THE POWER LINE DILEMMA: COMPENSATION FOR DIMINISHED PROPERTY VALUE CAUSED BY FEAR OF ELECTROMAGNETIC FIELDS[*]

ANDREW JAMES SCHUTT[**]

Copyright © 1996 Florida State University Law Review

I. INTRODUCTION
II. THE THREE APPROACHES
A. The Minority View: Fear Can Never Be an Element of Damages
1. In General
2. The Minority View Applied: Alabama Power Co. v. Keystone Lime Co.
B. The Intermediate View: Award Permissible Where Fear Depresses Value, As Long as Fear is Reasonable
1. In General
2. The Intermediate View Applied: Dunlap v. Loup River Public Power District
C. The Majority View: Reasonableness of Fear is Irrelevant—Award Permissible Where Fear Depresses Value
1. In General
2. Florida's Reversal: Florida Power & Light Co. v. Jennings
3. New York's Reversal: Criscuola v. Power Authority of New York
4. Kansas's Move to the Majority View: Willsey v. Kansas City Power & Light Co. and Ryan v. Kansas Power & Light Co.
5. Confusion in Virginia: Chappell v. Virginia Electric & Power Co.
III. STRICT LIABILITY RATIONALES AS JUSTIFICATION FOR THE MAJORITY VIEW
A. Strict Liability
B. Corrective Justice
1. Causation
2. Reciprocity and Reasonableness
C. Economic Efficiency
1. Reduction of Transaction Costs
2. Cost Avoidance
3. The Enterprise Model
a. Loss Shifting
b. Internalization of Costs
c. Application of the Enterprise Model
IV. BALANCING INTERESTS
V. CONCLUSION

I. INTRODUCTION

Electromagnetic field (EMF)[1] litigation is fast becoming the "asbestos of the 90s"[2] as concern over the potential adverse health effects from EMF has spawned extensive litigation.[3] With claims arising in many forms, especially in the areas of property damage and personal injury, a potential plaintiff has an array of legal theories from which to choose.[4] In fact, EMF litigation could become more common than asbestos litigation because the prevalence of EMF could lead to a higher number of potential plaintiffs.[5]

EMFs are generated not only from power lines, with which most people associate EMF, but also from such devices as microwave ovens, hair dryers, and cellular telephones.[6] Whether EMF causes cancer continues to be a hotly debated question.[7] Indeed, in 1992, Congress authorized the expenditure of sixty-five million dollars over a five-year period for an EMF research and public information program.[8] However, many in the scientific community only agree that "there may be a connection between EMF exposure and some forms of cancer."[9]

An issue of significant litigation, especially in recent years, is whether property owners may be compensated for the diminution in value of their land caused by the public's fear of EMF emanating from power lines.[10] This issue arises most often in condemnation proceedings brought by power companies seeking to install new power lines over a portion of property owners' land.[11] The property owners claim that the land has been partially "taken"[12] and assert that the public's fear that power lines cause cancer has decreased the remaining property's market value.[13] It is also conceivable that adjacent property owners could have a claim, albeit a less direct one.[14] While the former owner can seek compensation in a condemnation proceeding for the value lost,[15] the latter owner could file claims of inverse condemnation, nuisance, trespass, strict liability, or ultrahazardous activities.[16] In either situation, a court must decide whether a diminution in the property's value caused by the public's fear is compensable.

The jurisdictions that have addressed the issue of compensability for damages caused by the public's fear have followed three approaches.[17] The first, labeled the minority view,[18] holds that damages caused by the public's fear are never compensable.[19] The second, labeled the intermediate view,[20] holds that damages caused by the public's reasonable fear may be compensable.[21] Finally, the third approach, labeled the majority view,[22] holds that damages caused by the public's fear are always compensable.[23]

This area of law is confusing and unsettled.[24] There is no uniform approach to the issue, and there are variations of the three main approaches.[25] Moreover, in recent years, several courts have either reversed precedent and switched views, or cast doubt upon the state of law in their respective jurisdictions. The Florida Supreme Court reversed years of precedent by switching from the minority view to the majority view.[26] New York and Kansas switched from the intermediate view to the majority view.[27] Virginia's highest court recently decided a case that casts doubt upon that state's position.[28] This lack of consistency, coupled with the array of views on this issue, is a legal quagmire, with no end to the confusion in sight.[29] Courts3[0] and commentators[31] offer many different justifications for why a particular view is superior.

