. Stenberg, 505 N.E.2d 88, 100 (Ind. Ct.
App. 1987); Crowley v. Global Realty, Inc., 124 N.H. 814, 818-19, 474 A.2d 1056, 1058 (1984);
McRae v. Bolstad, 32 Wash. App. 173, 178-79, 646 P.2d 771, 775-76 (1982), aff'd, 101 Wash. 2d 161,
676 P.2d 496 (1984); cf. Emmons v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 532 F. Supp. 480,
485 (S.D. Ohio 1982) (allowing damages for emotional distress under Ohio law, at least for "mali-
cious" fraud). Two jurisdictions contain conflicting precedents. See cases cited infra note 15. The
status of the law in some jurisdictions is difficult to classify. One court, for example, has stated
that Missouri law would deny emotional distress damages in fraud cases, but has qualified that
opinion as being inapplicable to tortfeasors who acted "willfully"-an exception that would seem
to include most cases of fraud. Walsh v. Ingersoll-Rand Co., 656 F.2d 367, 371 (8th Cir. 1981).
12. See, e.g., Posner v. Davis, 76 Ill. App. 3d 638, 395 N.E.2d 133 (1979) (assuming that
19891 DIGNITARY TORTS
These decisions, therefore, do not represent holdings in opposition to

recovery for emotional distress in fraud cases. Among the cases that
specifically have addressed the issue, neither a clear majority rule"3 nor
a decided trend in either direction has emerged.1" Indeed, in some juris-
dictions a litigant could point to precedent supporting either conclu-
sion.15 Thus, the "blackletter" law discerned by the Restatement and
some commentators fades upon close examination of the case law.
The courts themselves have paid little attention to either the con-
flicting precedents that support and reject fraud damages for emotional
distress or the policies underlying those results. Most cases simply as-
sert a rule. Thus, typical decisions denying recovery state only that
"courts in other jurisdictions have consistently held that damages for
mental anguish, humiliation, pain and suffering are not recoverable in
an action for fraud";'8 or that "[i]nconvenience is no more proper as an
element of damage in such [a] case than it would be in an action for
7
breach of warranty.' Cases awarding emotional distress damages can
be equally cryptic; many of these cases also fail to acknowledge8 the con-
flict among jurisdictions or to engage in any policy analysis.1
plaintiffs in a fraudulent property sale case should have introduced evidence of the monetary value
of their efforts to clean up a water-logged basement); Lobe Enters. v. Dotsen, 360 N.W.2d 371, 373
(Minn. Ct. App. 1985); Dugan v. Jones, 615 P.2d 1239 (Utah 1980) (stating that a defrauded party
may recover the benefit of his bargain plus any additional damages that are a natural and proxi-
mate consequence of the defendant's misrepresentations).
13. See supra note 11.
14. An "old" rule and a "new" rule on this issue apparently do not exist. Courts addressing
the issue within the past several years have added support to both lines of precedent. See supra
note 11.
15. Compare Ellis v. Crockett, 51 Haw. 45, 52, 451 P.2d 814, 820 (1969) (denying recovery)
and Hudson & Hudson Realtors v. Savage, 545 S.W.2d 863, 868 (Tex. Ct. App. 1977) (denying
recovery), overruled by United Plastics, Co. v. Dyes, 588 S.W.2d 857 (Tex. Civ. App. 1979) with
Knox v. Anderson, 159 F. Supp. 795, 806 (D. Haw.) (allowing recovery), aff'd, 297 F.2d 702, 729-31
(9th Cir. 1961), cert. denied, 370 U.S. 915 (1962) and Kneip v. Unitedbank-Victoria, 734 S.W.2d
130, 136 (Tex. Ct. App. 1987) (allowing recovery). California courts generally award emotional dis-
tress damages in fraud actions, see, e.g., Jahn v. Brickey, 168 Cal. App. 3d 399, 214 Cal. Rptr. 119
(1985); and Rosener, 110 Cal. App. 3d at 758, 168 Cal. Rptr. at 246, but deny these damages to
plaintiffs suing for fraud under a particular statutory section governing fraud in the purchase, sale,
or exchange of property, see Channell v. Anthony, 58 Cal. App. 3d 290, 315, 129 Cal. Rptr. 704, 720
(1976) (interpreting CAL. Civ. CODE § 3343 (1971)); and Sierra National Bank v. Brown, 18 Cal.
App. 3d 98, 103, 95 Cal. Rptr. 742, 745 (1971).
16. Savage, 545 S.W.2d at 868 (citing decisions denying recovery without acknowledging the
existence of any precedent supporting recovery).
17. Aaron v. Hampton Motors, Inc., 240 S.C. 26, 39, 124 S.E.2d 585, 591 (1962). It appears
that on some occasions courts' denial of recovery is shaped in part by counsel's failure to cite the
case law that has allowed recovery. See In re Romero, 535 F.2d 618, 623 (10th Cir. 1976) (rejecting
the litigant's contention that a bankruptcy court properly allowed consequential damages for in-
convenience and mental suffering; noting only that "[tihis claim is presented without cogent
authority").
18. E.g., Knox, 159 F. Supp. at 806 (stating that "[tihe Court further awards $2,500 for
mental suffering").
A few decisions, however, do offer a glimmer of policy analysis and

thus provide an initial benchmark for evaluating the two approaches.
The courts' articulated rationale for denying recovery of emotional dis-
tress damages rests on a conception of fraud as a purely commercial
tort. Sometimes this view is embraced simply in conclusory language:
that damages for fraud are "pecuniary damage[s]" because "[t]he aim
of compensation in deceit cases is to put the plaintiff in the position he
would have been had he not been defrauded."19 The Iowa Supreme
Court recently denied emotional distress damages in a fraud case be-
cause those damages "are not ordinarily contemplated in a business
transaction." 20 The case noted that, according to a leading commenta-
tor, "'deceit is an economic, not a dignitary tort.'" For these reasons
the court found that" 'though strong men may cry at the loss of money,
separate recovery for mental anguish is usually denied in deceit
cases.' "21 In short, the court concluded that an action for fraud protects
exclusively monetary interests-not feelings.
Courts that have endorsed recovery for emotional distress, on the
other hand, have emphasized that fraud is a tort cause of action, even
though the case may have arisen out of a contractual dispute. 2 One of
these courts stated that an injured party "is entitled to recover in a tort
action those damages which result directly, naturally and proximately
from fraud." 23 In addition, these courts have stressed that the culpabil-
ity of a fraud defendant, who has intentionally or recklessly deceived
another, justifies an expansive measure of damages. 2 4 This emphasis on
moral culpability is more characteristic of tort than contract law. Thus,
courts awarding emotional distress damages for fraud view fraud in a
broader framework of intentional tort theory in which emotional dis-
tress damages typically are awarded.25 Under this view, the action for
fraud protects both pecuniary and dignitary interests.
19. Crockett, 51 Haw. at 52, 451 P.2d at 820 (emphasis in original).

20. Cornell, 408 N.W.2d at 382.
21. Id. (quoting D. DOBBS, supra note 7, § 9.2, at 602).
22. See, e.g., Jahn, 168 Cal. App. 3d at 406-07, 214 Cal. Rptr. at 124 (stressing the tort
theory of fraud in addition to a request for rescission of contract).
23. Kneip, 734 S.W.2d at 136.
24. See, e.g., Rosener, 110 Cal. App. 3d at 755, 168 Cal. Rptr. at 246 (emotional distress
damages held appropriate because the defendant's conduct "clearly contained elements of inten-
tional malfeasance and bad faith"); Baker v. American States Ins. Co., 428 N.E.2d 1342, 1349 (Ind.
Ct. App. 1981). Thus, courts that would award emotional distress damages if the plaintiff proved
fraud would deny them if the plaintiff proved only negligent misrepresentation. See, e.g., Crowley
v. Global Realty, Inc., 124 N.H. 814, 818-19, 474 A.2d 1056, 1058 (1984); Charlie Stuart Oldsmo-
bile, Inc. v. Smith, 171 Ind. App. 315, 325-30, 357 N.E.2d 247, 255 (1976).
25. See, e.g., American States Ins. Co., 428 N.E.2d at 1349 (quoting Charlie Stuart Oldsmo-
bile, Inc., 171 Ind. App. 315, 357 N.E.2d 247); Kneip, 734 S.W.2d at 136.
1989] DIGNITARY TORTS
B. Four Qualified Approaches

Most courts that directly have addressed the issue of emotional
distress damages in fraud actions have taken a firm position awarding
or denying such damages. A few opinions, however, have eschewed an
absolute statement permitting or rejecting emotional distress damages
in all fraud cases and have adopted a qualified position that allows such
damages in some cases. These opinions have suggested four possible po-
sitions limiting the award of damages for emotional distress: (1) a re-
quirement that the emotional distress be particularly severe; (2) a
demand that the plaintiff's pecuniary loss be substantial; (3) a distinc-
tion between business frauds and other frauds; and (4) an inclusion of
emotional distress damages as part of a punitive damage award. Exami-
nation of these four approaches will lay a framework for appropriately
resolving the issue as a matter of tort policy.
1. Magnitude of Emotional Distress

The emotional distress suffered by fraud victims ranges from petty
annoyance or frustration to severely debilitating humiliation or depres-
sion.2 6 All courts probably would agree that plaintiffs seeking recovery
for these feelings must prove their distress, rather than leaving the is-
sue to the mere conjecture of the jury." Most decisions awarding emo-
tional distress damages for fraud, however, have not required plaintiffs
to prove any particular quantum of distress. In practice, the distress
suffered by plaintiffs in most of these cases has been substantial enough
to support a significant recovery. 8 The absence of any formal require-
ment that the plaintiff suffer severe emotional distress suggests that
plaintiffs suffering even lesser varieties of distress could recover some
damages for their suffering.
26. The general concept of mental distress is very broad. It can encompass "nervousness,
grief, anxiety, worry, shock, humiliation and indignity as well as physical pain." Crisci v. Security
Ins. Co., 66 Cal. 2d 425, 433, 426 P.2d 173, 178, 58 Cal. Rptr. 13, 18 (1967).
27. Haggerty v. March, 480 So. 2d 1064, 1068 (La. Ct. App. 1985) (stating that "[d]amages
like any other fact should be proven by a preponderance of the evidence and to constitute a pre-
ponderance, such evidence must show the loss is more probable than not"). This court noted that
"[tihe plaintiff made no effort to prove mental anguish or any other specific loss." Id. at 1067; see
also Rosener, 110 Cal. App. 3d at 755, 168 Cal. Rptr. at 246 (noting that the plaintiff's evidence of
mental suffering was "considerable, and convincing").
28. See, e.g., Malandris v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 703 F.2d 1152, 1157
& n.1 (10th Cir. 1981) (upholding one million dollar verdict apparently attributable to emotional
distress), cert. denied, 464 U.S. 824 (1983); Lewis v. Upton, 151 Cal. App. 3d 232, 237, 198 Cal.
Rptr. 494, 497 (1984) (holding that a jury could award a total of $13,000 in compensatory damages
to a plaintiff who proved only $11,119.20 in pecuniary losses because the plaintiff suffered great
emotional distress); Trimble v. City of Denver, 697 P.2d 716, 730 (Colo. 1985) (upholding $35,000
verdict); Kneip, 734 S.W.2d at 134 (valuing emotional distress at $40,000 for each of two plaintiffs
and $30,000 for a third plaintiff).
At least two jurisdictions, on the other hand, explicitly have limited

recovery in fraud cases to serious emotional distress.29 These courts de-
fined compensable mental anguish as a relatively high degree of mental
pain that "is more than mere disappointment, anger, restraint or em-
barrassment, although it may include all of these. It includes a mental
sensation of pain resulting from such painful emotion as grief, severe
disappointment, indignation, wounded pride, shame, despair and/or
public humiliation."3 0 One trial court applying this rule instructed ju-
rors that their consideration of "mental anguish" should not "include
any amount for mere worry, anxiety, vexation or anger." 31
When the record in these cases has reflected "no serious emotional
distress or anxiety," the courts have overturned verdicts awarding emo-
tional distress damages to defrauded plaintiffs. 2 Under this standard, a
plaintiff's testimony "that he was 'embarrassed,' 'mad,' and that he 'felt
like scum' " was insufficient to support recovery. 3 The court opined
that this testimony did "not depict the equivalent of a mental sensation
of pain or distress. '3' Thus, a requirement of severe mental anguish sig-
29. McGregor v. Mommer, 714 P.2d 536, 545 (Mont. 1986); Roberts v. U.S. Home Corp., 694
S.W.2d 129, 136 (Tex. Ct. App. 1985).
30. Roberts, 694 S.W.2d at 136 (quoting Trevino v. Southwestern Bell Tel. Co., 582 S.W.2d
582, 584 (Tex. Ct. App. 1979) (finding emotional distress compensable in an action for invasion of
privacy)). In Trevino, the court denied emotional distress damages to a plaintiff who introduced a
third person's testimony that the plaintiff was "very upset" when the telephone company entered
his store and took his telephones. The Trevino court contrasted the plaintiff's evidence with the
evidence in another invasion of privacy case that properly awarded emotional distress damages. In
the comparison case the plaintiffs had "testified at length as to their feelings of humiliation, stom-
ach aches, loss of sleep, nervousness and embarrassment," all of which made one plaintiff feel
"'like the size of a red ant,'" and troubled the plaintiff's wife to the point that she "could not
sleep at night." Trevino, 582 S.W.2d at 584. Presumably the Roberts case would have allowed
emotional distress damages in fraud cases with this type of evidence.
31. Roberts, 694 S.W.2d at 133 (recounting the trial court's instruction to the jury).
32. McGregor, 714 P.2d at 545. This court overturned emotional distress damages in a case
raising both fraud and contract claims by invoking standards from a false imprisonment case that
limited such damages to tortious conduct which "'results in a substantial invasion of a legally
protected interest and causes a significant impact upon the person of plaintiff.'" Id. (quoting
Johnson v. Supersave Markets, Inc., 211 Mont. 465, 473, 686 P.2d 209, 213 (1984) (emphasis in
original)). In McGregor the court deemed the plaintiff's testimony that his financial problems
caused by the fraud "bothered him a lot" and "'at times it would show up at home'" insufficient
to support recovery. Id.
In part, the McGregor court was worried that the trial court's instruction would have permit-
ted the plaintiff to recover emotional distress damages "even if [he] recovered only on [his] con-
tract claim." Id. at 544. The McGregor court's limit appears equally applicable, however, to the
plaintiff's claims of fraud, because the court drew these standards from the tort context of false
imprisonment. For a later case applying the McGregor court's "significant impact" requirement to
a tort claim of bad faith, see Noonan v. First Bank Butte, 740 P.2d 631, 635 (Mont. 1987) (require-
ment applied over the objections of a dissenting judge).
33. Roberts, 694 S.W.2d at 136.
34. Id. Any such standard is inherently imprecise in its application. Thus, a plaintiff appar-
ently cannot recover if he "feels like scum," id., but can recover if he feels "'like the size of a red
nificantly limits a fraud plaintiff's opportunity to recover for emotional

