Wrongful Fusion - Equity and Tort

 

Wrongful Fusion: Equity and Tort *

**

John C. P. Goldberg  & Henry E. Smith   [forthcoming in Equity in Equity and Law: Fusion and Fission, Fission, John C.P. Goldberg, Peter Turner & Henry E. Smith, eds., Cambridge University Press] Abstract Equity and Tort appear to be strangers. Beyond historically making equitable relief available in some cases, equity did not intervene in tort law to the extent it did in contract and some aspects of  property. And yet substantive equity focuses on wrongful conduct and affords persons the opportunity to seek remedies for such conduct through the courts. Are there ‘equitable wrongs’, and, if so, how if at all do they differ from torts? We focus on a particular function loosely associated with historic equity jurisdiction: equity supplements the law where it fails to address  problems that are difficult to handle on the same ‘level’ on which they arise. In situations of conflicting rights, party opportunism, and interacting behavior, it is difficult to formulate solutions that do not make reference to the ordinary (primary level) set of rights and rules. Thus, it is often more effective to frame ‘abuse of rights’ in terms of what one can do with rights rather than formulate the right to make it resistant to abuse. We distinguish three scenarios at the intersection of as equity andtotort: tort law contains element to such deal as with  problems such coming the (i) nuisance; (ii)itself equity equi ty solves solv es aansecond-order inadequacy of tort law, by reformulating privity, which is then incorporated into tort law going forward; and (iii) equity maintains a limited but open-ended capacity to counteract inadequacies of tort law, especially involving hard-to-foresee manipulation of rules and conflicts of rights. With the increasing fusion of law and equity, it has been difficult to maintain this second-order equitable function, but nowhere more so than at the equity-tort interface. Many of the interventions of equity, especially into areas of wrongful interference, invite redescription as torts, and have in fact induced courts to recognize new torts, for better and worse. On our account, this reformulation into tort is appropriate only where a problem is amenable to delineation in terms of general rights and fails where a degree of open-endedness is necessary to deal with party opportunism and new types of conflict. We also consider the diffusion of ‘flattened’ equitable notions into primary-level tort law, often in the form of balancing tests, which have in many ways rendered tort less coherent, stable, and law-like than is desirable.

Introduction

Historically, equity and tort seem to have had little to do with one another. True, injunctions have long been available to certain tort plaintiffs, as have actions for contribution to certain tort defendants. Beyond this, the two bodies of law appear to have operated largely in separate spheres. Although there seems to have been little contact, much less friction, between these domains, the fusion of law and equity, combined with the rise to dominance in the U.S. legal academy of Legal Realism, has raised a puzzle about their relationship: What distinguishes the two? According to standard Realist accounts, equity and tort arguably * Eli **

Goldston Professor of Law, Harvard Law School. Email: [email protected].  Fessenden Professor of Law, Harvard Law School. Email: [email protected].  

 

1

 

fit the same description. Each is understood as an all-purpose legal tool – an unstructured grant of authority to judges to issue rulings that promote some good or rectify some bad. Equity’s reputation for open-endedness long precedes Realism. In the CokeEllesmere conflict, and the jurisdictional tussles it epitomized, common lawyers, formalists, and the more ‘parliamentary’ or ‘puritan’ side of political clashes famously critiqued equity as too discretionary, too civilian, too royal, and thus threatening to common law. 1  Selden’s famous quip q uip about the Chancellor’s foot was in part an expression of the worry about judges operating under a roving commission to ‘do equity’. After equity won the jurisdictional battle, a degree of peace was achieved through its selfimposed limits, most notably the doctrine that equity would stay its hand when the law affords an adequate remedy. Whether these limits were robust or sufficient has been controversial. But in the heyday of Realism (roughly 1930-1975) – in which there was great enthusiasm for context-sensitive, adventurous judging, and little patience for ‘arid’ conceptual distinctions between equity and law – equity was once again cast (albeit now more favorably) as a broad, unstructured mandate for judges to achieve fairness. As typically characterized by U.S. law professors, tort law has many of these same features. Following Holmes’s lead, post-fusion scholars such as Leon Green and William Prosser argued that older notions of tort as a structured, moralistic law of rights and wrongs had given way to the idea of tort law as regulation through liability in the 2 name of public welfare.  This picture of tort law was hardly a prescription for restraint. Indeed, in the Realist era, tort law expanded not only internally but externally. For example, when Grant Gilmore declared contract dead, he did not claim that it had simply 3 disappeared. Rather he concluded that it had been folded into tort.  Interestingly, Gilmore saw as one of the main vehicles for this transformation the doctrine of promissory estoppel, which traces back to equity. With both tort and equity described on terms that arguably permit either to swallow up much of private law, there seems little ground to distinguish them. Indeed in their most expansive and gaseous phase, tort and equity (on the foregoing descriptions) are indistinguishable: each fills up all the space there is. The only question is whether to refer the question, general grant of judicialwas authority to achieve good outcomes ‘equity’ or ‘tort’.toThis it is supposed, answered at a terminological levelaswhen equity was fused into law. Although equity and tort – on the Realist understanding – refer equally to the idea of judges using their powers to achieve socially valuable ends, the label ‘equity’ was discarded, leaving us with ‘tort’. This paper aims to rethink the tort-equity interface. It argues against hyperfusion and the Realist reduction of equity to tort and tort to equity. To achieve this goal, it will  be necessary to give an account of how equity operates at the boundaries of tort law. This in turn presupposes an account of tort as a body of law that actually has some boundaries. 1

J.H. Baker, An Baker,  An Introduction to English Legal History History (London:  (London: Butterworths, 3d ed., 1990) 124-26. 2 See, 3

eg, Leon Green, ‘Tort Law Public Law in Disguise’ (1959) 38 Texas Law Review 1. Review 1.  Grant Gilmore, The Death of Contract  (Columbus:   (Columbus: Ohio State University Press, 1974).

 

2

 

The key distinction between tort and equity is not jurisdictional but conceptual and functional. Tort law is for the most part ‘first-order’ law. It specifies, in relatively general terms, legal duties that we owe to one another, and legal rights that we have against one another. The tort of trespass to land, for example, imposes (roughly) a duty not to enter another’s land and a right against such entry. Negligence, meanwhile, specifies a broad duty not to injure others through actions that are careless toward them, and a right not to be so injured. In the process of articulating duties to refrain from wrongfully injuring others, and rights against being wrongfully injured, tort law operates by identifying paradigmatic forms of mistreatment, defined at a general or abstract level. Tort law is in this respect relatively formal. On one useful description, formalism can be defined as relative 4 invariance to context.   For example, the language of mathematics is more formal than everyday English, which leaves much implicit. Informal discourse employs more  pronouns, which require context, and leaves information implicit – such as requesting a 5 window be closed by saying ‘It’s cold in here’.  Formalism is, then, a matter of degree, and there is no useful system that is completely formal or completely contextual. On this metric, tort law is more formal than equity. Take again trespass to land. It marks off as wrongful and injurious one person’s entering or remaining on another’s land, thereby issuing a focused and powerful legal directive that can be approximated in a simple slogan: ‘Keep out!’ Trespass covers a wide range of actions and scenarios. But rather than specifying them, it subsumes them within a general directive. Within torts, trespass is at the more formal end of the spectrum (certainly as contrasted to its partner nuisance). The question is whether a physical intrusion has occurred: the reasons for the intrusion, and the degree of harm it might 6 cause or has caused, are essentially irrelevant.  Yet even less formal torts such as negligence and nuisance offer general conduct-guiding directives. The question immediately arises how accurate – and how stable – tort law’s general directives are. In law and economics terms, tort liability bunches instances of activities into actuarial classes. If activities cannot be so grouped or if these groups are unstable over time, the  predicate for a general tort law fails. For example, if damages were set at average harm 4

 Francis Heylighen, Heylig hen, ‘Advantages ‘Adv antages and Limitations of Formal Expression’ (1999) (199 9) 4 Foundations of Science 25, 27, 49–53 (defining formalism); Henry E. Smith, ‘The Language of tan ford Law Review 1105, Property: Form, Context, and Audience (2003) 55 S tan Review 1105, 1112–13, 1135–  36 (discussing ‘differential formalism’). 5  H.P. Grice, ‘Logic and Conversation’ in: Peter Cole & Jerry L. Morgan (eds), 3 Syntax and Semantics (New Semantics  (New York: Academic Press, 1975) 41, reprinted in Paul Grice, Studies in the Ways of Words 22, Words  22, 26 (Cambridge, Mass.: Harvard University Press, 1989). 6   Where this formalism comes from and how it is grounded is another story. For example, Kantians see the formality of torts like trespass as grounded in the nature of the interpersonal relationship involved in the interaction at issue. See, eg, Arthur Ripstein, ‘Possession and Use’ in: James Penner & Henry E. Smith (eds),  Philosophica  Philosophicall Foundations of Property Law  Law  (Oxford: Oxford University Press 2013) 156, 161-78; see also Ernest J. Weinrib, The Idea of Private Law  Law  (Cambridge, Mass.: Harvard University Press, 1995).

 

3

 

for a ‘relevant’ class of situations, actors who might benefit more than the average from a 7 given level of harm would increase their activity.   Equity is not conduct-guiding in this way, nor is it general. Rather, it is a gapfilling, second-order regime. In the famous formulation of Aristotle, equity corrects ‘law 8 where law is defective because of its generality’.   The most expansive renditions of Aristotle’s notion treat equity as an all-purpose, ex-post fix-it for whenever a new  problem arises or conditions change.9  In this paper, we entertain the hypothesis that equity is a second-order intervention to address certain inherent deficiencies in any body of doctrine, such as tort 10 law, that operates as first-order law.  For any such system, there will be hard-to-foresee complexities, especially complexities stemming from knowledgeable actors’ attempts to game the rules. It is possible to shape first-order law to address these problems directly. In torts, this might involve tailoring doctrine more closely to the precise harm-producing interactions the law aims to prevent or discourage (with more accurate ‘liability rules’), or by incorporating open-ended balancing tests into the definition of torts to give judges the flexibility to weed out invocations of rights recognized by tort rules that are inconsistent with the purposes for which those rights are recognized. But the introduction of complexity and flexibility into the definition of torts at the same time renders tort law less clear, predictable, and useful. An alternative is to have equity available to address at 7

