Companies in numerous industries have misled the public by hiding the dangers posed by their products. Sugar manufacturers hid the dangers of high fructose corn syrup and misdirected the public’s attention to fat, causing an epidemic of diabetes, obesity, and heart disease. Opioid manufacturers hid the dangers and addictiveness of opioid painkillers, leading to the opioid crisis. Fossil fuel companies misled the public about the causes, certainty, and effects of global warming, resulting in massive unregulated CO2 emissions and causing one of the greatest threats to humankind. This Article identifies all such schemes as belonging to a category of wrongs called “Public Deception Schemes to Conceal Product Dangers,” or “PDCPD Schemes.” PDCPD Schemes do not fit into any existing tort framework. Accordingly, those harmed by such schemes are often left with no way to seek redress against the wrongdoer. This Article proposes that this gap in the tort law be closed by legislation similar to how the state “blue sky” laws and Section 10(b) of the Securities Exchange Act of 1934 closed the loophole in fraud law that allowed those committing securities fraud to evade liability. Closing this gap would further numerous tort policy goals, including shifting the loss to those responsible for causing it and expanding the scope of liability for those who commit intentional, wrongful conduct.
Introduction
Between 2012 and 2017, a professor at the University of California, San Francisco, uncovered a cache of documents revealing that the sugar industry had, for decades, misled the public about the health dangers of sugar.1 The sugar industry, Dr. Cristin Kearns discovered, had launched a campaign in the 1960s to counter “negative attitudes toward sugar” in part by funding sugar research that produced favorable results.2 The campaign was orchestrated by John Hickson, a top executive at the sugar association who later joined the tobacco industry.3 As part of the sugar industry campaign, Mr. Hickson secretly paid two influential Harvard scientists to publish a major review paper in 1967 that minimized the link between sugar and heart health and shifted blame to saturated fat.4
The campaign worked. Over the past fifty years, consumption of sugar has tripled worldwide.5 In the United States, sugar consumption in both children and adult diets increased markedly over that same period.6 Moreover, there have been even sharper increases in the consumption of certain, more harmful sugars like high-fructose corn syrup (HFCS).7 HFCS, in fact, can now be found in a wide array of processed foods and beverages, like juices, yogurts, cereals, and breads.8 The United States now leads the world in added sugar consumption, as the only country where more than six hundred calories of added sugar are consumed per person per day nationwide.9
This rise in sugar consumption has come at a cost. Recent research has identified sugar as the single leading non-regulated component contributing to the recent spike in metabolic syndrome diseases such as diabetes, hypertension, lipid problems, cardiovascular disease, and non-alcoholic fatty liver disease.10 The other two contributing factors, tobacco and alcohol, are already heavily regulated.11 Sugar has been a leading cause in the rise of obesity and metabolic syndrome diseases, costing enormous amounts of money to the economy and driving the sharply rising health care costs in the United States.12
Many who read about Dr. Kearns’ discovery of the sugar industry’s deception when the media covered it in 2016 and 201713 felt a twinge of déjà vu. Something about it felt oddly familiar. That was because the sugar industry’s scheme echoed another story that had made headlines in the American media right around the same time. In 2016 and 2017, a series of investigative news stories broke about the opioid industry’s campaign of public deception14 wherein they sought to hide or downplay the addictiveness and destructiveness of opioid painkillers.15 This caused a public outcry from, among others, political and community leaders.16 It also led to a number of lawsuits against pharmaceutical companies to hold them liable for the deception.17
The parallels between the sugar and opioid industries’ public deceptions were astonishing. Like the sugar industry, the opioid industry, led early on by its number-one market leader, OxyContin, spent millions of dollars to mislead the public about the dangers posed by its product. The effects on American health were, and still are, tragic. By 2004 OxyContin was the most abused drug in the United States.18 In recent years and up to the present, opioid pain drugs have killed around 130 Americans a day.19 The opioid epidemic, led by a small handful of giant pharmaceutical companies, has been labeled “the worst public health crisis in American history.”20 Although Americans make up only five percent of the global population, Americans consume eighty percent of the world’s opioids.21 And for some of the most potent and dangerous kinds of opioids, the synthetic variety, Americans consume even more; Americans consume eighty-two percent of the world’s oxycodone and more than ninety-nine percent of its hydrocodone.22 Beginning opioid use is a death sentence for thousands, and a ticket for addiction misery for millions of others. This, among many other dangers, was never mentioned in the opioid manufacturers’ marketing push.
The opioid industry’s public deception scandal, however, seemed to echo yet another very similar scandal in the news about a year prior. In 2015, two major media outlets revealed that recently uncovered internal corporate documents from ExxonMobil23 showed that the company, the world’s largest oil company,24 had funded a massive campaign of climate change deception beginning in about 1990 and continuing through at least 2010.25 Like the sugar industry’s public deception, ExxonMobil spent millions to pay Harvard-affiliated academics to shill for the industry by publishing papers that supported the corporate campaign of climate change doubt.26 Like the sugar and opioid industries, the public deception centered on downplaying, hiding, and outright lying about the dangers posed by the product being sold. Like sugar and opioids, the fossil fuel industry’s deception has caused catastrophic harm, and will continue to be a destructive force for years to come. Sea-level rise, more frequent and stronger extreme weather events, heatwaves, droughts, floods, and massive population displacement are all projected to take place in the coming decades.27
In the case of all three of these schemes to deceive the public—by the sugar, opioid, and fossil fuel industries—the modus operandi was, and is, the same. There is a product that is both profitable and destructive, but its destructiveness is not readily apparent because the causal connection between the product and the harm it causes can only be bridged with scientific knowledge. The companies selling the product tell the public that the science linking the product to the harm it causes is unsettled or unknown when, in fact, the science is well enough established to warrant regulation of the product and, in many cases, imposition of liability for harm caused by it.28 The corporate message of scientific doubt or silence on the causal connection, in other words, does not square with what scientists know. This makes the assertion—or, in the case of an omission, silence—misleading or even false29 but, under current tort law, those harmed by such deceptive practices have no claim against the wrongdoers.
The schemes carried out by the sugar, opioid, and fossil fuel industries, among others, fit within a category of wrongs I call “Public Deception Schemes to Conceal Product Dangers” or “PDCPD Schemes.” Every PDCPD Scheme has three elements: (1) a company sells a deceptively dangerous product;30 (2) the company knows or has reason to know that the product causes harm to human health, life, or the environment;31 and (3) the company purposefully misleads the public about the dangers posed by the product, most often by hiding the causal link or raising doubt about the science bridging the gap between product and harm.32 Where these three elements are met, it is a PDCPD Scheme. In addition to sugar, opioids, and fossil fuels, other PDCPD Schemes have come to light in the past few decades. They include companies selling tobacco, e-cigarettes, soft drinks, artificial sweeteners, fast food, processed food, prenatal drugs, pain killers, pesticides, formaldehyde, asbestos, agent orange, poisonous gasoline additives like Methyl tert-butyl ether (MTBE), cancer-causing brake pads, beauty products, baby powder, and lead-laced paint, gas, and toys.33 This list is not exhaustive.
The PDCPD Scheme definition is imperfect. Some may argue it is overinclusive, or that each distinct scheme should be addressed on its own merits rather than lumped into this broad category. What, after all, does lung cancer have to do with sea level rise? This view finds substantial support in the law because this is how the law today treats these schemes. But it is precisely this failure to lump such similar schemes together that has allowed them to flourish. So far, the companies carrying them out have evaded liability and, in the process, killed tens of millions of people, sickened millions more, and wreaked destruction on the environment.34 If, however, we desire to punish or prohibit such schemes, we must first recognize what is going on. Pulling together the numerous PDCPD Schemes to reveal the breadth of the problem is an important first step.
Others may argue the exact opposite, that the PDCPD Scheme definition is underinclusive because it leaves out a number of public deception campaigns, such as those pertaining to guns, abortion, vaccinations, the teaching of evolution in school, military invasions, and foreign drone strikes. While these other “political public deception”35 campaigns share many attributes with PDCPD Schemes, this article intentionally focuses only on companies misleading the public about dangers posed by their products, because many of these other schemes center more on political questions rather than commercial ones. Of course, an issue like climate change denial involves a mix of both commercial and political components. But, because the genesis of the public deception campaign by the fossil fuel industry is profit-seeking, this makes the political component of the issue a byproduct of the public deception campaign—a purposefully created byproduct, but a byproduct, nonetheless.