distress.
2. Severity of Financial Injury

Some California precedent has developed a second theory to limit
emotional distress damages in fraud cases. Rather than requiring a
threshold degree of emotional distress, this approach focuses on the ex-
tent of the pecuniary damage that the plaintiff has suffered. 5 Under
this rule a plaintiff can recover emotional distress damages in fraud
cases only if the pecuniary harm suffered is substantial. 6
This standard originated in tort cases that involved bad faith con-
duct other than fraud. 7 Courts in those cases envisioned the standard
as a protection against false or trivial claims. Thus, one court explained
that when the plaintiff's claim "is actionable and has resulted in sub-
stantial damages apart from those due to mental distress, the danger of
fictitious claims is reduced. 3s This court was not "concerned with mere
ant,'" at least if he testifies to symptoms such as loss of sleep and stomach aches, see supra note
30. The difficulty of applying this approach is indicated by the jury's reaction to the plaintiff's
testimony in Roberts. In that fraud case the jury agreed to assign a value of $10,000 to mental
distress, but the court regarded the mental distress as too insubstantial to support any recovery.
Roberts, 694 S.W.2d at 136. Similarly, in McGregor a jury awarded $5,000 for mental anguish, but
the court regarded the mental anguish as too insubstantial to support any recovery under a re-
quirement of "significant" impact on the plaintiff. McGregor, 714 P.2d at 544-55.
35. See Walker v. KFC Corp., 515 F. Supp. 612, 619 (S.D. Cal. 1981) (trial court instructed
jury using Book of Approved Jury Instructions, No. 12.85, quoted infra note 36), aff'd in part,
rev'd in part on other grounds, 728 F.2d 1215 (9th Cir. 1984). Dictum in Montana precedent might
support a similar approach. See McGregor, 714 P.2d at 545; see also supra note 32. Although the
McGregor court's opinion focused on the plaintiff's failure to establish a "significant" impact, it is
possible that in other cases the court might invoke the second branch of this requirement and
require a "substantial" invasion.
36. A standard California jury instruction generalizes this rule in a manner that includes
fraud cases and extends to other cases of financial injury as well:
Emotional Distress Resulting From FinancialInjury
A plaintiff who has suffered a substantial financial injury which was [proximately] [le-
gally] caused by a defendant's intentional or reckless wrongful conduct, is entitled to recover
damages from that defendant for any mental or emotional distress [proximately] [legally]
resulting from such financial injury.
2 COMMITTEE ON STANDARD JURY INSTRUCTIONS OF THE SUPER. CT. OF Los ANGELES COUNTY, CALI-
No. 12.85 (C. Loring 7th
FORNIA, JURY INSTRUCTIONS: CIVIL, BOOK OF APPROVED JURY INSTRUCTIONS,
ed. 1986) [hereinafter BAJI].
37. See Crisci v. Security Ins. Co., 66 Cal. 2d 425, 434, 426 P.2d 173, 179, 58 Cal. Rptr. 13, 19
(1967) (en banc) (suit against insurer for bad faith refusal to settle suit within policy limits);
Jarchow v. Transamerica Title Ins. Co., 48 Cal. App. 3d 917, 937, 122 Cal. Rptr. 470, 483-84 (1975)
(suit by buyers of real estate against title insurance company for failing to discover, disclose, or
eliminate easement). The Jarchow court purported to apply this standard to cases of mere negli-
gence, although Jarchow also involved claims of bad faith. Jarchow has been criticized for purport-
ing to expand the standard's coverage to merely negligent infliction of emotional distress without
regard to bad faith. See Quezada v. Hart, 67 Cal. App. 3d 754, 762, 136 Cal. Rptr. 815, 820 (1977).
38. Crisci, 66 Cal. 2d at 434, 426 P.2d at 179, 58 Cal. Rptr. at 19.
bad manners or trivialities but tortious conduct resulting in substantial

invasions of clearly protected interests. ' s California subsequently em-
bodied this standard in jury instructions for all types of tortious inffic-
tion of pecuniary injury" and applied these instructions to fraud
cases.4 1 In fraud, as in other contexts, the requirement of substantial
pecuniary injury permits plaintiffs to recover emotional distress dam-
ages in many cases, but restricts recovery when the facts of a case sug-
gest any danger of abusive litigation.
3. Distinction Between Business Fraud and Nonbusiness Fraud

In Moore v. Slonim42 a federal district court dismissed a claim of
emotional distress for fraud with language that appears to distinguish
between business frauds and other frauds. The court asserted that "it is
black letter law that damages for mental distress are not ordinarily
available in a cause of action for business fraud. '4 3 Two other opinions
have quoted Slonim's language with approval.4 These cases suggest
that some courts assume that emotional distress damages are appropri-
ate in cases of personal or nonbusiness fraud, but inappropriate in cases
of business fraud.
Many courts have allowed emotional distress damages in personal
rather than purely commercial contexts. Thus courts have granted emo-
tional distress damages against a funeral director who defrauded be-
reaved relatives into foregoing the opportunity to see the body, 45
against an adoption agency that lied to an adopting couple about a
troubled child's background, 4 against an insurance salesman who
deceived his customers, 4 and against a man who fraudulently induced a
39. Id. (footnote omitted).

40. BAJI, supra note 36, No. 12.85.
41. Walker, 515 F. Supp. at 619 (trial court instructed jury in fraud case using BAJI, supra
note 36, No. 12.85).
42. 426 F. Supp. 524 (D. Conn.), aff'd, 562 F.2d 38 (2d Cir. 1977).
43. Id. at 527 (citing 37 C.J.S. Fraud § 141f, at 469 (1943)).
44. Cable v. Hechler, 421 F. Supp. 129, 134 (E.D.N.Y. 1981), aff'd mem., 685 F.2d 423 (2d
Cir. 1982); Cornell v. Wunschel, 408 N.W.2d 369, 382 (Iowa 1987).
45. Ridout's-Brown Serv., Inc. v. Holloway, 397 So. 2d 125 (Ala. 1981).
46. Burr v. Board of County Comm'rs, 23 Ohio St. 3d 69, 491 N.E.2d 1101 (1986). The
agency told the couple that the infant was "'a nice big, healthy, baby boy'" to whom an eighteen
year old unwed mother had given birth at the local hospital. Id. at 70, 491 N.E.2d at 1103. The
agency further explained that the young unwed mother was trying to work and that her parents
were cruel to the child. In fact, the infant's mother was a thirty-one year old mental patient at
Massillon State Hospital with physical as well as psychological problems and mental deficiencies.
The child inherited from his mother a debilitating disease that destroyed his central nervous
system.
47. Knox v. Anderson, 159 F. Supp. 795 (D. Haw.), affd, 297 F.2d 702 (9th Cir. 1961), cert.
denied, 370 U.S. 915 (1962).
woman to enter into a void marriage.48 Courts also have awarded emo-
tional distress damages to home buyers suing deceptive real estate sell-
ers49 and home owners suing deceptive contractors;50 perhaps these
suits also contain a special personal element, even though they certainly
are economic transactions. Correspondingly, some courts have denied
emotional distress damages in contexts that seem more clearly business
related. For example, courts have denied recovery for emotional distress
to a service station lessee who sued the lessor for misrepresentations
that induced the lessee to enter a franchise agreement51 and to an au-
thor who was defrauded into entering a publishing contract.2
Although these cases could support a generalized distinction be-
tween business frauds and personal frauds, this distinction does not
serve as a very reliable guide to all judicial opinions. Other courts have
denied recovery in contexts that seem distinctly personal. For example,
one court refused to recompense the emotional suffering of a man who
claimed that his paramour defrauded him in order to obtain money "by
promising to marry him when in fact she had no intention of doing
SO. '')53Many years ago a California court refused to grant emotional dis-
tress damages to a woman who had sold her property to a conniving
developer only because the developer falsely claimed to share her dis-
tinctive religious beliefs about communicating with the spirits of the
dead and promised to devote the property to the establishment of a
home for welcoming people of this faith. Other courts have granted
recovery for emotional distress damages in cases that seem distinctly
commercial. These cases include a fast food restaurant franchisee's re-
48. Holcombe v. Whitaker, 294 Ala. 430, 318 So. 2d 289 (1975).
49. E.g., Godfrey v. Steinpress, 128 Cal. App. 3d 154, 180 Cal. Rptr. 95 (1982).
50. E.g., Rosener v. Sears, Roebuck & Co., 110 Cal. App. 3d 740, 168 Cal. Rptr. 237 (1980),
appeal dismissed, 450 U.S. 1051 (1981).
51. Carrigg v. Blue, 283 S.C. 494, 323 S.E.2d 787 (Ct. App. 1984). Similarly, Cornell denied
mental distress damages to a couple allegedly defrauded into purchasing a motel based on mislead-
ing concealment of facts regarding the profitability of the motel complex. The court commented
that "[d]amages for mental distress are not ordinarily contemplated in a business transaction."
Cornell, 408 N.W.2d at 382.
52. Kantor v. Comet Press Books Corp., 187 F. Supp. 321 (S.D.N.Y. 1960). The court stated
that "damages are not recoverable in this type of action for loss of profits, physical pain and
mental anguish or punitive damages." Id. at 323 (citing Toho Bussan Kaisha, Ltd. v. American
President Lines, Ltd., 265 F.2d 418 (2d Cir. 1959)).
53. Harsche v. Czyz, 157 Neb. 699, 700, 61 N.W.2d 265, 267 (1953). In Harsche the court
intimated that it would have allowed recovery if the plaintiff had claimed breach of a promise to
marry. The court, however, would not permit recovery on a fraud claim. Id. at 710-11, 61 N.W.2d
at 272. The case thus reaches an opposite conclusion on facts notably similar to Holcombe. See
supra note 48 and accompanying text.
54. Newman v. Smith, 77 Cal. 22, 18 P. 791 (1888). The court permitted rescission of the
contract based on fraud, but refused to grant damages for "'anxiety, worry, and harassment.'" Id.
at 27, 18 P. at 793.
covery of emotional distress damages from a franchisor who had mis-

represented material facts concerning the desirability of the franchise
arrangement,"5 a client's recovery from his real estate agent for fraud in
the purchase of commercial properties,5" and a travel agency's recovery
from an employee who had embezzled funds.5 7 Thus, the distinction be-
tween business fraud and nonbusiness fraud is not a reliable basis for
reconciling the conflicting case law in this area.5 8
4. Emotional Distress as a Component of Punitive Damage Awards

Many states permit jurors to award punitive or exemplary damages
in fraud cases. 59 Jurors sometimes may include compensation for emo-
tional distress as part of these punitive damage awards. In some juris-
dictions, jurors in any fraud case may award emotional distress
damages under the guise of punitive damages. 60 In other jurisdictions,
jurors may do so only if the fraud meets the additional, vague criteria
necessary to support an award of punitive damages, such as oppression
or aggravation.6
In a few states courts explicitly allow damages for emotional dis-
tress as part of exemplary or punitive damages. Michigan courts, for
example, have explained that their exemplary damages are intended as
a form of extra compensation in cases marked by recklessness, bad
55. Walker v. KFC Corp., 515 F. Supp. 612 (S.D. Cal. 1981), aff'd in part, rev'd in part on
other grounds, 728 F.2d 1215 (9th Cir. 1984).
56. Jahn v. Brickey, 168 Cal. App. 3d 399, 214 Cal. Rptr. 119 (1985).
57. Clare v. State, 456 So. 2d 355 (Ala. Crim. App. 1983) (criminal case upholding an order of
restitution by relying on the damage measure that would be applied in a civil action), aff'd, 456 So.
2d 357 (Ala. 1984).
58. This Article later considers whether the distinction between business and nonbusiness
fraud offers a sensible approach that, as a matter of policy, ought to guide the courts in deciding
damage issues in fraud cases. See infra notes 167-74 and accompanying text.
59. See, e.g., Moore Ford Co. v. Smith, 270 Ark. 340, 604 S.W.2d 943 (1980); Kleinfelter v.
Northwest Builders & Developers, Inc., 44 N.C. App. 561, 261 S.E.2d 498 (1980); Barnes v. McKin-
ney, 589 P.2d 698 (Okla. Ct. App. 1978); Green v. Uncle Don's Mobile City, 279 Or. 425, 568 P.2d
1375 (1977); Jeffers v. Nysse, 98 Wis. 2d 543, 297 N.W.2d 495 (1980). Massachusetts, Nebraska,
and Washington courts do not award punitive damages. See 1 J. GHIARDI & J. KIRCHER, PUNITVE
DAMAGES LAW AND PRACTICE §§ 4.07-.12 (1985).
60. See, e.g., Harris v. Wagshal, 343 A.2d 283, 288 n.13 (D.C. 1975); Newton v. Standard Fire
Ins. Co., 291 N.C. 105, 112, 229 S.E.2d 297, 301 (1976) (explaining that "fraud is, itself, one of the
elements of aggravation which will permit punitive damages to be awarded").
61. See, e.g., Randell v. Banzhoff, 375 So. 2d 445, 448 (Ala. 1979) (holding that fraud must be
"gross"), cert. denied, 444 U.S. 1081 (1980); Holcomb v. Hoffschneider, 297 N.W.2d 210, 215 (Iowa
1980) (denying recovery for "ordinary" fraud); Walker v. Sheldon, 10 N.Y.2d 401, 179 N.E.2d 497,
223 N.Y.S.2d 488 (1961). The practical effect of such vague limits is unclear; most cases of inten-
tional fraud arguably establish the reckless indifference to the rights of others or implied malice to
which some of the restrictive cases refer. Cf. Ray Dodge, Inc. v. Moore, 251 Ark. 1036, 1042, 479
S.W.2d 518, 522 (1972) (finding that "malice" to support punitive damages does not require per-
sonal hatred; it includes intentional wrongdoing without just cause or excuse).
faith, or other oppressive conduct.6 2 Thus, these damages are not