  Louis Kaplow & Steven Shavell, ‘Property Rules Versus Liability Rules: An Economic Analysis’ (1996) 109  Harvard Law Review  Review  713, 725-32; Daniel R. Ortiz, ‘Neoactuarialism: Comment on Kaplow (1)’ (1994) 23  Journal Legal Studies  Studies   403, 403-06; Henry E. Smith, ‘Property and Property Rules’ (2004) 79 N.Y.U. 79  N.Y.U. Law Review 1719, Review  1719, 1774-85. 8  Aristotle, The Nicomachean Ethics 133 Ethics 133 (David Ross, (ed); J.L. Ackrill & J.O. Urmson, rev ed., Oxford: Oxford University Press, 1980); see also, eg, Riggs v. Palmer, 22 N.E. 188, 189 (N.Y. 1889) (quoting Aristotle on equity); Eric G. Zahnd, ‘The Application of Universal Laws to Particular Cases: A Defense of Equity in Aristotelianism and Anglo-American Law’ (Winter 1996) 59  Law & Contemporary Contempora ry Problems  Problems   263, 270-75 (documenting influence of Aristotelian equity on Anglo-American law); but cf Darien Shanske, ‘Four Theses: Preliminary to an Appeal to Equity’ (2005) 57 Stanford Law Review 2053 Review 2053 (arguing that Aristotle’s equity was not primarily legal). 9    Zechariah Chafee expressed a moderately expansionist view of equity when he opined that ‘[e]quity is a way of looking at the administration of justice; it is a set of effective and flexible remedies admirably adapted to the needs of a complex society; it is a body of substantive rules’. Zechariah Chafee, Jr., ‘Foreword’ in: Edward D. Re (ed), Selected Essays on Equity  Equity  iii (New York: Oceana Publications, 1955); see also Zechariah Chafee Jr., Some Problems of Equity (Ann Equity (Ann Arbor: University of Michigan Law School, 1950). 10  See Henry E. Smith, ‘Equity as Second-Order Law; The Problem of Opportunism’  Opportunism’  (Jan. 15, 2015) (unpublished manuscript) [hereinafter Smith, Equity as Second-Order Law], http://ssrn.com/abstract=2617413;   Henry E. Smith,  Smith,  ‘Fusing the Equitable Function in Private Law’,, in: Kit Barker, Karen Fairweather, and Ross Grantham (eds),  Private Law in the 21st   Law’ Century (Oxford: Century  (Oxford: Hart, 2017), 173. For other recent treatments of equity as a system, see Samuel L. Bray, ‘The System of Equitable Remedies’ (2016) 63 UCLA Law Review  530; Irit Samet, ‘What Conscience Can Do for Equity’ (2012) 3 Jurisprudence 3 Jurisprudence 13;  13; P.G. P.G. Turner, ‘Equity and Administration tion   (Cambridge: Cambridge Administration’ in: P.G. Turner (ed),  Equity and Administra University Press, 2016) 1-35. 1-35. 

 

4

 

least some of the problems associated with law’s formality. In the parlance of systems 11 theory, equity and tort consist of ‘hierarchy’,  within which equity operates at a higher (or meta) level. 12  Within this sort of hierarchy, a higher-order component makes reference to the lower-order component but not vice versa. (Think, for example, of an automated braking device on a car.) That these are the reasons for equity’s availability is not to say that equity intervenes exactly or only where ‘gaming’ problems arise. This is because equitable intervention itself poses a fundamental trade-off. The question is whether the costs of setting up the higher level and the uncertainty (noise) it generates are lower than the  benefits of curbing the costs co sts of the problems at the first level. An intervention by equity in and around tort law is costly – in terms of set-up and uncertainty – but it does prevent opportunism. Preventing opportunism or the prospect of undoing it gives ordinary actors 13 greater assurance that they will not suffer disadvantage from normal behavior.  It also tamps down costly efforts to game the system, which are a social loss. Importantly, it also avoids the cost, and it may be a substantial one, of either seeking to curb opportunism within the primary level itself or simply letting opportunists run wild. Although ours is not a historical claim about equity, we think it is suggestive that traditional equity did often operate in this second-order fashion. Substantively, it was traditional to mark out a domain of concern for equity. Then, within that domain, proxies like ‘bad faith’ or ‘disproportionate hardship’ would trigger a presumption for withholding equitable remedies, for imposing an equitable claim, or at least engaging in closer judicial scrutiny of a particular interaction. What is the domain of equity? In a traditional stock formula, it was said that 14 equity intervenes in cases of ‘fraud, accident, and mistake’.   Each of these concepts covers situations of high variability that are not easy to foresee and deal with ex ante. To  be sure, equity did not intervene whenever any of these were present. In private law, both tort and contract law often deal directly with them. Of particular concern to equity was so-called ‘constructive fraud’. This category captures activities that do not amount to the  particular wrong of fraud or deceit – intentionally making a misrepresentation so as to 11

 See, eg, See  See  A.Y. Aulin-Ahmavaara, ‘The Law of Requisite Hierarchy’ (1979) 8  Kybernetes   259; Francis Heylighen & Cliff Joslyn, ‘Cybernetics and Second-Order Cybernetics’  Kybernetes in: Robert A. Myers (ed), E NCYCLOPEDIA OF PHYSICAL SCIENCE &  TECHNOLOGY  (San Diego: Academic Press, 3d ed, 2002). 12  See, eg, Karl Ludwig von vo n Bertalanffy, General System Theory  Theory  (New York: Braziller, 1968); see also  also  John H. Holland, Hidden Holland,  Hidden Order   (Reading, Mass.: Addison-Wesley, 1995) 11–12 (discussing second-order agents and properties). 13  Yuval Feldman & Henry E. Smith, ‘Behavioral Equity’ (2014) 170  Journal of o f Institutional Institu tional and Theoretical Economics 137; Kenneth Ayotte, Ezra Friedman  Friedman  & Henry E. Smith, ‘A SafetyValve Model of Equity as Anti-Opportunism’ (ms. on file with authors). 14   See, eg. 47  American Jurisprudence  Jurisprudence   2d   ‘Judgments’ § 718, Westlaw (database updated  Nov. 2015) (‘Generally, claimants seeking equitable relief from judgments through independent actions must meet three requirements[, the third of which is that] they must establish a recognized ground, such as fraud, accident, or mistake, for the equitable relief’.) (footnotes omitted, citing cases).

 

5

 

induce another into a detrimental decision or transaction. Nonetheless they have enough of the flavor of fraud that judicial intervention – especially non-enforcement through injunctions – is appropriate. Justice Story, much of whose equity treatise was devoted to constructive fraud, provides a (partly dated) near-definition: In this class [of constructive or legal, as opposed to actual intentional, fraud] may  properly be included all cases of unconscientious advantages in bargains, obtained  by imposition, circumvention, surprise, and undue influence over persons in general; and in an especial manner, all unconscientious advantages, or bargains obtained over persons, disabled by weakness, infirmity, age, lunacy, idiocy, drunkenness, coverture, or other incapacity, from taking due care of, or protecting 15 their own rights and interests.   Versions of Story’s approach have been carried forward in modern times by scholars as 16 diverse as Richard Epstein and Arthur Leff, in their theories of unconscionability.   To solve these problems, equity needed to be second order, substantially discretionary, and ex post. Before fusion, the second-order nature of equity was built into the system. Statements about equity as a gloss on the law, not to mention Aristotle’s formulation, make it clear that equity presupposes law and not vice versa. Necessarily, its intervention from ‘outside’ or ‘above’ the law was partially discretionary. Story quotes Lord Hardwicke, to the effect that ‘[f]raud is infinite’ given the ‘fertility of man’s invention’. 17  Unlike regular fraud, the kind of fraud with which equity is co concerned ncerned cannot be spelled out in first-order law: Accident, mistake, and fraud, are of infinite variety in form, character, and circumstances; and are incapable of being adjusted by any single and uniform rule. Of each of them, one might say,  Mille trahit varios adverso sole colores. colores. The beautiful character, or pervading excellence, if one may so say, of Equity Jurisprudence is, that it varies its adjustments and proportions, so as to meet the 18 very form and pressure of each particular case in all its complex habitudes.   Because of law’s generality, actors – call them ‘opportunists’ – sometimes can take advantage of the law, often in ways unanticipated by lawmakers. One of us has defined opportunism as follows:

15

 Joseph Story, Commentaries Comm entaries on Equity Jurisprudence: Jurisprud ence: as Administered in England and America § 221 (Boston: Hilliard, Gray & Co., 1836). 16  Richard A. Epstein, ‘Unconscionability: A Critical Reappraisal’ (1975) 18 Journal 18  Journal Law &  Economics   293, 293, 293-301; Arthur Allen Leff, ‘Unconscionability and the Code—The  Economics Emperor’s New Clause’ (1967) 115 University of Pennsylvania Law Review 485, Review 485, 539. 17  Story, above n  15,  § 186 (quoting a Letter from Lord Hardwicke to Lord Kames (June 30, 1759)). 18   Ibid § 439. As one of us has pointed out the image is apt: it comes from a passage in Vergil’s Aeneid  Vergil’s  Aeneid , (bk 5, line 89), likening a snake’s skin to a rainbow. Smith, ‘Equity as SecondOrder Law’ above n 10, 24 & n.101 (translating passage as ‘It gets a thousand various colors from the sun’).

 

6

 

 behavior that is undesirable but that cannot be cost-effectively captured – defined, detected, and deterred – by explicit ex ante rulemaking. . . . It often consists of  behavior that is technically legal but is done with a view to securing unintended  benefits from the system, and these benefits are usually smaller than the costs they they 19 impose on others.   Problems of opportunism or constructive fraud are difficult to anticipate in advance in a way that does not invite further adjustments by opportunists. There is a corresponding tendency for such problems to rely at least in part on second-order ex post solutions. Because our topic is the tort-equity interface, we will focus on correcting for the  particular problem of law’s misuse and mistakes giving rise to potential advantage taking. Returning to Aristotle’s definition, the equitable function on our approach is about correcting the law when it fails because of its generality. It is, however, not about every failure nor does it offer a solution for every problem. Instead, it is a second-order intervention in a domain of variability – (constructive) fraud, accident, and mistake – where ‘meta’ solutions are potentially more beneficial than costly. We will hew to this circumscribed definition of equity. Again, our interest is not mainly historical, and we do not purport to explain or capture every jurisdictional quirk of historical equity. Instead, we build off constructive fraud as a major theme of traditional equity jurisprudence. The notion of second-order legal rules is hardly exotic. Private power-conferring rules, such as rules for executing a will, are second-order: they enable actors to alter legal 20 relations.  Likewise, constitutional rules conferring law-making authority on judges and legislators are second-order: they are laws about making laws. Similarly, equity is a cluster of second-order legal rules or principles in that it makes reference to first-order law and sometimes modifies or suspends it. Think here of the classic injunction against suit, but also doctrines of unclean hands and unconscionability. While equity in this way makes reference to first-order law, the reverse is not true. In the words of Maitland (a skeptic of a unitary equitable function), if equity had been abolished, ‘in some respects our law would have been barbarous, unjust, absurd’, but still ‘the great elementary rights against violence, to ownership, and so on, would have been enforced’. By contrast, abolishing common law would have meant ‘anarchy’, because ‘[a]t every point equity

19

 Smith, ‘Equity as Second-Order Law’ above n 10, 14.  See Wesley Newcomb Hohfeld, Ho hfeld, ‘Some Fundamental Fundamen tal Legal Conceptions Conceptio ns as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal  16,  16, 44-58; Ugo Pagano, ‘Public Markets, Private Orderings and Public Governance’ (2000) 20  International Review of Law and Economics 453, Economics  453, 459-65; Ted M. Sichelman, ‘Quantifying Legal Entropy’ (May 22, 2013), San Diego Legal Studies Paper No. 13-128, available at SSRN: http://ssrn.com/abstract=2293015; John C. Harrison, ‘Immunity Rules’ in: Shyamkrishna Balganesh, Ted Sichelman & Henry E. Smith 20

(eds), Wesley Hohfeld A Century Later: Edited Major Works, Select Personal Papers, and Original Commentaries (Cambridge Commentaries (Cambridge University Press, forthcoming).