Moreover, avoiding political questions in this Article is also necessary to lessen or simplify, to the extent possible, the First Amendment issues this topic inevitably implicates.36 This is not a constitutional law article. Instead, this article will focus on tort aspects of the issue, and, to a lesser extent, criminal law aspects. I recognize, however, that First Amendment concerns must be dealt with to make full and satisfactory progress on this issue. Those issues will need to be addressed by other scholarship.
The problem this article seeks to address is the fact that, because PDCPD Schemes do not fit into the existing tort framework, those harmed by such schemes often have no way to seek compensation from the wrongdoer.37 Companies profit off of the public’s inability to hold those companies liable for the harms they cause, and the public is left paying the costs of the harm purposefully caused by the makers of poisonous products.
This Article posits that one way to close this gap in tort law, though certainly not the only way,38 would be for Congress or the state legislatures to pass a comprehensive set of laws aimed at prohibiting PDCPD Schemes and punishing those who carry them out. The gap in the law today, which allows manufacturers of poisonous products to evade liability by misleading the public, rather than any particular individual, is similar to the gap in the law in the early twentieth century which allowed securities fraud to go under-punished for a similar reason. Like PDCPD Schemes, massive securities fraud schemes were being carried out and the fraud laws were insufficient to deal with the problem for the same reason that fraud law today fails to deal adequately with PDCPD Schemes. Accordingly, and in reaction, the U.S. Congress passed Section 10(b) of the Securities Exchange Act of 1934 (‘34 Act) to close that gap in the law.39 This Article proposes that Congress or state legislatures pass a similar set of laws to close the gap that allows PDCPD Schemes to go on uninhibited and unpunished. Closing this gap would further numerous tort policy goals, including shifting the loss to those responsible for causing it and expanding the scope of liability for those who commit intentional, wrongful conduct.40
The Article proceeds in four parts. In Part I, I discuss the failure of common law fraud to adequately address the fraudulent PDCPD Schemes. There are historical and policy reasons fraud has been interpreted—wrongly, I argue—to exclude PDCPD Schemes. In Part II, I describe how other areas of tort likewise fail to adequately provide redress to victims harmed by PDCPD Schemes. This Part covers consumer protection laws, negligence, products liability, intentional torts, and nuisance. In Part III, I discuss how securities fraud, a form of public deception for gain, had, up until the 1930s, likewise been inadequately addressed by common law fraud, and how this gap in the law was closed by Congress’s passage of Section 10(b) of the ‘34 Act. In Part IV, I propose that Congress or state legislatures pass a set of laws aimed at prohibiting PDCPD Schemes and punishing those who carry them out the way that Congress passed Section 10(b) of the ‘34 Act to prohibit and punish impersonal deceptions carried out in the securities markets. I also discuss how closing this gap in the tort law furthers several well-established policy aims.
I. PDCPD Schemes Are Fraudulent in Nature But, Under the Law, They Are Not Considered Fraud
Conduct deemed “fraudulent” is broadly prohibited and punished under the law. For instance, deceiving another for profit generally falls under the common law tort of fraud.41 In addition, statutes prohibit mail and wire fraud, conspiring to commit any kind of fraudulent act, carrying on fraudulent business practices that harm consumers, and committing insurance and securities fraud.42 But what is fraud, and what constitutes fraudulent conduct? Who gets to decide? And how does that definition relate to PDCPD Schemes?
Fraud is generally considered to occur where Person A lies to Person B, by making either a material misrepresentation or material omission, to trick Person B into believing the lie and justifiably relying on it to Person B’s detriment, and to Person A’s benefit. This is the basis for common law fraud.43 It involves a deception, a benefit received by the one doing the deceiving, and harm to the victim caused by the deception and the reliance thereon.44
Not every instance of what is considered legal fraud, however, fits this fact pattern exactly. Take, for example, the reliance requirement. Although some jurisdictions require that the victim “justifiably” or “reasonably” rely on the misrepresentation or omission,45 other jurisdictions require only actual reliance.46 Securities fraud does away with the first-person reliance requirement entirely. A plaintiff in a securities fraud case is presumed to have relied on the defendant’s material misrepresentations or omissions.47 Accordingly, the plaintiff need not normally allege or prove actual reliance in most securities fraud cases.48 That is, it is often irrelevant whether the shareholder plaintiff ever even saw or knew of the material misrepresentations he or she “relied” on.
Sometimes, reliance on a representation made not by the defendant, but by some other third party, is enough. This is the so-called “indirect reliance” doctrine.49 This doctrine applies where a plaintiff received the misleading representation from someone who had received it, directly or indirectly, from the defendant, and the defendant either intended the misrepresentation to be conveyed to the plaintiff or should have known that it could have been so conveyed.50 It also applies where a misrepresentation is communicated to an agent of the plaintiff, and the agent acts upon it to the plaintiff’s damage.51 A fraud claim based on “indirect reliance” may also lie where there is a chain of fraudulent representations which are repeated by one victim to another. “[I]n such a situation, it must be shown that the defendant made the misrepresentations or omissions directly to one victim, who then repeated the misrepresentations or omissions to another, who thus was an indirect recipient of the defendant’s communications.”52
Reliance is not the only element where exceptions are made. Although fraud claims often require that a plaintiff’s damages arise out of reliance on the misrepresentation or omission, the U.S. Supreme Court has held that legal injury from a fraudulent misrepresentation is not limited to only those who rely on it.53 For example, plaintiffs in a civil RICO action were held to be able to seek damages against a defendant who committed fraudulent acts even absent any showing of having relied on the defendant’s misrepresentations.54
There is also a wide variance among different jurisdictions and kinds of fraud claims with regard to who may secure redress for fraud. The answer to this question generally depends upon the elements of the cause of action in question, what acts constituted the fraud or misrepresentation, and who has been injured thereby.55 Generally, those within the foreseeable purview of relying on the fraud and who are injured thereby have recourse.56 Particular rules, however, may limit who is entitled to relief, which also varies by jurisdiction, such as requirements of privity57 or that the party seeking redress be the party the fraud was intended to deceive.58 That is, in general the fraud must have been directed toward the person bringing the fraud claim in the sense that this was a person intended to act upon it.59 But in some jurisdictions the connection between plaintiff and defendant may be, as discussed above, indirect and nevertheless a fraud claim may lie.60
Moreover, securities fraud allows a plaintiff to sue a defendant even if the defendant could not have foreseen that that particular plaintiff would have relied on and been damaged by the misrepresentation or omission.61 This is also true of consumer protection laws, which allow a damaged consumer to sue a defendant for deceptive business practices even when there is no relationship at all between the plaintiff and defendant.62
Taken together, the full scope of the various fraud-based laws generally prohibits and punishes those who purposefully deceive others for profit.63 And where someone is foreseeably damaged by reliance on the deception, tort law provides such harmed individuals recourse to seek redress.64
Although PDCPD Schemes fit within the broader scope of fraudulent conduct—that is, they are deceptions for profit, which result in damage to innocent persons as a result of reliance on the deceit—they are almost never considered to be within the purview of fraud law. The damage to human health and life, as well as to the environment, resulting from this large loophole in the fraud laws is well documented.65 The question is why PDCPD Schemes are not treated as fraud, and whether the current state of the law is desirable and, if not, whether and how it can be changed.
Below, I will briefly discuss the problem, which is that PDCPD Schemes fall outside what is considered fraud under today’s law. If another tort doctrine filled the gap, then this might fix the problem.66 However, no other tort adequately addresses PDCPD Schemes, as discussed in Part II. Each of these issues is addressed, in turn, below.