merely punitive in nature. Rather, they provide "compensatory dam-
ages for embarrassment and injured feelings" in cases of egregious mis-
conduct.6 " These damages are available in commercial fraud cases when
the plaintiff establishes fraudulent conduct independent from a breach
of contract claim.6 4 Similarly, before recent statutory reforms 65 a Geor-
gia statute permitted jurors to assess an extra amount of damages in
actions marked by aggravating circumstances in order "to deter the
wrongdoer from repeating the trespass or as compensation for the
wounded feelings of the plaintiff."6 6 Several cases upheld the assess-
ment of these damages in fraud cases.6
Even in the majority of jurisdictions which insist that punitive
damages are not compensatory,6 8 jurors may inflate punitive damage
awards to compensate plaintiffs for frustration or emotional suffering.
Courts routinely instruct jurors to take into account "all the circum-
stances"6' 9 in assessing punitive damages. Courts sometimes specifically
direct the jury to consider "the extent of harm inflicted. 70 These in-
62. Willett v. Ford Motor Co., 400 Mich. 65, 71, 253 N.W.2d 111, 113 (1977).
63. Id.; see also Loeblich v. Gamier, 113 So. 2d 95, 103 (La. Ct. App. 1959) (holding that
"exemplary" damages which redress mental anguish are compensatory rather than punitive in na-
ture); Bixby v. Dunlap, 56 N.H. 456, 464 (1876) (stating that damages for willful injury may in-
clude compensation for wounded feelings, though these damages are awarded under the name of
punitive, vindictive, or exemplary damages); Fay v. Parker, 53 N.H. 342 (1873) (allowing exem-
plary damages to compensate wounded feelings). On the confused history and semantics of puni-
tive or exemplary damages in Michigan, see Wade, The Michigan Law of Punitive Damages, in
MICHIGAN LAW OF DAMAGES 27-1 to -27 (1978).
64. Kewin v. Massachusetts Mut. Life Ins. Co., 409 Mich. 401, 420-21, 295 N.W.2d 50, 55
(1980); Gilroy v. Conway, 151 Mich. App. 628, 636-37, 391 N.W.2d 419, 422 (1986); Oppenhuizen v.
Wennersten, 2 Mich. App. 288, 299-300, 139 N.W.2d 765, 771 (1966) (finding fraud in selling a car
with a forged title; exemplary damages awarded for plaintiff's embarrassment in being questioned
over alleged purchase of stolen vehicle).
65. See GA. CODE ANN. § 51-12-5.1(c) (Supp. 1988) (allowing punitive damages not as com-
pensation, but only to punish; effective for causes of action arising on or after July 1, 1987).
66. Id. § 51-12-5. The statute purports to codify the common law. See id. § 51-12-5 editorial
note.
67. See Kelly v. Georgia Casualty & Sur. Co., 105 Ga. App. 104, 107, 123 S.E.2d 711, 713
(1961); King v. Towns, 102 Ga. App. 895, 902-03, 118 S.E.2d 121, 127 (1960).
68. See, e.g., Chrysler Corp. v. Wohner, 499 So. 2d 823, 825 (Fla. 1986) (holding that punitive
damages are intended for punishment and deterrence, not as a means of recovering extra dam-
ages); Moore v. State Bank, 240 Kan. 382, 729 P.2d 1205 (1986) (holding that punitive damages are
not designed for compensation), cert. denied, 107 S. Ct. 2484 (1987); Feingold v. Southeastern Pa.
Transp. Auth., 512 Pa. 567, 517 A.2d 1270 (1986) (holding that the purpose of punitive damages is
punishment rather than compensation).
69. E.g., Rinaldi v. Aaron, 314 So. 2d 762, 763 (Fla. 1975); Iola State Bank v. Bolan, 235 Kan.
175, 192, 679 P.2d 720, 734 (1984); Farrell v. Kramer, 159 Me. 387, 391, 193 A.2d 560, 562 (1963).
70. Leimgruber v. Claridge Assocs., 73 N.J. 450, 456, 375 A.2d 652, 655 (1977); see also Fort
Worth Cab & Baggage Co. v. Salinas, 735 S.W.2d 303, 306 (Tex. Ct. App. 1987) (holding that in
determining whether an award of exemplary damages is reasonable, a court examines many fac-
tors, including the "sensibilities" of the plaintiff); RESTATEMENT, supra note 6, § 908 comment e
structions invite jurors, if they are so inclined, to include an award for

emotional distress. Moreover, appellate courts occasionally justify an
award of punitive damages by referring to, among other factors, the
plaintiff's emotional distress.7 1 One court even suggested that a plaintiff
added a punitive damage claim to a fraud case precisely because he rec-
ognized that the court was unlikely to include emotional distress as a
regular element of compensatory damages. 2
Common sense, finally, suggests that jurors sometimes consider a
plaintiff's emotional anguish in calculating a punitive damage award.
Some evidence shows that jurors in civil cases attempt to award an
overall amount of damages that they perceive as fair; if the jurors are
precluded from compensating an element of damages in one part of
their verdict, they will increase another award.73 Jurors in fraud cases,
therefore, may assess generous punitive damages when they realize that
the plaintiff otherwise will receive no compensation for frustration or
mental distress. Indeed, one pair of commentators has noted that, in
jurisdictions allowing only nominal damages for fraud, jurors may use
(stating that the jury can consider the "extent of harm" to the plaintiff, including "the fact that
the plaintiff has been put to trouble and expense in the protection of his interests").
71. See Wilkes v. Moses, 291 S.C. 504, 354 S.E.2d 403 (Ct. App. 1987) (affirming award of
$700,000 actual and $300,000 punitive damages in accident case; the court focused on the extent of
the plaintiff's injuries, including her severe pain and embarrassment); cf. McNeill v. Allen, 35 Colo.
App. 317, 326, 534 P.2d 813, 819 (1975) (accepting for sake of argument counsel's position that
evidence of emotional distress was relevant to the issue of exemplary damages). Conversely, courts
have justified an award of emotional distress damages by observing that the standards for a puni-
tive damage award had been met. See Emmons v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 532
F. Supp. 480, 485 (S.D. Ohio 1982); Food Fair, Inc. v. Anderson, 382 So. 2d 150, 154-55 (Fla. Dist.
Ct. App. 1980).
72. Sierra Nat'l Bank v. Brown, 18 Cal. App. 3d 98, 103, 95 Cal. Rptr. 742, 745-46 (1971)
(attributing plaintiffs' interest in recovering punitive damages to their realization that they could
not recover emotional distress damages as a regular component of compensatory damages).
73. One commentator has pointed to a case retried several times in which three separate
juries returned verdicts for the same total amount, even though only two of the three juries were
permitted to award punitive damages. See Comment, Exemplary Damages in the Law of Torts, 70
HARv. L. REv. 517, 521 (1957). In that case, the jurors who were forbidden to award punitive dam-
ages may have recharacterized the amount of punishment they wished to award as compensation
for emotional distress. Similarly, jurors who are not invited to compensate emotional distress as a
part of the regular compensatory damage award may satisfy their desire to reach a fair result by
calculating this distress in an award of punitive damages. Cf. Durant v. Surety Homes Corp., 582
F.2d 1081, 1088 (7th Cir. 1978) (noting that a trial court's error in allowing the jury in a fraud case
to award emotional distress damages as an aspect of compensatory damages reduced the risk that
the jury had included compensation for emotional distress in its punitive damage verdict).
From this perspective, it is ironic that punitive damages may have originated as an attempt by
the courts to compensate wounded feelings when such compensation was not directly available.
See Comment, supra, at 519; see also Hazelwood v. Illinois Cent. G.R.R., 114 Ill. App. 3d 703, 712,
450 N.E.2d 1199, 1206 (1983). Judicial focus on the punitive purpose of punitive damages may be
counterbalanced by jurors who possibly still regard theie damages as having, in part, a compensa-
tory function.
punitive damages to serve a compensatory function.74 Even in jurisdic-

tions allowing more substantial financial recovery for fraud the jury
may be tempted to redress the plaintiff's mental anguish by increasing
the punitive damage award.
III. ASSESSING THE SIGNIFICANCE OF A SPECIAL RULE FOR FRAUD: THE

RELATION OF FRAUD TO INDEPENDENT TORT ACTIONS FOR INFLICTION OF
EMOTIONAL DISTRESS
During the past two decades most courts have recognized indepen-
dent tort actions for intentional or negligent infliction of emotional dis-
tress. Some courts have suggested that, although damages for emotional
distress are not available in fraud suits, plaintiffs may recover those
damages if they can establish separate claims for intentional or negli-
gent infliction of emotional distress. 75 The issue, then, is whether these
independent actions satisfy the claims of fraud victims for emotional
distress damages.
A. Intentional Infliction of Emotional Distress

The law always has permitted plaintiffs who suffer some physical
injury to recover for emotional distress in addition to recovering for the
physical injuries.7" The law also has permitted plaintiffs to recover emo-
tional distress damages fof certain intentional invasions of their dig-
nity-notably assault, battery, or false imprisonment-even in the
absence of any physical harm. Apart from physical injury or traditional
dignitary torts, however, courts historically were reluctant to grant re-
covery for emotional distress damages.
Over the past two decades, however, courts have recognized that
traditional tort actions would not reach some forms of contemptible be-
havior that caused significant emotional distress. To redress these inju-
ries, courts created the tort of intentional infliction of emotional
74. See 2 J. GHIARDI & J. KIRCHER, supra note 59, § 19.17, at 54. The authors suggest that in
these jurisdictions
one cannot help but suspect another ratio decidendi, albeit not articulated. The plaintiff who
is thus allowed to recover punitive damages, as is the case with some dignitary torts, is effec-
tively provided a form of rough compensation though in the guise of exemplary damages, for
the harm he or she has suffered because of the tort but has been unable to quantify for the
purposes of the customary compensatory damage award.
Id.
75. See infra notes 80-91 and accompanying text.
76. Recovery of emotional distress damages in this circumstance is not limited to suits
against intentional tortfeasors. Many negligence cases dealing with physical harm include a compo-
nent of emotional distress damages. See, e.g., Grubbs v. United States, 581 F. Supp. 536, 541, 542
(N.D. Ind. 1984); Pretre v. United States, 531 F. Supp. 931, 934 (E.D. Mo. 1981) (stating "mental
anguish attendant upon bodily injuries is a compensible [sic] injury"); W. KErON, D. DOBBS, R
KEETON & D. OWEN, PROSSER AND KEETON ON THE LAW OF TORTS 362-63 (5th ed. 1984).
distress. Although this tort has gained widespread acceptance, the

courts, fearing an inundation of lawsuits challenging mere bad manners,
have attempted to restrict recovery to the most extreme kinds of anti-
social behavior. To this end, courts uniformly have insisted that plain-
tiffs seeking to recover for intentional infliction of emotional distress
meet several restrictive criteria: (1) the defendant must have intended
to upset the plaintiff or must have acted with reckless disregard of the
consequences; (2) the conduct must have been "beyond all possible
bounds of decency, and. . . regarded as atrocious, and utterly intolera-
ble in a civilized community"; and (3) the plaintiff's emotional distress
must have been severe." To reflect the extreme nature of this action,
' 78
some courts have termed it the tort of "outrage.
Plaintiffs in fraud actions frequently invoke this new tort theory as
an alternative means of recovering damages for emotional distress.79
Even when plaintiffs do not specifically plead intentional infliction of
emotional distress as a separate theory of liability, some judges use the
standards developed for that tort to evaluate the availability of emo-
tional distress damages based on the fraud claim. In most cases, fraud
plaintiffs fall to meet one of the restrictive criteria for intentional inflic-
tion of emotional distress.
In Ma v. Community Bank,80 for example, a bank assured a cus-
tomer that if he lost his certificate of deposit the bank would issue a
new one without charge. Later, when the certificate was stolen, the
bank continually refused to reissue the certificate unless the plaintiff
posted a substantial bond. The plaintiff sued for fraud, seeking both his
pecuniary loss and damages for emotional distress. The trial court
awarded pecuniary loss damages, but denied emotional distress dam-
ages. The Seventh Circuit, applying its view of Wisconsin law, affirmed
the denial of these damages on the ground that the plaintiffs, seeking
damages for emotional distress based on fraud, had failed to prove the
following: (1) that the defendant acted for the purpose of causing emo-
tional distress to the plaintiff; (2) that the conduct was extreme and
77. See Harsha v. State Sav. Bank, 346 N.W.2d 791, 801 (Iowa 1984) (stating the second
criterion quoted in the text); see also Othman v. Globe Indem. Co., 759 F.2d 1458 (9th Cir. 1985),
overruled on other grounds, Bryant v. Ford Motor Co., 844 F.2d 602 (9th Cir. 1987) (en banc);
LeCroy v. Dean Witter Reynolds, Inc., 585 F. Supp. 753 (E.D. Ark. 1984); Plocar v. Dunkin'
Donuts of Am., Inc., 103 Ill.App. 3d 740, 431 N.E.2d 1175 (1981); Roberts v. Auto-Owners Ins. Co.,
422 Mich. 594, 374 N.W.2d 905 (1985). See generally RESTATEMENT, supra note 6, § 46.
78. See, e.g., Spencer v. King County, 39 Wash. App. 201, 692 P.2d 874 (1984), overruled on
other grounds, Frost v. City of Walla Walla, 106 Wash. 2d 669, 724 P.2d 1017 (1986).
79. E.g., Truesdell v. Proctor, 443 So. 2d 107 (Fla. Dist. Ct. App. 1983) (alleging fraud and
negligent infliction of emotional distress); Stewart v. Isbell, 155 Mich. App. 65, 399 N.W.2d 440
(1986) (alleging fraud, intentional infliction of emotional distress, and negligent infliction of emo-
tional distress).
80. 686 F.2d 459 (7th Cir. 1982).
outrageous; and (3) that the defendant's conduct caused an extreme

and disabling emotional response by the plaintiff.81 In short, the court
borrowed the standards for the tort of intentional infliction of emo-
tional distress and used them to deny emotional distress damages in a
fraud action."2
The Seventh Circuit interpreted Illinois law in a similar fashion in
Durant v. Surety Homes Corp.88 In that case a contractor defrauded a
buyer into purchasing a home with a cracked foundation. The buyer
brought suit for fraud; the trial court granted compensation for pecuni-
ary loss and awarded punitive damages, but denied damages for the
plaintiff's emotional distress. In affirming the trial court's denial of the
emotional distress damages, the Seventh Circuit invoked Illinois' lead-
ing case on the separate tort of intentional infliction of emotional dis-
tress and stated that the defendant could be liable only for actions
"calculated to cause 'severe emotional distress' to a person of ordinary
sensibilities. '8 4 Based on this standard the Durant court denied recov-
ery because the plaintiff had failed to establish the defendant's wrong-
ful intent. 5
Curiously, the Durant court construed the already narrow require-
ments for recovery in a particularly restrictive manner. The court of
appeals ruled against the plaintiff because it agreed with the trial court
that "simply no evidence of intention to cause such distress" existed.8
Thus, the court seemed to require a specific intent to create distress.
Controlling precedent, however, had established that a plaintiff could
win an intentional infliction claim by establishing merely reckless con-
duct. 7 That conduct was present in Durant; indeed, the court affirmed
an award of punitive damages precisely because evidence existed to es-
tablish that the contractor "not only committed fraud, but did so de-
signedly or wantonly, with reckless disregard for the Durants' rights. 8
In another colorful case a court applied a similarly narrow reading
81. Id. at 469.