Part II of this Comment attempts to summarize the current state of the law on the issue of fear-based land value diminution by examining relevant case law. Part III argues that the majority view is superior to the minority and intermediate views. This part demonstrates that the majority view is essentially a strict liability approach, and suggests that the justifications for imposing strict liability upon an actor also support imposing upon power companies the cost of compensating property owners for losses caused by the public's fear of EMF health hazards. Part IV notes that in situations where the majority view may be inappropriate, courts or legislatures can create exceptions. Finally, Part V concludes that the majority view is the superior approach to determining damages caused by fear of EMF.

II. THE THREE APPROACHES

A. The Minority View: Fear Can Never Be an Element of Damages

1. In General

The minority view holds that because fear is inherently subjective, damages are inappropriate even if the public's fear causes a reduction in the property's market value.[32] Only three jurisdictions follow this view: Alabama,[33] Illinois,[34] and West Virginia.[35]

2. The Minority View Applied: Alabama Power Co. v. Keystone Lime Co.

In 1914, the Alabama Supreme Court first addressed the issue of compensation for damages caused by fear in Alabama Power Co. v. Keystone Lime Co.[36] The court held that compensation for diminution of property value in a condemnation proceeding is not permissible when the public's fear causes the diminution.[37] The property owner in Keystone Lime argued that people would be afraid to farm or work the land adjacent to the power line,[38] and thus this fear devalued the land because it would be difficult to find a willing buyer.[39] The court noted that many people were unaccustomed to power lines and afraid of them, and therefore would not purchase the property.[40] The court did not allow an award of damages for the diminution, however, noting that it was caused by "the mere fears of some of the people, which are founded in reality upon their lack of knowledge of the real effect of the line, and which human experience shows is not justified by the facts."[41] The court's reason for denying the property owner compensation for this loss centered around the irrationality of the public's fear.[42] The court found that electricity was of great social value and possessed a risk no greater than that of other technologies:

Having no actual knowledge of the practical operation and effect of such lines, [the public] may, as some of the testimony tends to show, be afraid of the property on which the lines are situated. A large percentage of the agencies which now conserve human effort are, when negligently controlled, dangerous to human life, and many things now daily used upon our streets and upon our public highways were, when they were first introduced, objects of terror to those who knew nothing about them. When the automobile was first introduced, especially in our towns, villages, and country neighborhoods, the driver . . . was known to be in possession of a dangerous instrument.[43]
The court concluded that it could not regard land value diminution created by fear as resting upon any substantial basis.[44]

The Alabama Supreme Court revisited the issue forty-six years later in Pappas v. Alabama Power Co.[45] In determining the damages award, the Pappas court similarly held that the property owner could not recover damages caused by the public's fear of the power lines.[46] The court stated: "The reasoning of [Keystone Lime] is sound and probably even more necessary in this modern age of scientific and industrial expansion."[47]

The Alabama Supreme Court has consistently reaffirmed Keystone Lime.[48] For example, in Alabama Electric Cooperative, Inc. v. Faust,[49] the Alabama Supreme Court responded to a property owner's request to expand the Keystone Lime rule by stating: "We decline so to do, for such a modification would materially change the established rule of damages relating to eminent domain cases. Although this Court is receptive to change where compelling reasons are advanced for making a change, we find no rational basis for changing the rule here challenged."[50] Other jurisdictions have not been as inclined to follow precedent, and have not hesitated to change years (or even decades) of established case law.[51]

Both Illinois and West Virginia follow the minority view.[52] Illinois applies a different rationale than that of Alabama, relying upon its supreme court's state constitutional analysis limiting the just compensation rule to property taken.[53] The Illinois court reasoned that there must be direct physical disturbance of a right, and thus "depreciation in market value will not, alone, sustain a claim for damages. The depreciation must be from a cause which the law regards as a basis for damages."[54]

Illinois appears to be moving away from the minority view, however. Illinois courts used to cite the above reasoning in refusing to allow landowners to recover for lost market value caused by the unsightliness of power lines.[55] The Illinois Supreme Court has since receded from this view and now allows landowners to recover for this loss.[56] Whether the Illinois court will expand its approach and allow landowners to recover for the lost market value caused by the public's fear of power lines is still unclear.