A. Civil Fraud Law Has, Since Its Emergence in the Eighteenth Century, Far Better Addressed Personal Deceptions than Impersonal Ones
Fraud first appeared as an independent tort in the 1789 case of Pasley v. Freeman.67 Up to that point in time, there was no law against deceiving for profit, except as between parties to a contract.68 Absent a contract, it was perfectly permissible to profit off of lies about the quality or safety of a product, the authenticity of a work of art, or the creditworthiness of a buyer.69 Any harm to the victim resulting from believing or relying on the deception was not redressable in tort.
After fraud appeared in Pasley, it grew and developed over time through English and American jurisprudence. The case of Derry v. Peek,70 decided exactly one hundred years after Pasley, set out the fraud test still used today in common law jurisdictions all over the world. As has been pointed out elsewhere,71 the outcomes of these two seminal fraud cases reflect the early development of fraud law as a remedy far more accessible to those harmed by personal deceptions than to those harmed by impersonal deceptions.
In Pasley, the defendant purposefully deceived the plaintiff, a store owner, by claiming a customer placing a large order on credit was creditworthy, solvent, and trustworthy, when in fact the defendant knew the customer likely would not pay for the goods.72 In fact, the customer disappeared and never made payment, resulting in significant loss for the plaintiff.73 The court there recognized that, under the law, no action existed to redress this kind of deception.74 It then went on to rule in the plaintiff’s favor anyway, inventing the tort of fraud with the stroke of a pen.75
The deception in Pasley was personal in nature. It was one-on-one; the defendant personally promised the plaintiff that the customer he was selling merchandise to on credit was “good for it.” The defendant induced the plaintiff to sell on credit to an uncreditworthy customer. As a result of the defendant’s purposeful deception, the plaintiff lost money. After Pasley, this type of deception became the tort of deceit, now often called fraud.76
Derry, on the other hand, involved impersonal deception: securities fraud on the public. There, the defendant railway company issued a prospectus to attract investors that stated the company had obtained a government permit to begin using steam or mechanical power for all of its trains rather than the usual horse-drawn power.77 This, the prospectus predicted, would result in great savings and increased profitability.78 The plaintiff, after reading the prospectus, bought shares in the defendant’s company.79
In fact, the company had not obtained a permit to operate on steam or mechanical power.80 But the directors of the company, who drafted and approved the prospectus, sincerely thought the company would obtain the permit.81 Such permits were, at the time, almost always issued as a matter of course.82 Notwithstanding this, the railway company’s application for the permit was, shortly after the plaintiff bought shares, denied.83 This denial relegated the company to horse-drawn power, which was quickly falling out of use.84 The company shortly thereafter went bankrupt and folded.85
The plaintiff sued the directors of the company for deceit.86 The directors argued that they could not have defrauded the plaintiff because even if their representations in the prospectus turned out to be mistaken, they had sincerely believed the representations when they made them.87 Lord Herschell authored the opinion of the House of Lords which ruled in favor of the defendants.88
In the court opinion, Herschell conceded that the prospectus’s claim that the company had received a permit to operate steam or mechanical powered trains was “in some respects inaccurate and not altogether free from imputation of carelessness.”89 But, Herschell held, the claim to have obtained a permit was nevertheless “a fair, honest and bonâ fide statement on the part of the defendants, and by no means exposes them to an action for deceit.”90 In so holding, Herschell emphasized the fact that the company directors honestly believed they would obtain the permit and that they had a reasonable basis for such belief.91 The court opinion then set forth the test to determine whether a false statement is considered fraudulent: “fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.”92 This three-pronged definition is still good law today.93
The court’s decision in Derry is, on one hand, confounding. After all, the court holds that because the directors sincerely believed that the company would obtain the permit, it was not fraudulent for them to state in a prospectus that the company had obtained the permit. Even if the directors sincerely believed the former proposition, why should it be permissible for them to affirmatively represent a proposition differently from what they believed? This is the confounding part of the opinion. On the other hand, the Derry decision conforms perfectly to the trend running through early fraud cases whereby defendants in impersonal deception cases were treated far more deferentially than defendants in personal deception cases.94 In Derry, Herschell found a reason to rule in the defendant’s favor, albeit a reason unsupported even by the court’s own holding, because impersonal deceptions are treated unequally to personal deceptions.95
As a result, the modern elements of common law fraud practically require that the deception be personal.96 Indeed, some have gone so far as to say that fraud is “entirely personal”97 or that a personal deception is absolutely necessary for any fraud action to lie.98 This nearly exclusive focus on personal deceptions is also unsurprising given the origin of fraud as arising out of contract-based claims; prior to Pasley, only parties to a contract could seek redress for being deceived to their detriment.99
However, many kinds of deception that benefit the one doing the misleading and result in harm to others do not arise out of personal deceptions. Fraud on the public through the spread of misinformation has, throughout recent history, been widespread and highly profitable.100 Securities fraud is one example of this kind of fraud on the public. Unlike most other kinds of fraud on the public, securities fraud claims have long been litigated under fraud doctrine.101 As explained in more detail in Part III below, however, fraud law fell short of adequately addressing securities fraud claims, necessitating congressional intervention, in large part because of the impersonal nature of the deceptions involved.
Does this mean that impersonal deceptions are simply outside the scope of fraud? Perhaps. But even if this is the case under contemporary fraud law, it begs the question of whether impersonal deceptions should be outside the scope. This gap in the fraud law permits massive deception schemes whereby companies purposefully mislead the public into doubting whether products pose major risks that the products actually do pose—and the manufacturers know they pose. This makes this question as urgent now as it ever was.
B. PDCPD Schemes Are Impersonal Deceptions that Emerged Only in the Twentieth Century; Those Who Carry Them Out Have Almost Completely Evaded Civil Fraud Liability
The PDCPD Scheme, as described in this Article, did not exist until the 1920s. Up to that point, the only major category of schemes to defraud the public for gain that was of major public concern was securities fraud. As discussed below in Part III, this shortcoming in the fraud law was addressed in the 1930s.
PDCPD Schemes are different from securities fraud schemes in some ways. But the two schemes share important parallels. Perhaps the first major successful PDCPD Scheme was carried out by the makers and sellers of leaded gasoline. The story of leaded gas is the story of every PDCPD Scheme.
1. Leaded Gas
Lead, a known poison, was purposefully added to gasoline and then pumped out of exhaust pipes all over the world. It poisoned the air, land, and sea. Everyone alive between 1940 and 1990 suffered at least minor lead poisoning. Those making money off of leaded gas spent millions to hide the dangers of their product. As a result, they made billions.102
Lead was not, and never was, a necessary ingredient of gasoline. Gas does not naturally have lead in it, and adding lead was never about customer satisfaction or performance. It was about profits. The benefits of lead were wildly and knowingly overstated to justify its use. In fact, lead is actually bad for car engines, a fact pointed out by leading automotive experts.103 But while lead is bad for cars and even worse for human, animal, and plant life, it was a goldmine for those making and selling it. General Motors (GM), DuPont, and Exxon104 launched a public relations campaign to convince the public that tetraethyl lead, or TEL, one of the most dangerous forms of lead ever discovered, is the only way to make gas perform well. They called it a “gift from god.”105 But these companies were lying. Lead did nothing that other alternative additives could not do. This was admitted by GM at the time (in private), and later confirmed when the government banned leaded gasoline in the ‘80s and the gas companies phased it out without delay or problem.106 There were always other options out there.107
So why did they use lead? It was patentable.108 Many other effective fuel additive options at the time were alcohol-based.109 There was no way to exclusively produce or distribute them. Only TEL, which GM and DuPont patented, could be controlled and, therefore, exploited for profit.110 These companies held the exclusive right to make it, mix it with gasoline, and sell it to service stations and drivers.