 

7

 

21

 presupposed the existence of common law’.  In his memorable summation, ‘equity 22 without common law would have been a castle in the air, a ir, an impossibility’.   As we will see, there is a special set of equitable triggers when it comes to situations governed in the first instance by tort law, or at the edges of tort law. Within the domain of targeted intervention, the second-order safety valve of equity is cabined  precisely because it doesn’t apply all the time. Conversely, with equity as a backstop, tort law (and other law) can afford to be more general.23  So understood, equity is in some respects the opposite of tort law. It does not aspire to set rules of interpersonal interaction, or if it does, it does so at a very high level of abstraction so as to provide little  by way of specific conduct guidance. (Think here of equity’s eq uity’s maxims, such as the maxim that no person should profit from his own wrong.) Its domain is circumscribed, derivative, and, to a degree, retroactive, whereas tort law’s domain is general, primary, and conduct-guiding. Though tort law’s directives often take the form of standards of conduct rather than strict rules – the most obvious example being negligence law’s reasonably prudent person standard – tort law is more formal and equity is more context24 sensitive.  The kinds of moral considerations that each body of legal rules invokes may 25  be different as well.   Equity incorporates moral standards in a way that is more  particularized, appropriate to a targeted view of a situation. By contrast, the morality of tort law is local, robust, and generalizable. Part I identifies doctrines within within tort  tort law that are equitable, as we use that term, including a particular application of the ‘coming to the nuisance’ doctrine, qualifications to privileges that deem them lost when abused, and certain grounds for awarding punitive damages. Each of these doctrines operates as a way of blocking opportunistic invocations of primary tort rules or related procedural law. This Part also discusses how equitable reasoning – reasoning that focuses on the need to shape tort doctrine to limit the ability of actors to game it – has figured in the development of important doctrines. Part II discusses cases in which courts have issued equitable remedies,  particularly injunctions and constructive trusts, in response to actors who take unfair advantage of certain kinds of legally conferred powers or opportunities, but whose conduct does not amount to the commission of a recognized tort. Included here are decisions in which courts enjoin unfair competition, as well as decisions that ‘undo’ transactions in which one person gains at the expense of another by wrongfully 21

  F.W. Maitland,  Equity: A Course of Lectures Lectures   (A.H. Chaytor & W.J. Whittaker (eds), Cambridge University Press, 1936) 19. 22  Ibid. 23  Ibid. Antifusionists sometimes made an argument along these lines. Hardwicke to Kames, June 30, 1759, quoted in M. McNair   , ‘Arbitrary Chancellors and the Problem of Predictability’ in: E. Koops & W.J. Zwalve (eds),  Law and Equity: Approaches in Roman Law and Common  Law (Leiden:  Law  (Leiden: Brill, 2014) 79, 84. 24  See above n Error! Bookmark not defined. and accompanying text. 25  Andrew S. Gold & Henry E. Smith, ‘Sizing Up Private Law’ (Aug. 10, 2016), available at SSRN: https://ssrn.com/abstract=2821354

 

8

 

appropriating something from the other without committing a recognized tort such as conversion or trespass to chattel. In this class of cases, equity operates to fill gaps that inevitably emerge because tort law – in order to guide conduct and comply with rule-oflaw principles – operates by identifying a limited menu of wrongs, each of which has a limited reach, and which, taken together, leave uncovered various forms of wrongful conduct. Part III briefly considers ‘dynamic’ aspects of the relation of tort to equity. It discusses how equitable interventions to limit opportunism can give rise to the recognition of new tort claims for damages. Developments such as these are often salutary, we argue, but also have potential costs. In particular, there is the risk that, out of a desire to retain the flexibility of equity, particular torts, and tort law more generally, can  be defined in ways that render it too unstructured to perform its conduct-guiding role. We conclude with some thoughts on how to implement the equitable function in torts against a background of the fusion of law and equity. I. Equity in Tort

On our understanding of equity as second order, nothing requires it to carry a separate label, or to be administered by special courts. Indeed, a moderate version of fusion – the fusing of courts and jurisdictions while maintaining separate substance – requires as much. It is no surprise, then, to find that the second-order equitable function sometimes finds a home within tort law. A. Equity Through the Application of Tort Doctrine

Within tort law the equitable function is not distributed randomly. Instead it tends to appear where problems of variability involving complexity and uncertainty call for second-order solutions. Among these are certain aspects of nuisance law and qualified  privileges. Among torts, private nuisance has deep historical ties to equity. This is hardly surprising given that nuisance suits and claims for injunctive relief have gone hand in hand. As Zygmunt Plater noted some time ago, courts of equity presiding over claims for injunctive relief required nuisance claimants to clear various hurdles, including the irreparable injury requirement, as well as defenses such laches and unclean hands. In addition, he observed, claims could also be defeated by affirmative defenses ‘grounded in 26  principles of equitable estoppel’, including the doctrine of ‘coming to the nuisance’.   Some commentators today insist that it is erroneous to use the phrase ‘coming to 27 the nuisance’ to refer to a discrete doctrine within nuisance law.  They do not deny that

26

 Zygmunt J. B. Plater, ‘Statutory Violations and Equitable Discretion,’ (1982) 70 California  Law Review 524, Review  524, 537. 27 John J. Murphy, The Law of Nuisance (Oxford: Nuisance (Oxford: Oxford University Press, 2010) 106 (‘It is no defence that the claimant came to the nuisance by moving into occupation of land adjacent to

 

9

 

if, at the time of purchasing (or putting to new use) her land, the plaintiff was aware that the defendant’s activities were interfering or might interfere with her use of the land, such awareness is relevant to liability. Instead they maintain that awareness of this sort should figure as one factor among many in the assessment of whether the defendant’s activity 28 unreasonably interferes unreasonably  interferes with the plaintiff’s use and enjoyment.  On this view, there is no defense that goes under the name ‘coming to the nuisance’. Rather, that phrase refers to one of a host of factors that figure in the determination of whether plaintiff has made out a prima facie case. In gauging the extent to which the coming-to-the-nuisance idea figures in modern nuisance law, one must take care not to be misled by mere verbal disputes. For example, some who deny that it stands as a distinct defense are still prepared to recognize doctrines, such as assumption of risk and contributory negligence, that resemble the 29 doctrine that shall not be named.  For those who would allow such defenses – e.g., by deeming certain nuisance plaintiffs to have been contributorily negligent in creating the interference – the refusal to recognize ‘coming to the nuisance’, as such, is probably best understood as expressing a worry that coming-to-the-nuisance language invites courts to find against plaintiffs more often than they should. On this view, something more should  be required to defeat a nuisance claim than the mere fact that the defendant’s conduct had  previously operated for a period of time without generating the relevant interference, coupled with the fact that the plaintiff was or should have been aware of the potential for 30 interference.   An understanding of modern expressions of hostility toward the coming-to-thenuisance doctrine as an expression of caution against too readily rejecting certain nuisance claims sits well with the relatively narrow articulation of the defense that is offered in Section 840D of the Second Torts Restatement, which explicitly treats coming 31 to the nuisance as an affirmative defense.   At the same time, it is careful to limit the scope of the defense in two ways: first, by making the defense applicable only to cases where the plaintiff purchases or improves land in the face of an existing nuisance; second, by deeming this fact to be relevant to, but not sufficient for, the establishment of the defense: that of the defendant. For the purposes of nuisance law, it makes no difference “whether the man went to the nuisance or the nuisance went to the man” ’.) (citations and quoted authority omitted). 28  Ibid. 29  Ibid 107. 30   In this respect, the call to eliminate ‘coming to the nuisance’ is akin to the call of some commentators to eliminate the ‘assumption of risk’ defense from negligence law on the ground that judges tend to overuse it, and that its proper application can be handled through the related defense of comparative fault. 31   American Law Institute (1979)  Restatement (Second) of Torts  Torts  § 840D (St. Paul, MN: American Law Institute). Section 840D is located in the portion of the Restatement discussing ‘defenses’ to nuisance actions, which is why the word ‘nuisance’ appears in its concluding clause. The question to be addressed under the heading of ‘coming to the nuisance’, according to the Restatement, is not whether the defendant has engaged in conduct amounting to a nuisance – he or she has. It is whether conduct that has already been deemed a nuisance is ‘actionable’ by the  plaintiff.

 

10

 

§ 840D. Coming to the Nuisance The fact that the plaintiff has acquired or improved his land after a nuisance interfering with it has come into existence is not in itself sufficient to bar his action, but it is a factor to be considered in determining whether the nuisance is actionable.

The black-letter of Section 840D is admittedly a little odd. After all, it purports to identify ‘Coming to the Nuisance’ as a distinct defense, but then fails to indicate what will suffice to establish the defense. Suppose a court were to find that a plaintiff acquired his land after a nuisance interfering with its use had already come into existence. Section 840D advises the court that it should not rule for the defendant based on this finding alone. Instead, the court must determine whether other considerations, when combined 32 with this finding, defeat the plaintiff’s claim.  Yet the Restatement does not enumerate 33 these ‘other factors’.   Whatever its quirks, Section 840D in the end does a decent job of articulating how the coming-to-the-nuisance doctrine, in certain applications, instantiates the idea of equity that we articulated above. Consider Co nsider the following Restatement illustration: 2. A operates a copper smelter near the land of B. Smoke, fumes and gases from the smelter create a private nuisance interfering with the use and enjoyment of the land of B. For the sole purpose of bringing a lawsuit and forcing A to buy him out a high price, C buys the land from B and moves in upon it. In his action for the private nuisance, the fact that C has acquired the land with the nuisance in 34 existence, together with his purpose, will prevent recovery. recov ery.   As this example suggests, even though the doctrine may have other applications (and indeed Section 840D’s other illustrations suggest that it does), it is in part meant to serve the equitable function of preventing actors from exploiting the rules of nuisance law. In  particular, it empowers courts to prevent strategic plaintiffs from using the law of 35 nuisance to ‘hold up’ their neighbors.   In principle, nuisance could be defined such that this problem would not arise. If, for example, the courts adopted a rule that nuisance liability cannot attach to an activity 32

  Ibid. Comment c: ‘Although it is not conclusive in itself, the fact that the plaintiff has “come to the nuisance” is still a factor of importance to be considered in cases where other factors are involved’. 33  Nor does it explain why a defense that turns on the presence of multiple factors, only one of which is the plaintiff’s having come to the nuisance, should be styled as the defense of ‘Coming to the Nuisance’. By comparison, imagine if, in defining the consent defense to claims for battery, the Restatement stated that a plaintiff’s consent to contact by the defendant is insufficient to render that contact non-actionable, but is to be considered in determining whether the contact is actionable. 34 Ibid. Comment c, Illustration 2. 35  See See Daniel  Daniel B. Kelly, ‘Strategic Spillovers’ (2011) 111 Columbia Law Review 1641. Review 1641.