82. Alternatively, the court said that the plaintiff could recover emotional distress damages
on a theory of bad faith breach of contract, but only if the plaintiff could prove "'substantial
damages aside and apart from the emotional distress itself and . . . damages occasioned by the
simple breach of contract.'" Id. (quoting Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 696,
271 N.W.2d 368, 378 (1978)). Because the plaintiff had not pleaded or proved these damages, this
theory also was of no avail to the plaintiff.
83. 582 F.2d 1081 (7th Cir. 1978).
84. Knierim v. Izzo, 22 Ill. 2d 73, 86 174 N.E.2d 157, 164 (1961); see also D.R.W. Corp. v.
Cordes, 65 Wis. 2d 303, 222 N.W.2d 671 (1974) (measuring the availability of emotional distress
damages in a fraud case by the standards for intentional infliction of emotional distress).
85. Durant, 582 F.2d at 1085.
86. Id.
87. See Public Fin. Corp. v. Davis, 66 Il. 2d 85, 360 N.E.2d 765 (1976).
88. Durant, 582 F.2d at 1087, 1088.
of the standards for intentional infliction of emotional distress in order

to deny these damages to a disaffected disciple who sued the Maharishi
Mahesh Yogi for fraud.89 The court rejected the separate emotional dis-
tress claim because most claims for intentional infliction of emotional
distress are based on a specific, discrete incident.90 Although the plain-
tiff claimed that he had wasted eleven years of his life, including years
of free labor, in the service of a phony, the court dismissed this loss as
merely a "continuing injury." As in Durant, no prior case law compelled
this restriction; indeed, another state had rejected proposals for a simi-
lar "sudden occurrence" requirement even in the context of negligent
infliction of emotional distress.9
A few cases have permitted fraud plaintiffs to recover damages for
mental anguish under the standards of intentional infliction of emo-
tional distress. In a securities fraud case, Malandris v. Merrill Lynch,
Pierce, Fenner & Smith, Inc.,92 the court based liability on both theo-
ries, fraud and intentional infliction of emotional distress, because the
defendant brokerage company had actual knowledge that the plaintiff
was an illiterate, insecure person with grave concern for protecting her
financial security. Against this background the court affirmed the jury's
finding that the defendant's plan-to pressure the plaintiff's gullible
husband into investing the couple's hard-won earnings in a margin ac-
count, trading in his wife's account without her permission, and lying to
his wife-was "outrageous." 93 In another case a court concluded that a
89. Doe v. Yogi, 652 F. Supp. 203 (D.D.C. 1986). The yogi allegedly represented that science
had proved that transcendental meditation could reverse aging, result in enlightenment, and pro-
mote world peace. The yogi also promised to teach the plaintiff to fly, to levitate (an exercise that
consisted of hopping around the floor in a lotus position), and "to manipulate the physical world
and the laws of nature." Id. at 205. The plaintiff sought to recover for the costs of taking courses
from the yogi, for his emotional distress in realizing that he had wasted eleven years of his life in
the movement, and for his physical injuries suffered while trying to learn to "fly." Id.
90. Id. at 209. The court did uphold a separate cause of action for fraud against a challenge
that the yogi's promises were mere opinion. The court did not, however, indicate whether it would
be willing to grant emotional distress damages under the fraud count. Thus, it is unclear whether
the court anticipated allowing the plaintiff some emotional distress damages under the fraud
count, or whether the court envisioned the fraud count as limited to a claim for: (1) the costs
expended on the yogi's courses; and possibly (2) the physical injuries suffered while performing
yoga exercises.
91. See Ochoa v. Superior Court, 39 Cal. 3d 159, 703 P.2d 1, 216 Cal. Rptr. 661 (1985). The
court in Ochoa permitted a mother to recover for the anguish she suffered while the penal facility
holding her son continually declined to give him proper medical treatment. The court specifically
rejected the defendant's argument that claims for negligent infliction of emotional distress should
be limited to those family members who are contemporaneous witnesses to a "sudden occurrence."
92. 703 F.2d 1152 (10th Cir. 1981), cert. denied, 464 U.S. 824 (1983).
93. Id. at 1159. The wife was a Korean immigrant who could neither read nor write Korean
or English. The husband had only a tenth grade education and worked as a manual laborer "al-
most every waking hour, including all major holidays." Id. at 1160. The couple had "adopted a
spartan lifestyle, spending very little for anything other than basic necessities and doing nothing in
realty company's misrepresentations that a house was free of termites

and dry rot were outrageous enough to support the purchasers' action
for intentional infliction of emotional distress.9 4
These cases, however, remain the exception rather than the rule.
Even strikingly antisocial conduct frequently fails to satisfy the "outra-
geousness" requirement of the intentional infliction of emotional dis-
tress tort. In a recent Florida case, for example, a supermarket
repeatedly pressured an employee to sign confessions to theft, despite
her tearful protests that she was innocent.9 5 The supermarket finally
induced her to cooperate by assuring her that it was standard practice
to require all employees to sign these confessions as part of a lie detec-
tor test, and that the employer would not fire her if she signed one. 6
When the employee finally succumbed to the coercion, the employer
fired her. The court, nonetheless, rejected a claim for intentional inflic-
tion of emotional distress on the basis that this case "[did] not meet the
test of outrageousness."9 " Nevertheless, the court upheld a claim for
emotional distress damages as an aspect of the employee's fraud
claim.9 8
Claims for intentional infliction of emotional distress, therefore, do
not obviate consideration of damages for emotional distress in fraud ac-
tions. In many fraud cases, plaintiffs will be unable to convince a court
that their distress was severe, to convince a court that the defendant's
actions were outrageous, or to convince some courts that a particularly
narrow formulation of an intent requirement has been satisfied. Ironi-
cally, because fraud is common enough in today's society, courts may no
longer consider it sufficiently extraordinary to satisfy the requirement
the way of entertainment." Id. Both husband and wife recognized that the husband was extremely
gullible and therefore took special steps to put the couple's assets into accounts in the wife's name
alone.
94. Godfrey v. Steinpress, 128 Cal. App. 3d 154, 180 Cal. Rptr. 95 (1982). Similarly, one
might expect that a fraud by a funeral parlor director against the deceased's relatives would satisfy
any court's sense of outrageousness. Thus, emotional distress damages have been granted against a
mortician who falsely represented that the deceased's face had been "eaten up with maggots" in
order to avoid the trouble of preparing the body for viewing by the deceased's family. Ridout's-
Brown Serv., Inc. v. Holloway, 397 So. 2d 125, 127 (Ala. 1981). In that case, the plaintiff had stated
claims for both fraud and intentional infliction of emotional distress. The court endorsed a
$220,000 verdict (almost all of which must have represented compensation for emotional distress)
without specifying whether it was awarded on one or both theories of recovery.
95. Food Fair, Inc. v. Anderson, 382 So. 2d 150 (Fla. Dist. Ct. App. 1980).
96. Id. at 151. Indeed, the employer interpreted the lie detector's finding that her confession
was a lie as an indication that she must have stolen more money than originally stated on the
confession. The employer thus coerced the employee to sign confessions for ever-increasing
amounts. Id.
97. Id. at 153.
98. Id. at 154-55.
of outrageousness.9 9 Thus, if courts wish to compensate defrauded

plaintiffs for emotional distress, they should do so by reformulating
their definition of compensatory damages for fraud, rather than by rele-
gating those plaintiffs to the restrictive theory of intentional infliction
of emotional distress. 0 0
The standards developed for the new tort of intentional infliction
of emotional distress, moreover, are inappropriate when applied to
plaintiffs in fraud cases. Courts created the new tort theory to permit
recovery in a narrow class of cases that failed to fit within any estab-
lished tort action. 10 At the same time, the courts wanted to protect
themselves from being overwhelmed with attempts to turn mere bad
manners or petty incivilities into court cases. 10 2 Hence, the courts re-
strictively defined the tort of intentional infliction of emotional distress.
These concerns, however, do not apply to the fraud plaintiff. Fraud
is a well-established tort, not a novel cause of action. The existence of
this claim, moreover, demonstrates that society already considers fraud
more than mere bad manners; it is seriously antisocial behavior that
justifies the imposition of substantial compensatory damages, punitive
damages, and even criminal penalties. 0 3 Finally, fraud cases are already
in the courts, whether the plaintiff claims emotional distress damages
or not. Indeed, the courts are open to fraud claims that assert any mea-
sure of pecuniary loss, however small. 04 A few courts permit plaintiffs
to bring fraud actions for nominal damages even without proof of spe-
cific financial loss. 0 5 Thus, awarding emotional distress damages in
99. Courts reserve the tort of intentional infliction of emotional distress for occasional cases
that strike them as unusually egregious. See, e.g., Oswalt v. County of Ramsey, 371 N.W.2d 241,
248 (Minn. Ct. App. 1985) (explaining that the tort is "sharply limited to cases involving particu-
larly egregious facts").
100. Food Fair,382 So. 2d at 150. See supra notes 95-98 and accompanying text.
101. For example, a leading decision recognized a separate theory of recovery for intentional
infliction of emotional distress when gangsters threatened a businessman with future injury. The
court did so because it felt the action failed to fit within traditional tort requirements of assault,
battery, or false imprisonment. State Rubbish Collectors Ass'n v. Siliznoff, 38 Cal. 2d 330, 240 P.2d
282 (1952).
102. See RESTATEMENT, supra note 6, § 46 comment d.
103. See MODEL PENAL CODE § 223.3 (Proposed Official Draft 1962) (defining purposeful de-
ception as theft). Federal statutes prohibiting mail and wire fraud authorize penalties of $1,000
and prison terms of up to five years. 18 U.S.C. §§ 1341, 1343 (1982).
104. Most courts require the plaintiff to establish some pecuniary damage or detriment as an
element of a basic cause of action for fraud. See, e.g., Day v. Avery, 548 F.2d 1018, 1028-29 (D.C.
Cir. 1976) (stating that "a sine qua non of any recovery for misrepresentation is a showing of
pecuniary loss proximately caused by reliance on the misrepresentation;" nominal damages held
not available), cert. denied, 431 U.S. 908 (1977). The cases do not require, however, that the plain-
tiff's damages be major; the cases only require that the damages be measurable. For a case award-
ing only $5 in damages, see D.R.W. Corp. v. Cordes, 65 Wis. 2d 303, 222 N.W.2d 671 (1974).
105. See Greater Coral Springs Realty, Inc. v. Century 21 Real Estate, Inc., 412 So. 2d 940
(Fla. Dist. Ct. App. 1982) (awarding "nominal" damages of $1,000 in addition to punitive dam-
fraud cases will not swamp the courts with additional lawsuits.
In short, the policy concerns that justify restrictive requirements
for the separate tort of intentional infliction of emotional distress are
inapplicable to causes of action for fraud. Courts should not view this
new tort theory as excusing a careful consideration of the need to make
emotional distress damages generally more available in fraud claims.
B. Negligent Infliction of Emotional Distress