The dangers of TEL were known long before its use in gasoline. Who knew about the dangers? First and foremost, GM, DuPont, and Exxon knew. Internal memos and correspondence now in the public domain confirm this.111 In March 1922, for example, before the patent application was even filed, Pierre du Pont wrote to his brother Irénée du Pont, the DuPont company chairman, that TEL is “a colorless liquid of sweetish odor, very poisonous if absorbed through the skin, resulting in lead poisoning almost immediately.”112 DuPont, GM, and Exxon would, in the coming years and decades, adamantly deny any knowledge of TEL’s risks.113
The dangers of TEL were known outside of the leaded gas industry as well. Leading U.S. public health experts railed against the idea of putting lead into gas. These included Alice Hamilton, the first woman appointed to the Harvard faculty, and Yandell Henderson of Yale, the country’s foremost expert on poison gases and automotive exhaust.114 Henderson, for example, warned that by putting lead in gas “the atmosphere might be polluted to such an extent along automobile thoroughfares that those who worked or lived along such streets would gradually absorb lead in sufficient quantities to poison them in the course of months.”115 Henderson then made a prediction:
Perhaps if leaded gasoline kills enough people soon enough to impress the public, we may get from Congress a much-needed law and appropriation for the control of harmful substances other than foods. But it seems more likely that the conditions will grow worse so gradually and the development of lead poisoning will come on so insidiously (for this is the nature of the disease) that leaded gasoline will be in nearly universal use and large numbers of cars will have been sold that can run only on that fuel before the public and the Government awaken to the situation.
This is probably the greatest single question in the field of public health that has ever faced the American public. It is the question whether scientific experts are to be consulted, and the action of Government guided by their advice, or whether, on the contrary, commercial interests are to be allowed to subordinate every other consideration to that of profit.116
As Henderson correctly pointed out, the dangers posed by lead are slow and, in most cases, minute. Lead builds up in the body over time and poisons humans, much like the slowly heating water experiment kills the frog before he is even aware he is in danger.117 Like tobacco, asbestos, fast food, and other health hazards that kill or sicken slowly over a long period of time, lead poisoning is often a slow-moving bullet. That does not make it less dangerous, it makes it more. Almost nobody poisoned by lead knows they were poisoned by lead, or even poisoned at all. We now know, however, that millions had their lives altered or ended because of the lead that built up in their bodies on account of environmental exposure to lead from car exhaust.118
Leaded gas, like all products sold through PDCPD Schemes, caused massive and widespread harm to health, life, and the environment, but, like all such products, the causal connection between the product and the harm it causes was invisible to the general public and could be bridged only by experts. Although leading toxicity and environmental experts pushed to keep lead out of gas, the industry used its wealth and power to push U.S. regulators to keep their hands off of their product,119 and paid their own experts and think tanks to produce studies, articles, and media talking points that raised doubt about the harm caused by leaded gas.
A small handful of “rented white coat” scientists shilled for the leaded gas industry and were paid large amounts of money to do so.120 These included Thomas Midgley and Robert Kehoe.121 Midgley has been described as, among other distinctions, “The Man Who Harmed the World the Most,” and “The Man Who Poisoned Us All.”122 Kehoe, for his part, has been credited with making leaded gas possible and profitable for more than five decades, from the mid-1920s to the 1970s, when Clair Patterson’s heroic efforts finally succeeded in putting a stop to lead in gas.123
Lead poisoned millions, if not billions, of people. In the 1960s, Clair Patterson’s work showed that lead levels were, on average, six thousand times higher in modern humans—almost all modern humans—than it had been in humans thousands of years ago. The only source of worldwide lead contamination was leaded gas, and specifically from the exhaust fumes that puffed out of exhaust pipes and into the atmosphere, where it was carried by winds, rivers, and currents to every corner of the globe. This opened up a whole new area of study: the measure of just how many people had been poisoned by lead, and how badly they had been poisoned.124
The results were astounding. Lead had permanently stunted neurological development in millions of children, causing permanent learning disabilities, mental problems, anxiety disorders, and a significant drop in IQ level. It also increased violence and criminality, not only in individuals, but for entire communities. This was actually measurable. Violence and criminal activity dropped in the ‘80s and ‘90s as lead levels plummeted after the banning of leaded gas. There were also millions of worldwide cases of acute lead poisoning from, for instance, children accidently splashing themselves with gas at a gas pump.
Civil lawsuits against those responsible for manufacturing and selling leaded gas began to trickle in during the 1930s.125 These suits were for negligence, products liability, and nuisance.126 These lawsuits went nowhere. Courts were unconvinced that leaded gas makers, who were allowed by government regulation to make and sell leaded gas, should be liable for harms caused thereby. It was seen as a political question, or one already decided by another branch of government.127 Accordingly, it was not the place of the judiciary to infringe on this area of law.
The leaded gas PDCPD Scheme was never viewed in any appreciable way as a matter of fraudulent conduct, but rather as a regulatory matter to be addressed by the EPA and other regulatory agencies.128 Those responsible for putting TEL in gas successfully carried out a massive campaign of deception for profit, which in turn caused widespread harm to individuals. But because the leaded gas deception was impersonal in nature, it fell outside the bounds of civil fraud.
2. Tobacco
In 1969, Brown & Williamson, a then-subsidiary of British American Tobacco, prepared a memorandum reviewing the current state of the tobacco industry’s public relations and future plans. In the memo, the author noted, “[o]ur consumer I have defined as the mass public, our product as doubt, our message as truth—well stated, and our competition as the body of anti-cigarette fact that exists in the public mind.”129 The author then added, “[d]oubt is our product since it is the best means of competing with the ‘body of fact’ that exists in the mind of the general public. It is also the means of establishing a controversy.”130
The tobacco industry figured out—though they were neither the first nor the last to do so—that if they pointed at the studies linking smoking and cancer and simply raised doubt about their truthfulness or accuracy, this would give people inclined to smoke a viable excuse for doing so even in the face of scientific studies showing it causes cancer. Doubt was enough. Tobacco sellers need not prove that tobacco was safe; rather, they shifted the burden to scientists to prove that tobacco was dangerous. This was the same tactic—the Kehoe Paradigm—used by the leaded gas industry to avoid regulation and liability for decades.131
The scientists were burdened with proving the danger with certainty while tobacco companies needed only raise doubt. In this way, tobacco companies deceived the public into believing smoking was safe, or at least not “proven” to be harmful. More than twenty million Americans have died from lung cancer and other illnesses resulting from firsthand and secondhand tobacco smoke.132 Millions more have died and continue to die around the world. Doubt allowed that to happen, and allowed tobacco companies to reap billions in profit while spreading disease and death.
Those harmed or killed, or those individuals’ survivors, began suing tobacco companies for tort in appreciable numbers beginning in the 1950s.133 The first wave of tobacco litigation consisted of personal injury suits by individual smokers, and began in the 1950s in the wake of the publication of several scientific studies, which sounded grave warnings of the health hazards of smoking.134 “The tobacco companies prevailed in these early cases because plaintiffs were unable to prove a causative link between smoking and cancer.”135 “The second wave of cigarette litigation, also composed of individual personal injury suits, began in the 1980s.”136 “In the wake of the 1964 and subsequent surgeon general’s reports and the federally-mandated warning label on cigarettes, the tobacco industry began arguing that the hazards of smoking were ‘common knowledge’ and, therefore, smokers who continued to smoke were merely exercising their ‘freedom of choice.’”137 “Thus the tobacco companies, not without a certain audacity, seamlessly shifted their battle cry from the first wave of litigation—‘smoking doesn’t cause cancer’—to their battle cry in the second wave of litigation—‘everybody knows’ that smoking causes cancer.”138
In the 1990s, after the public finally learned that the tobacco industry deliberately concealed the health dangers and addictiveness of tobacco and purposefully designed cigarettes to be addictive, states began to bring suits against Big Tobacco.139 In 1994, Mississippi Attorney General Mike Moore filed the first of what would become ultimately successful lawsuits against tobacco manufacturers.140 His strategy was to use public nuisance and other equitable theories “to avoid the need to prove specific causation of any individual’s illness and to eliminate defenses based upon a smoker’s own conduct, such as contributory negligence and assumption of risk,” which had long plagued individual plaintiffs.141
Forty other states filed similar lawsuits within three years.142 States sought recovery under a diverse range of theories, including “deceptive advertising, antitrust violations, federal Racketeer Influenced Corrupt Organizations (RICO) claims, unfair competition, a variety of fraud allegations, and in at least two states, Florida and Massachusetts, statutory claims based on the enactment of specific health care cost recovery legislation.”143
Courts never reached the merits of these claims because in June 1997, the parties agreed to a global settlement requiring tobacco companies to pay more than $368 billion over twenty-five years.144 After Congress failed to approve the settlement, the tobacco companies settled with four states individually (Mississippi, Minnesota, Florida, and Texas) for approximately $40 billion total.145 The tobacco companies then entered into the “Master Settlement Agreement” with the remaining states in the amount of $206 billion—with a total settlement amount of $246 billion spanning at least twenty-five years.146 This was the largest civil settlement in U.S. history.147
Tobacco companies were ultimately convicted of criminal violations for their deceptive practices as well. In 2006, a federal district court held tobacco companies liable for violating RICO by fraudulently covering up the health risks associated with smoking and for marketing their products to children.148
What ties the leaded gas and tobacco stories together is the fact that, in both cases, individuals harmed were denied civil redress. As one author noted, “civil justice, at least in the context of the tobacco litigation which played out before it, was simply beyond the ability of ‘a single individual human being’ to afford.”149 The same was true of victims of leaded gas. The same is also true with regard to the victims of any of the dozen or more major PDCPD Schemes carried out over the past century. To paraphrase Judge Noel P. Fox, “a single individual human being” who has been “injured, aggrieved, and disadvantaged” by a PDCPD Scheme cannot obtain relief in court.150
3. All PDCPD Schemes
Leaded gas and tobacco serve as two representative examples that stand in place of all such schemes. Both schemes were carried out in secret, and the fact they were purposeful deceptions at all, as opposed to legitimate business practices, only came to light decades after the fact.