B. The Intermediate View: Award Permissible Where Fear Depresses Value, As Long as Fear is Reasonable

1. In General

Jurisdictions following the intermediate view hold that as long as the public's fear is reasonable, or at least not completely unreasonable, a damages award is permissible when the fear depresses market value.[57] These jurisdictions usually require expert testimony from a real estate appraiser or similar expert; the landowner cannot personally testify as to his or her own fears.[58] For example, a landowner cannot testify that he or she is afraid of power lines and thinks that a purchaser of his or her land would feel the same way.[59]

The U.S. Court of Appeals for the Ninth Circuit[60] and twelve states follow the intermediate view.[61] Those states are: Arkansas,[62] Connecticut,[63] Indiana,[64] Kentucky,[65] Nebraska,[66] New Jersey,[67] North Carolina,[68] Oklahoma,[69] Tennessee,[70] Texas,[71] Utah,[72] and Wyoming.[73] The Michigan Supreme Court appears willing to follow the intermediate view,[74] and Arizona follows a modified version of this rule.[75] Moreover, after a recent decision by its supreme court, Virginia appears to be leaning toward the intermediate view.[76]

2. The Intermediate View Applied: Dunlap v. Loup River Public Power District

Dunlap v. Loup River Public Power District[77] illustrates the intermediate view. In Dunlap, the plaintiff's expert witness testified to the dangers inherent in power lines, including the dangers to individuals coming within the general vicinity of the power lines.[78] The Loup River Public Power District objected to the trial judge's jury instructions, which allowed consideration of the possible dangers of power lines.[79]

The Nebraska Supreme Court affirmed the lower court's award of damages to the landowner.[80] The court reasoned that while general fears should not be compensable, if there is a basis in experience for the fears, and the fears are reasonable and affect the price a purchaser of land is willing to pay, the loss should be compensable.[81] The court, however, reduced the damages award,[82] reasoning that it was necessary to curb over-imaginative speculation about dangers from power lines in condemnation proceedings.[83]

C. The Majority View: Reasonableness of Fear is Irrelevant—Award Permissible Where Fear Depresses Value

1. In General

Jurisdictions following the majority view hold that the reasonableness of the public's fear is irrelevant: if the public's fear depresses market value, the loss is compensable.[84] This view is premised upon the argument that the issue in eminent domain proceedings is full compensation.[85] Thus, if fear of power lines causes a loss of market value, that loss should be compensated.[86]

The U. S. Courts of Appeals for the Fifth[87] and Sixth[88] Circuits follow the majority view, as do thirteen states: California,[89] Florida,[90] Georgia,[91] Iowa,[92] Kansas,[93] Louisiana,[94] Missouri,[95] New Mexico,[96] New York,[97] Ohio,[98] South Dakota,[99] Virginia,[100] and Washington.[101]

2. Florida's Reversal: Florida Power & Light Co. v. Jennings

The Florida Supreme Court reversed twenty-four years of precedent in Florida Power & Light Co. v. Jennings[102] by overruling Casey v. Florida Power Corp.[103] In Casey, the Florida Second District Court of Appeal announced that it would follow the majority view; however, it actually meant the minority view.[104] In Jennings, the Florida Supreme Court declined to follow Casey, noting that the issue in eminent domain proceedings should be to determine the true market value of the land taken.[105] Evidence "extremely relevant to the central issue of what is full compensation to the landowner," such as the impact of a potential buyer's fears on the land's value, should not be excluded.[106] The court also rejected the intermediate view, which the lower court had adopted.[107]

The Jennings court thus adopted the majority view: "We join the majority of jurisdictions who have considered this issue and hold that the impact of public fear on the market value of the property is admissible without independent proof of the reasonableness of the fear."[108] The court stated that the reasonableness of the public's fear either should be assumed or considered irrelevant.[109]

3. New York's Reversal: Criscuola v. Power Authority of New York

New York adopted the majority view in 1993, when its highest court overruled a lower court decision that had endorsed the intermediate view. In Criscuola v. Power Authority of New York,[110] the New York Court of Appeals decided whether landowners in a condemnation suit have to prove the reasonableness of the public's fear of power lines "as a separate, additional component of diminished market value."[111] The lower courts had ruled against the claimants, holding that they "had not met their burden of proving that the 'cancerphobia' was reasonable."[112]

The Criscuola court held that the landowners need not prove the reasonableness of the public's fear. The court noted:

The issue in a just compensation proceeding is whether or not the market value has been adversely affected. This consequence may be present even if the public's fear is unreasonable. Whether the danger is a scientifically genuine or verifiable fact should be irrelevant to the central issue of its market value impact. Genuineness and proportionate dollar effects are relevant factors, to be sure, but in the usual evidentiary framework. Such factors should be left to the contest between the parties' market value experts, not magnified and escalated by a whole new battery of electromagnetic power engineers, scientists or medical experts.[113]
The court did state, however, that the plaintiffs must offer evidence of "some prevalent perception of a danger emanating from the objectionable condition" and establish that this perception diminishes market value.[114]