 

11

 

or condition that had once operated or existed without unreasonably interfering with another’s use and enjoyment of land, then it would follow that no plaintiff could file a nuisance suit of the sort described in the Restatement illustration. However, the adoption of this rule would threaten to automatic privilege prior activities or conditions that have come to impose serious burdens on other property holders (even if the actor knew that its activities would soon interfere unreasonably with others’ use and enjoyment of their  properties). Rather than adopt an undesirable general rule to eliminate the possibility of opportunism, Section 840D, by recognizing ‘coming to the nuisance’ as relevant to the actionability of a nuisance, arms courts with the ability to selectively deny opportunistic nuisance claims. The need for a second-order solution becomes apparent upon closer inspection. A flat rule always defeating liability when an activity or condition operated for a time without interfering with another’s use and enjoyment of her land would invite a wasteful and unfair race to be first. Likewise, a flat rule that coming to the nuisance is never a defense itself invites the strategic behavior of potential plaintiffs deliberately setting up conflicts where otherwise none would exist. As an indication of how difficult it is to come up with a ‘first order’ solution to the problem are the complicated and controversial 36 models in the law and economics literature that attempt exactly that.  The defense assesses both parties’ behavior and how they interact – a classic situation for secondorder intervention. As is often true of equity, there is potential for opportunism on both sides, reinforcing the difficult of a mono-level solution. While applications of coming-to-the nuisance doctrine illustrate the equitable function of a particular doctrine within a part of tort law that historically has had close ties to equity, examples from other parts of tort law can also be found. As we discuss in more detail below, the notion of ‘abuse of right’, elusive though it may be, looms large in equity, even if courts have not always recognized it by that name. Some have even suggested that the prevention and rectification of abuses of right is the very essence of equity.37 One need not go that far, however, to see manifestations within tort doctrine of a concern to prevent right-holders from abusing their rights. Most relevant, perhaps, is the recognition of qualified privileges, exemplified by certain privileges recognized in the law of libel and slander. It is tortious to publish a false and defamatory statement about another. Yet liability for such statements can be avoided by invoking a privilege, such as the so-called ‘common interest’ privilege. Among other things, this privilege protects from liability a person who, in good faith, mistakenly defames another person in the course of providing an evaluation of her to a third party. For example, if A’s former employer, based on a confusion or even 36

  Robert Innes, ‘Coming to the Nuisance: Revisiting Spur   in a Model of Location Choice’ (2009) 25 Journal 25  Journal of Law, Economics & Organizati Organization on   286; Donald Wittman, ‘First Come, First Served: An Economic Analysis of “Coming to the Nuisance” ’ (1980) 9  Journal of Legal Studies  Studies   557. 37   Dennis Klimchuk, ‘Equity and the Rule of Law’ in: Lisa M. Austin & Dennis Klimchuk (eds), Private (eds),  Private Law and the Rule of Law (Oxford Law (Oxford University Press, 2104) 247 (arguing that equity intervenes to prevent actors from ‘standing on their rights’).

 

12

 

carelessness, submits a reference letter to a prospective employer containing a false and defamatory statement about A, the statement will be privileged so long as made in good faith. Unlike the privilege to defame in the course of court proceedings, which is absolute, the common interest privilege is qualified, which is to say that it can be lost or forfeited if a court deems the defendant to have abused it. While abuse of privilege can take various forms, it clearly covers cases in which a defendant publishes the defamatory statement for reasons other than those that the privilege is intended to further. Thus, an employer who provides a false and defamatory evaluation out of spite for the person  being evaluated, or as part of a plan to advance its bottom line by preventing would-be competitors from hiring that person, will be denied the ability to invoke the common interest privilege.38  The framework deployed by courts when analyzing claims of qualified privilege have the same ‘layered’ quality we saw in discussing the coming-to-the-nuisance doctrine. Tort rules first set out, in general terms, a kind of interaction that is forbidden – defaming another, or interfering with another’s use and enjoyment of her property. Equitable doctrines in turn provide a kind of safety valve by blocking persons subject to those rules from exploiting their generality. B. Equitable Reasoning in Tort Cases

Among the landmarks of modern tort law is Justice Cardozo’s opinion for the 39  New York Court of Appeals in  MacPherson v. Buick .   MacPherson  MacPherson  is still routinely taught for its overturning of the infamous ‘privity rule’ adopted by the Court of 40 Exchequer in Winterbottom v. Wright ,   and its powerful insistence that manufacturers owe a duty to take care that their products not injure consumers. Cardozo’s famous opinion, we would suggest, also includes equitable reasoning. Relying on Winterbottom Winterbottom,, Buick argued that it owed no duty of care to MacPherson because he had not purchased his car directly from Buick but rather through an independent dealer. In addition to rejection Buick’s characterization of New York  precedents, Cardozo observed that Buick’s argument, if accepted, would have an odd consequence: 38

 See, eg, Swengler v. ITT Corp. Electro-Optical Prods. Div., 993 F.2d 1063 (4th Cir. 1993) (applying Virginia law) (defendant’s allegations that former employer committed fraud amounted to an abuse of the common interest privilege because made out of malice toward former employer); Hines v. Shoemaker, 97 Miss. 669 (1910) (even if defendant enjoyed a privilege to  publish defamatory remarks in i n response respo nse to plaintiff’s criticisms, the response resp onse exceeded exceed ed the scope of the privilege); American Law Institute (1977), Restatement (1977),  Restatement (Second) of Tort s § 605 cmt a (St. Paul, MN: American Law Institute) (noting that a speaker loses her privilege to defame if she does not reasonably believe that publication is necessary to accomplish the purpose for which the  privilege is bestowed). bes towed). 39 MacPherson v. Buick, 111 N.E. 1050 (N.Y. 1916). 40 Rep. 402 (Exch.).  10 M & W 109, (1842) 152 Eng. Rep. 

 

13

 

The dealer was indeed the one person of whom it might be said with some approach to certainty that by him the car would not be used. Yet the defendant would have us say that he was the one person whom it was under a legal duty to 41  protect. The law does not lead us to so inconsequent a conclusion.   Cardozo’s point nicely illustrates our understanding of tort, equity, and their relationship. First, it emphasizes that tort law identifies duties of conduct.. This is why there is something hollow and perverse – ‘inconsequent’ – about a tort duty that, because it is owed only to persons who do not stand to be injured by its breach, will never be insisted upon or enforced. Such a duty would not be one that guided manufacturers in their conduct. Relatedly, there is an equitable aspect to Cardozo’s reasoning. Under the privity rule, manufacturers had an easy way of evading their duties – namely, by adopting distribution networks that call or sales through intermediaries. While one can imagine situations in which such a situation was tolerable, this was not one of them, and for good reason. First, it is not clear that dealers who sell cars purchased from reputable manufacturers such a Buick could be deemed negligent, at least with respect to their 42 failure to detect defects not readily discoverable through a superficial inspection.   Second, the point of imposing a duty of care is not merely to ensure that there is some deep pocket available to cover certain injury-related losses, but to have relevant actors actually take steps to reduce the risks of injury to others generated by their activities. The  privity rule essentially invited sophisticated actors – product manufacturers – to evade negligence law’s directives. MacPherson directives.  MacPherson’s ’s rejection of privity blocked them from doing 43 so.   Our point is not that judges, in the name of equity, must ensure that actors have no leeway to organize their activities to reduce or avoid potential tort liability. The law, after all, empowers actors to use the corporate form precisely to limit owners’ liabilities. But it is one thing to allow investors to limit their personal liability for managerial actions over which they have relatively little control, quite another to impose a duty of care but then

41

 MacPherson, 111 N.E. at 1053.  Likewise, other imaginable imagi nable schemes of liability, liability , where sellers would mandatoril mandatorily y hold  buyers harmless, subject to waivers policed for potential externalities, might well be more complicated and less cost-effective than the solution the court adopted. 43  Sally H. Clarke, ‘Unmanageable Risks: MacPherson Risks:  MacPherson v. Buick  Bu ick  and   and the Emergence of the A Mass Consumer Market’ (2005) Law (2005)  Law & History Review Review 1,  1, 22-28 (suggesting that, by about 1910, car manufacturers were aware of the legal implications of adopting different methods of distribution, though also suggesting that liability for personal injury was not foremost among their concerns). 42

 

14

 

allow those subject to the duty to use their legal powers to ensure that nobody nobody –  – not the 44 corporation, its managers, or shareholders – faces liability for breaches of that duty.   There is another, related way in which courts exercise an equitable power to limit the ability of tort defendants to invoke a recognized tort defense in a strategic effort to avoid tort liability. The defense in question is ‘express assumption of risk’, according to which an otherwise valid negligence claim against a defendant is dismissed on the ground that the plaintiff agreed in advance to waive liability for such negligence. While agreements of this sort are sometimes enforced, courts, most famously the California Supreme Court in its Tunkl decision, reserve for themselves the authority to deem such 45 waivers unenforceable as against public policy.   Importantly, the issue addressed by the so-called Tunkl   test does not concern contractual formation or contractual interpretation. It is assumed that the plaintiff who is now pressing a tort claim knowingly and voluntarily contracted away her tort rights, and did so on terms that cover the claim she is pressing. Instead, the thought is that certain waivers that are valid  valid  as a matter of contract law are nonetheless unenforceable as a matter of tort law. In what sense other than a defect in contractual formation would such a waiver be against public policy? While it is tempting to offer a paternalistic argument that focuses on the short-sightedness of potential plaintiffs, a better explanation – one that better fits the rationales offered by courts – concerns the need to control strategic behavior by sophisticated actors who are subject to tort duties. For example, negligence law imposes a duty on physicians to treat their patients competently. But the law of contract, precisely  because it is power-conferring, in principle enables each physician to avoid liability by asking or requiring each patient to sign a waiver form as a condition of receiving medical services. As was the case for some manufacturers in the pre- MacPherson  MacPherson era,  era, physicians could thus use the powers conferred by contract law to undo what the law of tort, as applied to them, is meant to do. This is primarily why courts have claimed the authority to refuse to enforce tort waivers in situations where the defendant’s activity is one 46 ‘affected with a public interest’.  In asserting that power, they are doing equity. II.  Constructive Fraud as Equitable Wrong 

44

  Again, a full evaluation requires knowing what the alternatives are. In the corporate law context, there is a theoretical case that limited liability should not extend to those with tort claims against the corporation. Henry B. Hansmann & Reinier Kraakman, ‘Toward Unlimited Shareholder Liability for Corporate Torts’ (1991) 100 Yale Law Journal  1879.   1879. This is the reason that in some high-risk contexts, like the operation of taxis, regulations require insurance. And of course knowing use of the corporate form as part of an illicit scheme to evade or limit liability for wrongdoing would be a reason to pierce the corporate veil – itself an equitable doctrine. 45  Tunkl v. Regents of University of California, 383 P.2d 441 (Cal. 1963). 46   Id  Id . at 444. Professor Arlen has made the related point that competent medical care is a good that will not be secured through contracting because of collective action problems. Jennifer Arlen, ‘Contracting Over Liability’ (2010) 158 University of Pennsylvania Law Review 957, Review 957, 992-97.