Many courts are expanding plaintiffs' opportunities for recovery
based only on negligent infliction of emotional distress. Plaintiffs who
have suffered no physical injury, however, must hurdle a series of legal
barriers. Most courts agree that the plaintiff's distress must be se-
vere.' Many jurisdictions also require "physical consequences" or "ob-
jective symptomology" of the plaintiff's distress, such as weight loss or
severe depression. 10 7 If the plaintiff has suffered mental anguish from
witnessing physical injuries negligently inflicted upon another person,
courts typically require proof that the plaintiff was close to the acci-
dent, saw the accident directly, and was a close relative of the victim.' 0 8
Some courts apply an even more restrictive rule that limits recovery to
bystanders who were physically endangered by the defendant's con-
duct. 09 By curtailing the number of plaintiffs who may recover for neg-
ages); Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 477 A.2d 1224 (1984). Several
other jurisdictions award nominal damages when the plaintiff persuades the court that he has
suffered some real damage, but fails to introduce sufficiently detailed evidence to allow the court to
compute the value of the damages with a reasonable degree of accuracy. See, e.g., Long-Lewis
Hardware Co. v. Lightsey, 392 So. 2d 545 (Ala. Civ. App. 1980); In re Busse, 124 Ill. App. 3d 433,
464 N.E.2d 651 (1984); Beavers v. Lamplighters Realty, Inc., 556 P.2d 1328 (Okla. Ct. App. 1976).
Although the awarding of nominal damages for fraud is still the minority rule, one commentator
concludes from these cases that the law is in a state of development, "and the old rules can no
longer be stated with assurance." R. DUNN, supra note 7, § 6.02, at 205.
106. See, e.g., Ramirez v. Armstrong, 100 N.M. 538, 541 n.1, 673 P.2d 822, 825 n.1 (1983)
(stating that emotional distress must have a "severity which no reasonable person could be ex-
pected to endure"); Paugh v. Hanks, 6 Ohio St. 3d 72, 72, 451 N.E.2d 759, 761 (1983) (stating that
distress must be so "severe and debilitating" that a reasonable person would be "unable to cope
adequately").
107. See, e.g., Towns v. Anderson, 195 Colo. 517, 579 P.2d 1163 (1978); Goldberg v. Ruskin,
128 Ill. App. 3d 1029, 1043, 471 N.E.2d 530, 539-40 (1984), af'd, 113 Ill. 2d 482, 499 N.E.2d 406
(1986); Dailey v. LaCroix, 384 Mich. 4, 179 N.W.2d 390 (1970). But see St. Elizabeth Hosp. v.
Garrard, 730 S.W.2d 649, 654 (Tex. 1987) (abandoning a requirement of physical injury or physical
manifestation of emotional distress and noting "an established trend in American jurisprudence
which recognizes the tort of negligent infliction of mental anguish without imposing arbitrary re-
strictions on recovery in such actions"); cf. Alabama Power Co. v. Harmon, 483 So. 2d 386 (Ala.
1986) (holding that emotional distress damages could be awarded in a breach of contract action
without proof of physical symptoms).
108. See Dillon v. Legg, 68 Cal. 2d 728, 441 P.2d 912, 69 Cal. Rptr. 72 (1968). For examples
of courts following Dillon's basic approach, see Eagle-Picher Indus. v. Cox, 481 So. 2d 517, 526
(Fla. Dist. Ct. App. 1985); Ramirez, 100 N.M. 538, 673 P.2d 822.
109. Farmer's Group, Inc. v. Trimble, 658 P.2d 1370 (Colo. Ct. App. 1982), afl'd, 691 P.2d
ligent infliction of emotional distress, all these restrictions protect

defendants from oppressive liability and shield the courts from burden-
some litigation.110
As victims of intentional misconduct, fraud plaintiffs are more
likely to add claims for intentional infliction of emotional distress than
for negligent infliction of emotional distress. At least one court, how-
ever, has measured the availability of psychological damages in a fraud
case by borrowing the standards for negligent infliction of emotional
distress. In Goldberg v. Mallinckrodt,Inc.,"' a physician claimed that a
drug company defrauded him by intentionally misrepresenting that its
product, a dye used to X-ray spinal cords, had no adverse side effects.
The drug company allegedly knew that some patients had suffered se-
vere adverse reactions to the dye. Doctor Goldberg sued the drug com-
pany for fraud after two of his patients, who had suffered severe
physical injuries from the product, sued the doctor for malpractice. The
doctor claimed that witnessing his patients' adverse reactions to the
drug caused him such emotional distress that he discontinued adminis-
tering myelograms to other patients and suffered economic loss by fore-
going this aspect of his medical practice." 2 The court denied damages
for this loss, stating that even if the doctor's debilitating emotional dis-
tress was the cause of his decision to stop administering myelograms, he
was not a family member of the injured patients and was not physically
endangered by the wrongdoing."'
In reaching this conclusion, the Goldberg court overlooked an es-
sential distinction between the case before it and more typical claims of
negligent infliction of emotional distress. Doctor Goldberg was not sim-
1138 (Colo. 1984) (en banc); Green v. Leibowitz, 118 A.D.2d 756, 757, 500 N.Y.S.2d 146, 148 (1986);
Vaillancourt v. Medical Center Hosp. of Vt., Inc., 139 Vt. 138, 143, 425 A.2d 92, 95 (1980). Al-
though a few courts have been attracted to a more liberal rule of pure foreseeability, compare
Rodrigues v. State, 52 Haw. 156, 174, 472 P.2d 509, 520-21 (1970) with Ochoa v. Superior Court, 39
Cal. 3d 159, 190, 703 P.2d 1, 23, 216 Cal. Rptr. 661, 683 (1985) (Bird, C.J., dissenting in part), most
jurisdictions continue to restrain these negligence actions for emotional distress within the bounds
of more restrictive criteria.
110. Courts have been concerned about unfairly imposing "disproportionate" recovery on de-
fendants who were merely negligent. E.g., Smith v. Cote, 128 N.H. 231, 247, 513 A.2d 341, 351
(1986).
111. 792 F.2d 305 (2d Cir. 1986).
112. Id. at 307-10. Although he originally claimed damages for the emotional distress, the
doctor subsequently limited his request to compensation for the economic harm he suffered when
his emotional distress caused him to forego treating other patients. Id. One can only speculate on
the reasons for this retreat from the original claim. It seems unfairly cynical to posit that the
doctor was admitting that he was not really upset by viewing his patients' suffering and was con-
cerned only about the money he would lose in future operations. It seems more likely that the
doctor believed the court would be more receptive to a damage theory that, while linked to emo-
tional distress, stressed an actual pecuniary injury rather than emotional distress alone.
113. Id. at 310.
ply one of a potentially unlimited number of witnesses to another's suf-

fering. Rather, he was the one person who had been defrauded into
personally inflicting that injury on another. Thus, the doctor had the
unusually close personal connection with the accident that courts ordi-
narily seek by requiring that the plaintiff be related to the victim or
fear for his own physical safety.
As with intentional infliction of emotional distress, the standards
developed to restrict the tort of negligent infliction of emotional dis-
tress should not be applied to fraud actions. Fraud is a recognized tort,
not a novel, expansive theory of recovery. Society already has judged
fraud to be significant rather than petty antisocial conduct. Because
fraud actions are limited to persons actually defrauded, these actions
will not burden the courts with suits by hundreds of bystanders who
claim that they were upset by witnessing injuries inflicted upon others.
Finally, allowing emotional distress damages in fraud cases will not im-
pose an unfairly disproportionate burden on defendants. Justice favors
a larger measure of recovery against intentional wrongdoers than
against merely negligent ones.
In sum, the availability of separate claims for intentional or negli-
gent infliction of emotional distress cannot adequately compensate
fraud victims for their mental anguish. Too often, plaintiffs in fraud
cases will be unable to satisfy the exacting requirements of these sepa-
rate torts. The policy reasons supporting those restrictive standards,
moreover, are inapplicable to fraud plaintiffs. Before deciding whether
to award damages for emotional distress in fraud actions, the courts
independently must examine the policies favoring and opposing those
damages.
IV. SUPPLYING THE MISSING POLICY ANALYSIS: TOWARD A CONCEPTION

OF FRAUD AS A DIGNITARY TORT
A. Compensation for Emotional Distress in Fraud Cases

Compensation for a wrongfully inflicted injury is a basic tort pol-
icy."' Courts should deny damages for emotional distress in fraud
cases, therefore, only if a persuasive policy reason for denial exists.
Three possible interests bear upon the availability of these damages: (1)
the needs of potential plaintiffs; (2) the concerns of potential defend-
ants; and (3) society's interest in an efficient court system. Balancing
these interests suggests that, as a general rule, emotional distress dam-
ages should be awarded in fraud actions.
114. See, e.g., RESTATEMENT, supra note 6, § 901 (stating the compensatory and deterrence
goals of tort damages).
Fraud plaintiffs have a substantial interest in recovering damages

for emotional distress. Defrauded plaintiffs are burdened by mental dis-
tress ranging from significant annoyance and frustration to severe de-
pression. The cases include plaintiffs to whom fraud has meant
deterioration of marital harmony, 115 or near paralysis in depression.1 1
Indeed, in tort cases involving bad faith conduct "it is likely that the
greatest portion of plaintiffs' injuries would take the form of emotional
distress (e.g., vexation, tension, frustration, and worry)," rather than
just financial harm.1 17 Thus, if damages for emotional distress are not
awarded, a defrauded plaintiff is denied full compensation.
Even commentators who oppose the awarding of emotional distress
damages for fraud acknowledge that fraud victims may suffer serious
emotional distress. Professor Dan Dobbs, for example, concedes that
emotional distress "result[s] naturally enough from many frauds" and
that "strong men may cry at the loss of money." 118 Another pair of au-
thors agree that "one might suffer a great deal of anguish and humilia-
tion as a result of being led down the primrose path through
misrepresentation. ' '119
A substantial body of sociological literature, moreover, confirms
that victims of wrongdoing suffer severe mental anguish. In one survey,
victims of property crimes rated their emotional suffering as worse than
their financial loss.' 20 These studies have focused on violent crimes,
such as rape or assault, and on theft of tangible property. Their find-
ings, however, may be relevant to the victims of white collar wrongs
such as fraud.' 2 ' Some research stresses "the extent and depth of feel-
ings displayed [by victims] even after what appear objectively to be rel-
atively minor crimes. ' 122 Other research suggests that the intentional
nature of a crime contributes to the severe emotional distress suffered
by victims; victims react to the intentional invasion of their dignity
115. Godfrey v. Steinpress, 128 Cal. App. 3d 154, 166-67, 180 Cal. Rptr. 95, 101 (1982) (tell-
ing the plaintiff's story of marital arguments, destruction of normal sex life, and husband's turn to
alcohol).
116. Malandris v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 703 F.2d 1152, 1164 (10th Cir.
1981), cert. denied, 464 U.S. 824 (1983).
117. Jarchow v. Transamerica Title Ins. Co., 48 Cal. App. 3d 917, 950, 122 Cal. Rptr. 470, 493
(1975).
118. D. DOBBS, supra note 7, at 602.
119. 2 J. GHIARDI & J. KIRCHER, supra note 59, § 19.17, at 48.
120. Maguire, Victims' Needs and Victim Services: Indications from Research, 10 Vic-
TIMOLOGY 539, 549 (1985).
121. Some authors have encouraged victimology studies of white collar crime and illegal busi-
ness practices. See Viano, Theoretical Issues and PracticalConcerns for Future Research in Vic-
timology, 10 VITIMOLOGY 736, 740 (1985). To date, however, apparently no specific studies of the
victims of such violations have been done.
122. Maguire, supra note 120, at 550.
with feelings of self-doubt, self-blame, humiliation, and distrust of

others.12 3 Intentional fraud may elicit similar feelings.
In certain respects the mental anguish experienced by fraud vic-
tims may be more intense than that suffered by some victims of other
types of wrongdoing. Victims of armed robbery perhaps may fault
themselves for their misfortune;" 4 but defrauded investors or consum-
ers may be even more likely to berate themselves for falling prey to a
deceitful scam. Thus, because fraud results from a consensual transac-
tion, the victim's feelings of self-blame and self-doubt may be
heightened.
Finally, in creating the torts of intentional and negligent infliction
of emotional distress, courts have recognized that "[e]motional injury
• . .is deserving of redress" because it "can be as severe and debilitat-
ing as physical harm."'2 " That observation applies equally to plaintiffs
in fraud actions. Just as courts have weighted heavily the interests of
distressed plaintiffs in developing new torts to compensate emotional
harm, courts also should acknowledge the compelling interests of fraud
plaintiffs in redressing their emotional injury.
The concerns of defendants in fraud cases do not override the
plaintiffs' need for compensation. To win a fraud case, the plaintiff 26
must establish that the defendant intentionally deceived the plaintiff.1
123. See Janoff-Bulman, Criminal vs. Non-Criminal Victimization: Victims' Reactions, 10

VICTIMOLOGY 498 (1985).
124. Id. at 505 (discussing self-blame of crime victims).
125. Schultz v. Barberton Glass Co., 4 Ohio St. 3d 131, 135, 447 N.E.2d 109, 113 (1983); see
also St. Elizabeth Hosp. v. Garrard, 730 S.W.2d 649, 653 (Tex. 1987) (stating that "[i]t is well
recognized that certain psychological injuries can be just as severe and debilitating as physical
injuries").
126. See, e.g., KangaROOS U.S.A., Inc. v. Caldor, Inc., 778 F.2d 1571, 1573 (Fed. Cir. 1985);
Paskas v. Illini Fed. Say. & Loan Ass'n, 109 IM.App. 3d 24, 32, 440 N.E.2d 194, 199 (1982); Kawin
v. Chrysler Corp., 636 S.W.2d 40, 43 (Mo. 1982); Pearce v. American Defender Life Ins. Co., 316
N.C. 461, 468, 343 S.E.2d 174, 178 (1986); McGovern v. Crossley, 477 A.2d 101, 103 (R.I. 1984); cf.
Nielsen v. Adams, 223 Neb. 262, 388 N.W.2d 840 (1986) (excusing the plaintiff from showing a
specific intent to defraud, but requiring the plaintiff to establish that the defendant knew that the
statements were false). Many courts permit reckless disregard for the truth to satisfy the scienter
requirement of an action for deceit, but only because a knowingly ignorant individual who pur-
ports to speak from careful knowledge acts with the moral equivalent of intentional falsehood. See,
e.g., Martins Chevrolet, Inc. v. Seney, 292 Md. 328, 333, 439 A.2d 534, 537 (1982); Florenzano v.
Olson, 387 N.W.2d 168, 173 (Minn. 1986); Derry v. Peek, 14 App. Cas. 337, 374 (H.L. 1889) (Her-
schell, L.J.).
A few courts speak loosely of negligent misrepresentation as fraud or "constructive" fraud.
This Article, however, considers only the traditional action for deceit, which requires proof of in-
tentional misrepresentation. All courts awarding damages for emotional distress in fraud cases
have limited those damages to cases of intentional fraud. See, e.g., Allen v. Jones, 104 Cal. App. 3d
207, 215, 163 Cal. Rptr. 445, 450 (1980) (recognizing that "mental distress damages may be recov-
ered in an action for deceit," but insisting that the "allegations of intentional wrongdoing must be
specific and will be closely scrutinized"); Charlie Stuart Oldsmobile, Inc. v. Smith, 171 Ind. App.
315, 325, 357 N.E.2d 247, 252 (1976) (denying emotional distress damages when the defendant's
26 VANDERBILT LAW REVIEW [Vol. 42:1
An intentional swindler is in a poor position to argue that it is unfair to