4. Kansas's Move to the Majority View: Willsey v. Kansas City Power & Light Co. and Ryan v. Kansas Power & Light Co.

In 1991, the Kansas Supreme Court, applying the reasoning of the Kansas Court of Appeals in Willsey v. Kansas City Power & Light Co.,[115] adopted the majority view.[116] In Willsey, Kansas City Power appealed from a judgment in favor of the landowners in an easement condemnation proceeding.[117] Kansas City Power argued that the trial court had erred in allowing the jury to consider expert testimony regarding the impact that public fear of power lines had on the market value of the Willseys' home.[118] In considering compensation, the court examined the reasonableness of the public's fear of power lines and noted that "[a] certain amount of fear and a healthy wariness in the presence of high voltage lines strikes us as eminently reasonable."[119] The court concluded that as long as fear is not unreasonable as a matter of law, reasonableness is a question of fact for the jury to decide.[120] The court ultimately held that the property owner's evidence was "persuasive" and affirmed the damages award.[121]

The Willsey court left itself the option to move from the intermediate view to the majority view. While the court in one sentence used the rationale applied by courts that follow the intermediate view,[122] in the next sentence the court used the rationale applied by courts that follow the majority view.[123] The court explained that it preferred the majority view,[124] but because the facts of the case satisfied the intermediate view, the court chose to remain with that approach.[125] The court stated that "the evidence in this case makes it unnecessary for us to choose [between the intermediate view and the majority view]."[126] In fact, several years later, the Kansas Supreme Court officially chose the majority view in Ryan v. Kansas Power & Light Co.[127] The Ryan court stated:

We submit that in effect the Court of Appeals adopted the [majority rule] in Kansas in Willsey and we agree with its rationale therein. Accordingly, in a condemnation action to acquire an easement for installation of a high voltage electrical line we find evidence of fear in the marketplace is admissible with respect to the value of property taken without proof of the reasonableness of the fear. . . . [F]ear of a high voltage line is reasonable.[128]
5. Confusion in Virginia: Chappell v. Virginia Electric & Power Co.

Virginia's highest court recently issued a decision with ominous overtones for property owners attempting to recover for diminution in property value caused by public fear. In Chappell v. Virginia Electric & Power Co.,[129] the Virginia Supreme Court cast doubt upon the validity of Appalachian Power Co. v. Johnson,[130] the case cited for Virginia's adoption of the majority view since 1923.[131] In affirming the lower court's denial of damages, the court stated:

We do not agree that Johnson is controlling precedent. . . . [T]he language Chappell invokes is obiter dicta. Nevertheless, we need not decide whether a landowner in a proceeding to condemn an easement for an electric transmission line may be entitled to compensation for diminution in the market value of the remaining land attributable to the fears of prospective purchasers. . . . And, as [the landowner] acknowledged on brief, "[s]peculative matters should not be considered by commissioners in determining just compensation."[132]
This language should disturb property owners in Virginia who face the possibility of litigating a condemnation action. The court did not need to question Johnson. The landowner merely offered insubstantial proof that the public's fear had diminished the value of the property.[133] Proof that the public's fear causes a diminution in property value is necessary in jurisdictions adopting the majority view.[134] Therefore, the Chappell court need only have stated that the plaintiff offered insufficient proof.[135] The court characterized as mere dictum the language from Johnson cited by the landowner, however, and left open the question of the proper view regarding compensability for damages caused by fear of power lines.[136] Thus, property owners in a condemnation action in Virginia should consider offering evidence of the reasonableness of the public's fear of power lines—as is required of property owners in jurisdictions following the intermediate view—or face the possibility of a Virginia appellate court reversing an award for damages.

III. STRICT LIABILITY RATIONALES AS JUSTIFICATION FOR THE MAJORITY VIEW

The majority view is hard to ignore or reason away. Why should a purely innocent landowner, whose property has depreciated because of the erection of a power line over a portion of his or her property, have to suffer this loss? Courts following the majority view rationalize holding power companies liable for diminished value caused by fear by stating that the issue in a condemnation proceeding is full compensation.[137] Additionally, many courts find it easy to hold against power companies because power companies often advertise the dangers of power lines, and thus are at least partially responsible for causing the public's fear.[138] However, putting aside temporarily the power companies' part in causing the fear, the argument that power companies should always pay for a loss caused by fear begs the question: why should an equally innocent power company, which cannot necessarily control the general public's fear, be held responsible for this loss?[139] Strict liability rationales offer the answer to this question.