 

15

 

Equity not only pops up within tort doctrine, it also is available to respond to what might be called equitable wrongs. Equitable wrongs are not torts, because they come about differently. Tort law specifies duties ex ante even if some of the content is filled in 47 ex post and in a contextual fashion. Aside perhaps from an area such as fiduciary law,   equity typically operates more in an ex post manner. The availability of equity to provide relief for wrongs is a touchy subject, because it edges equity closer to matters like criminal law, from which it was historically cabined off. Thus, the idea of allowing Chancellors to use their personal sense of morality in a sort of ‘roving commission to do good’, has always been looked upon with suspicion. 48  As elsewhere in equity but perhaps to an even greater degree, the quality of the  proxies triggering second-order intervention carry a heavy burden. In this Part we will emphasize constructive fraud, with side glances to multipolar problems. Accordingly, the  proxies we need to focus on are those correlating with opportunism. These proxies are  based on custom, commercial morality, and professional norms. The point of equity is not to enforce custom or commercial morality directly. As in contract law, in which a violation of custom can be treated as prima facie evidence of – and trigger a presumption 49 of – bad faith,   so too in the area of equitable wrongs, the violation of custom or an egregious of in commercial morality can create favoring closer scrutiny. Ifviolation the activity question fails the equitable test ait presumption may be enjoined or give rise to a claim in restitution, backed up with a constructive trust. When it comes to second-order functions like reconciling conflicting rights, solving multipolar conflict, or countering opportunism, there is, as we have seen, a limit on how much can specified ex ante. What is set out in advance are the triggers for the second-order intervention – what it takes to get a claimant into the domain of equity. In the area of equitable wrongs, these triggers are violations of custom and commercial morality, as well as professional norms. Equity and custom have maintained a close association. Although the common law courts did enforce custom, they did so in a different way. Common law courts would decline to enforce a custom unless it possessed some of the attributes 50 of law – stability, reasonableness, generality, and so on – that make it more like law.  Equity invoked 47

 On the role of ex ante and ex post in an account of fiduciary that emphasizes its equitable aspect, see Henry E. Smith, ‘Why Fiduciary Law Is Equitable’ in: Andrew S. Gold & Paul B. Miller (eds), Philosophica (eds),  Philosophicall Foundations Foundation s of Fiduciary Law Law   (Oxford University Press, 2014) 26184. Even if it is debatable whether to call broad ex ante rules in fiduciary law (no self-dealing, no conflicts of interest) functionally equitable, they do respond to an extreme danger of opportunism. 48  Like the ‘Chancellor’s ‘Chancel lor’s Foot’, this phrase p hrase encapsulates a skeptical sk eptical attitude to expansive Laycock, Modern  Modern American Remedies: Cases and Materials M aterials (4th ed, New York: equity. Douglas Laycock, Aspen, 2010) 307; Douglas Laycock, ‘The Triumph of Equity’ (Summer 1993) 56  Law and Contemporary Problems 53, Problems 53, 73. 49  Emily Kadens, ‘The Myth of the Customary Law Merchant’ (2012) 90 Texas Law Review  Review  1153. 50 See, eg William Blackstone,  *76-78. Blackstone , 1 Commentaries Commentaries *76-78.

 

16

 

custom in a more second-order fashion. Sometimes custom would involve a group, leading to a complex procedural problem. And equity devised the precursors to the class action (and interpleader) in order to make possible the enforcement of customary rights 51 of intermediate-sized groups, such as common pool resource users and parishioners.   On the substantive side, custom’s association with natural law and ‘natural equity’ 52 served as the historical way for equity courts to draw on custom.  This intervention can  be narrower than it sounds. Thus, equity equ ity courts would take a blatant violation of custom as evidence of bad faith or unclean hands, with the result of nonenforcement of transactions. In the realm of equitable wrongs, violation of custom could be the trigger for constructive fraud (perhaps through bad faith or disproportionate hardship). A. Abuse of Right and Unfair Competition

Equity’s intervention in response to unfair competition is a second-order analogue to tort law. Competition is a complex process that is governed by an interlocking system of private law – contract, tort, property, and restitution. The idea is that these complex and far-reaching bodies of law can sometimes misfire, such that they ought to be overriden. Even actions and transactions that result from individuals and firms acting within theirbelegal rights will sometimes generate serious noted above, rights can abused, and much of equity’s attention to inequities. competitionAsiswe concerned with 53 what in civil law would be called abuse of right.   One way in which equity intervenes in response to an abuse of right is to refrain from enforcing an otherwise valid claim of right. For example, if someone purchases a  parcel of land with the sole objective of filing a suit, a court might withhold an  54 injunction. In Edwards In  Edwards v. Allouez Mining Co., Co.,  the defendant’s mill deposited sand on  plaintiff’s downstream land. The plaintiff had bought the land solely in order to sue for an injunction, and the court denied equitable relief on those grounds. As we will see postfusion commentary has made much of the anti-holdout flavor of the case without equal attention to the style of analysis. The court did not hold that buying in the face of a trespass or nuisance would always lead to a denial of an injunction. For one thing, if the original owner could have sued, it is not clear why the cause of action should not be  bundled with the land. We could also imagine an owner who lacked the wherewithal to sue selling to one who could more easily bring suit. In  Edwards  Edwards,, though, the court apparently concluded that the suit was solely or overwhelmingly motivated by its 51

  Stephen C. Yeazell, ‘Group Litigation and Social Context: Toward a History of the Class Action’ (1977) 77 Columbia Law Review  Review  866, 868 (citing Z. Chafee, Some Problems of Equity 149–295 (1950)). 52

 See Henry E. Smith, ‘Custom in American Property Law: A Vanishing Act’ (2013) 48 Texas International Law Journal  518-31.  518-31. 53

 See, eg, Anna di Robilant, ‘Abuse of Rights: The Continental Drug and the Common Law’ (2010) 61  Hastings Law Journal   687; Larissa M. Katz, ‘Spite and Extortion: A Jurisdictional Principle of Abuse of Right’ (2013) 122 Yale Law Journal   1444; Joseph M. Perillo, ‘Abuse of Rights: A Pervasive Legal Concept’ (1995) 27 Pacific 27  Pacific Law Journal  Jo urnal  37.  37. 54  38 Mich. 46, 31 Am. Rep. 301 (1878).

 

17

 

 potential to harass through holdup power that did not stand in for any other beneficial  purpose. One can argue whether a court’s permitting itself such latitude is more destabilizing than is worthwhile. In any event, we argue that the court was performing a targeted intervention: when the law confers the holdup power on owners, it is not the  purpose of the law to permit the type of manufactured suit in  Edwards  Edwards.. Without the  possibility of such equitable intervention, the law might have ha ve to be much more complex (and unstable) to prevent them. Or, as in other contexts, the law might announce in advance that such behavior is the price we pay for a simple system, and those who disagree with the result in  Edwards  Edwards,, starting with the dissent in that case, would argue that such per se legitimacy should apply here. Seeing the intervention of equity as second order allows us to sharpen the true stakes. Another case often cited in the ‘cashing in’ genre illustrates the benefits of a 55 second-order approach. In  Bassett v. Salisbury Manufacturing Company, Company,  the plaintiff sought an injunction against defendant in nuisance for throwing water from their mill on a small part of plaintiff’s swampland, which had never been put to productive use. To  protect their large investment in the mill, the defendants had bought parcels likely to be flooded. After losing a dubious claim in previous litigation with respect to other lands he alleged were overflowed, the plaintiff deliberately sought out and purchased small nearly worthless parcels (overlooked the defendants) that wereland technically in order to gain leverage in the by conflict over the original at issue.overflowed Taking this motivation and other aspects of the interactions of the parties – including the disproportionate hardship on the defendant, laches, and overtones of estoppel – into account, the court denied the injunction. The court expressed this analysis in terms of  presumptions: in light of the staleness of the claim and the motivations behind it, ‘a very strong case in other respects would be required to overcome the repugnance of the court 56 to lend its aid in this way to enforce rights so acquired’.  The injury was not irreparable, and as in Edwards in  Edwards,, the court did not see any value not compensable in damages. Indeed, the court apparently thought that the purchase here was part of a campaign of vexatious litigation. Courts of equity traditionally were wary of allowing litigation, especially that in equity itself, to become a tool of oppression and opportunism. What makes this and like opinions equitable in the sense under consideration is the emphasis on untangling the complex interaction between the parties and granting – or as here, withholding – an injunction to police the potential opportunism on both sides. Such an analysis could be called ‘coming to the nuisance’ or seen as an example of nuisance proper, as long as the equitable second-order aspect is recognized. Here it happens that the second-order analysis is couched in terms of discretion at the remedial phase. In the second-order analysis, a purpose on the part of one party to target the other can be important in withholding an injunction. Sometimes purpose can play a role in furnishing grounds for granting such relief, as in unfair competition. The entire area of unfair competition is a microcosm of the subject of this paper. Traditionally judges looked upon competition as beneficial but reined it in through 55 47 56

N.H. 426 (1867).  Ibid 442.

 

18

 

various doctrines which eventually fell under the heading of unfair competition. Initially this intervention occurred through the courts of equity drawing on custom and commercial morality and through a version of the law of nuisance. Both of these avenues were often second order and equitable in our terms. Although an analysis of unfair competition is beyond the scope of this paper, we emphasize a few points. First is that doctrines against unfair competition are quite different from antitrust analysis. Consistent with judicial knowledge and competence, the information to be used must be quite local, rather than needing to be developed by comprehensive economic studies of the relevant market. Second, the role played by custom and commercial morality helps avoid the need for a more global intervention and is consistent with a safety-valve approach. Finally, courts’ emphasis on concepts like malice in unfair competition cases evinces the second-order approach characteristic of equity. As James Barr Ames noted long ago, cases can be divided into those in which intent does not matter, those where it 57 sometimes does, and those where it is decisive.  In the first category are situations where the law reflects a considered judgment that bad motive and even harm consistent with the terms of legal rules is worth tolerating (the cure perhaps being worse than the disease). Examples include putting a trespasser out of o f one’s house, wrongfully obstructing the flow of a stream, removing an encroaching fence, and the like; in this category also belong some of privilege, as for harmful statement made during proceeding. Many of thecases malice cases involve misuse that can be countered by aa court second-order equitable style intervention. And the borderline cases are inevitable: it is in the nature of secondorder analysis not to be easily formulated into a general statement that can be applied ex ante.  Nor does this intervention have to be equitable in the technical or historical sense. In their reconstruction of torts that identify the causation of economic loss as wrongful, Simon Deakin and John Randall point to features that we would call second order (and equitable). Thus, if an activity is targeted to cause harm to a particular competitor, this makes liability more likely. 58  Again, targeting is not n ot per se a problem, but may be indicative of a conscious misuse of a structure not built to withstand that kind of pressure. Perhaps the controversy over the chestnut case of Tuttle v. Buck  can   can be explained by the 59

weight that targeting had to bear in that case.  It was alleged that the defendant had hired a barber in competition with his personal enemy, the plaintiff, with the sole purpose of driving him out of business. If it had been up to him, Judge Elliott, the author of the opinion, would have required evidence of running at a loss or an intention of leaving the  business when the plaintiff was ruined, but in the end he joined his colleagues in concluding that the plaintiff’s allegation of the defendant’s targeted ‘malicious’ motive enough. Minnesota never had separate equity courts, and the opinion can be read as an attempt to translate into common law tort terms an aggressive use of the second-order equitable function. 57

 J.B. Ames, ‘How Far an Act May Be a Tort because of the Wrongful Motive of the Actor’ (1905) 18 Harvard 18 Harvard Law Review 411, Review 411, 412. 58  Simon Deakin & John Randall, ‘Rethinking the Economic Torts’ (2009) 72  Modern Law  Review 519-53.  Review  519-53. 59  119 N.W. 946 (Minn. 1909).

