Daily Development for Wednesday, January 13, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

NUISANCE; PUBLIC NUISANCE: Owners of a skyscraper whose wall collapsed resulting in a street closure and loss of profits to nearby businesses were liable for financial losses of businesses along 15 block corridor, since lost profits of these owners constituted sufficient "special injury" to justify individual recovery from public nuisance.

5th Avenue Choclatiere, LTD., v. 540 Acquisition Co., L.L.C., 712 N.Y.S.2d 8 (A.D. 1 Dept. 2000).

Defendants were owners of a 39 story building on Madison Avenue in New York City. They elected to remodel the building by punching 95 windows into a wall that earlier had no windows. The wall suffered a partial collapse, leading to closure of a 15 block long length of Madison Avenue during the height of the preChristmas retail season in 1997. Plaintiffs brought an action for themselves and the class of businesses whose business was dramatically reduced as a consequence of this closure. (This case deals solely with whether the plaintiffs alleged a viable cause of action. The court noted that whether the class action could be properly certified is another, and more difficult, problem.)

Defendants argued that the plaintiffs could not show a sufficient "special injury" to support a claim for damages. The "nuisance" if it existed, had a widespread adverse economic impact, and, they argued, there was nothing unique about the nature of the impact suffered by the plaintiffs. The New York Supreme Court Appellate Division, however, reversing the trial court, found that found that "combined factors," consisting of limited geographic area and significant pecuniary losses not suffered by others, established that a special injury had occurred.

The court held that the case was more similar to a case in which residents within a five mile radius were found to have suffered special damages from noise levels emanating from a racetrack.

A dissent notes that the group of arguably "specially affected" parties includes all businesses within a fifteen block area of Madison Avenue between Fifth Avenue and Park Avenue, adversely affected within the period of the street closure. This, of course, is a huge number of businesses, probably the size of the entire business sector in most cities in America. The dissent also notes that the damages themselves are pecuniary in nature an area as to which courts traditionally have been cautious in awarding nuisance damages. although the dissent falls short of arguing that the pecuniary nature of the damages alone would prevent the recognition that the plaintiffs were "specially affected.." Rather, it argues that the speculative nature of lost profit damages should preclude treating them as "special injury."

Comment: One reason the editor prefers property law is that marketplace oriented policy arguments are much easier to assess than the kind of policy claims made both by the dissent and majority opinions here. Both appear to agree that there must be some limit on the scope of damages that will be regarded as "special injury." But what is the principle that guides the court in determining what that limit will be? Nature of injury? Amount of injury? Geographic area? Type of nuisance involved? Both opinions appear to see some combination of factors that drive the result, but neither does much of a job of demonstrating what the court ought to be looking for in reaching its conclusion.

LANDOWNER LIABILITY; NEGLIGENCE; ECONOMIC DAMAGES: New York court rejects application of "economic loss" doctrine to limit claims for business interruption based upon negligence by landowner that led to street closure, causing plaintiffs to lose trade during Christmas season.

5th Avenue Choclatiere, LTD., v. 540 Acquisition Co., L.L.C., 712 N.Y.S.2d 8 (A.D. 1 Dept. 2000), also discussed under the heading "Nuisance, Public Nuisance."

The facts of this case are discussed at greater length in the Nuisance discussion. Briefly, plaintiffs alleged that their business operations were adversely affected due to a street closing caused by a building collapse that they alleged was due to defendant's negligence.

The court noted that this doctrine, which has been discussed before on DIRT, typically has been applied to limit parties to claims for contract damages for economic loss, rather than tort claims, when in fact there is a contract claim available for the injury alleged. For instance, it often has been used to deny strict liability claims based upon product liability, since the plaintiff also has the possibility of suing on the basis of express or implied warranty. In the DIRT discussion, the doctrine has been applied to limit the ability of parties to sue in tort for economic damages caused by alleged negligence in the carrying out of brokerage services or other duties arising under contract.

The court noted that the ordinary "foreseeability of injury" doctrine has not been applied in cases alleging economic loss for tortious conduct, but rather a different standard of "particular forseeability." The court concluded that the economic damages were the "natural and proximate consequences of [the defendant's alleged misconduct]."

A strong dissenting opinion, from two of the seven judges, maintained that the real purpose of the economic loss doctrine is to limit economic claims in tort to everyone who can claim any remote kind of injury.

"The [lower] court drew the appropriate in 'between the competing policy considerations of providing a remedy to everyone who is injured and of extending exposure to tort liability almost without limit. . . [T]he economic and social burden that would be placed on defendants, for purely financial losses as sustained here, would expend the orbit of duty to an uncontrollable degree and extend liability to a point totally disproportionate to the fault found."

An important case cited by both parties was the earlier New Jersey decision in People Express Airlines v. Consolidated Rail Corp, 495 A.2d 107 (N.J. 1985), in which the New Jersey court permitted an airline to recover for disruption of its schedule when its terminal was closed due to an explosion of a rail car on a nearby rail line. There were no physical damages alleged. The dissent points out that the People Express case has not been cited in New York and is rarely cited elsewhere, and in any event is an outgrowth of other decisions in which economic damages were allowed after physical injury to the plaintiff's service facilities occurred. The dissent saw the closure of the plaintiff's terminal as the functional equivalent of a physical injury, while the loss of business in the instant case was, of course, several more steps removed from the event that defendant is alleged to have caused. The plaintiff's stores were in no danger, but shoppers could not reach their stores.

Basically, the majority agrees that there must be some limit on the reach of tort claims for economic loss due to negligent conduct, and suggests the test of "particular forseeability" rather than ordinary foreseeability. It claims that this test is superior to a simple limit on the ability to claim economic loss:

"This is a far better method than to arbitrarily cut off any responsibility whatsoever simply because the plaintiffs unfortunately failed to suffer some physical damage along with their economic losses."

Comment: Once again, as the editor commented in connection with the Nuisance item, both opinions are strong on policy conclusions but weak on rationale. Perhaps the editor (thankfully) has been spared having to read so many tort opinions as to be comfortable with this kind of judicial reasoning.

The editor concurs that the absence or presence of physical injury is often a meaningless factor when the question is whether economic losses can be collected. But at least we have a standard that is identifiable. The concept of "particularly foreseeable" versus just "foreseeable" strikes the editor as piling phantom upon phantom. Whether a judge or jury is called upon to make the measure, there is nothing to guide them. This does not strike the editor as leading to a system of just results. This is one reason that the editor just advises his clients to buy insurance and spend money on devices that limit their exposure to tort claims, since the concepts of responsibility and even justice seem to have no certain meaning in modern tort liability systems.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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