The deceptions were kept hidden for decades in two ways. First, the harms caused by leaded gas and tobacco take years, and sometimes decades, to manifest themselves. “The long average latency periods for various known disease-causing substances—for example, twenty-five years for arsenic and eighteen years for asbestos—frustrate efforts to link any injury to the defendant’s past conduct.”151 Smoking-caused lung cancer, for example, has a latency period of, on average, about thirty years.152 And while some asbestos-related diseases show up in eighteen years, asbestos-caused mesothelioma has a forty-year latency period.153 The great gap between the use of a product and the manifestation of the harm it causes is one reason PDCPD Schemes are rarely identified until long after they were successfully carried out. Second, those carrying out PDCPD Schemes use their money and power to keep the operative facts secret and undiscoverable in court.154 Litigation ensues, generally, only many years after the deception has occurred. Yet even then companies spend vast amounts of money keeping the deception they carried out hidden from the public, from courts, and from journalists.
To accomplish any fraud—that is, to carry it out and profit from it—a wrongdoer must both deceive another for profit (deception) and avoid liability (evasion). Deception is the focus of fraud law generally. But evasion is fifty percent of the scheme. Evasion can be accomplished either of two ways; either the wrongdoer must avoid getting caught, or the wrongdoer must prevail on the merits in court. Those carrying out PDCPD Schemes accomplish both. First, they mislead the public and government regulators on the causal connection between their product and the harms it causes, and the difficult-to-ascertain causal chain often means that victims and those advocating for them cannot know of the harm the product is causing, at least for years or sometimes decades. Second, those carrying out PDCPD Schemes spend substantial amounts of money on advocacy, lobbying, and litigation, and these efforts most often result in court victories that deprive victims, including victims clearly harmed by the dangerous product, of redress in court. Not only do the big corporations win these contests, but their advocacy, lobbying, and litigation have ensured that PDCPD Schemes are simply not viewed as fraud or any other compensable tort.
PDCPD Schemes are not a one-size-fits-all kind of wrong. Each is different. Tobacco is a drug sold in supermarket checkout aisles. Opioids are prescription pharmaceuticals. Sugar is one of the most common food ingredients. Pesticides are outdoor poisons for plants. And fossil fuels are a whole other kind of product altogether. Moreover, each of these products causes harm in a somewhat different way from any of the other products. Yet they all fit the three-element test for PDCPD Schemes, and each has proven highly detrimental to human health, life, and/or the environment. And each has avoided liability in the same way, by the impersonal nature of the deceptions involved. Fraud law has proven ill-equipped for the monumental task of reining in the wrongdoers carrying out PDCPD Schemes.
This leads to the anomalous predicament we are in. We now know about these massive deceptive schemes to defraud the public by which numerous corporations have profited greatly off of deceptions that have correspondingly caused great harm to millions of people, and yet the laws now in force to deal with deceptions for gain do not touch these PDCPD Schemes. Moreover, no other area of tort law adequately addresses (or stops) these schemes, as discussed in Part II below. PDCPD Schemes are, by any fair measure, fraudulent in nature, but the law does not treat them as “fraud.”
II. Other Areas of Tort Law Do Not Adequately Address PDCPD Schemes, Leaving Victims Without an Appropriate Avenue to Seek Redress
One counterargument to the idea that fraud law inappropriately fails to address PDCPD Schemes is that such schemes are not within the purview of fraud but rather fall within one of the other tort doctrines. Fraud law, according to this view, need not and should not address PDCPD Schemes. Rather, harmed individuals have existing tort avenues to pursue damages.
There are at least two reasons why this view fails. First, some of the most notable purportedly viable avenues to seek redress for those harmed by PDCPD Schemes, such as negligence and nuisance, fail to compensate for the deception that caused the damages in the first place. Treating a purposeful wrong as negligence is akin to treating a premeditated killing as manslaughter rather than murder; it diminishes the wrongfulness of the act, very likely resulting in reduced culpability of, and compensation to, plaintiffs.155 Second, in practice no other tort area has provided harmed plaintiffs adequate relief. Although some PDCPD Schemes might ostensibly fit within another tort doctrine, courts have not allowed claims against wrongdoers in any appreciable way that would justify this view.
A. Consumer Protection Laws
Consumer protection laws aim to protect consumers by providing an avenue to seek damages following harm caused by a business’s unscrupulous or deceptive practices.156 There are both federal and state consumer protection laws. Federal law includes, for example, the Federal Trade Commission Act, which has an unfair and deceptive practices provision that aims to prevent persons, partnerships, and corporations from using unfair or deceptive acts or practices in commerce.157 The Lanham Act, another federal consumer protection law, “protect[s] persons engaged in commerce against false advertising.”158
All states have their own laws aimed at protecting consumers from unfair and deceptive practices.159 Every state’s consumer protection legal regime is unique, and there are some important distinctions among them. For instance, although some states limit relief to acts or practices actionable at common law,160 other states do not recognize this limitation.161 Some states view the term unfair or deceptive acts or practices to be limited to acts or practices affecting public interest,162 while other states impose no such requirement.163 In general, however, the specific types of claims redressable under the unfair business practices umbrella are categorized into two groups: those that involve unfair competition and those not involving unfair competition.164
Washington State’s consumer protection law is codified in the Consumer Protection Act (CPA).165 To establish a violation of the CPA, “a private plaintiff must establish five elements: (1) an unfair or deceptive act or practice; (2) occurring within trade or business; (3) affecting the public interest; (4) injuring the plaintiff’s business or property; and (5) a cause relation between the deceptive act and the resulting injury.”166 To prove that an act or practice is deceptive for purposes of the CPA, neither intent nor actual deception is required; the question is whether the conduct has the capacity to deceive a substantial portion of the public.167 Thus, Washington’s consumer protection law provides broader protections than common law fraud. This is true in some other states, as well.168 Some states, however, explicitly limit the scope of their consumer protection law to actions that would have been redressable under common law fraud.169
On first blush, it would appear that consumer protection laws are perfectly positioned to address the problem of PDCPD Schemes. The schemes, after all, consist of businesses carrying out “immoral, unethical, oppressive, or unscrupulous” acts that enrich themselves at the expense of consumers and the public.170 Yet consumer protection laws, like fraud, have largely failed to stop or even slow these schemes down. One notable exception appears to be the opioid PDCPD Scheme. In recent years, several states have, under their state consumer protection laws, prosecuted opioid companies, officers, and directors for their role in misleading the public about the dangers of opioids.171 However, this has not been a common occurrence. Sugar, fossil fuel, pesticide, and numerous other industries faced no significant threat from consumer protection laws while carrying out their own PDCPD Schemes. Moreover, it is too early to tell whether these lawsuits by states will adequately punish, or even stop, the schemes carried out by major pharmaceutical companies misleading the public about the dangers posed by the drugs they sell. In any case, from a tort perspective, the states’ lawsuits against opioid manufacturers are of limited value. Fines and jail sentences meted out by the state do little to nothing to compensate victims of the PDCPD Scheme.