compensate fully the plaintiff's loss;127 thus, tort law's twin goals of de-
terrence and compensation combine to support the award of emotional
distress damages against perpetrators of intentional fraud.'28 Moreover,
defendants in fraud cases cannot claim that damages for emotional dis-
tress are either unforeseeable or unduly burdensome. In most cases the
defrauded plaintiff's distress is easily foreseen. In those few cases in
which the trivial nature of a fraud renders the plaintiff's emotional dis-
tress unexpected, the ordinary tort requirements of foreseeability and
proximate cause will insulate the defendant from liability. Recovery for
emotional distress in fraud actions, furthermore, will be limited to the
plaintiffs who relied on the defendant's representations. Thus, a de-
fendant need not worry about liability to an unknown and potentially
limitless number of bystanders.' For all these reasons, the defendant's
interests in a fraud case do not justify special theories of damages, du-
conduct was merely negligent); Crowley v. Global Realty, Inc., 124 N.H. 814, 818, 474 A.2d 1056,
1058 (1984) (distinguishing theories of intentional tort from theories of mere negligent
misrepresentation).
127. For example, a substantial body of case law applies a broader view of proximate cause to
cases involving intentional tortfeasors than to cases involving merely negligent tortfeasors. See
Merritt, A Consistent Model of Loss Causationin Securities Fraud Litigation:Suiting the Rem-
edy to the Wrong, 66 Tax. L. REv. 469, 501-06 (1988).
128. Several states draw a similar distinction in awarding emotional distress damages to
plaintiffs who were upset by tortious interference with their personal property. Compensation is
denied if the defendant has acted only with negligence, but can be granted if the defendant acted
intentionally or with malice. See, e.g., Walker v. Ingram, 251 Ala. 395, 37 So. 2d 685 (1948) (award-
ing mental distress damages to tenant against landlord for landlord's intentional trespass to prop-
erty under hostile circumstances); Valley Dev. Co. v. Weeks, 147 Colo. 591, 597-98, 364 P.2d 730,
733 (1961) (generalizing that plaintiffs can recover emotional distress damages for injury to prop-
erty if "the act occasioning the injury to property was inspired by fraud, malice, or like motives"
and stating that "proof of a willful or wanton tort as distinguished from a mere negligent injury,
seems to be the most common distinction in the authorities"); Thibodeaux v. Western World Ins.
Co., 391 So. 2d 24 (La. Ct. App. 1980) (concerning intentional trespass and deliberate cutting of
trees); Fredeen v. Stride, 269 Or. 369, 372-73, 525 P.2d 166, 168 (1974) (stating that emotional
distress damages generally are denied in conversion cases, but are awarded if the defendant's con-
duct was "aggravated" and if "mental suffering is the direct and natural result of the conversion").
See generally Annotation, Recovery for Mental Shock or Distress in Connection with Injury to or
Interference with Tangible Property, 28 A.L.R.2d 1070 (1953). In states following this approach,
an award of emotional distress damages for fraud could be supported as an application of rules
generally governing invasions of property interests. Occasional opinions have granted emotional
distress damages for even negligent injury to property. See Campbell v. Animal Quarantine Sta-
tion, 63 Haw. 557, 632 P.2d 1066 (1981).
129. Some fraudulent statements, such as fraudulent statements in a securities prospectus or
an accounting statement, may create potential liability to numerous plaintiffs. The common-law
courts already have determined, however, that in cases of deliberate fraud, as opposed to negligent
misrepresentation, the defendant's interest in avoiding a large measure of liability does not out-
weigh the large plaintiff group's interest in receiving compensation. See Ultramares Corp. v.
Touche, Niven & Co., 255 N.Y. 170, 174 N.E. 441 (1931) (Cardozo, C.J.) (holding that a privity
limit applies to an action for negligent misrepresentation, but not to an action for fraud).
ties, or causation to curtail liability for emotional distress.

Finally, society's interest in efficient judicial administration does
not counsel denying damages for emotional distress.1 30 Awarding these
damages will not open the judicial floodgates to an entirely new class of
claims; plaintiffs already bring fraud suits focusing on the pecuniary
harm that they have suffered."3 ' Nor would expanding the range of
damages for fraud pose a serious risk of manufactured claims: in nu-
merous other areas of tort law, courts already trust jurors to evaluate
claims of emotional distress objectively. 32 Indeed, courts recognizing
the new torts of intentional and negligent infliction of emotional dis-
tress have stressed their confidence in lay jurors' ability to evaluate the
genuineness of such claims. 3 3 Finally, it is unlikely that allowing dam-
ages for emotional distress in fraud cases will burden the courts with
trivial lawsuits. Claims of trivial distress will receive trivial damage
awards. Few plaintiffs will wish to pay the legal bills for initiating such
claims, and attorneys will not be willing to undertake these claims for a
contingency fee.
In any event, if courts are concerned about the impact that claims
for emotional distress in fraud cases might have on judicial administra-
tion, they should tailor the rules of proof to reduce that impact, rather
than denying the damages altogether. A requirement of serious distress
or substantial pecuniary injury, for example, might winnow out false
130. This interest, in any event, should not be given undue weight in a policy calculus:
It is the business of the law to remedy wrongs that deserve it, even at the expense of a "flood
of litigation"; and it is a pitiful confession of incompetence on the part of any court of justice
to deny relief upon the ground that it will give the courts too much work to do.
Niederman v. Brodsky, 436 Pa. 401, 412, 261 A.2d 84, 89 (1970) (quoting Prosser, Intentional
Infliction of Mental Suffering: A New Tort, 37 MICH. L. REv. 874 (1939)).
131. Only two potential ways exist through which the recognition of these damages might
increase the amount of litigation. First, recognition theoretically might affect cases in which the
amount of pecuniary damages did not justify the expenses of litigation (even when augmented by
the possibility of a punitive damage award), but in which plaintiffs and their attorneys concluded
that an extra measure of damages for emotional distress would.make the lawsuit cost-effective. It
seems unlikely, however, that many cases without a substantial financial injury or a prospect of
substantial punitive damages would support a significant award for emotional distress. Second,
recognition of emotional distress damages might have some effect if jurisdictions that do not cur-
rently permit fraud actions for purely nominal damages chose to permit these plaintiffs to sue
solely for emotional distress, even absent any proof of other damage. Courts concerned about this
second prospect, however, can retain their insistence that plaintiffs establish some real pecuniary
loss as a predicate to claiming damages for emotional distress.
132. For example, jurors measure emotional distress in cases of assault, offensive battery, or
false imprisonment, in which the emotional distress damages are for fright, embarrassment, or loss
of dignity, rather than for physical pain and suffering. Many cases of physical injury also include
an award for the plaintiff's pain and suffering.
133. See, e.g., State Rubbish Collectors Ass'n v. Siliznoff, 38 Cal. 2d 330, 240 P.2d 282 (1952);
Rodrigues v. State, 52 Haw. 156, 172, 472 P.2d 509, 519-20 (1970); Schultz v. Barberton Glass Co.,
4 Ohio St. 3d 131, 134-35, 447 N.E.2d 109, 112 (1983).
claims and discourage plaintiffs from seeking recovery for trivial inju-
ries. With alternatives such as these available, concerns about judicial
administration cannot support a total ban on damages for emotional
distress.
Thus, the legitimate interests of plaintiffs, defendants, and society
combine to favor the awarding of emotional distress damages in fraud
cases. Although some courts continue to deny these damages, the ratio-
nales for denial articulated by those courts do nothing to undermine
this conclusion. Some courts deny damages for emotional distress be-
cause they believe that such damages are never awarded in fraud cases.
These courts assert that because fraud is an "economic" tort, damages
should redress only the plaintiff's "pecuniary" injuries.' These courts
oversimplify the case law; a substantial body of precedent has permit-
ted the awarding of emotional distress damages in fraud cases. 1 35 More-
over, the assertion that fraud damages protect only pecuniary interests
is wholly conclusory; that some courts have limited fraud plaintiffs to
economic damages does not explain why they have chosen to do so.
Surely these courts cannot mean that fraud victims suffer only mone-
tary injury. Case law shows the emotional distress suffered by fraud
victims. 13 6
Other courts have denied damages for emotional distress because
37
these damages were not within the "contemplation of the parties."'
These courts, however, have cited no empirical evidence for this prop-
osition. 8' Especially in cases of consumer fraud, persons who have been
defrauded may expect compensation for their frustration and mental
anguish. Even in commercial cases these courts' argument rings hollow.
Fraud is rarely within the contemplation of the innocent contracting
party-otherwise the party would reject the bargain. To expect the de-
134. See supra notes 19-21 and accompanying text.

135. On the difficulties of establishing the real "majority" rule, see supra notes 11-15 and
accompanying text.
137. See, e.g., Cornell v. Wunshel, 408 N.W.2d 379 (Iowa 1987).
138. Some studies have suggested that the public underestimates the availability of compen-
sation for pain and suffering in tort litigation. See O'Connell & Simon, Payments for Pain and
Suffering: Who Wants What, When, and Why?, 1972 U. ILL. L.F. 1, 20 (reporting that most auto-
mobile accident victims surveyed did not expect to receive an award for pain and suffering). If this
study remains an accurate gauge of public perceptions, it may bolster the assumption that other
tort victims do not expect to receive such awards. On the other hand, these data indicated only the
public's misperception of the legal definition of compensable damages; most respondents believed
that in fairness they should receive compensation for pain and suffering. Id. at 30. If an inquiry
into the expectations of the parties becomes simply an inquiry into what the parties think the law
is, the inquiry is irrelevant in determining whether a rule denying recovery should be changed. A
defrauded person might guess accurately that the law in his state would deny recovery of emo-
tional distress damages. A person, however, might believe that the law is unfair in denying those
damages.
frauded party to contemplate specifically not only the fraud, but also
the emotional distress that will flow from the fraud, is unrealistic.
More importantly, a measure of damages based on the "contempla-
tion of the parties" is an application of a contract principle rather than
a tort standard. 3 9 Damages in tort suits should be measured by proxi-
mate cause, not the parties' expectations. 140 A different measure of con-
sequential damages is appropriate in contract cases because the law
does not wish to discourage "efficient" breaches of contracts. 141 Tort
law, on the other hand, seeks to deter fraud, the antithesis of a bar-
gained-for exchange. Fraud is an independent tort action that impli-
cates tort policy. 14 2 Fraud is not merely a suit for breach of contract
dressed in the guise of tort. Using a contract standard to determine
damages based on the "contemplation of the parties," therefore, is
inappropriate.
Finally, courts have justified denying emotional distress damages in
fraud cases because, according to these courts, the purpose of fraud
damages is only to return plaintiffs to the position they occupied before
the fraud. 4 s Again, this rationale is merely a conclusory assertion.
Moreover, the argument actually seems to support compensation for
emotional distress. Recompensing economic loss alone does not return
defrauded plaintiffs to their original position because it fails to redress
the plaintiff's mental anguish. If courts truly wish to "return plaintiffs
139. See, e.g., Scott v. Hurd-Corrigan Moving & Storage Co., 103 Mich. App. 322, 349, 302
N.W.2d 867, 878 (1981) (stating that in a suit for breach of contract "the damages recoverable are
those damages that arise naturally from the breach or which reasonably can be said to have been
in contemplation of the parties at the time the contract was made"); Hadley v. Baxendale, 9 Ex.
341, 156 Eng. Rep. 145 (1854). Even contract cases often broaden the "contemplation of the par-
ties" limit to a test of foreseeability. See E. FARNSWORTH, CONTRACTS § 12.14, at 876-77 (1982). The
concept of foreseeability in contract law, however, "is a more severe limitation than is the require-
ment of substantial or 'proximate' cause" in tort. RESTATEMENT (SECOND) OF CONTRACTS § 351
comment a (1979) [hereinafter RESTATEMENT CONTRACTS].
140. See, e.g., Lowrey v. Dingmann, 251 Minn. 124, 127, 86 N.W.2d 499, 502 (1957) (stating
that "the party guilty of the fraud is liable for all out-of-pocket-loss damages proximately caused
by the fraud, even though the damages were not within the contemplation of the wrongdoer or his
adversary"); see also R. DUNN, supra note 7, § 1.3, at 11-15 (stating that courts generally do not
limit consequential damages in fraud actions to those within the contemplation of the parties, or
even to those that were foreseeable).
141. See R. POSNER, ECONoMIc ANALYSIS OF LAW 107 (3d ed. 1986). Posner explains that the
usual measure of damages in contract law seeks to satisfy "the objective of giving the promisor an
incentive to fulfill his promise unless the result would be an inefficient use of resources." Id. at 108.
Posner also advises one to "[n]otice how careful the law must be not to exceed compensatory
damages if it does not want to deter efficient breaches." Id. When damage measures are uncertain,
it will be difficult for a party contemplating breach to determine the rationally preferable course of
action.
142. Thus, for example, punitive damages are available under a tort theory of fraud, but not
available for breach of contract.
143. Ellis v. Crockett, 51 Haw. 45, 52, 451 P.2d 814, 820 (1969).
to the position they occupied before the fraud," courts should award a
full measure of damages, including damages for emotional distress.
B. Treating Fraud as a Dignitary Tort

