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85 U. Cin. L. Rev. 1017 (2017-2018)
In Search of the Cheapest Cost Avoider: Another View of the Economic Loss Rule

handle is hein.journals/ucinlr85 and id is 1043 raw text is: IN SEARCH OF THE CHEAPEST COST AVOIDER: ANOTHER VIEW OF THE ECONoMiC Loss RULE Catherine M Sharkey* INTRODUCTION The economic loss rule-a topic of ever-increasing significance in commercial litigation-has received less than its due attention in the academy, in part because business torts (and, to a lesser extent, remedies) have all but disappeared from the law school curriculum.' That may be changing, in part due to the American Law Institute's (ALI) ongoing Restatement (Third) Torts. Liability for Economic Harm project,2 as well as a burst of tort-based claims in commercial cases between contracting parties in the wake of the 2008 global financial crisis.3 The change is welcome. For even apart from its real-world significance, the topic engages two fundamental theoretical questions: (1) which interests should tort law protect; and, more pointedly, (2) how should we think about claims that arise along the boundary line between tort and contract? Before presenting another view of the economic loss rule, I should begin with the conventional take. The economic loss rule is a judicially created doctrine invoked in strict liability or negligence (i.e., not intentional) tort cases to preclude tort liability in certain situations where a victim has suffered purely financial losses (i.e., no physical injury or damage to property). The exclusion for intentional torts is key because no one seriously questions that recovery for purely financial losses is * Crystal Eastman Professor of Law, New York University School of Law. This paper is adapted from the Marx Lecture, which I delivered at the University of Cincinnati School of Law on February 11, 2016. Ireceived helpful feedback from participants at the NYC Torts Group, the NYU Faculty Workshop, the Private Law Theory Workshop at Tel Aviv University, and the University of Chicago Law & Economics Workshop. I am especially grateful to Hanoch Dagan, Oren Bar-Gill, Avihay Dorfman, Nora Engstrom, Richard Epstein, Greg Keating, Ariel Porat, Arthur Ripstein, and Ben Zipursky for comments. Adrienne Lee Benson (NYU 2015) and Caleb Seeley (NYU 2017) provided excellent research assistance. The Filomen D'Agostino and Max E. Greenberg Research Fund provided generous summer research support. 1. Cf Richard A. Posner, Common-Law Economic Torts: An Economic and Legal Analysis, 48 AtIz. L. REv. 735, 735 (2006) (It is surprising that the economic literature of the economic torts is so sparse relative to the economic literature on the physical torts-torts involving personal injury or property damage-including the wrongful taking of property (conversion).). 2. I have served as an academic adviser to this project since its inception, from 2005 to 2007 (with Mark Gergen as Reporter) and 2011 to present (with Ward Farnsworth as Reporter). 3. The fall 2008 global financial crisis placed banks, bank subsidiaries, and investment managers in the crosshairs as investors lost hundreds of millions of dollars arising from allegedly inadequately monitored, overly risky investment vehicles. With increasing frequency, investors have sued financial service industry defendants not only for breach of contract, but also tort. 1017

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