 

19

 

Equitable intervention into the competitive process became regular enough to give rise to a notion of unfair competition. Yet the second-order nature of the courts’ interventions can still be seen in this area, at least in its landmarks. It is often forgotten 60 that International that  International New Service v. Associated Press was Press was an equity case.  It bears all the hallmarks of a second-order intervention against opportunism. In INS In INS v. AP , a suit between news-gathering consortia, the court enjoined the INS from copying or adapting reports from AP newspapers for its own newspapers. Invoking commercial morality against the INS’s attempt ‘to reap where it has not sown,’ the court called hot news quasi-property availing between competitors for a limited time: ‘The transaction speaks for itself and a court of equity ought not to hesitate long in 61 characterizing it as unfair competition in business’.   Both the remedy and the style of analysis are not those of general tort or property rights, and the court repeatedly makes reference to the case sounding in equity and the court’s function being an equitable one. These disclaimers are typically lost on modern ears and the case has become a bugbear as a Lockean generator of new intellectual property rights. Thus, the dissent by Justice Brandeis taking the baseline for the information to be in the public domain – ‘free as the 62 air to common use’  – and arguing that legislatures should be the innovators in IP has found more favor in modern times. To anticipate our discussion of fusion somewhat, it is precisely the over-fusion of the twentieth century that has obscured what  INS v. AP   was about. As one of us has argued, INS  argued,  INS  makes  makes more sense and is less threatening if it is taken on its own terms, as an 63 exercise in equitable anti-opportunism.   Perhaps one unfortunate aspect of the case is that so little of the full interaction between the parties is reflected in the opinion, making its second-order nature even less clear to modern eyes than it otherwise would be. As others have noted, there may have been a custom against pirating hot news and a custom 64 to allow for use of news in cases of necessity,  which the Hearst papers (INS) arguably faced with the embargo by the Allied authorities on access to sources. And yet INS may have been in a poor position to invoke this customary defense on account of its unclean 65 hands. INS was far from interested in creating a fair competitive playing field.  Thus, the court’s decision might well have made sense, and it is fully consistent with a traditional equitable analysis, but it has a somewhat conclusory air about it, which coupled with the Lockean moral rhetoric, makes for misunderstanding. Nevertheless, with all of its quirks, 60

 248 U.S. 215 (1918).  Ibid 240. 62  Ibid 250. 63   Henry E. Smith, ‘Equitable Intellectual Property: What’s Wrong With Misappropriation?’ in: Shyamkrishna Balganesh (ed),  Intellectual Property and the Common Law  Law  (Cambridge University Press, 2013) 42-62. 64  Richard A.  Epstein ,  ‘ International  International News Service v. Associated Press: Press: Custom and Law as Sources of Property Rights in News’ (1992) 78 Virginia Law Review 85; Review 85; see also Shyamkrishna Balganesh, ‘ “Hot News”: The Enduring Myth of Property in News’ (2011) 111 Columbia Law  Review 419.  Review  419. 65  Douglas G. Baird, ‘The Story of  INS v. AP : Property, Natural Monopoly, and the Uneasy Legacy of a Concocted Controversy’ in: Jane C. Ginsburg & Rochelle Cooper Dreyfuss (eds),  Intellectual Property Pro perty Stories (New Stories  (New York: Foundation Press, 2006) 9, 28. 61

 

20

 

the case does exemplify a second-order equitable modulation of the competitive process we have already encountered. Because the equitable background to INS to  INS v. AP  has  has largely been forgotten, we see the telltale signs of misplaced fusion. First, the horror many intellectual property 66 commentators exhibit at the mere thought of the case is symptomatic of the problem.   These scholars see it as setting up a generator of property rights, perhas overlooking that the Court’s opinion repeatedly denied doing any such thing, and instead couched its intervention as self-consciously equitable and leading only to quasi property (availing against defined others in the industry). Further, how to capture the hot news doctrine in a  post-fusion world has been quite challenging. The best such effort, Judge Winter’s 67 opinion in NBA in NBA v. Motorola, Motorola ,  offers a multi-prong test for misappropriation, some of the elements of which are quite hard to evaluate: (i) a plaintiff generates or collects information at some cost or expense; (ii) the value of the information is highly time-sensitive; (iii) the defendant’s use of the information constitutes free-riding on the plaintiff’s costly efforts to generate or collect it; (iv) the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff; (v) the ability of other parties to freeride on the efforts of the plaintiff or others would so reduce the incentive to  produce the product or service that its existence or quality would be substantially threatened.68  As we will see, once equity and law are merged into one level, multifactor tests are the natural substitute for equity. B. Undoing or Modifying Exploitative or Unauthorized Transactions

In addition to withholding or granting injunctive relief to prevent abuse of the law, the equitable function at the equity-tort interface also expresses itself when courts undo or modify exploitative or unauthorized transactions. In many of these cases the remedy is a constructive trust and the liability can be expressed in a variety of ways, including tort, fiduciary duty, and restitution, while still exemplifying the equitable function.

66

  See, eg, Jennifer E. Rothman, ‘The Questionable Use of Custom in Intellectual Property’ (2007) 93 Virginia Law Review 1899. Review 1899. 67  105 F.3d 841 (2d Cir. 1997). 68  105 F.3d at 852 (citations omitted). The Second Circuit has called into question the status of this test as a holding. Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 901 (2d Cir. 2011). But see ibid 911 (Raggi, J., concurring) (arguing that the five-part test was necessary to the result in  NBA  NBA). ). Ironically, it is not clear why this question was relevant to the court’s preemption analysis in the Barclays the  Barclays Capital  Ca pital  case.  case. The majority opinion in Barclays in  Barclays is  is best seen as a signal of the court’s desire to cut back on misappropriation doctrine. See Shyamkrishna Balganesh, ‘The Uncertain Future of “Hot News” Misappropriation After  Barclays Capital v. theflyonthewall.com ’ (2012) 112 Columbia Law Review Sidebar  134.  134.

 

21

 

 Moore v. Regents of University of California is California is a famous, and famously elusive, case.  The case was decided on the pleadings, which alleged as follows. 69

Moore was treated by Dr. Golde for leukemia. Early on, Golde determined that cells in Moore’s blood and tissue might have commercial value. Throughout Moore’s treatment, which included a splenectomy followed by years of post-operative care, Golde saved blood and tissue removed from Moore in the course of medical treatment. During this time, Moore joined others in applying for a patent, and entered into a business venture that aimed to develop clinical applications from the cells. Golde never informed Moore of his research and commercial interests. When Moore learned of them, he  brought suit against Golde, as well as the researcher with whom Golde was working and the university that owned and operated the medical center out of which Golde practiced. Moore’s complaint asserted thirteen causes of action ranging from fraud to conversion to unjust enrichment. A majority of the California Supreme Court ruled that the complaint stated one viable cause of action: breach of fiduciary duty, which was good only against Golde, not the other defendants. In deeming this claim viable, the majority rejected Moore’s conversion claim, reasoning that Moore’s cells were not property that had been taken from him. Separate concurring and dissenting opinions took issue with the majority’s rejection of the conversion claim. Like many notable judicial decisions, Moore decisions,  Moore is  is fascinating because it raises issues at the intersection of multiple legal domains: here, contract, tort, restitution, and – we would submit – equity. Here we are content to suggest that there is an equitable dimension to Moore to  Moore that  that helps to explain the majority’s inclination to permit the suit to go forward, and the terms on which any relief should be granted. Part of why  Moore  Moore   lends itself to being described as equitable is, so to speak, a matter of timing. It was a case of first impression, which is why the complaint offered more than a dozen grounds for liability. Given the state of the law when the case was decided, it seems plausible to conclude (for reasons elaborated below) that the court essentially granted Moore 70 equitable relief rather than finding an actionable tort.   At times, the majority described Moore’s viable claim on terms that made it seem quite tort-like. For example, it suggested that Moore’s claim was tantamount to a malpractice claim based on a physician’s failure to obtain his patient’s ‘informed

69

 793 P.2d 479 (Cal. 1990) (In Bank).   While it is true that the doctor-patient relationship has fiduciary aspects, and hence that Moore’s action could be understood as a claim in law for breach of fiduciary duty, at the time  Moore was  Moore  was decided, it was not clear whether the aspects of the doctor-patient relationship about which Moore was complaining were properly described as governed by a fiduciary duty. Moreover, fiduciary duty law reflects particularly strong equitable influences. Finally, as we discuss in Part III, it is easy to ‘miss’ instances of equity because they sometimes prompt new legal developments that ‘envelop’ them. For example, after  Moore  Moore   was decided, the issue of  physicians’ commercial com mercial use of samples s amples taken from fro m their patients patient s has been handled hand led largely through thro ugh contract law. 70

 

22

 

71

consent’ to a procedure.   However, an informed-consent plaintiff must prove that the  physician’s failure to provide information about the risks of a procedure induced her to undergo a procedure that she otherwise would have foregone, yet the majority seems to 72 treat the non-disclosure itself as wrongful.   Moore’s complaint might also be understood to have alleged a ‘dignitary’ tort claim akin to certain claims for battery or invasion of privacy. Imagine, for example, that Golde was not a licensed physician, but rather an imposter who had taught himself enough medicine to credibly present himself as a physician. Imagine further (improbably) that Golde’s treatment at the hands of the imposter was medically appropriate and successful. Moore might nonetheless have a legitimate complaint that being treated by a nonphysician is a violation of his right to determine who has access to his body. This recasting of Moore’s claim solves some problems but creates others. For it is not obvious that Golde’s failure to disclose his research and economic interests renders him comparable to the imagined imposter. The idea that Moore was entitled to feel ‘violated’  by his course of treatment seems out of place. Perhaps, then, Moore’s complaint had less to do with his having been treated in an inappropriate or unauthorized manner, and more to do with Golde’s having inequitably used the occasion of his appropriate, authorized Moore an opportunity him and his collaborators to seize and exploit, treatment such that of they now as owed it to Moorefor to confer on him a share of the profits. So cast, Moore’s claim begins to resemble the claim successfully pressed in equity by one business partner against another in the even-more73 famous case of Meinhard of Meinhard v. Salmon. Salmon.   As is well-known,  Meinhard   involved a suit by one of two joint venturers in a commercial real estate lease, claiming that the defendant had taken for himself a business opportunity involving a renewal and expansion of the lease without informing the  plaintiff. Writing for the Court of Appeals, Justice Cardozo granted that the defendant Salmond had not acted with ‘a conscious purpose to defraud’. 74 Indeed, he suggested that Salmond had probably acted in good faith in supposing that he, as the active party in the co-venture, was entitled to negotiate a new lease for himself. Nonetheless, because 75

Salmond was a fiduciary with respect to Meinhard, he owed him ‘undivided loyalty’  – a demanding standard that he had not met. After he entered the new lease for for himself, Salmond had every reason to expect that, when Meinhard found out about it, Meinhard would reproach him for his underhanded conduct, and “[c]onduct subject to that reproach 76 does not receive from equity a healing benediction.  Accordingly, the Court imposed a constructive trust – ‘the remedial device through which preference of self is made 71

 Ibid. 483.   A separate opinion in the case suggested that Moore might have been able to prove the requisite inducement with respect to the post-operative treatments he underwent at Golde’s recommendations.  Ibid. 500 (Broussard, J., concurring and dissenting). 73  164 N.E. 545 (N.Y. 1928). 74  Ibid at 548. 75 Ibid. 76  Ibid. 72

 

23

 