Accordingly, although consumer protection laws appear, at least on paper, to address the wrongful conduct by those carrying out PDCPD Schemes, the track record proves that this is not the case. Perhaps one problem is that most PDCPD Schemes involve harms that are too attenuated or slow in developing—like cancer, global warming, or environmental damage—to allow individual plaintiffs to connect the dots between the deceptive conduct and the harm caused. Or perhaps the same limitations on fraud actions, such as reliance and intent, are the cause. These guesses are mere speculation. The question of just why consumer protection laws fail to adequately prohibit PDCPD Schemes or punish those who carry them out would require at least another article to address. The fact they fail to do so, however, is clearly shown by the repeated success of PDCPD Schemes in industry after industry.
B. Negligence
Negligence is the failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation.172 Its elements include: (1) a duty owed by the defendant to protect the plaintiff from injury; (2) a failure to perform that duty; and (3) injuries to the plaintiff which are actually and proximately caused by the defendant’s failure to exercise the duty of care.173 Negligence claims are ill-suited for claims against those who carry out PDCPD Schemes in several ways. To begin with, PDCPD Schemes are most often purposeful, wrongful conduct. They are not the result of an accident or oversight. In addition, the causation issues that plague claims against PDCPD wrongdoers are also present in negligence actions. Both actual and proximate causation are potentially problematic because of the attenuated and slow-in-developing nature of the harms like cancer, global warming, and environmental damage.174 For instance, in City of Oakland v. BP, the court found that the plaintiffs were unable to establish the “but for” causation element because the rise in sea level would have likely occurred even without the defendant’s involvement.175 In claims against fossil fuel companies, tobacco companies, or other PDCPD wrongdoers, the fault often does not rest on just one company. Negligence, like consumer protection laws, has failed to prohibit PDCPD Schemes, punish those who carry them out, or provide adequate redress to those harmed by them.
C. Strict Products Liability
Strict products liability is another tort area that seems, on its face, to provide an avenue for harmed plaintiffs to seek redress against PDCPD wrongdoers. Strict products liability deals with products that are either distributed or manufactured defectively, enter the stream of commerce, and cause harm to consumers.176 For example, in Illinois, to successfully recover under a claim of strict products liability, a plaintiff must prove there is a defect in the product resulting from manufacturing or design that made the product unreasonably dangerous at the time the product left the defendant’s control, which ultimately caused injury to the plaintiff.177 Unlike negligence, strict product liability does not require the plaintiff to prove foreseeability.178
However, this kind of claim—like consumer protection laws and negligence—is not well suited to address PDCPD Schemes. Like negligence, it ignores the wrongful nature of the conduct perpetrated by PDCPD wrongdoers. Accordingly, even if a plaintiff were to prevail, the harm redressed would not have been caused by the conduct at issue here, which is the deception carried out by the defendant. In addition, plaintiffs would likely face enormous obstacles in proving that the product in question was “unreasonably dangerous,” a required element.179 Regardless of which test is applied—consumer expectation or risk-utility180—a defendant would be able to make use of bought-and-paid-for science generated by industry-funded scientists to argue that the product was not unreasonably dangerous.
D. Other Intentional Torts
Fraud law, as discussed above, fails to provide an adequate remedy to plaintiffs harmed by PDCPD Schemes. No other intentional tort fills the gap, either. The other intentional torts include assault, battery, false imprisonment, intentional infliction of emotional distress, trespass to land, and trespass to chattel.181 None of these provide an avenue for redress of the harm caused to plaintiffs by PDCPD wrongdoers, such as the sugar industry’s purposeful deception of the public regarding the health dangers of sugar or the fossil fuel industry’s purposeful deception of the public regarding the causes of global warming. Fraud is the tort that best fits the mold, but as discussed above, it has developed in a way that effectively guarantees victory for defendants in any fraud case brought against a PDCPD wrongdoer.
E. Nuisance
For those harmed by most species of PDCPD Schemes—say, by a smoker who developed lung cancer caused by tobacco smoke—nuisance is not a viable avenue for relief. However, in the case of the fossil fuel industry’s deception of the public with regard to global warming, nuisance is at least ostensibly one available option. Yet, although several plaintiffs have sued fossil fuel companies and greenhouse gas (GHG) emitters, “[n]o plaintiff has ever succeeded in bringing a nuisance claim based on global warming.”182 At least not yet.
One plaintiff has, however, achieved at least some success in a nuisance claim against the largest GHG emitter in Europe. Saúl Luciano Lliuya sued the German energy firm RWE AG to recover damages to compensate him and his community for the harm caused by the threat from Lake Palcacocha.183 The case is called Lliuya v. RWE AG.184 In his lawsuit, Saúl brought a nuisance claim against RWE, which is responsible for 0.5% of all CO2 ever emitted by humans,185 and alleged that the company should pay for 0.5% of the cost of making safe a glacial lake that has swollen to a dangerous volume as a result of anthropogenic CO2-induced global warming.186 Saúl’s nuisance claim was made under German Civil Code Section 1004, which, like American nuisance law, prohibits using one’s own property in a way that impairs someone else’s use of her property.187 The trial court dismissed the case, holding that no causal connection could be made by the plaintiff between CO2 emissions in Europe and the melting of glaciers in the Andes Mountains of South America.188 The appellate court reversed, holding that Saúl could prevail in his nuisance claim if he proved the causal connection in court.189 The court ruled that he must be given the chance to do so.190 As of this writing, the case is still pending.
Nuisance, however, suffers from the same deficiency as negligence and strict products liability in that it fails to even acknowledge, let alone address, the purposeful deception of PDCPD Schemes. Moreover, it has no applicability whatsoever to any of the vast majority of PDCPD Schemes.
Accordingly, the idea that fraud law should not address PDCPD Schemes because such schemes fall within the purview of one or more other tort doctrines is not supported by the current tort law or by the track record of such schemes failing to be adequately prohibited or punished under any tort doctrine. There is no non-fraud-based tort that gives harmed plaintiffs a viable avenue to pursue damages against PDCPD wrongdoers. Accordingly, PDCPD wrongdoers profit immensely off of the schemes while victims of the schemes continue to suffer economic and physical harm, and in many cases death, as a result of the deceptive schemes.
III. Securities Fraud Was Also Inadequately Addressed by Tort Law a Century Ago, and the States and Congress Closed the Loophole by Passing Securities Fraud Statutes
For hundreds of years, securities fraud claims under American and English law had to be brought under the common law fraud doctrine.191 If an investor was defrauded in connection with the purchase or sale of a security, the remedy was common law fraud. This changed in the United States in the early 1900s. First, between 1911 and 1931, all but one of the states passed blue skies laws to combat securities fraud.192 These were state securities laws that addressed a number of issues that had arisen with the offering, issuing, purchasing, and selling of securities.193 One thing these laws did, however, was to provide for a new statute-based fraud claim aimed directly at those who carried out fraudulent schemes in the purchase and sale of securities.194 Then, in 1934, Congress passed the Securities Exchange Act of 1934 (the Act).195 Section 10(b) of the Act addressed securities fraud.196 Upon the passage of that law, and clarified later upon adoption of Rule 10b-5 that same year,197 securities fraud in the federal courts was from there on addressed under Section 10(b). Accordingly, in a span of less than twenty-five years, securities fraud under American law was removed completely from the common law fraud realm and placed into the new state and federal securities fraud statutory frameworks.
