Emotional Distress Damages As a Result of Economic Loss – Can I Recover?

By Simon Offord

A person’s home is oftentimes their most prized possession, and if something were to happen to their home, the emotional strain can be overwhelming. However, recovering damages for that emotional strain is limited under California law.

California law generally holds that emotional distress damages are not recoverable for a strictly economic loss. This general rule has long been the law in California, however over the years a few limited exceptions have been developed by the Courts.

For example, Mr. and Mr. Jones buy a $1.5M home in Palo Alto in the summer. When the rainy months come around, they learn that the roof leaks, which requires repairs that cost over $100k. This is a classic “failure to disclose” situation where the buyers may experience significant emotional impact.

However, under California law, that harm is remedied by calculating the difference in what Plaintiffs received versus what they should have received--not any emotional distress, unless one of the below exceptions is met.

Specifically, courts have allowed the recovery of emotional distress damages only when the party requesting the damages can prove malice, physical impact, breach of fiduciary duty, or some other unusually extreme or outrageous circumstance.

“Malice” requires an intent to harm by the defendant. This can be a fairly difficult standard to meet, but in the right situation can even expose the defendant to punitive damages.

“Physical impact” requires an actual physical injury to the plaintiff as a result of defendant’s actions. One California case has stated that the plaintiff essentially has to be “hit by a falling beam” in order to recover their emotional distress damages.

“Breach of fiduciary duty” requires a special relationship between the plaintiff and defendant. California case law has identified specific relationships that constitute a fiduciary duty, including attorney-client, agent-principal, trustee-beneficiary, and partners in a partnership.

Finally, a plaintiff can recover their emotional distress damages if they can show some “unusually extreme or outrageous conduct.” This can be a very difficult standard to meet.

The courts may have said it best when they stated that “complete emotional tranquility is seldom attainable in this world.” Although this is unfortunate, it is also a truth of life. For this reason, the courts will typically only allow for the recovery of emotional distress damages in those limited exceptions to the general rule, outlined above.

In the News

In the recent holding by the Bankruptcy Appellate Panel (Zotow v. Johnson, July 21, 2010), the BAP concluded that BAC Home Loans Servicing did not violate the automatic stay when it sent the Debtors a notice of increased mortgage payments while the debtors were in Chapter 13 bankruptcy.

The Court held that the Notice was an informal communication--not a prohibited communication that violated the automatic stay since it had no payment coupon or return envelope. Despite two missteps by the lender: 1) including pre-petition debt in the calculation of post-petition payments, and 2) improper application of the Chapter 13 Trustee’s payments, the Zotow Court found that neither act rose to the level of a violation of the automatic stay. – JMW

Law Offices of Peter N. Brewer News

The firm won a crucial and hard-fought motion to compel further discovery responses, and was awarded sanctions of $2,000.00 by an Alameda County Judge. This sanction award led to our client being dismissed from the case without having to pay a dime out of pocket!
The firm was awarded a court judgment of $48,591.00, $24,295.50 of which were punitive damages, in a case for fraud and concealment.
Simon won demurrers in two separate cases for Plaintiff’s failure to state a cognizable cause of action, one in Alameda County and one in Butte County.

About Us

Peter N. Brewer established the Firm in 1995. The Firm specializes in real estate and mortgage lending law. Clients of the firm include homeowners, real estate professionals, mortgage brokers, loan servicers, real estate appraisers, real estate developers, construction professionals and investors. The firm takes pride in its highly successful insurance defense practice on behalf of real estate brokers, brokerages, agents, appraisers, mortgage lenders, title companies and foreclosure trustees. Additionally, Peter and his firm represent clients in creditor’s rights in bankruptcy, breach of contract matters, judgment enforcement and other litigation and transactional work.

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The attorneys and authors are from California, practice law only in California and accordingly the content of this newsletter is not a reflection of legal developments elsewhere in the nation.