A. Strict Liability

The majority view holds that landowners should always be compensated for loss of market value caused by fears of the general public.[140] This view holds that power companies, even though they have arguably done nothing to cause the fear, still must pay for this loss.[141] Courts following the majority view essentially impose liability upon innocent power companies in a manner similar to how the doctrine of strict liability imposes liability upon innocent actors.[142]

Strict liability is defined as "liability without fault,"[143] with the analysis focusing on who should bear the loss.[144] Strict liability allows one party to be compensated for a loss caused by another party, even though the party paying for the loss has done nothing wrong, morally or otherwise.[145] There are several defenses to strict liability, including assumption of the risk,[146] contributory negligence,[147] and proximate cause.[148] Strict liability is used most often in tort claims relating to products liability and dangerous activities.[149] The scope of strict liability is expanding, however.[150] For example, strict liability has been applied in asbestos litigation.[151] Changing societal values, such as the desire to protect individuals from personal disaster, are one reason for this expansion.[152]

Applying strict liability rationales to the majority view does not require expanding the strict liability doctrine because the majority view essentially is a strict liability approach. This application is useful merely to illustrate the superiority of the majority view over the intermediate and minority views.

In applying strict liability rationales to the issue of compensability for fear-based market value diminution, one must illustrate why a negligence approach would not be preferable.[153] It is important to note that the majority view is not a negligence-based theory.[154]

The majority view imposes liability upon power companies once the landowner shows that the public's fear of power lines has caused a diminution in property value; there is no determination of a duty of care as there is with a negligence approach.[155] Additionally, unlike a negligence approach, the majority view does not require balancing the parties' interests.[156] The property owner simply must demonstrate that the public's fear has caused a diminution in property value.[157] The majority view court then strictly imposes liability upon the power company, which must compensate the landowner for the diminution.[158] Therefore, because the majority requires no proof of care or balancing of interests, the majority view cannot properly be called a negligence approach.

The principal rationales for strict liability are discussed in the following sections and illustrate why the majority view is superior to the minority and intermediate views.[159]

B. Corrective Justice

Several commentators support strict liability with notions of corrective justice.[160] Corrective justice focuses on determining what is fair between the victim and defendant, rather than broader concerns about society as a whole.[161]

1. Causation

One corrective justice model centers upon fairness and suggests that the primary issue should be causation: whether A caused harm to B.[162] Under this model, the objective should be to take "into account common sense notions of individual responsibility."[163] Individuals should be free from harm to either their personal bodily integrity or their property.[164] If a victim can show that a defendant's actions caused harm to the victim's bodily integrity or property, the victim should be able to recover, and any defenses the defendant might have should be narrowly applied.[165] After causation is established, a defendant can assert justifications or defenses, such as lack of causation or assumption of the risk.[166] The philosophy behind this theory and the reason causation is its focus is that allowing courts to decide cases involving individuals while considering society's needs at the same time delegates too much power to the judiciary to impose restrictions upon individual liberty.[167] Moreover, because individuals have a right not to be harmed, conduct causing harm cannot be justified by focusing on society's needs.[168] Therefore, the fairest standard is strict liability.[169]

When a power company erects a power line adjacent to an individual's property, and the public's fear of that power line causes an additional diminution in value to the land, the erection of the power line has harmed the landowner.[170] Before there will be liability, however, there must be damage, either to person or to property.[171] Under the corrective justice model, a prima facie case of liability is established if the landowner can show a causal link between the erection of the power line and the diminution in property value caused by the public's fear of the power line.[172]

The minority view does not permit recovery even in the face of evidence that the fear caused a diminution in market value.[173] The minority view appears to consider society's needs,[174] which is inappropriate in a corrective justice regime.[175] Thus, the minority view is inadequate because it imposes liability upon the harmed landowner.[176] The intermediate view also is flawed because it requires a showing of reasonableness,[177] when the main inquiry under the corrective justice model requires a showing of causation.[178] Because the requisite causation is present, liability should be imposed regardless of the reasonableness of the public's fear.[179]

The most forceful approach under a corrective justice regime is the majority view. The requisite causation is present: the erection of power lines caused a diminution in property value by creating a fear of contracting cancer in the buying public.[180] Thus, it is fair to impose this loss upon power companies rather than property owners.[181] The corrective justice model concludes that "the principles of strict liability say that the liberty of one person ends when he causes harm to another."[182]