The change from denial to acceptance of emotional distress dam-
ages in fraud cases does not require radical overhaul of the law. Instead,
it requires only that the courts perceive fraud not only as a pecuniary
tort, but also as a dignitary tort. Courts should recognize that in a mod-
ern commercial society fraud is in part a dignitary tort. This shift in
perception would bring fraud jurisprudence into line with other trends
in modern tort law.
All courts award emotional distress damages for certain dignitary
wrongs, even absent any physical injury to the plaintiff. Torts such as
assault, battery, and false imprisonment can be termed "dignitary" be-
cause successful plaintiffs may recover damages for emotional distress
without proving any physical injury. Indeed, the victims of assault, bat-
tery, and false imprisonment may recover nominal damages as a means
of assuaging their dignity even if they have suffered no physical or emo-
tional injury at all.""
These traditional dignitary torts redress wrongs that would have
been most common and keenly felt in England during the early devel-
opment of the common law. As our society has developed, however, citi-
zens have identified a new range of activities as assaulting their dignity.
Courts have responded to this development by recognizing new digni-
tary torts, including intentional infliction of emotional distress 145 and
invasion of privacy. 146 All these torts, virtually unknown before the
twentieth century, compensate emotional and dignitary harms, rather
than economic or physical loss.
Just as courts have not hesitated to recognize entirely new digni-
tary torts, neither should they be reluctant to acknowledge that an
older tort action, such as fraud, may have a dignitary aspect. Common-
law courts are free to rework an old conception of fraud in light of fresh
144. In a related sense, actions such as libel and slander per se are dignitary torts. Within
first amendment limits, the common law permits jurors to award substantial presumed damages
even without proof of actual injury to reputation.
146. See, e.g., Nader v. General Motors Corp., 25 N.Y.2d 560, 255 N.E.2d 765, 307 N.Y.S.2d
647 (1970). Courts continue to recognize new tort actions in which recovery for emotional distress
is an important element of damages. See, e.g., Note, Breach of Confidence: An Emerging Tort, 82
COLUm. L. REv. 1426, 1446 (1982) (stating that mental distress is "the major injury in many breach
of confidence cases"); Note, Bad Faith Refusal to Pay First-PartyInsurance Claims: A Growing
Recognition of Extra-ContractDamages, 64 N.C.L. REv. 1421, 1422-23 (1986) (stating that an in-
surer's bad faith refusal to settle with its insured may permit the insured to recover damages for
emotional distress).
policy views. 47 Citizens today are as likely to suffer distress from com-
mercial deception as from bodily assault or false imprisonment. 148
Rather than ignoring the claims of fraud plaintiffs who have suffered
substantial frustration or perhaps severe emotional distress, courts
should recognize that fraud is at least in part a dignitary tort and
should award damages for that distress.
Allowing recovery for emotional distress in fraud actions does not
mean that all defrauded plaintiffs automatically will recover those dam-
ages. Plaintiffs bear the burden of proving that their distress is genuine,
and jurors may reject as inherently improbable any claims for substan-
tial emotional distress based upon trivial harms. In addition, just as
battery requires contact, assault requires apprehension, and false im-
prisonment requires confinement, fraud requires proof of some underly-
ing financial injury.1 49 Courts may maintain the traditional elements of
147. New Jersey's Supreme Court recently decided to award nominal damages in actions for
fraud even without proof of a specific amount of loss, so long as the plaintiff established "some
loss, detriment, or injury." Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 48, 477 A.2d
1224, 1229-30 (1984). In endorsing the availability of nominal damages in a fraud action, the court
determined that the traditional insistence on proof of compensatory damages was based more on
outmoded historical distinctions between the old English writs than on any considered policy judg-
ment. Id. at 52, 477 A.2d at 1232. A similar fresh look valuing policy over history is appropriate in
determining whether emotional distress damages are appropriate.
Refining fraud damages to include compensation for emotional distress is not inconsistent
with recent legislative reforms of tort damages. See statutes cited supra note 2. Those reform
statutes impose ceilings-typically very high ceilings-on emotional distress damages to prevent
runaway jury verdicts; they do not deny these damages entirely. See, e.g., MINN. STAT. ANN. §
549.23 (West 1988) (limiting damages for intangible loss in civil actions to $400,000); N.H. REv.
STAT. ANN. § 508:4-d (Supp. 1988) (capping damages for noneconomic loss in personal injury ac-
tions at $875,000). Moreover, some of the statutes are explicitly limited to negligence claims and
do not purport to cover intentional torts. See ALASKA STAT. § 09.17.010 (Supp. 1988) (placing
$500,000 cap on damages for noneconomic losses in personal injury claims based on negligence);
HAWAII REV. STAT. §§ 663-8.5, -8.7 (Supp. 1987) (applying $375,000 cap to actual physical pain and
suffering, but not to other mental anguish and not to any intentional torts). Other statutes limit
damages only in medical malpractice litigation, in which a particular insurance crisis has prompted
passage of these measures. See, e.g., CAL. CIV. CODE § 3333.2 (West Supp. 1988) (limiting damages
for noneconomic loss in medical negligence cases to $250,000); IND. CODE ANN. § 16-9.5-2-2 (Burns
1983) (limiting patient's recovery for injury or death to $500,000).
148. E. SUTHERLAND & D. CRESSEY, CRIMINOLOGY 42 (8th ed. 1970) (stating that "[i]t is proba-
ble ... that fraud is the most prevalent crime in America"). Comparative statistics are not readily
available because the Federal Bureau of Investigation (FBI) does not include fraud in its statistical
index of crime. The FBI excludes the various forms of fraud "not because they are unimportant
predations but because they are difficult for the police to know about very fully, and because they
are often difficult to count even when much detail on them is known." HANDBOOK OF CRIMINOLOGY
62 (D. Glaser ed. 1974).
149. See, e.g., Berkel & Co. Contractors v. Providence Hosp., 454 So. 2d 496 (Ala. 1984);
Downer v. Bramet, 152 Cal. App. 3d 837, 199 Cal. Rptr. 830 (1984); Courtney v. Feldstein, 147
Mich. App. 70, 382 N.W.2d 734 (1985); Jurcich v. General Motors Corp., 539 S.W.2d 595, 600-01
(Mo. Ct. App. 1976). Courts recognizing emotional distress damages for fraud have done so to
grant full compensation for misconduct that the law has deemed independently tortious and ac-
tionable; the plaintiff must establish all elements of a cause of action for fraud, including some
a cause of action for fraud while redefining the scope of damages recov-
erable by plaintiffs who establish that cause of action. Proximate cause
limits also will protect defendants against far-fetched claims of emo-
tional distress that are tied to the fraud more by the ingenuity of the
plaintiff's imagination than by a reasonable response.1 5
C. Evaluating the Qualified Approaches

As previously discussed, some courts have suggested the imposition
of further limits on a plaintiff's ability to recover for emotional distress
in fraud cases. 151 A careful examination of four such limiting ap-
proaches reveals that none of them serves the policies identified
above. 5 2
1. Requiring Severe Distress

Some courts have required fraud plaintiffs to establish that their
distress was particularly severe in order to recover compensation for
that distress. 5 ' At first glance this approach appears to represent a sen-
sible compromise between absolute rules that either allow or deny dam-
ages for emotional distress. Further reflection, however, demonstrates
the difficulties with this restriction. A requirement of substantial emo-
tional distress requires the court or jury to mark an uncertain boundary
between serious mental anguish and lesser emotional upset or disap-
pointment. The cases themselves indicate that this line is difficult to
draw; jurors and judges often disagree,154 and a court may find similar
testimony showing emotional distress adequate in one case and inade-
quate in the next case. 55 To demand proof of severe emotional distress,
pecuniary harm. On the other hand, those few courts that have decided to allow an action for
purely nominal fraud damages even without proof of specific, quantifiable damage, see cases cited
supra note 105, appropriately might permit jurors to award compensation for emotional distress
even absent specific proof of financial injury.
Cases of deception unaccompanied by financial injury may, of course, support claims of emo-
tional distress if the deception or "fraud" is a means of accomplishing another recognized tort (for
example, a battery committed through fraudulently obtained consent), or is conduct that satisfies
the independent, stringent standards for intentional infliction of emotional distress.
150. See Cable v. Hechler, 532 F. Supp. 239, 245 (E.D.N.Y. 1981) (holding that the defend-
ant's allegedly fraudulent stock market transactions were not the proximate cause of the injury to
the plaintiff's reputation that occurred when the defendant's transactions triggered an inquiry by
the American Stock Exchange; the plaintiff's misleading answers during this inquiry inspired an
investigation of the plaintiff by the Securities and Exchange Commission).
154. See supra note 34.
155. See supra note 34. Perhaps some of the diverse results reached in similar cases may be
reconciled by reference to the plaintiff's ability or inability to establish objective symptoms of
emotional distress, such as headaches or loss of sleep. On the other hand, the jurisdiction that
1989] DIGNITARY TORTS 33
therefore, burdens trial and appellate courts with a factual dispute to

which no clear guidelines
156
apply and opens the door to inconsistent reso-
lutions of the issue.
Moreover, a required quantum of emotional distress is not neces-
sary to protect the interests of defendants. When emotional distress is
minimal, the jury will award only modest damages. 5 7 Indeed, a prereq-
uisite of serious emotional distress might work against defendants' in-
terests by encouraging plaintiffs to overstate the degree of their
emotional distress in order to satisfy the judicial standard.'5 8
Finally, the traditional dignitary torts such as assault, battery, and
false imprisonment do not require plaintiffs to prove that their distress
meets a higher standard of severity.1 59 These torts redress emotional
injury and protect the plaintiff's dignity even when the emotional dis-
tress is slight. The extent of the mental distress dictates the extent of
most clearly has required serious distress in fraud cases currently does not require proof of severe
distress by objective symptomology from plaintiffs who bring suit under other tort theories such as
negligent infliction of emotional distress. See St. Elizabeth Hosp. v. Garrard, 730 S.W.2d 649 (Tex.
1987).
156. A requirement of particularly substantial emotional distress, of course, might discourage
some plaintiffs from introducing any evidence of emotional distress and enable courts to dismiss
other claims for emotional distress based on the pleadings. This preservation of judicial time, how-
ever, is unlikely to outweigh the time spent litigating the severity of emotional distress issue in
both trial and appellate courts. Once plaintiffs have expended the time and money necessary to
come to court, they have an incentive to litigate any issue that might increase their monetary
recovery.
157. When the jury grants an award greater than the amount that the judge believes reasona-
bly can be awarded, the judge can order remittitur or a new trial. The judge need not deny all
recovery. Moreover, judges should consider a substantial jury award as an indication that ordinary
individuals do not regard the plaintiff's distress as an insubstantial frustration unworthy of
recovery.
158. Cf. Garrard, 730 S.W.2d at 652 (stating that the requirement that plaintiffs establish
physical symptoms of severe distress in a negligent infliction case is undesirable because it encour-
ages victims to exaggerate symptoms).
159. See, e.g., Clark v. I.H. Rubenstein, Inc., 335 So. 2d 545 (La. Ct. App. 1976) (awarding
$500 to compensate the plaintiff for embarrassment resulting from a mistaken accusation of shop-
lifting, even though the plaintiff was detained wrongfully for only five minutes and was treated
courteously); Smith v. Hubbard, 253 Minn. 215, 91 N.W.2d 756 (1958) (awarding $1,000 to com-
pensate a police officer for "ribbing" and kidding from his friends after the officer had suffered
only lost buttons in an assault). In general, cases that address these torts state no express require-
ment that distress be particularly serious or severe. In contrast, courts that have articulated special
standards for serious distress in developing the torts of negligent and intentional infliction of emo-
tional distress have been particularly careful to announce requirements of severe distress. See
supra note 77 and accompanying text. These courts, presumably, have found it important to em-
phasize this quantum of distress requirement because the law generally has not required a particu-
lar level of emotional distress in order to extend compensation.
A rule that would eliminate recovery for modest amounts of distress resulting from torts such
as assault, battery, and false imprisonment might be largely meaningless in any event, because
jurors are permitted to award nominal damages for these torts even without a showing of injury.
See, e.g., Perna v. Pirozzi, 92 N.J. 446, 457 A.2d 431 (1983) (allowing the plaintiff to recover nomi-
nal damages for battery even though the act was harmless).
recovery, but does not mark the difference between recovery and denial
of all emotional distress damages. Similarly, courts should recompense
a fraud plaintiff's mental distress without requiring a threshold of
severity.
Most jurisdictions demand proof of severe emotional distress
before allowing recovery for intentional or negligent infliction of emo-
tional distress. 160 The special policy considerations that shaped the re-
quirements for these torts, however, do not apply to fraud cases. Fraud
is a traditional, well-established tort, not a novel theory of recovery.
Recognizing recovery for modest emotional distress, therefore, will not
create claims for plaintiffs who otherwise would not have had a cause of
action. Moreover, the requirement of pecuniary harm already limits the
number of plaintiffs who may sue successfully for fraud. In this context,
an additional requirement of severe emotional harm serves no useful
purpose.
On the other hand, courts in a few jurisdictions have hinted that
they may require substantial distress even in traditional dignitary tort
actions. 61 Texas cases that require a high degree of mental anguish in
fraud cases may be justified as an application of a general rule that
Texas courts have applied to other dignitary torts.1 62 In jurisdictions
such as Texas, however, the policy analysis suggested above' 63 provides
a basis for relaxing the requirement of severe emotional distress in all
dignitary tort cases.
2. Requiring Substantial Pecuniary Harm

Some courts have limited recovery of emotional distress damages
for fraud to plaintiffs who can establish that their pecuniary damages
were substantial." 6 This requirement may mean only that the plaintiff
must prove the minimal pecuniary harm necessary to state a claim for
fraud. 6 5 If so, the requirement adds little of value to the legal analysis.
160. See supra note 77 and accompanying text.

