U.S. Supreme Court Cites Restatement Second of Contracts

In a recent U.S. Supreme Court decision, the majority and the dissent both cited Restatement of the Law Second, Contracts § 353 in discussing whether damages for emotional distress were recoverable in private actions to enforce federal antidiscrimination statutes enacted pursuant to the Spending Clause of the U.S. Constitution.

In Cummings v. Premier Rehab Keller, No. 20-219 (Apr. 28, 2022), a patient who was legally blind and deaf and who communicated primarily in American Sign Language sued a provider of physical-therapy services, alleging that it discriminated against her based on her disability in violation of the Rehabilitation Act and the Affordable Care Act when it refused her request that it provide an interpreter at her appointments, and instead told her that she could communicate with the therapist using written notes, lip reading, or gesturing. Noting that the patient decided to seek and obtain care from another provider, the U.S. District Court for the Northern District of Texas dismissed her complaint, finding that the only injuries she alleged were “humiliation, frustration, and emotional distress,” and that damages for emotional harm were not recoverable in private actions to enforce the statutes at issue. The U.S. Court of Appeals for the Fifth Circuit affirmed.

The Supreme Court also affirmed. In a majority opinion written by Chief Justice John G. Roberts, Jr., the Court noted that the Rehabilitation Act and the Affordable Care Act, along with Title VI of the Civil Rights Act and Title IX of the Education Amendments, were four statutes that Congress enacted pursuant to the Spending Clause to prohibit recipients of federal financial assistance, including the provider of physical-therapy services at issue, from discriminating based on protected grounds such as disability. Although none of the four statutes expressly provided victims of discrimination a private right of action to sue federal-funding recipients, the Supreme Court, and, later, Congress, had both recognized an implied right of action under the statutes. In resolving whether damages for emotional distress were available in such an implied action, the Court reasoned that the statutes conditioned an offer of federal funding on a promise by the recipient not to discriminate, in what essentially amounted to a contract between the government and the recipient. Accordingly, if a prospective funding recipient would have been aware that it could face liability for emotional-distress damages when it was engaged in the process of deciding whether to accept federal dollars, then a discrimination victim could potentially recover such damages from the recipient. The Court pointed out that “[i]t is hornbook law that ‘emotional distress is generally not compensable in contract,”’ and that “[i]t follows that such damages are not recoverable under the Spending Clause statutes” considered here.

Chief Justice Roberts acknowledged that Restatement of the Law Second, Contracts § 353 put forth a special rule that recovery for emotional disturbance was potentially available in contract cases when “‘the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result,”’ but reasoned by analogy to punitive damages—which were not permitted under the antidiscrimination statutes in question and were not typically permitted in contract cases—that emotional-distress damages were normally not available in suits for breach of contract. The Court also pointed out that § 353 did not reflect the consensus rule among American jurisdictions; while a “strong minority” of courts followed § 353, most states rejected the exception provided for in § 353 “by limiting the award of emotional distress damages to a narrow and idiosyncratic group of cases, rather than making them available in general wherever a breach would have been likely to inflict emotional harm.”

Associate Justice Stephen G. Breyer dissented, arguing that he would hold “that victims of intentional violations of these antidiscrimination statutes can recover compensatory damages for emotional suffering.” Unlike the majority, which reasoned that Restatement of the Law Second, Contracts § 353 set forth a rare exception to the general rule that emotional-distress damages were not available in contract actions, Justice Breyer looked to § 353 as evidence that such damages were traditionally available in appropriate cases, and concluded that “contract law is sufficiently clear to put prospective funding recipients on notice that intentional discrimination can expose them to potential liability for emotional suffering.”

Justice Breyer also cited Restatement of the Law Second, Contracts § 355 and Restatement of the Law Second, Torts § 908 in reasoning that the majority’s comparison to punitive damages was inapt, because the Restatements clarified that contract law did not preclude an award of punitive damages in a contract action ‘“if such an award would be proper under the law of torts.’” Justice Breyer explained that, unlike punitive damages, which were designed to punish in tort actions, “emotional distress damages can, and do, serve contract law’s central purpose of compensating the injured party for their expected losses, at least where the contract secured primarily nonpecuniary benefits and contemplated primarily nonpecuniary injuries.” Noting that a basic purpose of antidiscrimination statutes was “to vindicate ‘human dignity and not mere economics,’” Justice Breyer concluded that the majority’s decision “allows victims of discrimination to recover damages only if they can prove that they have suffered economic harm, even though the primary harm inflicted by discrimination is rarely economic.”