77

subordinate to loyalty to others’  – by which Meinhard obtained ownership of half the value of the new lease. Moore’s complaint against Golde is in several respects reminiscent of Meinhard’s. In each case the defendant entered into a transaction by which he seized an opportunity in a manner that was underhanded or opportunistic. opportunistic. As a result, the plaintiff had a basis for claiming that the transaction was inequitable and ought to be modified, irrespective of whether the plaintiff had suffered the violation of a legal right. Such a complaint does not sound in tort. It alleges an equitable wrong. And it is likewise a complaint that seeks an equitable remedy. Of course there are obvious differences between the two cases. One deserves mention here. Cardozo’s offered an infamously florid description of Salmond’s duty to 78 Meinhard as requiring of Salmond ‘a punctilio of an honor the most sensitive.’  Ever since, Cardozo has been criticized for projecting dated notions of chivalry and honor onto 79 an ordinary commercial relationship.  The  Moore  Moore   majority, meanwhile, was anything  but old-fashioned. Indeed, it was ahead of its time in attempting to articulate norms for a world in which academic medicine would become increasingly associated with commercialization. It is possible that both decisions are mistaken. Nonetheless, they were decided on the basis of a similar equitable principle – the principle that, within certain kinds of special relationships, there is something unfair about one person withholding certain kinds of opportunities from the other, even if the withholding does not amount to a tort, a  breach of contract, con tract, or some other legal wrong. Again, the precise nature of the unfairness is difficult to specify in advance (i.e., in the form of a conduct-guiding legal rule or standard). Instead, general notions of conduct beyond reproach, of honor, and of nonexploitation are applied in a highly fact-sensitive manner. What to make of such interventions depends on how general we regard them. Although one can regard  MacPherson, Moore, Moore, and  Meinhard   as second-order adjustments of some kind, those that are most associated with traditional equity will be more targeted. Thus, in discussing the famous ‘snail in a bottle’ case of  Donoghue v. 80 Stevenson,   which established a negligence standard and overcame the law of privity, Stevenson, Gary Watt, in response to to a suggestion by Anthony Mason that Lord Atkin’s

77

 Ibid. (citing Beatty (citing Beatty v. Guggenh Guggenheim eim Exploration Exploratio n Co., Co., 122 N.E. 378 (N.Y. 1919)).  Ibid 546. 79  See, eg Robert B. Thompson, ‘The Story of Meinhard of Meinhard v. Salmon Sal mon:: Fiduciary Duty’s Punctilio’ in: J. Mark Ramseyer (ed.), Corporate Law Stories (New Stories (New York: Thompson Reuters/Foundation Press, 2009) 105, 124-126 (suggesting that Cardozo’s opinion relied on highminded generalizations rather than close attention to the nature of the business relationship  between the parties). parties ). 78

80

 

 [1932] AC 562 (HL). 24

 

81

‘neighbour principle’ set forth in that case could have been developed in equity,  has this to say: Whether this is true or not depends entirely upon how the innovation is expressed. If it is described as a new general law to require a positive duty of care, it is no business of equity – and this is how it was was phrased;  phrased; which is why it  became part of the general law of tort. If it had been described as a measure to  prevent a contacting party from unconscionably denying a duty of care to a noncontracting party in certain typs of case (cases concerning a concealed risk, for instance), the duty of care might then have evolved from case to case and context by context as an equitable restraint of unconscionable reliance on the shortcomings of contract law, instead of becoming, as it did, the free-standing general duty of care . . . .82  Looked at form the point of view of equity as a second order safety valve, the two  possible versions of the neighbor principle are related. The opinion in  Donoghue v. Stevenson   may be regarded as a second-order adjustment to a perceived misue of the Stevenson system that was a problem of variability and uncertainty but is now stable and known. Correspondingly the equitable adjustment instantly crystalizes into a rule of tort going forward. The labels are 83 not equity-to-tort-dynamic.   as important as what is actually going on. We now turn to this III. The Dynamics of Tort and Equity 

Although we have drawn a relatively bright-line distinction between tort and equity, we have also emphasized the ways in which the two interact and intermingle. There are equitable doctrines within tort law, and equity often steps in to plug holes and gaps left open by tort law. In this part we briefly consider a different dimension of the equity-tort relationship, one very much tied up with the phenomenon of fusion. With equity now fused into law, courts have become more prone to take what once were targeted or self-contained equitable doctrines and convert them into new tort causes of 81

 A. Mason, ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’ (1994) 110 Law 110  Law Quarterly Review 238, Review 238, 239. 82  Gary Watt, Equity Watt, Equity Stirring: The Story of Justice Beyond Law (Oxford: Law (Oxford: Hart, 2009), 80. 83

  Another instance of courts using constructive trusts to remedy wrongs that are tort-like but ultimately equitable involves claims by persons who stood to be beneficiaries of a will that was never executed only because of undue influence by a third party. See See   John C. P. Goldberg & Robert H. Sitkoff, ‘Torts and Estates: Remedying Wrongful Interference with Inheritance’ (2013) 65 Stanford Law Review  Review  335, 351-53. There is no tort of ‘undue influence’. Moreover, it is not clear that a beneficiary, whose expectancy is at the whim of the testator up until the moment of death, can complain of having suffered a legal wrong at the hands of the interferor. Instead, cases of interference by undue influence have been understood as instances of equitable wrongs: transactions that could, upon demand, be modified or undone because affected by some fundamental inequity. In recognizing wrongs of this sort, equity plays one of its important historical roles – as operating to fill gaps created by law’s generality and formality.

 

25

 

action, or treat them as aspects of multi-factor inquiries into whether a given tort has been committed. What we explore here is part of a larger dynamic of equity as a source of legal 84 innovation. That equity can play this role is not news.  What is more striking is that a second-order equitable function of the kind we have explored at the tort-equity interface serves as an important source of tort law. We will argue that this is to be welcomed, as long as the equitable function is well understood. Conversely, in exaggerated forms of fusion not sensitive to this second-order function, things can go quite wrong. Among the problems calling for a second-over equitable function are those that are uncertain and difficult to foresee. Once such problems have arisen and equity has dealt with them, we face a different problem. If, say, the opportunism in question is likely to arise again, we can fashion a legal rule for the future to deal with it. The problem is no 85 longer one of opportunism.   Equity is thus like a moving frontier. The process by which equitable intervention 86  becomes a regular part of the common law can be termed ‘sedimentation’.  The equitable function applies to new material, and the set of problems to which it applies is constantly shifting. Post fusion, what were once relatively self-contained equitable interventions have in some instances become torts unto themselves. While there is certainly nothing wrong with recognizing new torts, because tort law provides general, conduct-guiding directives, the transition from equity to tort can generate torts that are relatively illdefined and open-ended. At the outset, although the Realist impulse may have been to contexualize and thereby expand the scope for something that looks like equity, the Realists had little, if any, appreciation for the distinction between first- and second-order law and actively sought to break it down. Returning to the equitable doctrine of balancing the equities, Realists were not against discretion, balancing or fairness, and yet when the torts scholars Page Keeton and Clarence Morris analyzed how courts ‘balanced the equities’ in determining whether to grant injunctions in nuisance cases, they recast familiar equitable

84

 See, eg Spect v. Spect, 26 P. 203, 205 (Cal. 1891) (quoting Lord Redesdale).  The process of a standard becoming a rule is similar, but that literature does not emphasize the second-order aspect. 86  The term is meant to contrast this phenomenon with the oscillation between ‘crystals’ and ‘mud’ identified by Carol Rose. Carol M. Rose, ‘Crystals and Mud in Property Law’ (1988) 40 Stanford Law Review  Review  577, 588; Henry E. Smith, ‘Rose’s Human Nature of Property’ (2011) 19 William & Mary Bill of Rights Law Journal   1047-55. In suggesting that equity and law interact in an evolutionary way, we do not mean to commit ourselves to the stronger proposition, sometimes associated with Lord Kames, that equity is a vehicle through which the law achieves moral progress. [Cite to Prof. Carr’s essay in this volume??] 85

 

26

 

87

doctrines through a first-order tort lens.  Equity’s proxies and presumptions became in 88 their hands policy-infused liability factors.  Injunctions were likewise analogized to  punishment. And undue hardship analysis was cast as an exercise in quasi-legislation: Our guess is that most of the plaintiffs who receive injunctions are ready to treat with the defendant when the ante gets high enough. For purposes of discussion, suppose that this guess is correct. Then a device which purports to protect the small man in his possession actually cuts down the defendant’s bargaining power, so that the formerly oppressed plaintiff has the whip hand. …. This result can be  justified only on the basis that the defendant de fendant deserves punishment, rather than on the ground that the plaintiff deserves protection. If the plaintiff is willing to sell at all—and we are assuming that he is—his financial security is protected if he is  permitted a fair price. Compensatory damages damag es are designed to give g ive him just that. If the defendant is to be punished, he should be punished by an impartial tribunal, which has a chance to calculate his punishment and deal with him neither too leniently nor too harshly. Punitive damages are more likely to produce desirable  punishment than is the practice of arming the plaintiff with an injunction for sale only at the highest price the defendant can afford to pay. …. And some equity courts do leave the plaintiff to his action at law.  law.  Suppose now that the assumption of the last paragraph is wrong: that many plaintiffs actually prefer to remain undisturbed in their wonted homes or established small enterprises and are unwilling to sell their rights to do so at any  price. If such plaintiffs were granted injunctions, offending factories would be stilled, offending dams would be torn down, and offending railroads moved. Is this result desirable? Of course the small enterprise or humble home may be as dear to its owner as the large industrial plant is to its owner, and the recognition of this fact is hailed by courts as Poor Man’s Justice. But the interests of the parties are not the only interests to be taken into account in arriving at just results. If the defendant is conducting an enterprise of social value exceeding the social value of the plaintiff’s interests, the common weal may be best served by permitting the defendant’s plant to remain undisturbed, requiring him to compensate the plaintiff for his financial losses, and punishing him sufficiently for mis-locating his plant to discourage similar future wrongdoing. After all, we do not condemn to death the child conceived illicitly, nor is it always wise to destroy the factory which should not have been built. Perhaps in a community which has too many factories, destruction of a few may work a social benefit rather than a social harm. But if

87

 W. Page Keeton & Clarence Morris, ‘Notes on “Balancing the Equities” ’ (1940) 18 Texas  Law Review 412. 88  In the hands of American Legal Realists equitable doctrines and defences were often replaced with multi-factor balancing tests. Smith, ‘Fusing the Equitable Funciton’ above n 10. In other jurisdictions, separate equity tended to give way to standards and finely tuned complex doctrine. See Joshua Getzler, ‘Patterns of Fusion’ in: Peter Birks (ed), The Classification of Obligations (Oxford: Clarendon Press, 1997) 157, 192–93. This too can be seen as a first-order substitute for a second-order equitable function.

 

27

 

industrial birth control is needed, injunction for nuisance can hardly be counted 89 on to do the job.   In case law, the hyper-fusion mentality evinced by Keeton and Morris is most closely associated with the New York Court of Appeals’ decision in  Boomer v. Atlantic 90 Cement Co.  It denied an injunction to residents whose properties were regularly invaded by dust from the defendant’s cement plant because the damage to the residents was far exceeded by the investment in the plant – an investment that would be lost if the  plant were forced to shut down. The relegation of the plaintiffs to damages is in turn famously associated with Calabresi and Melamed’s notion of a liability rule, which 91 allows an entitlement to be taken at an officially determined fair price.  The injunction,  by contrast, would have implemented what they call a property rule, which is aimed at forcing a potential taker to obtain the holder’s consent or forbear from taking. The fear that motivated the court and commentators in the law and economics literature is the 92 holdout power and the coordination costs of the residents.   As Douglas Laycock has shown, the court and the commentators misunderstood the traditional equitable defense of undue hardship and so wound up reinventing the wheel, yet managed to produce an 93 inferior one.   To this we could add that the newer incarnations of the undue hardship defense tend, like Keeton’s and Morris’s analysis, to involve very rough policy guesses at the primary level of tort. Gone are the proxies and presumptions and the integration into a second-order analysis of the entire bilateral interaction. The same flattening can be seen in academic commentary on abuse of rights 94 cases. Returning to  Edwards v. Allouez Mining Co., Co.,   Ian Ayres and Kristen Madison make it a centerpiece in their account of litigants inefficiently insisting on injunctions 95 (and specific performance).  Although the problem they identify is real, the traditional equitable solution is second-order intervention based on proxies and presumptions that kick in selectively and then, once invoked, operate more holistically – at a second level. Again, policy-infused first-order rules and standards are the modern substitute. They necessarily give up whatever advantage systems theory would indicate can be obtained  by second-level analysis. The modern approach also loses the connection to everyday morality that equitable analysis more transparently reflects.