161. See Campbell v. Jenkins, 43 Colo. App. 458, 460, 608 P.2d 363, 364 (1979) (concerning
assault; fright will not support a compensatory damage award unless the fright is serious enough to
cause physical symptoms such as nausea, headaches, or mental distress; the court borrowed this
requirement from a case that announced the requirements for negligent infliction of emotional
distress); Johnson v. Supersave Mkts., Inc., 686 P.2d 209, 213 (Mont. 1984) (concerning false
imprisonment).
162. See, e.g., Ryder Truck Rentals, Inc., v. Latham, 593 S.W.2d 334 (Tex. Ct. App. 1980)
(concerning slander); Trevino v. Southwestern Bell Tel. Co., 582 S.W.2d 582, 584 (Tex. Ct. App.
1979) (concerning invasion of privacy).
163. See supra notes 114-50, 157-58 and accompanying text.
165. See Jarchow v. Transamerica Title Ins. Co., 48 Cal. App. 3d 917, 122 Cal. Rptr. 470
(1975). This court suggested that "interference with one's legally protected interests is sufficient
damage to satisfy the [substantial damage] test . . . and to guard against potentially fraudulent
19891 DIGNITARY TORTS
If, on the other hand, these courts want the plaintiff to establish a high
degree of pecuniary harm before recovering emotional distress damages,
this approach poses several problems. First, attempting to distinguish
substantial from insubstantial pecuniary loss creates the same difficul-
ties as trying to distinguish serious from slight emotional distress. Par-
ties will consume valuable court time debating the value of the
plaintiff's financial loss, and both judges and juries will reach conflicting
conclusions on whether a particular loss qualifies as substantial. Thus,
society's interest in efficient judicial administration disfavors a require-
ment of substantial pecuniary loss.
Nor is this limitation necessary to protect a defendant's interest in
avoiding vexatious litigation and burdensome liability. Absent serious
financial damage, the plaintiff is unlikely to pursue an action for fraud
or obtain a large damage award. Jurors will be skeptical of plaintiffs'
claims that trivial financial losses triggered severe emotional distress. A
requirement of substantial pecuniary injury, therefore, is largely
unnecessary.
Traditional dignitary torts do not link recovery for emotional dis-
tress to a particular quantum of physical or economic harm. A plaintiff
in a battery action, for example, can recover for humiliation and anger
even if the defendant's offensive touching did not cause the slightest
physical harm.16 Courts in these cases have recognized that emotional
distress is an independent harm that deserves compensation despite the
absence of other injuries. Similarly, the plaintiff's key to recovery of
emotional distress damages in fraud actions should be proof of the un-
derlying elements of fraud. Once the plaintiff has established those ele-
ments, the availability of emotional distress damages should rest on the
plaintiff's ability to prove the harm, not on the extent of the plaintiff's
financial loss.
3. Distinguishing Personal Frauds from Business Frauds

Some courts have denied compensation in business fraud cases by
suggesting a distinction that would deny emotional distress damages in
emotional distress claims." Id. at 937, 122 Cal. Rptr. at 484. The court opined that any further
requirement of damage would "add little to the guarantee of genuineness." Id. The court's discus-
sion of this issue, however, is dictum, because the plaintiff established substantial financial injury
of $170 for loss of property use and $7,100 for attorney's fees in an action to quiet title. Id. at 937
n.11, 938, 122 Cal. Rptr. at 484 n.11, 485.
166. See, e.g., Whitley v. Andersen, 37 Colo. App. 486, 488, 551 P.2d 1083, 1085 (1976);
Southern Fin. Co. v. Alexander, 113 Ga. App. 740, 149 S.E.2d 526 (1966); Green v. Washington
Suburban Sanitary Comm'n, 259 Md. 206, 269 A.2d 815 (1970); Conway v. Kansas City Pub. Serv.
Co., 234 Mo. App. 596, 125 S.W.2d 935 (1939); Fisher v. Carrousel Motor Hotel, Inc., 424 S.W.2d
627 (Tex. 1967); S.H. Kress & Co. v. Musgrove, 153 Va. 348, 149 S.E. 453 (1929) (concerning bat-
tery and false imprisonment).
business fraud cases, but allow them for other kinds of fraud. 1 7 A dis-
tinction between business frauds and personal frauds, however, is
largely unworkable. Some frauds, such as those involving promises of
marriage or the mishandling of funeral arrangements, are clearly per-
sonal.168 Deception in the sale of personal insurance may also be per-
sonal, because "a primary consideration in purchasing insurance is the
peace of mind and security it will provide when the contingency insured
69
against arises.' On the other hand, how should one classify an em-
ployee's claim that he was defrauded into executing a contract under
which he gave up five years' worth of back wages; 70 or a small inves-
tor's claim that a securities fraud destroyed her family's financial secur-
ity;17 or a real estate owner's claim that she was induced to sell a piece
of commercial property by misrepresentations that catered to her dis-
tinctive religious beliefs?1 2 If courts adhere to a distinction between
business and personal frauds, adjudication of these claims will burden
the courts with lengthy debates over whether the transaction was of a
business or personal nature.
Inmost cases, moreover, the plaintiff's legitimate interests strongly
favor recovery, regardless of the business nature of the fraud. Consumer
purchases are business transactions, but are rife with the potential to
inflict severe frustration on a defrauded consumer. It is certainly fore-
seeable that a person who is deceived into purchasing a termite-infested
dwelling or paying thousands of dollars for a defective automobile will
suffer substantial distress. To deny recovery in these cases would leave
plaintiffs badly undercompensated.

168. Recognition of the availability of emotional distress damages in fraud may be less im-
portant to these types of claims because a court will be more likely to find that these facts satisfy
the "outrageousness" standard for a separate action for intentional or reckless infliction of emo-
tional distress. Moreover, many courts have granted emotional distress recovery for these kinds of
"noncommercial" contracts on the basis of breach of contract, even absent proof of fraud. See
Stanback v. Stanback, 297 N.C. 181, 254 S.E.2d 611 (1979); RESTATEMENT CONTRACTS, supra note
139, § 353.
169. Jarchow, 48 Cal. App. 3d at 940, 122 Cal. Rptr. at 486 (endorsing the award of emo-
tional distress damages for the insurer's breach of an implied covenant of good faith).
170. In Moore v. Slonim, 426 F. Supp. 524 (D. Conn.), afi'd, 562 F.2d 38 (2d Cir. 1977), the
court judged these facts to constitute "business" fraud.
171. In Malandris v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 703 F.2d 1152, 1167 (10th
Cir. 1981), cert. denied, 464 U.S. 824 (1983), a brokerage firm argued that it should not be respon-
sible for emotional distress suffered by a defrauded client because the underlying tort was only a
"business fraud." The court evinced no interest in a distinction between business and other frauds,
and therefore made no attempt to categorize the securities fraud claim as one or the other. One
could argue that securities fraud claims by brokerage firm clients against stockbrokers should be
treated as claims of consumer fraud.
172. Cf. Newman v. Smith, 77 Cal. 22, 18 P. 791 (1888) (not clear whether the real estate was
commercial or residential).
1989] DIGNITARY TORTS 37
Even victims of more purely commercial frauds may experience se-

rious mental anguish. Individuals who imperil either a child's college
education or a secure retirement by staking their savings in a fraudu-
lent investment scheme surely suffer emotional distress. Proprietors of
small businesses likewise experience mental despair when their busi-
nesses are threatened. The test for recovery of emotional distress
should be the foreseeability of distress rather than an artificial distinc-
tion between business contexts and other contexts.173
Finally, this foreseeability test adequately protects the interests of
defendants in fraud cases. If the defendant can foresee emotional dis-
tress to the plaintiff, the defendant should be accountable for that dis-
tress, no matter how sophisticated the plaintiff or how commercial the
setting of the fraud. Entrance into the business world surely does not
amount to an assumption of risk that requires one to suppress feelings
against illegal and oppressive conduct; free enterprise should never be a
license to cheat others. A case-by-case consideration of whether the de-
fendant's misconduct was likely to cause emotional disturbance more
fairly balances the interests of plaintiffs and defendants than does an
17 4
approach that separates business and personal frauds.
4. Awarding Emotional Distress Damages as a Part of Punitive

Damages
Some jurisdictions may deny emotional distress damages as a sepa-
rate category of recovery in fraud cases, but permit jurors to award
173. A more technical distinction might suggest that individuals could not recover for busi-
ness frauds in which their corporate entities were swindled. Thus, one court denied the president
(and apparent founder) of a corporation the right to seek recovery for the emotional distress he
suffered when an insurance company allegedly defrauded him into signing a release. Gibbs v. Jef-
ferson-Pilot Fire & Casualty Ins. Co., 178 Ga. App. 544, 343 S.E.2d 758 (1986). The court reasoned
that the president could not sue individually to recover damages for his mental anguish based on
fraud because "he admits he procured the insurance for his corporations for the benefit of the
corporations and signed the releases as president of the corporations." Id. at 545, 343 S.E.2d at
759. Presumably, the court's opinion foreclosed any recovery of emotional distress damages; al-
though corporations are fictional legal "persons," they feel no pain. See Ailetcher v. Beneficial Fin.
Co., 2 Haw. App. 301, 632 P.2d 1071 (1981); Hogan Exploration, Inc. v. Monroe Eng'g Assoc., 430
So. 2d 696 (La. Ct. App. 1983) (holding that corporate plaintiffs cannot experience mental dis-
tress); In re James Noel Flying Serv., 61 Bankr. 335 (Bankr. W.D. La. 1986).
Perhaps one can justify this result as one burden accepted by an entrepreneur in exchange for
the benefits of doing business in the corporate form. To deny the legitimacy of the anguish suf-
fered by the founder and president of a corporation because he chose to file a corporate certificate
with the secretary of state's office rather than to do business as an unincorporated proprietor,
however, does seem to ignore the realities of reasonable human reactions.
174. For an example of a court that adopted this case-by-case approach, see Baker v. Ameri-
can States Ins. Co., 428 N.E.2d 1342, 1349 (Ind. Ct. App. 1981) (holding that a worker's fraud
claim against an insurance company stated a claim on which relief could be granted for emotional
distress).
those damages surreptitiously as part of punitive damages.' 75 This prac-

tice does not serve well the legitimate interests of either plaintiffs or
defendants. Plaintiffs lose the opportunity to present concrete evidence
of their emotional distress and to urge the jury to compensate that in-
jury. Likewise, defendants have no chance to counter the plaintiff's
proof of emotional distress or to exhort the jury to minimize those dam-
ages. When damages for emotional distress are awarded furtively as an
unspecified part of the punitive damage award, jurors may vastly un-
derestimate or overestimate the plaintiff's injury.
Nor does the practice of awarding emotional distress damages as
part of punitive damages foster efficient, evenhanded judicial adminis-
tration. Courts cannot review the suitability of emotional distress dam-
ages when those damages are hidden as unstated components of
punitive damage awards. Moreover, to permit the inflation of punitive
damage awards in this manner further undermines the credibility of the
judicial system in the eyes of critics who continually attack large puni-
tive damage awards. Recognizing emotional distress as a separate item
of compensation in fraud cases not only would benefit plaintiffs, de-
fendants, and courts, but also would end needless speculation over
whether a generous measure of punitive damages included compensa-
tion for mental anguish.
V. CONCLUSION
Woody Guthrie observed in song that "[s]ome will rob you with a
six gun, and some with a fountain pen.'17 6 The law always has compen-
sated victims of armed robbery for their mental distress, but many
courts have been unwilling to extend that relief to the targets of more
genteel extortions. The modern focus on compensation for dignitary
harms, combined with a recognition that fraud victims suffer distress
ranging from anger to debilitating anguish, suggests that the distinction
between fraud victims and victims of other wrongful acts is outdated.
In a commercial society, wrongdoers may violate individual integrity by
pen point as well as by gun point. By acknowledging the dignitary di-
mension of fraud and allowing recovery of emotional distress damages
in fraud cases, courts will better serve both the compensatory and de-
terrent functions of tort law.

176. Guthrie, Pretty Boy Floyd, in A. LOMAX, FOLK SONGS OF NORTH AMERICA 437 (1960).

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Damages for Emotional Distress in Fraud Litigation: Dignitary

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Damages for Emotional Distress in

B. Treating Fraud as a Dignitary Tort ............... 30

1. See infra notes 76-78, 106-10, 146 and accompanying text.

This Article has two purposes. First, it seeks to direct attention to

II. THE CONFLICT IN COMMON-LAW PRECEDENT: A "BLACKLETTER"

A. Two Conflicting Rules

treatise on remedies concludes that "separate recovery for mental

These decisions, therefore, do not represent holdings in opposition to

A few decisions, however, do offer a glimmer of policy analysis and

19. Crockett, 51 Haw. at 52, 451 P.2d at 820 (emphasis in original).

B. Four Qualified Approaches

1. Magnitude of Emotional Distress

At least two jurisdictions, on the other hand, explicitly have limited

nificantly limits a fraud plaintiff's opportunity to recover for emotional

2. Severity of Financial Injury

bad manners or trivialities but tortious conduct resulting in substantial

3. Distinction Between Business Fraud and Nonbusiness Fraud

39. Id. (footnote omitted).

covery of emotional distress damages from a franchisor who had mis-

4. Emotional Distress as a Component of Punitive Damage Awards

faith, or other oppressive conduct.6 2 Thus, these damages are not

structions invite jurors, if they are so inclined, to include an award for

punitive damages to serve a compensatory function.74 Even in jurisdic-

III. ASSESSING THE SIGNIFICANCE OF A SPECIAL RULE FOR FRAUD: THE

A. Intentional Infliction of Emotional Distress

distress. Although this tort has gained widespread acceptance, the

outrageous; and (3) that the defendant's conduct caused an extreme

81. Id. at 469.

of the standards for intentional infliction of emotional distress in order

realty company's misrepresentations that a house was free of termites

of outrageousness.9 9 Thus, if courts wish to compensate defrauded

B. Negligent Infliction of Emotional Distress

ligent infliction of emotional distress, all these restrictions protect

ply one of a potentially unlimited number of witnesses to another's suf-

IV. SUPPLYING THE MISSING POLICY ANALYSIS: TOWARD A CONCEPTION

A. Compensation for Emotional Distress in Fraud Cases

Fraud plaintiffs have a substantial interest in recovering damages

with feelings of self-doubt, self-blame, humiliation, and distrust of

123. See Janoff-Bulman, Criminal vs. Non-Criminal Victimization: Victims' Reactions, 10

An intentional swindler is in a poor position to argue that it is unfair to

ties, or causation to curtail liability for emotional distress.

134. See supra notes 19-21 and accompanying text.

B. Treating Fraud as a Dignitary Tort

C. Evaluating the Qualified Approaches

1. Requiring Severe Distress

therefore, burdens trial and appellate courts with a factual dispute to

2. Requiring Substantial Pecuniary Harm

160. See supra note 77 and accompanying text.

3. Distinguishing Personal Frauds from Business Frauds

167. See supra notes 42-52 and accompanying text.

Even victims of more purely commercial frauds may experience se-

4. Awarding Emotional Distress Damages as a Part of Punitive

those damages surreptitiously as part of punitive damages.' 75 This prac-

175. See supra notes 59-74 and accompanying text.

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