This astounding shift in the law was in response to an astounding gap in the law. Common law fraud had, throughout its centuries of covering securities fraud, failed to protect investors.198 It had failed to protect the victims of securities fraud, a shortcoming that became even more evident at the beginning of the twentieth century on account of the great growth, and great failure, of the securities markets. This justification for the passage of securities fraud laws has been noted previously with regard to both the federal and state laws. On the federal side, “[s]ection 10(b) was enacted largely due to the inadequacy of the common law of fraud in impersonal securities transactions.”199 The state blue sky laws were likewise passed “to prevent the sale of fraudulent securities, particularly to unsophisticated investors.”200 In fact, the state securities laws became known as “blue sky” laws because one supporter claimed many securities salesmen were so dishonest that they would sell “building lots in the blue sky.”201
Authors have posited competing hypotheses for why the states and Congress passed securities law statutes during the period of 1911 to 1934. For example, Dean Paul G. Mahoney, in his article The Origins of the Blue-Sky Laws: A Test of Competing Hypotheses, explores three theoretical justifications of the passage of blue sky laws between 1911 and 1931.202 The first is a public interest hypothesis: “securities fraud increased in the early twentieth century, and the blue-sky laws were a reaction.”203 The second is “a public choice story in which small banks agitated for blue-sky laws as a means of reducing competition for depositors’ funds from securities firms.”204 The third is a political hypothesis: “blue-sky laws were adopted at the behest of agrarian and progressive lobbies to curtail the power of financiers.”205
Mahoney and other authors have focused these explanations on why the securities laws were passed,206 yet none of the scholarship on this issue has adequately explained why common law fraud, and tort law generally, were so inadequate in the first place as to force securities law into being. This question remains unanswered.
Section III of this Article attempts to answer this question. It does so by reviewing the legislative history of Section 10(b) of the Act, and Rule 10b-5 promulgated under it, as well as the case law discussing and interpreting the securities fraud aspects of the Act and the state blue sky laws. In addition, however, Section III will focus on how the nature of securities fraud makes common law fraud ill-equipped to address it, because to adequately answer the question of why common law fraud was inadequate, one must look at the ways in which it fell short, long before the securities laws were passed.
As discussed above, common law fraud developed to address primarily personal deceptions.207 It focuses on one-on-one deceptions.208 Securities fraud, however, rarely involves personal deception. For example, although securities fraud schemes such as insider trading and misleading statements in a prospectus are deceptive devices intended to defraud and do, indeed, defraud individuals, they are significantly different in important ways from the one-on-one schemes traditionally addressed by common law fraud. It is not surprising, then, that under the common law framework, “the unique factual circumstances of securities fraud made it difficult for plaintiffs to show the elements of reliance and intent.”209
Prior to the enactment of Section 10(b) of the Act, which covers securities fraud, there was section 9(c) of House Bill 9323, which attempted to cure the defect in which harmed stockholders had no cause of action against issuers for deceptive practices in the purchase and sale of securities.210 The bill proposed to fix this problem by creating a “catch-all clause” intended to stop “cunning or manipulative devices,” such as insider trading.211 However, while it is clear the legislative intent included the prevention of securities manipulation,212 it also aimed to repair the public’s damaged confidence in the security market to assure “straight shooting” for a “more moderate, more honest, and more justifiably self-trusting” economy.213 After the stock market crash of 1929, Congress identified a need to protect and restore investor confidence.214 In other words, common law fraud’s failure to stop securities fraud was so great that it threatened the structural integrity of the securities markets.
The Act, passed in response: “was intended as a comprehensive scheme to produce the necessary flow of accurate information concerning securities traded in the secondary market. . . . Thus, when the SEC promulgated rule 10b-5 to define deceptive or manipulative devices, it included acts, practices, and courses of dealing in business, which would operate as deceit as well as communicational misconduct.”215
This relaxed the strict common law fraud elements in important ways, allowing harmed investors to seek redress, even where they could not satisfy all of the fraud elements.216 Congress and the Supreme Court have both recognized that securities fraud was born long ago within the common law, and still closely resembles common law fraud in important ways.217 However, courts have consistently held that Section 10(b)’s general purpose was to provide relief for victims that otherwise had no remedy at common law. The Seventh Circuit, for example, noted that “[i]t is clear from such examination that the statute was meant to cover more than deliberately and dishonestly misrepresenting or omitting material facts which ordinarily are badges of fraud and deceit.”218 Knowledge of falsity or misleading character of statement and bad faith intent to mislead or misrepresent are not required to prove violation of Section 10(b), which prohibits manipulative and deceptive devices.219
In one early case decided by the U.S. District Court for the District of Columbia, the court clarified that securities fraud under the Act was not equivalent to common law fraud. There, the court held:
[P]etitioner’s argument in this court with all its many facets amounts to no more than a claim that common law fraud has not been proven and that the registration cannot be revoked without such proof. We must reject such a claim. To accept it would be to adopt the fallacious theory that Congress enacted existing securities legislation for the protection of the broker-dealer rather than for the protection of the public. To say, as petitioner does, that every element of common law fraud must be proven in order to validate the revocation of a broker-dealer registration is to say that Congress had no purpose in enacting regulatory statutes in this field and that its legislation in the field is meaningless. On the contrary, it has long been recognized by the federal courts that the investing and usually naive public needs special protection in this specialized field. We believe that the Securities Act and the Securities Exchange Act were designed to prevent, among other things, just such practices and business methods as have been shown to have been indulged in by the petitioner in this case. Those practices described above when viewed in the setting portrayed in this record can only be described as manipulative, deceptive, and fraudulent.220
Courts have now repeatedly held that proof of common law fraud is not required to sustain cause of action under Section 10(b).221
The Act’s preamble states its purpose is “to prevent inequitable and unfair practices in securities transactions generally.”222 One of its primary objectives was to restore and maintain investor confidence in the capital markets of the United States.223 At the time of the Act’s passage, the Senate Committee on Banking and Currency stated:
The concept of a free and open market for securities necessarily implies that the buyer and seller are acting in the exercise of an enlightened judgment as to what constitutes a fair price. Insofar as the judgment of either is warped by false, inaccurate, or incomplete information regarding the corporation, the market price fails to reflect the normal operation of supply and demand.224
Under common law fraud, corporate insiders, broker-dealers, and others with greater information than the investing public could easily use that information, or put out false information contrary to the true information, to deceive investors, yet these deceptive practices did not run afoul of common law fraud. Thus, when the new securities fraud laws were passed, although the new statutory securities fraud cause of action was similar to common law fraud in many ways,225 it differed in important ways as well. The unique aspects of the capital markets caused different weight to be given to each fraud element as they were transferred into the world of securities fraud.226 For instance, “[m]ateriality substitutes for justifiability.”227 “The two torts, however, have different standards for reliance, which have vast ramifications.”228 Reliance on a misrepresentation for liability in common law deceit must be actual and justifiable; by contrast, liability in securities fraud may arise under presumed reliance according to the fraud-on-the-market theory, provided the misrepresentation is material.229
Thus, although deceptive practices in the securities markets were redressable under common law fraud for well over a century as of the early 1900s, common law fraud had failed to provide an adequate remedy to injured plaintiffs. This failure of the common law was so great it threatened the stability of the capital markets and undermined the public’s faith in them. This led, at least in part, to the stock market crash of 1929. It also led states and Congress to pass statutes to prohibit deceptive practices in the purchase and sale of securities.230 The failure of common law fraud was a result of the doctrine being ill-suited to address deceptive practices in the purchase and sale of securities because such deceptive practices did not conform to the one-on-one deception paradigm that common law fraud developed primarily to address. This gap in the law was filled by state legislatures passing state blue sky laws and by Congress passing Section 10(b) of the Act. These provided a more applicable fraud standard to address the particular deceptive practices carried out in the purchase and sale of securities,231 and set up enforcement agencies to investigate and prosecute securities fraud claims.232
IV. The Gap in the Law Could Be Closed by Legislation Establishing a New Fraud-Based Cause of Action Providing Injured Parties an Avenue to Seek Redress Against PDCPD Wrongdoers
Like deceptive schemes involving the purchase or sale of securities prior to the passage of the blue sky laws and Section 10(b) (collectively, the “securities fraud laws”), PDCPD Schemes are impersonal deceptions of the public that, although fraudulent in nature, are not adequately addressed by existing fraud law. However, those injured by PDCPD Schemes are in many ways worse off, from a tort law perspective, than those injured by securities fraud under the common law. Because while some plaintiffs harmed by deceptive acts today falling within the purview of securities fraud law succeeded in obtaining damages from defendants under the common law,233 those injured by PDCPD Schemes today have nearly no chance of success in court under a common law fraud theory.