89

 Ibid 423-25.  257 N.E.2d 870 (N.Y. 1970). 91  Guido Calabresi & A. Douglas Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ (1972) 85 Harvard 85  Harvard Law Review 1089, Review 1089, 1092. 92  Ibid 1106–10.  93   Douglas Laycock, ‘The Neglected Defense of Undue Hardship (and the Doctrinal Train Wreck in Boomer in  Boomer v. Atlantic Cement )’ )’ (2011) 4 Journal 4  Journal of Tort Law  Law  (Issue 3). Laycock is well known for his skepticism about any special equitable function, and his point is that  Boomer  and   and the modern approach are not faithful to the law and are inferior to the previously accepted law in this area. 94  38 Mich. 46, 31 Am. Rep. 301 (1878). See above n 54 and accompanying text. 95  Ian Ayres & Kristin Madison, Mad ison, ‘Threatening Inefficient Ineffi cient Performance of Injunctions Injuncti ons and Contracts’ (1999) 148 University of Pennsylvania Law Review 45, Review 45, 50-51. 90

 

28

 

In modern times, the fusion of equity and tort has often taken the form of a relocation and recharacterization of law from equity to tort. This can be beneficial but it has also has at times been taken in more extreme and undesirable directions. One example of a relatively successful evolution from equity to tort involves the emergence, in the early twentieth century, of the tort of ‘appropriation of likeness’ – a 96 tort that was later identified by William Prosser as one of four privacy torts.  In the  paradigmatic case, a plaintiff alleging this tort asserts that the defendant has, without her  permission, used her image or likeness in advertising a product or service. The defendant’s wrong is to have illicitly associated the plaintiff with a commercial venture with which the plaintiff did not wish to be associated, and to have given the plaintiff  public visibility that she did not wish to have, thereby undermining her ability to control (to some degree) how and when she presents herself to the public. Among the first court decisions to recognize the appropriation-of-likeness tort is 97  Pavesich v. New England Life Insurance Co., Co.,  issued in 1905 by the Georgia Supreme Court. Without permission, the defendant used a photograph of the plaintiff in a newspaper ad for its life insurance policies, adding a fabricated quotation stating that the  plaintiff was thankful to have purchased one of its policies. The plaintiff sued for damages, alleging defamation invasion of privacy. Conceding that allowed it had not  previously recognized invasions and of privacy as tortious, the court nonetheless the 98 claim, concluding that the defendant had violated the plaintiff’s right to ‘be let alone’,   i.e., his right to determine, within limits, when and how he would ‘exhibit his person in 99 [a] public place . . .’.   Although entering new tort territory,  Pavesich  Pavesich   took its cues from equity, which had long been available to remedy breaches of confidence. In particular, the Georgia court noted English and American cases in which courts had enjoined the publication of information or images on the ground that the defendant had obtained them on the understanding that they would be kept confidential. These included the famous English 100 case of  Prince Albert v. Strange, Strange,   in which the court enjoined the defendant-printer from selling copies of etchings by the Prince. More directly on point was Corliss v. E.W. 101

Walker Co., Co.,  in which the defendant published a biographical sketch of the plaintiff’s deceased husband and sought to sell it along with a photograph of the husband. A federal court in Massachusetts declined to enjoin the publication of the book, but nonetheless enjoined publication of the photograph on the ground that it would violate a confidence  placed in the photographer not to distribute the photographs except as specified by his subject.

96

 William L. Prosser, ‘Privacy’ (1960) 48 California Law Review 383. Review 383.  50 S.E. 68 (Ga. 1905). 98  Ibid 71. 99  Ibid 70. 100   2 De G. & Sm. 652, (1849) 64 Eng. Rep. 293 (V.C.), aff’d , aff’d ,   1 Mac. & G. 25, (1849) 41 Eng. Rep. 1171 (Ch.). 101  57 F. 434 (C.C.D. Mass. 1893). 97

 

29

 

As articulated in the later (1968) English decision of Coco v. AN Clark 102  Engineers,,  an action to enjoin  Engineers e njoin a breach of confidence has much in common with  breach of fiduciary duty claims of the sort discussed above in cases such as  Moore v.  Regents   and  Meinhard v. Salmond . The gist of the complaint is that the relationship of  Regents confidence between defendant and plaintiff limited the defendant’s freedom of action with respect to the subject matter of the confidential relationship, and that actions taken outside of those (ill-defined) limits, being unauthorized, could be enjoined at the behest of the plaintiff or could generate an entitlement to an interest in any transactions or arrangements emerging out of the unauthorized action via a constructive trust. In Pavesich In  Pavesich,, by contrast, the focus is not whether an unauthorized conduct by the defendant can be blocked, nor whether legal rights and powers generated by that conduct must be revised to ensure the plaintiff is given the rights and powers to which she was all along entitled. Rather, the defendant’s conduct is cast as a wrongful injuring of the  plaintiff, for which the plaintiff can seek and obtain redress in the form of compensatory damages. The complaint does not assert that there is a need for a court to intervene to correct for a misfiring of legal rules resulting from opportunistic or ultra vires actions. vires actions. It asserts instead that there has been a breach of a primary duty and primary right recognized by tort law – the duty to refrain from publicly displaying another’s image in aid of one’s commercial venture and the right not to have one’s image so displayed. A century later, misappropriation of likeness is the name of a well-established tort. And for the most part it is one that functions reasonably well as a tort. As defined by the courts, it gives actors relatively clear notice as to the sort of conduct from which they are required to refrain. And it presents relatively manageable questions for judges and  juries to adjudicate when claims are litigated. Other instances of equity giving rise to torts are somewhat more problematic. We noted in Part I that some commentators today advocate eliminating references within tort law to ‘coming to the nuisance’ as a defense to liability. A standard rationale for doing so is that the relevance of the plaintiff’s conduct can be treated as one among a laundry-list of factors relevant to the determination of whether the defendant’s actions have unreasonably interfered with the plaintiff’s use and enjoyment of her land. Here we see the same problematic instinct toward hyper-fusion evinced in Keeton’s and Morris’s treatment of equitable relief for nuisances. Prosser’s famous quip – ‘[t]here is perhaps no more impenetrable jungle in the entire law than that which surrounds the word 103 “nuisance” ’  – takes on an air of irony when one recognizes that it is to a substantial degree a jungle of his and his fellow Realists’ own creation. Rather than taking the law out of tort law in the name of equity, it would be better to allow equitable adjustments to tort law by, for example, denying relief to plaintiff’s who opportunistically come to the nuisance or denying injunctions in genuine cases of disproportionate and extreme hardship.

102 103

415.   [1969] R.P.C. 41, [1968] FSR 415.    William L. Prosser, (1941)  Handbook of the Law of Torts  Torts  549 (1st ed., St. Paul, Minn.:

West).

 

30

 

Equity’s unfair competition jurisprudence, meanwhile, gave birth to the tort that now goes under indicatively ungainly names such as ‘improper interference with  prospective contract’, ‘improper interference with noncontractual expectancy’, and ‘improper interference with inheritance or gift’. Here, the transition from targeted intervention to correct or enjoin opportunism to a generally defined injurious wrong has arguably gone less well. One problem is that a great deal of intentional interference – most notably, market competition in which one competitor aims to defeat another – is permissible. There is thus a tension between marking off, at a general level, interference with expectancies as wrongful. True, these torts are limited to instances of ‘improper’ interference. Even so, there is something awkward, in our market-based economy, about the idea of treating interference with noncontractual expectancies as candidates for torts. Contrast battery or trespass. While these, too, only apply to ‘improper’ contacts with another’s person or land, their respective base-level directives – ‘Don’t touch!’ and ‘Keep off!’ – are decent approximations of the behavior the law demands. ‘Don’t interfere with another’s expectancies!’ seems less so. Relatedly, liability for the interference torts turns on an unstable mixture of factors. the traditional equitable focus cases of malice. Liability,byas giving noted, attaches Retained only foris ‘improper’ interferences, withonimpropriety determined consideration to a list of factors, including (in the Second Restatement of Torts’ formulation of the interference-with-prospective-contract tort): (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests of the other which the actor’s conduct interferes, (d) the interests sought to be advanced  by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s conduct to the interference, and (g) the relations between the parties.104  One need not be a formalist (in the pejorative sense) to worry about the stability and clarity of an inquiry into impropriety conducted on o n these terms. Ironically, the interference torts also are, in certain instances, defined very elastically so that they can reach the very scenarios in which equity once comfortably intervened and, in doing so, gave rise to these new tort claims. For example, as noted above, many courts today recognize interference with inheritance as a tort, even though the standard case of interference – involving the exercise of ‘undue influence’ on the donor to the detriment of a beneficiary who has no right to the assets he is hoping to inherit – recognizes as tortious conduct that is not regarded as tortious in any other setting, and recognizes as injuries the loss of legally fragile expectancies. No wonder then, that in drafting the interference-with-inheritance provision of the Second Torts

104

  American Law Institute, (1977)  Restatement (Second) of Torts  Torts  § 767 (St. Paul, Minn., American Law Institute).

 

31

 

Restatement, Dean Wade suggested that this cause of action could be understood as 105 recognizing an ‘equitable tort[]’.   Conclusion

Our legal systems have seen a fusion of law and equity. But of course the idea of ‘fusion’ admits of different interpretations. Somewhat ironically (given their focus on observables and empirics), Realists tend to understand fusion as an instance of transsubstantiation. The moment at which equity disappeared into law, they reason, is the moment at which law lost its formalism and became equitable, flexible, and resultoriented – whatever it needs to be for it to do what we want it to do. We have sketched and argued for a different understanding of fusion. Equity and law are no longer separated by jurisdiction. But, however they are labelled, they remain distinct aspects of our legal system and continue to play distinct roles within it. Tort is not equity and equity is not tort. Tort law specifies through a complex scheme of rules and standards those interpersonal interactions that are wrongfully injurious. These interactions are not to be done, and if they are done, generate in the victim a right to invoke the court system to obtain redress from the wrongful injurer. Equity, operates inrights a second-order fashion onconfers. tort lawIttofurther limit the ability of actors tomeanwhile, take advantage of the and powers tort law stands ready to fill gaps or holes at the edges of tort law by undoing or modifying the legal consequences of equitable wrongs.

105

 Goldberg & Sitkoff, above n Error! Bookmark not defined., 394 (quoting Dean Wade’s comment, made during a meeting of the American Law Institute).

 

32