2. Reciprocity and Reasonableness

Another theory advances notions of corrective justice and fairness, but notes that there are two paradigms, or models, of liability: the paradigm of reciprocity and the paradigm of reasonableness.[183] The basic premise of the paradigm of reciprocity is that, in determining liability, a court should examine the conduct of both the defendant and victim.[184] If the defendant and victim expose each other to an equal amount of risk, strict liability should not apply.[185] For example, "two airplanes flying in the same vicinity subject each other to reciprocal risks of a mid-air collision," and therefore strict liability should be precluded.[186] On the other hand, if the defendant's actions expose the victim to a unilateral, nonreciprocal risk, strict liability should apply.[187] For example, "a pilot or an airplane owner subjects those beneath the path of flight to nonreciprocal risks of harm," and strict liability should apply.[188] If the victim's injury results from a nonreciprocal risk of harm, the defendant is not always under a duty to pay.[189] Nonreciprocal risk-creation may be excused when it is unfair to require the defendant to pay.[190]

Power lines fall into "the set of cases in which a socially useful activity imposes nonreciprocal risks on those around it."[191] When the presence of power lines causes a diminution in property value, however, a nonreciprocal risk is imposed upon an innocent landowner. Through no fault of the landowner, the property's value decreases. Thus, the paradigm of reciprocity permits recovery for the landowner and supports the majority view.

One must point out, however, the second model of liability—the paradigm of reasonableness. The paradigm of reasonableness suggests that instead of focusing solely on the defendant and the victim, the issue of liability must be decided by considering the impact the decision will have upon society at large.[192] This paradigm determines who will bear the loss by focusing on the reasonableness of the risk:

Reasonableness is determined by a straightforward balancing of costs and benefits. If the risk yields a net social utility (benefit), the victim is not entitled to recover from the risk-creator; if the risk yields a net social disutility (cost), the victim is entitled to recover. The premises of this paradigm are that reasonableness provides a test of activities that ought to be encouraged and that tort judgments are an appropriate medium for encouraging them.[193]
One can argue that society suffers by allowing property owners to recover the loss in market value caused by the public's fear. Appealing to the paradigm of reasonableness, one could assert that the activity is socially advantageous and warrants encouragement. The dilemma is whether to focus on the parties and their relationship or on society and its needs.[194] Courts following the minority view employ the latter dynamic, which favors the power company, perhaps because they fear that finding in favor of property owners will ultimately impede progress and, therefore, hurt society.[195]

At least as the issue relates to power companies, however, corrective justice requires that courts protect individual interests. Indeed, corrective justice advocates the paradigm of reciprocity and rejects the paradigm of reasonableness as a model for liability.[196] And under the paradigm of reciprocity, " 'justice' . . . should be equated with justice between the parties, not with broader conceptions of the welfare of the community."[197] Individual interests should be insulated against "community demands."[198] Thus, according to the paradigm of reciprocity, the majority view is superior.[199]

C. Economic Efficiency

Economic efficiency is the notion that rules of law should promote efficient resource allocation.[200] Strict liability is one means of attaining efficient resource allocation.[201] Theories of economic efficiency that support strict liability also support the majority view; most notable among these theories are the reduction of transaction costs, the cheapest cost avoider rationale, and the enterprise model.[202]

1. Reduction of Transaction Costs

A liability rule is economically efficient if it reduces transaction costs.[203] Transaction costs include the cost of litigation.[204] Indeed, a liability rule that simplifies the proof necessary to establish liability is preferable to a rule that imposes more of a burden upon litigants.[205]

Under this view, strict liability is efficient because it reduces the costs of litigation, and by analogy, the majority view is efficient.[206] Unlike the intermediate view, the majority view does not require litigation of the reasonableness of the public's fear; this simplifies "the proof necessary to establish liability."[207] The majority view also leads to certainty because litigators know the diminution caused by the public's fear is compensable.[208] Thus, the court's time and the client's money need not be wasted on a barrage of expert testimony about possible adverse health effects.[209]

In contrast, the intermediate view leads to economic inefficiency because courts must litigate the reasonableness of the public's fear.[210] Courts therefore end up hearing additional expert testimony as to whether, for example, power lines cause cancer.[211] Moreover, in many cases (but not all), the intermediate view leads to the same result as the majority view, with the majority view avoiding needless costs.[212] Indeed, many courts have held that the public's fear is reasonable and have therefore permitted a damages award.[213] Thus, from an efficiency standpoint, the intermediate view needlessly wastes resources by forcing parties to litigate the reasonableness of the public's fear.

2. Cost Avoidance

The "cheapest cost avoider" rationale suggests that if actors are held strictly liable, they will attempt to avoid suits by exercising a higher degree of care.[214] Under this rationale, losses should be allocated to those who can most inexpensively reduce the risk of "accidents," or, for our purposes, reduce the risk of diminution of property value.[215]

Under the cheapest cost avoider rationale, the minority view imposes the cost of avoiding diminution in market value upon the landowner,[216] a party not suited to manage the risks and perceptions associated with EMF.[217] Therefore, the minority view is inappropriate. The intermediate view is less objectionable because the landowner may recover once fear is established as reasonable.[218] If, however, the fear is unreasonable, the loss is again imposed upon the ill-suited landowner.[219] Therefore, the intermediate view is similarly inappropriate.