Take, for instance, the case of City of New York v. BP P.L.C.234City of New York v. BP P.L.C., 325 F. Supp. 3d 466 (S.D.N.Y. 2018). There, the City of New York filed a lawsuit against oil and gas companies seeking damages for climate change harms.235 No fraud claim was included in the complaint. Instead, the City alleged three torts: public nuisance, private nuisance, and trespass.236 The disposition of the case at the trial court level gives valuable insight into why no fraud claim was alleged. There, the U.S. District Court for the Southern District of New York granted the defendants’ motion to dismiss.237 In its opinion, the court held that federal common law governed the City’s claims because the claims were “ultimately based on the ‘transboundary’ emission of greenhouse” gas emissions, and required a uniform standard of decision.238 The court further concluded that the Clean Air Act displaced any federal common law claims.239 The court said Congress had “expressly delegated to the EPA the determination as to what constitutes a reasonable amount of greenhouse gas emission under the Clean Air Act.”240
The court there also rejected the City’s argument that if the Clean Air Act displaced their federal common laws claims, state law claims should become available.241 The court said such a result would be “illogical.”242 The court noted that the Clean Air Act regulates only domestic emissions but ruled that “to the extent that the City seeks to hold Defendants liable for damages stemming from foreign greenhouse gas emissions, the City’s claims are barred by the presumption against extraterritoriality and the need for judicial caution in the face of ‘serious foreign policy consequences.’”243 The court said litigating an action for injuries from foreign greenhouse gas emissions in federal court would “severely infringe” upon matters “within the purview of the political branches.”244
As of this writing, the case is currently on appeal to the U.S. Court of Appeals for the Second Circuit.245
The City’s lawsuit, and its fate in the Southern District of New York, are instructive. The City was suing fossil fuel companies for causing sea level rise, which has damaged and is damaging New York City.246 The damage from sea level rise will increase in coming years.247 The causal connection between fossil fuel emissions and the current sea level rise is scientific fact. This has been shown by myriad studies and reports.248 This causal connection was the impetus for the City to sue the fossil fuel companies most responsible for the damage. However, major fossil fuel companies like ExxonMobil are responsible not only for the CO2 emissions from the oil and gas they extract, process, and sell—causing sea level rise—but also for the deception of the public that permitted the extraction, processing, and selling of those same fossil fuels.249 The fossil fuel companies and their collaborators misled the public, creating a false “debate” on the question of anthropogenic global warming.250 This “debate” resulted in fossil fuels not only being permitted to be extracted, sold, and burned, but justified billions of dollars in subsidies to the fossil fuel industry in the process.251 Regulators refused to take action. As a result—once again, as a result of fossil fuel companies misleading the public—CO2 emissions continue to increase, global temperatures continue to rise, and sea level rise is accelerating.252
Sea level rise, more frequent and destructive extreme weather events, and other negative effects are caused by global warming. Global warming is caused by CO2 emissions. These emissions are caused by burning fossil fuels. The burning of fossil fuels is caused by ExxonMobil and other companies extracting, refining, and selling those fossil fuels, which are then burned in industry, transportation, energy production, and for other uses. Fossil fuel use is caused by the profitability of fossil fuels, which gives a pecuniary incentive to extract and sell them, as well as the permission of governments that have, to date, refused to prohibit, limit, or cap fossil fuel use, and imposed no liability on those whose actions and deceptive actions and practices cause the damage.
The question of whether ExxonMobil and other fossil fuel companies should be held liable for climate disruption damages is an open one. Perhaps, as many have held, the question of climate disruption liability rests on the shoulders of regulators and legislators and is therefore not properly addressed by private causes of action in court.253 This was the District Court’s holding in City of New York.254 On the other hand, there are others who advocate that damages caused by those who mislead the public, like those in the fossil fuel industry, should be recoverable against those whose deceptive acts and practices caused the damage.255
Climate change fraud, like all PDCPD Schemes, occupies a place along the very outer edge of what is considered illegal fraudulent conduct. This is as true with regard to the tobacco, sugar, and opioid industries’ misrepresentations as it is with regard to those disseminated by the fossil fuel industry. PDCPD Schemes, while clearly involving deceptive behavior that purposefully misleads others for profit, while causing immense harm, fall outside the current common law fraud law. This is so clearly the case that most lawsuits against PDCPD wrongdoers, like the one filed by the City of New York, do not even allege a cause of action for fraud.
Accordingly, PDCPD Schemes remain profitable and destructive, much as fraudulent securities schemes prior to the passage of the securities fraud laws. This shortcoming of the law could be remedied by passage of legislation specifically targeted at prohibiting PDCPD Schemes and providing civil redress and criminal penalties against PDCPD wrongdoers.
This statutory framework could borrow from that passed by Congress in addressing the shortcoming of the law with regard to fraudulent schemes involving the purchase and sale of securities. This Article does not propose to put forth a perfect statutory scheme. Nevertheless, any legislative act aimed at prohibiting and punishing PDCPD Schemes would clearly need to define the parameters of what PDCPD Schemes are,256 and provide civil remedies to plaintiffs harmed by them.
Closing this gap in the law would further numerous tort policy goals. First, it would shift the loss to those responsible for causing it.257 The plaintiffs harmed by consumption of sugar, tobacco products, and opioid painkillers, as well as those harmed by sea level rise and other global warming-caused effects, are members of the public who did not profit off of the dangerous product. Instead, it is the companies marketing and selling the toxic products whose deception of the public caused the products to be sold and used, who cause the harm. Passing a PDCPD Scheme liability act would shift the loss to the ones responsible for causing it: the PDCPD wrongdoers.
The second policy aim that would be furthered by passing a PDCPD Scheme liability act is that it would expand the scope of liability for those who commit intentional, wrongful conduct.258 The Restatement (Third) of Torts states:
If [the actor’s] fault lies in his intent and his act rather than in identification of a particular victim, then liability for the intent and the act seems perfectly appropriate even if the particular victim was not the intended one. . . . In addition, it can be said that an intentional aggressor should bear the risk that his aggression will lead to unintended injury or that the aggressor should be subjected to appropriate incentives to deter the aggression.259
Thus, just as transferred intent has been applied to intentional torts where it was determined wrongdoers should not evade liability for those harmed even if the victims were not personally targeted, so too should those harmed by PDCPD Schemes be permitted to seek damages against the companies whose deceptions caused their toxic products to enter the stream of commerce and cause the resulting harm.
Conclusion
If a used car salesman fails to disclose that a car for sale has been in an accident or misstates the mileage on its odometer, this deceptive conduct is labeled “fraud” and punished under the law. A person harmed by the deception can seek damages against the salesman or the automobile dealership. However, when an opioid manufacturer claims its pain pills are totally safe and not addictive, and further hides studies demonstrating the falsity of both statements, the deceptive conduct is not called fraud. Instead, it is allowed.
The used car salesman’s misrepresentation has a small effect on one individual, the buyer. If his lies are believed, the buyer loses money. The opioid manufacturer’s misrepresentation has a far greater effect on a far greater number of people. Addiction, suffering, and death not only could result from this lie, but did result from it, and continue to happen every day.
Yet today the law condemns the former deception while permitting the latter. One-on-one deception is prohibited and punished. Deception of the public by way of a PDCPD Scheme, which has a far greater effect on a far greater number of people, continues to be legal and, therefore, highly profitable.
PDCPD Schemes do not fit into any existing tort framework. Accordingly, those harmed by such schemes are too often left with no way to seek redress against the wrongdoer. Companies profit immensely from such schemes, in part because they avoid liability to those harmed. This gap in the law could be closed by legislation aimed at closing the PDCPD Scheme tort loophole, much in the same way state blue sky laws and Section 10(b) closed the loophole in fraud law that allowed those committing securities fraud to evade liability. Closing this gap would further tort policy goals, such as shifting the loss to those responsible for causing it and expanding the scope of liability for those who commit intentional, wrongful conduct. This should be done now before the problem of PDCPD Schemes grows even larger.