The True Benefit of the Bargain: How Emotional Distress Damages Make Fraud Victims Whole

Abstract

For over a century, American courts have recognized emotional distress damages in tort. Initially, these decisions limited recovery for emotional distress to cases where the victim experienced a physical impact. Throughout the twentieth century, that requirement largely fell out of favor as courts began to recognize emotional injury in the absence of physical harm, supported by new psychiatric research. Despite this, the availability of emotional distress damages in fraud cases continues to divide jurisdictions. Many jurisdictions refuse to recognize any more than pecuniary damages to plaintiffs in fraud, characterizing fraud as a purely economic tort. The experience of victims challenges this assumption, as individuals report significant psychiatric and physical maladies resulting from fraud. Jurisdictions that award emotional distress damages in fraud divide further still about the appropriate standard. Some courts focus on the plaintiff’s severity of harm or physical manifestation of distress. Others look to the defendant’s malice, intent, or ability to foresee emotional harm. This Note argues that current psychiatric research and self-reported emotional distress of fraud victims demonstrate the need to universally recognize emotional distress damages. This Note further argues the severity standard offers the best combination of flexibility for plaintiffs and protection for defendants against frivolous claims. Only with the recognition of emotional distress damages can fraud victims become genuinely whole.