The majority view is superior because power companies are the cheapest cost avoiders. Power companies have more capital to invest in eliminating the risks associated with EMF, including continued scientific exploration of the relationship, if any, between EMF and cancer.[220] Research indicating EMF does not cause cancer can alleviate the general public's fear of power lines, and thus could eliminate the diminution in property value caused by that fear. Moreover, power companies can practice "prudent avoidance," the practice of minimizing the effects of EMF by taking reasonable steps to reduce the public's exposure to EMF.[221] Indeed, several jurisdictions already have adopted the policy of prudent avoidance.[222] Therefore, because power companies are the cheapest cost avoiders, the majority view is superior.

3. The Enterprise Model

a. Loss Shifting

Under the so-called "enterprise model,"[223] strict liability is an appropriate response because the actor who caused the loss should bear the loss.[224] The rationale is that the seller is in a better position to absorb the damages than the consumer.[225] Thus, the loss is shifted to the manufacturer, who can then spread the loss among all consumers of the product by raising the price.[226] A commonly cited example of a judge applying this justification is Justice Traynor's concurring opinion in Escola v. Coca-Cola Bottling Co. of Fresno.[227] Justice Traynor noted that loss shifting focuses on public policy: "[t]he cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business."[228] In adopting Justice Traynor's loss shifting rationale in Greenman v. Yuba Power Prod., Inc.,[229] the California Supreme Court noted that "[t]he purpose [of strict liability] is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves."[230]

b. Internalization of Costs

Loss shifting essentially requires that profit-motivated actors pay for all losses their activities generate.[231] Losses that the actor should bear include "externalities."[232] An externality is a "spillover effect" from an activity that is not considered by the actor at the time the actor decides the manner in which the activity will be accomplished.[233] The most common example of an externality is pollution.[234] Suppose a factory emits smoke that damages a neighboring farm's crops. This damage is an externality in that it is external to the factory's operation.[235] Stated another way, the damage caused by the smoke falls upon someone other than the factory.

Regardless of the social value of an actor's activity, the actor should internalize the loss if the activity exposes others to the loss.[236] The actor can internalize losses by raising the cost of the service or product, thus spreading the loss among consumers.[237] Externalities are inefficient; therefore, by requiring actors to internalize losses, society benefits.[238]

c. Application of the Enterprise Model

Applying the principles of the enterprise model (loss shifting and internalization of costs) to the three principal views addressing compensability for diminution in market value caused by the public's fear, the majority view emerges as superior. First, the minority view is contrary to the rationales behind the enterprise model. The minority view imposes the loss in all cases upon the injured person,[239] who is unable to spread the risk.[240] Moreover, the minority view perpetuates an externality: it allows power companies to expose landowners to a loss (the diminution in market value caused by the public's fear) yet does not require power companies to compensate landowners for the loss.[241] The minority view denies compensation to landowners even if the public's fear causes a reduction in market value.[242] Allowing power companies to escape liability for this loss allows them to externalize the loss.[243]

The intermediate view fails to incorporate fully the enterprise model because the view does not always impose the loss upon the responsible actor.[244] The intermediate view, however, is a move toward the enterprise model. Once a landowner establishes the reasonableness of the fear, the court imposes liability upon the power company, not the individual.[245] The intermediate view merely imposes an additional burden upon the landowner, the burden of proving the reasonableness of the fear.[246]

Of the three views, the majority view most adequately advances the goals of the enterprise model. The majority view holds that if the landowner establishes that the public's fear has depressed the market value of the land, then the loss is imposed upon the power company in all cases.[247] This is the best and most fair result because power companies are better equipped to bear the loss than innocent property owners.[248] Also, because most power companies are motivated by profit,[249] they should pay for all losses their activities generate.[250] The majority view incorporates this philosophy and rightly imposes the risk of market devaluation upon power companies, who, like manufacturers, can distribute the loss among the public as a business cost.[251]

Indeed, courts following the intermediate and majority views have used loss shifting rationales in holding for landowners. For example, the Willsey court opined that "[i]f [loss caused by the public's fear] is proven to the satisfaction of the jury we see no reason why the landowner should bear the loss rather than the customers for whose benefit the loss is inflicted."[252] Courts following the majority view also have used loss shifting rationales.[253]

Importantly, society experiences a net gain when power companies are required to internalize the problems associated with EMF because power companies will continue to research the effects of EMF, educate the public about EMF, and practice prudent avoidance.[254] If power companies are not held responsible for this loss, it is less likely that they will continue to engage in such beneficial activities.

IV. BALANCING INTERESTS

One must distinguish, however, power companies from actors who are either unable to avoid costs, spread the loss, or who provide significant societal benefits when measured against the landowner's interests, and who thus should not be required to compensate a private landowner. For example, it may be inappropriate to require compensation where homeless shelters, homes for maladjusted teens, or AIDS hospices have caused a diminution in an individual's property value. The intermediate view would probably hold that fear of these activities is unreasonable, and thus noncompensable.[255] The minority view would not allow recovery even if the fear were reasonable.[256]

There is the possibility, however, that even in majority view jurisdictions, courts could make a policy judgment and hold against the landowner. As an analogy, in Davis v. Dinkins,[257] homeowners near a privately owned hotel sought to enjoin the hotel from being used as a shelter for homeless families.[258] The homeowners claimed that the presence of the shelter had caused a diminution in their property values.[259] The court declined to issue the injunction on public policy grounds, noting that "the granting of such relief is inappropriate under the circumstances now existing in New York City. The indisputable compelling need to provide temporary housing for homeless families clearly makes it an abuse of discretion to preclude the use of a hotel which is already housing these families."[260] It is apparent that even if the homeowners could have demonstrated that the shelter had caused a diminution in property value, the court still would have denied the injunction because of the important societal interest in providing shelter for the homeless.[261] Another court, facing the same issue, reached a similar conclusion, noting that "a balancing of the equities lies decidedly in favor of defendants' continued operation of this homeless shelter."[262]

If court-made policy is objectionable, the legislature could make a policy judgment that the doctrine of strict liability is inappropriate in a specific instance. The legislature might decide that a particular societal need outweighs the interests of an individual. For example, there may come a time when a property owner attempts to recover for a diminution in property value when an entity attempts to establish a home for AIDS victims in a residential neighborhood. A property owner might argue that his or her land has been devalued because some potential purchasers might be afraid of contracting this deadly disease.[263] Legislatures may decide that in such situations a property owner will not be permitted to recover for this loss, even if a governmental agency is in charge of the home.[264] The legislature might reason that allowing a damages award in this situation would have the adverse effect of eliminating a great social value, especially if the service did not have either the resources to litigate the claim or the ability to spread the loss. Thus, in this situation, the balance may tip in favor of the AIDS hospice.[265]

Indeed, legislatures have acted to prevent imposition of strict liability when the balance has favored protection of a certain activity. For example, in an effort to promote the health and welfare of the community by protecting the societal value hospitals and blood banks provide, legislatures in most states have decided to shield those institutions from strict liability claims by plaintiffs who contract AIDS from blood transfusions.[266] The legislatures apparently fear requiring "providers to serve as insurers of the safety of these materials [because such a requirement] might impose such an overwhelming burden as to discourage the gathering and distribution of blood."[267]

Therefore, while the majority view, supported by strict liability rationales, encourages imposition of losses caused by the public's fear upon the actor most responsible for the fear, it does not preclude courts or legislatures from recognizing that the balance may tip against the landowner where overriding societal interests are at stake.[268]

V. CONCLUSION

EMF litigation involving market devaluation of property caused by the public's fear is an area of the law fraught with uncertainty. It is unlikely that a single approach will be adopted by every jurisdiction. However, the recent defection of New York and Kansas to the majority view, New Mexico's adoption of the majority view in 1992, and the propensity of jurisdictions to reverse years of precedent by switching to the majority view (as did Florida) may indicate that significant change is on the horizon.[269]

A strict liability approach to compensability for diminished property value caused by the public's fear is preferable to other approaches, such as a negligence-based approach. At its core, the majority view is essentially strict liability. The rationales for strict liability support movement to the majority view and rejection of the intermediate and minority views. Corrective justice requires that the interests of the landowner take precedent. Moreover, not only does the majority view reduce transaction costs, power companies also are the cheapest cost avoider because they have more resources to reduce the risks of EMF. Finally, power companies are better able to internalize costs, including the recovery of EMF litigation costs, by spreading the loss among consumers.[270] Therefore, courts should adhere to the majority view and hold that as long as it is established that the public's fear diminishes property value, the loss is compensable. If situations arise where the balance tips against the property owner and in favor of great societal interests, courts or legislatures can create exceptions to the general rule. Thus, strict liability analysis demonstrates that between the innocent property owner and the better-equipped power company, courts should hold the latter responsible for market devaluation of property caused by the public's fear of power lines.